Q. Can you help? I have a mortgage balance of $73,500 at 7.875 percent. It is an adjustable rate mortgage that started at 6.5 percent in early 1994. The house is appraised, for taxes, at $117,000. I also have credit card debt of about $29,000 and payments of about $748. I make $75,000 a year.

Should I refinance and roll in the $29,000. Then buy a new house later?

Should I buy a new house for about $170,000, using the equity left after paying off the credit card debt? (We need a larger house for our growing family.)

Should I buy a new house with profit from the sale of the current house and roll in the credit card debt? Can you even roll in credit card debt?

Do you have any other suggestions?

---D.W., by e-mail

  

A. Can you roll in credit card debt? Is this America? Of course you can. If the advertisements in some states are correct you can borrow up to 125 percent of the price of your new house.

The problem is that no matter what you do you'll be trying to stretch a single bed blanket over a double bed--- something isn't going to be covered. After selling expenses your equity will be about $36,000. This isn't enough to eliminate your credit card debt AND make a reasonable down payment on a new home. After paying off the credit card debt you'll only have about $7,000 left to cover the costs of moving, closing, and a down payment.

While you can do this if you shop long enough and hard enough, chances are you will pay a stiff premium on the mortgage rate--- one that might bump you up against the monthly payment limits of your income.

My suggestion: concentrate on paying off the credit card debt. This would include exploring low cost ways to refinance your current house. A 95 percent loan on a $117,000 value would be $111,000. That, in turn, is $37,000 of new borrowing, more than enough to pay off the credit card debt and cover the cost of refinancing. You could think of the money you take away from the transaction, after all expenses and debt payoffs, as the only real equity you have for a future home purchase--- so fight to keep as much as possible.

Now consider this transaction another way. If refinancing your current house can eliminate all your current credit card payments, you can afford the monthly payment on a 15-year mortgage and extra payments to pay the loan off still faster. Your regular payment, some extra payments, and a good real estate market could put you in a position to buy another house in two or three years. How fast you do it will depend on how much you pay down the new mortgage--- and how well you avoid new consumer debt.

    

Q. There are legions of advisers to tell us how to save and invest for retirement. Is there a summary of rules and recommendations to best plan and execute the process of distribution of the money from IRAs, 401Ks, etc. which will emerge as taxable events?

---D.C., Dallas, TX

  

A. Wouldn't that be wonderful? Even more than income taxes, qualified plan distributions are subject to so many combinations of circumstances and "if-then" statements that it is difficult to generalize with any safety. The recent tax law changes made planning even more uncertain. This, more than investment advice, is where a good financial planner brings a lot to the table.

One surprising and counter-intuitive generalization comes from Howard Evensky, a Miami based financial planner. Doing a variety of wealth and estate distribution studies, Evensky concluded that we were almost always better off seeking a maximum period of accumulation in tax-deferred plans. The taxes we paid might be higher but the distributions to heirs were also higher.

That means most people should use ordinary savings to suppress qualified account withdrawals and reduce income taxes when we are retired. If this was true under the old estate tax law, it will be even truer in the future if unrealized capital gains are taxed at death.