Your Questions: Student Loans, Home Offices

Our personal finance contributor answers listener questions about student loans, adoption tax credits and paying for a home office.

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MADELEINE BRAND, host:

From NPR News, it's DAY TO DAY.

ALEX CHADWICK, host:

Joining us now, DAY TO DAY personal finance contributor Michelle Singletary. Michelle, welcome back.

MICHELLE SINGLETARY: Thank you.

CHADWICK: And we have listener questions again and the first is from a small business proprietor who says she's a sole proprietor currently renting a small space somewhere. She wants to bring the business home to avoid paying rent - that makes sense. No place big enough in the current house, so she and her husband have decided to look for a bigger place. My father-in-law is willing to lend us money to do this. I planned to pay him back for my business earnings. How do I account for this loan on our mortgage application?

SINGLETARY: That's a very good question, and in fact I checked with some mortgage brokers on this. Lots of folks who felt want to do this under the table, but it's important to disclose this because debt is calculated and how much they'll going to lend you. And if you got a loan on a side that you have to pay back and you get this other loan, you may be over-leveraged. And they need to know this because they could jeopardize their loan, and in this case, the home which is collateral for the bank. So, if I were the father-in-law, I'd want it on the books and I want him get a loan agreement…

CHADWICK: Sure.

SINGLETARY: …in writing to protect him as well.

BRAND: Hi, Michelle. It's Madeleine…

SINGLETARY: Hi.

BRAND: …with another listener question. And this listener writes, I've started my first real job. I'm ready to enroll in the 401(k) plan, so, you know, that's good, good intentions there. I have $50,000 worth of student loans and I am very overwhelmed. How should I handle this? And then a related question, just in case you can't get all the answers, how do I find a financial adviser?

SINGLETARY: This is going to sound a little counterintuitive to what I usually recommend which is definitely do your 401(k) plan, put money in your retirement plan but with $50,000 in student loans, I would have this person spend the first couple years of their real job, trying to get rid of that debt.

Now there's a caveat to that. If the company matches what she put it in to whatever percentage, then put in enough to get the company match. Then anything above that that you might have put in a 401(k) attack that student loan debt.

And lastly, the question about the financial planner. It's a good way for this person to go. I'd recommend that they look for one at the National Association of Personal Financial Advisers. The Web address is very easy to remember. It's the feeonly.org.

BRAND: Here's a related follow-up question to that, I have. And let's say you're someone who has a substantial amount of debt, be it student loan or otherwise, would you recommend cashing in some of your 401(k) and taking the penalty to pay off that debt?

SINGLETARY: Absolutely not. Absolutely not. Depending on what income brackets you are in, you're going to take a major hit on that money. But I'd, you know, rarely, unless you lost your job, you're about to be put out on the street -would I recommend that you cash in your retirement money to pay off consumer debt.

CHADWICK: Another listener about to complete an adoption this year. Currently, you know, the tax code offers a tax credit for adoption fees, but this listener hears there maybe a change in that. Have you heard that?

SINGLETARY: What they might be worried about is that this is one of those tax changes that are scheduled to sunset in 2010. But for right now, for the next couple of years, if they're going to be adopting, the credit is still there.

CHADWICK: Michelle Singletary, her latest book is "Your Money and Your Man: How You and Prince Charming Can Spend Well and Live Rich." She's our regular guest for conversations on personal finance.

Michelle, thanks.

SINGLETARY: Your welcome.

BRAND: And if you have a money question, Michelle would be happy to hear it. To send letters, go to our Web site, npr.org, and click on the Contact Us link. That's at the top of every page. And be sure to include Michelle in your subject line.

(Soundbite of music)

BRAND: Stay with us. DAY TO DAY returns in a moment.

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