Consolidating Debts and Finding the Right Funds

Q. I am 43, single with no children, and do not own a house. My job pays $40,000 before taxes. I have a student loan of $8,000; credit-card debt of $8,000; and a withdrawal from an annuity fund of $7,000. I am having difficulties making payments. How can I get debt consolidation, and how much will it cost me? Will it have a negative impact on my credit, as I am planning to buy a house?

- Name withheld,

Oregon

A. You have time on your side, so go on a "ruthless, tough financial diet to slash your expenses and debts," says Paula Hogan, a financial planner in Milwaukee, Wis.

"Go to a credit counseling service" rather than a "debt-repair" company that offers to fix your debt problems for a fee.

Two national services are Consumer Credit Counseling Service (800-388-2227) and Alliance for Children and Families (800-221-3726.) Call your city's department of social services for a recommendation, or check the Yellow Pages. Counseling services will try to work out a payment plan with creditors. In a few years, you can have your debts behind you, she says.

Q. Reading about the "hedge fund" that almost collapsed recently makes me wonder whether my own mutual funds are safe. What can I do to make certain they are not using unwise hedging strategies?

- W.R.,

New York City

A. Hedging activity practiced by "hedge funds" such as Long-Term Capital Management and that in a typical mutual fund are usually quite different, says Mark Wright, who tracks bond funds for Morningstar Inc. in Chicago.

"Most big hedge funds should not even be called hedge funds," says Mr. Wright. They are really "speculative," or "gambling" funds. They bet on discrepancies between prices of financial instruments, usually taking place in the future. And they often borrow money to add to investors' funds.

By contrast, most mutual funds use modest "hedging" as a way of limiting risk. Thus, they seek to use differences in currency values or bond prices to offset possible losses. The potential losses from that hedging are usually quite small. Still, says Wright, check a fund's prospectus to see if it uses hedging. If so, identify its strategies and risks.

Q. I would like to make certain that any mutual fund I invest in right now is as safe as possible. Are mutual-fund products sold by banks safer than funds sold by mutual-fund companies or through brokerage houses?

- M.B.,

Seattle

A. While bank checking and savings accounts are federally insured, bank mutual-fund products are not. They are also subject to the same market risks and operating expenses as non-bank funds, according to "Chuck Carlson's 60-Second Investor" (McGraw-Hill, $12.95). Read the prospectus before buying into a mutual fund.

Questions about finances? Write:

Guy Halverson

The Christian Science Monitor

500 Fifth Ave., Suite 1845

New York, NY 10110

E-mail: halversong@csps.com