Dave Ramsey, Money Answer Man

Author, Radio Host On Stay-At-Home Moms, Pension Money, Grandfather With Debts

(CBS)  The Early Show viewers with financial questions can turn to money maven Dave Ramsey for answers.

The author and radio host had some Tuesday on how high a family's income needs to be for a woman to stay at home with the kids, where to invest pension proceeds, and helping a grandfather who finds himself deep in debt.

LETTER 1
Tonya would like to become a stay-at-home mom. She writes: "WHAT SHOULD MY HUSBAND AND I CONSIDER BEFORE DECIDING IF I CAN AFFORD TO STAY AT HOME?"

Ramsey points out that you actually have to make pretty good money to be able to be a working parent: The costs of daycare, work clothing, and "convenience foods" such as lunch out and prepared dinners really add up. When you stay home, a lot of these costs disappear.

If you want to stay home, Ramsey suggests trying to live only on your partner's income (minus the cost of daycare, which can still come from your income if needed) for a few months. This will give you both an idea of what it would be like financially if you did quit working, and would enable you to prove to yourselves that you can do it.

Ramsey finds that there are a lot of working moms who would really like to stay at home and, often, there is only a car payment standing between them and the life they want.

"Don't trade a car for a kid," Ramsey warns.

Put it this way: Most couples realize they are willing to cut their lifestyles in order to live on one income. Ramsey suggests selling the car and buying a used one that you can pay for up front. See if there are other big bills or expenses you are willing to forgo.

Remember, you don't have to be debt-free to quit working. As long as you are working toward paying off your debts and managing your other financial responsibilities, don't feel guilty about becoming a stay at home parent.

LETTER 2
Jennifer, a 50-year-old retiree in Texas writes, "I HAVE A $38,000 PENSION AND WANT TO PUT THE MONEY SOMEWHERE SAFE. I AM NOT A GAMBLER. WHAT DO YOU SUGGEST?

Ramsey's immediate response is that she deserves congratulations. She's doing two things that are important: saving money, and paying attention to where her money is headed. This puts her ahead of many people her age!

Upon leaving their jobs, most workers are allowed to take their pension or 401(k) and deposit the money wherever they please. Ramsey always recommends rolling it directly into a traditional IRA, because you won't pay any taxes on the money. If you roll it into a Roth IRA, you will immediately have to pay a large amount of taxes.

You want to put your money into growth stock mutual funds, funds that have a long track record of success. That track record is what should give Jennifer the confidence that her money is "somewhere safe." The term "growth stock" might make Jennifer a little nervous. It sounds a bit risky. However, Ramsey notes, there are two types of risk, both equally harmful. The first is the obvious: investing your money in a super-aggressive stock, etc., where you stand to lose it all. The second is putting your money somewhere so solid that you don't lose it, but it's eaten by inflation. Over time, you wind up losing your money with this option, too.

"This type of risk tackles you from behind, because you are not running fast enough," Ramsey explained.

If, like Jennifer, you have over $10,000 to invest, consider spreading your money over different types of funds, such as growth, growth and income, balanced and international. This will further insure that your money is "somewhere safe."

LETTER 3
Our last letter is from a young woman named Christy, who writes. "MY GRANDFATHER HAS A CREDIT CARD DEBT OF $7,532. THE INTEREST RATE IS 26 PERCENT. HE CAN'T AFFORD THIS, AND WON'T PAY IT BEFORE HE DIES. HELP!"

Ramsey is seeing more older people burdened with debt like Christy's grandfather, and he receives similar inquiries once or twice a week now.

Basically, Christy has two questions. First, is she liable for her grandfather's debt when he dies? The answer is no. However, credit card companies often try to tell relatives they will be responsible for the debt, so they may as well go ahead and pay it now. That's a lie, so don't buy it.

"The credit card company simply won't get paid," Ramsey said. "That's what they deserve for lending him money like this in the first place."

It sounds as though this man has been paying his bill faithfully, so why is the rate so high?

Says Ramsey: simply because it can be! The credit card companies have the power to raise rates whenever they please, and only the aggressive customers tend to fight such changes. This means the people who can least afford a high interest rate — the uneducated, the elderly, those in high debt — are the ones suffering.

That lead to Christy's second question, Ramsey said, which is how should she handle her grandfather's debt right now, while he's alive? One thing she certainly should NOT do is make any payments on the debt herself. Ramsey encourages people in this situation to call the credit card company and play hardball.

"Demand a lower rate so he can continue to make some payments, or simply tell the company that you are going to stop paying completely because he'll never pay it all off. Explain the situation and force them to deal with it."