Q. We would like to purchase a new home, and I need to reduce monthly payments. I have over $20,000 of credit card debt, making monthly payments around $1,000 per month, paying 2.9 percent currently. I am not increasing my debt monthly.

I have a handful of stocks purchased over the last few years. The total value of the stocks is about $25,000. I do not believe I will ever get back to a break-even point on these stocks. Would selling the stock, reducing my debt, and having the loss write off on my taxes would make good sense? (I have already re-financed my home at 6 percent and my car loans are 0 percent interest. In addition, we have college funds for both kids, contribute monthly to our 401k's, and have adequate life insurance.)

--- S.M., by e-mail


A. Before you get too enthusiastic about realizing stock market losses, remember the limitations. You can always deduct capital losses against capital gains but you can't take more than $3,000 a year in capital losses against earned income. That said, your idea sounds like a good one.  There aren't very many proposals for debt reduction that I don't like.

Before you blast ahead take a close look at which debt payoff will help you most in your quest for a new house. The car loans may be at zero percent interest but they still have monthly payments.

It's the monthly payments--- not the interest rate--- that your friendly mortgage lender cares about. Have too much in monthly payments and your "back end" ratio will be high, reducing the amount you can borrow for a home mortgage.

For prudent debt management purposes, the best course of action is to eliminate the credit card debt and your possible exposure to higher interest rates. To optimize your borrowing power, eliminating a car payment may do more.

Another thing you should do is check whether you're fooling yourself about your credit card use. If you are still using the credit cards and are putting $900 of new charges on each month, you're not reducing the debt.

I suggest going through your statements for six months. See how your total charges compare with your total payments. If the numbers are nearly equal, you're treading debt, not paying it down. Slip once, and your friendly credit card company will have you paying 18 percent interest.

To eliminate this debt in five years you need to make a monthly payment equal to your new charges plus $358. To eliminate the debt in three years increase the additional payment to new charges plus $581.


Q. I retired at year-end 2003 (at 57 yrs), and my husband plans to retire in another year (at 55). While an employee, I participated in my company's Group Universal Life Insurance.  As a retiree, I am allowed to continue to participate on the same basis as if I were an employee, until I turn 70.  The premiums are $200/month, for a policy worth five times my annual salary.  If I terminate my participation, I am not eligible to re-enroll, although I can choose to reduce my coverage.  This insurance pays a death benefit only; there is no cash surrender value associated with it.

We have no children, our house is paid for, we have no outstanding debts, and we have made investments we believe will provide sufficient annuities for a comfortable but certainly not lavish retirement.  My former employer provides the same medical/dental insurance to retirees as it does for employees, although there is no guarantee that will continue in the future.

My husband believes we could better use the $200 a month we are currently spending for life insurance. My purpose in holding on to the life insurance policy is to ensure that he is not financially wiped out if I develop an expensive disease such as cancer (my father died at 51 of cancer, and my mother at 78 of cancer, so I think it's probably part of my genetic inheritance). Can you please provide some guidance on our smartest course of action--keep the insurance policy, or use that money for x-y-z options?

----D.R., by e-mail


A.  I'd bet heavy money that you could get more life insurance for less money if you buy an individual policy. I say this assuming that you are a normal risk. By this I mean that your blood pressure and weight are normal, you don't smoke, your cholesterol is within limits, and you're not a sky diver or NASCAR driver on weekends.

The reason you can often get individual insurance for less than company offered group insurance is that you have to qualify for individual insurance. Company offered group policies have no enrollment restrictions. As a consequence they are priced to accommodate what actuaries call "adverse selection." Many of the people participating will participate because corporate group insurance is the only life insurance they can get--- because they are poor risks.

You didn't say how much life insurance you got for $200 a month. But it would have to be a bunch to make it a good deal compared to what you can get on your own.

Visiting www.insure.com, for instance, I found that a 57 year old woman with a good personal health history but a family history of cancer could get $250,000 of level term life insurance for 10 years at a monthly premium of about $53. It was about $75 for 15 years of level term coverage and about $100 for 20 years. Since your company coverage ends in 13 years, when you turn 70, the most appropriate comparison is the 15-year level term.