Financial Q&A: Readers' money questions answered

Why credit-counseling is only part of the solution to debt woes

Q: Is it worthwhile to consult a credit-counseling agency in order to lower monthly payments on major credit cards? Some aspersions have been cast on these agencies as being less than helpful. I enjoy a good credit rating but find the monthly payments, including service charges, to be burdensome. As a retiree, I'd like to work toward a "pay as you go" method.
A.W., via e-mail

A: Credit-counseling agencies typically work with people whose finances have gotten the better of them. That certainly includes bills on credit cards. Their solution often involves canceling the card and paying off the remaining debt over time, which may be at a reduced interest rate that the agency is able to negotiate with the card issuer.

But you may find it helpful to talk to the credit-card companies directly about lowering their fees, suggests Vince Clanton, a certified financial planner in Atlanta.

But ultimately, getting your spending under control is a better solution, he says. Fewer purchases will allow you to lower and then eliminate the revolving debt of your credit cards.

At that point, you can pay your credit-card balances in full as they become due, he says.

Q: I have been retired for 3-1/2 years. My wife still has about 3 years to go before she retires. I have a defined benefit pension, Social Security, a Roth IRA, and a regular IRA. Can I open a spousal Roth IRA based on my wife's earnings?

R.C., Lincoln, Calif.

A: The short answer is no. But Omaha-based financial planner Terry K. Headley thinks that your wife might be eligible to fund a Roth IRA.

Any person, regardless of age, may contribute to a Roth IRA if he or she has earned income.

Individuals with only passive income, such as a defined benefit plan, Social Security, or funds in any investment account, wouldn't be eligible, Mr. Headley says.

But your wife earns income and would therefore be eligible to open a Roth. Assuming your wife is age 50 or older and that your household adjusted gross income does not exceed $156,000, she can contribute up to $5,000 in 2007 into such an account.

As an alternative, you may want to invest in nonqualified fixed income and equity mutual funds, immediate and deferred annuities, or other savings options, Headley says. But it's important to take into account such factors as time horizon, risk tolerance, and your goals during the golden years of your retirement.

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