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On money

Debt tips are fine; discipline is better

By HELEN HUNTLEY
Published May 1, 2005

Here's news with a twist of irony: MasterCard International plans to tell us how to get out of debt. The credit card company last week announced a multiyear "Debt Know How" program.

"MasterCard has a long-term commitment to provide those in debt with the tools to get out," said Patrick Dwyer, vice president for consumer affairs.

Nowhere does the press release mention that the first step should be to stop using your MasterCard.

A debt education campaign is a fine idea. I'm all for warning consumers about the perils of late charges, fine print and how making only the minimum payment will leave you indentured for decades.

But most people who have run up huge credit card debts know how credit cards work. Lack of information is not their real problem.

Consumers get themselves in credit card trouble because their desire to fulfill needs and wants is stronger than their ability to resist temptation. That, of course, is the very thing credit card companies try to exploit with their marketing. A good life with your loved ones is priceless and "for everything else, there's MasterCard."

Credit card companies send out about 5-billion solicitations each year and don't seem to mind approving applications for the very young, the unemployed, the hopelessly in debt and the recently bankrupt. It's no wonder we're carrying $800-billion in credit card debt and college students graduate thousands of dollars in debt.

If you're one of the unfortunate many making minimum payments or not even that, don't wait for MasterCard to come to your rescue with an interactive Web site. Unless you want to file for bankruptcy, which is about to get a lot more difficult, there's only one reasonable path out of trouble: Spend less than your income and make debt repayment a priority.

Getting serious about debt requires changing your lifestyle to free cash for debt repayment. It also means adhering to that cliche known as the first law of holes: If you find yourself in a self-dug hole, you have to stop digging. Cut up the MasterCard.

If you can commit to those principles, you will put yourself in a position where MasterCard's debt-management tips might be useful. You'll need a goal (like paying off your debt in three years) and a plan that translates that goal into a series of steps you'll take. And like successful dieting, living within your means is something you'll have to commit to for life unless you want to end up in debt trouble again.

I have $170,000 in a money market account that I am considering using to pay cash for real estate, planning to turn it over at a short-term profit. My concern is that the real estate bubble will burst and my short term will become long term. Is there a safer investment with reasonable profit to recommend over real estate?

It is risky to go into real estate expecting it to be a short-term investment. Nobody can tell you what prices will do in the short term, but high transaction costs mean prices must appreciate for you to break even. Real estate can take a long time to sell if the market hits a soft spot or if you are holding out for a good price. However, it is obvious that many people can and do make money in real estate, especially if it is priced right and in a good location.

Unfortunately, there is no high-yielding safe alternative. All investments have risks of one sort or another. Some years stocks do better than real estate and some years they do worse. That's why prudent investors diversify, investing their money across several different types of assets, such as stocks, bonds, cash and real estate.

My husband and I have wills, powers of attorney and living wills - all done legally by an attorney. However, a relative says we need a trust. What is it and do we need it?

A trust is a document creating a legal entity to hold your assets. Once you've titled your assets in the name of the trust, it becomes the owner and its terms govern what happens to those assets. A trust is particularly useful if you own real estate out of state, if you have a very large estate (more than $1.5-million) or if you had children with someone other than your spouse and want to be sure they aren't cut out of your estate.

Ask your lawyer if a trust is a good idea for you.

Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, send it to On Money. We'll try to answer those we think are of greatest reader interest. All questions must be submitted in writing, but readers' names will not be published. Send questions to huntley@sptimes.com or Helen Huntley, Times, P.O. Box 1121, St. Petersburg, FL 33731.

[Last modified August 24, 2005, 15:43:02]