Common questions about finances, answered.

By Eric Messinger
Greg Clarke

Dilemma: Use a credit card or use a debit card?

What to do: Use a credit card and gain its rewards as long as you pay it off every month. If you have trouble sticking to your budget or controlling your purchases, use a debit card. The money will come directly out of your checking account, and you won't be inflating your credit-card balance.)

Dilemma: Opt for the budget plan with your electric, oil, or gas company or take your chances with the month-by-month plan?

What to do: The budget plan (also called a prepay or level plan) is generally the recommended option. Under a typical prepay plan, you are charged the same fixed rate every month based on factors such as past usage and weather patterns. In other words, you'll more or less know what your costs are for the year, despite variables in your usage month to month. However, make sure your plan doesn't come with surcharges or cancellation fees. 

Dilemma: Have your payments automatically withdrawn from your checking account or write checks for bills yourself?

What to do: Using automatic bill pay from your checking account is a great idea, especially if you have a chronic problem paying bills on time. "Given all the penalty fees you incur each time you pay late, the automatic-withdrawal option may save you hundreds of dollars a year," says Evelyn Zohlen, president of Inspired Financial, in Garden Grove, California. 

Dilemma: Get a credit card with a high interest rate but a lot of perks or one with a low rate and no perks?

What to do: Most people are better off with a low rate. The perks don't justify the risk of incurring debts at the higher interest rate. If you rarely miss a payment and don't incur interest charges, then by all means enjoy the free trips. Otherwise, says Longo, "go with the low-rate card and buy your own plane ticket."

Dilemma: Sell stocks to pay off your credit-card balance or whittle your balance down month by month?

What to do: Sell the stock to get rid of the credit-card debt. Even if you have great stocks, chances are they are not going to be returning more money than you're paying in interest on your credit card. Do try to negotiate a lower interest rate on your credit card, but unless you're sure the incurred interest is less than the return on your stocks, sell. But remember: You're borrowing from your future, so once you're debt-free, pay yourself back.

Dilemma: Use spare cash to pay off credit cards or invest some extra money in your 401(k)?

What to do: Put as much money into your 401(k) as the company will match, and only then focus on credit-card debt. To do otherwise "would be like leaving cash on the table," says Zohlen. "A match is free money." Again, try to renegotiate your credit card's rate, or transfer the debt to a new card with little or no interest. If your company doesn't have a 401(k) matching program, pay off your credit cards before investing in any retirement savings plan.

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