MADELEINE BRAND, host:
The troubled economy has people asking a lot of questions about their personal finances, and some of those questions find their way to our mailbox for Michelle Singletary. She is Day to Day's Personal Finance Contributor.
BRAND: Michelle, here's a question we received. Please give me advice on how to get the reverse mortgage company to work with me on resolving my deceased mother's reversed mortgage. And this listener goes on to write, the company will not send me copies of the papers my mother filled out, so I can see what was borrowed, and so that I can pay this mortgage back; and they have been rude. This has been a terrible experience. Please help.
MICHELLE SINGLETARY: Reverse mortgages are fairly new products. They are available to seniors, 62 years or older, who can pull equity out of their house without moving, and they don't have to pay this loan back until either they move from the house or pass away. Now, with a reverse mortgage, the bank does not own title to the house. The senior remains the titleholder, and the family can pay the loan off and retain the house, or sell it and use the proceeds from the house to pay off the loan. I would advise this listener to file a complaint with their state banking office, or the state's attorney's office, because that bank has to deal with the person authorized to hand over her mother's estate. They must do that, and also contact the Federal Trade Commission, to see if they can get this lender to do what they're supposed to do.
BRAND: All right. Here's another listener question. I'm 22 years old. I have 11,000 dollars in federal student loan debt, and about 4,000 dollars in credit card debt. In the fall I'll be starting medical school, and I'm considering buying a home or a condo. I'm tempted based on the lower home prices, but it seems I'll be overstretching. I'll be living for the next four years on more federal loans. Is it worth it to buy a home now, or should I rent and focus on the credit debt?
SINGLETARY: Don't buy this house. This person has got so much going on. This is not the time to plunge into being a homeowner. Anyone who owns a home knows how expensive it can be, and you've got to have a cash reserve for the things that happen when you own a home. So, I would say do what you can to limit your borrowing in medical school, and rent right now. There'll be houses available for you when the time comes and you are rid of a lot of this debt.
BRAND: OK, here's another question. My husband and I just got another home equity line of credit, and we used it to pay off our credit card debt. We are about to have our second and final baby and, after my maternity leave, we planned to aggressively start repaying that loan. Is this the wisest way to spend our money? We invest a very small amount in a 401K. We have small cash savings. We also have student loan debt and modest car payments. We'll need a bigger house in a few years. Whew, it's a lot! How should we prioritize our financial goals?
SINGLETARY: The first thing, I would never use home equity to pay off credit card debt, because what you're doing is taking unsecured debt and making it secure. So, you are putting your house on the line for credit card purchases, many of which you probably can't even remember. I would take the debt that has the lowest balance, pay that off aggressively, and then move to the next debt with the lowest balance. Ignore interest rates. Psychologically, it helps people dig out of the hole faster when they can get rid of debt fast. And then stay where you are, even if it's a little crowded, until you can clear up this, and then move forward and think about getting another house.
BRAND: Thanks, Michelle.
SINGLETARY: You're welcome.
BRAND: That's Michelle Singletary. She's Day to Day's Personal Finance Contributor, and if you have questions for Michelle you can ask them by going to our website, npr.org/daytoday. Click on the contact us link and be sure to put Michelle in the subject line.
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