AARP Financial Ambassador and TV personality Jean Chatzky joined me recently to discuss her 'six tips for your money in an uncertain economy'- from how to create a financial road map, tips for refinancing your debt, how to diversify your tax load, steps you must take to lower the amount of debt you owe to purchasing life insurance and much more!
Candace Rose: According to AARP, The Federal Reserve recently revealed that from 2007-2010 the wealth of the average American family plunged by 40%. What can families do to recover from this alarming statistic?
Jean Chatzky: "I put together a six step plan for AARP.org in my role as their new financial ambassador, and the first thing that you can do is make a road map. You need a plan that tells you how much you need for retirement so you can figure out how much to save on a regular basis in order to get there. There are a lot of different retirement calculators on the internet that can help you come up with these numbers or you can sit down with a financial advisor and you can pull those things together."
Candace Rose: And when it comes to refinancing our debts in this economy, how should one go about doing so?
Jean Chatzky: "The first thing that you need to understand is what's your credit score? Where is it? Is it good? If it is in that good or excellent range- 720 and above you want to lock into low interest rates across the board, which means not only refinancing your mortgage, but your car loan, any student loans, and any credit cards you want to transfer those balances to zero percent cards. If your score is not great, then chances are you're not going to qualify for those bottom of the barrel rates. So I would take six months and really work on the credit score- pay your bills on time, pay down some debt and then go ahead and refinance your debts."
Candace Rose: Is it possible for someone with a good credit score, but is on a fixed income to refinance their mortgage?
Jean Chatzky: "Oh, absolutely. As long as your mortgage is enough to qualify for that loan."
Candace Rose: How should one go about diversifying their tax load?
Jean Chatzky: "You want to make sure that the money that you are putting away for retirement is in the sort of accounts that enable you to pay taxes not just at the end of the road, but also when you put the money in which means you want a mix of Roth and traditional IRA's because there are people out there that believe the taxes are just going up in the future. And if that proves to be the case, you're better off with your Roth dollars where you pay the taxes now rather than at retirement."
Candace Rose: When someone's trying to pay off their debt, how much should they pay additionally (on a monthly basis)?
Jean Chatzky: "As much as you can. And I know that's a very difficult answer, but it all comes back to budgeting. It comes back to tracking your spending and figuring out how much you can free up to throw against those debts. If you go through the process of refinancing your interest rates as we talked about, every dollar that you free up, every dollar that's no longer going to a credit card monthly payment because your interest rate is lower, you can then take and use to and plow ahead on those debts. Pay down the debts in order of the highest interest rate first; that will get you out of debt fastest and cheapest."
Candace Rose: What advice do you have for those looking to purchase or reevaluate their life insurance?
Jean Chatzky: "Think about how much money, not only you but your spouse is going to need in retirement. We've always thought that getting rid of your life insurance was the aim as you headed toward retirement because you would have saved enough for retirement. You would have paid off your mortgage; you wouldn't have the need for that amount of money. Well, in real life that hasn't proven to be the case across the board. A lot of people refinance their mortgages and they have mortgages that extend into retirement. You want to give your spouse the opportunity to pay off those loans and you may need to maintain that life insurance in order to do it."
Candace Rose: Do you have any additional tips or information you'd like to share with viewers?