Editor's note: Suze Orman answered your questions on AC360° tonight. Here are the questions and her advice.
Anderson Cooper: The Dow's climb on Wall Street finishing up 485 after yesterday's record loss of 778. The Senate is supposed to vote on a bailout plan tomorrow night. Suze Orman is here to answer your questions on the wild ride. The bill the Senate will vote on tomorrow night will raise from $100,000 to $250,000 the amount the FDIC will protect in a bank. What does that mean? Is that a good thing?
Suze Orman: It's a good thing in that people don't have to go to more and different banks if they have more than $100,000. Does that help the little people? Who has $50,000? Maybe they have $50,000 in credit card debt. Very little people we're talking about that will affect. For large banks and large businesses, it makes it easier for them to meet their payroll by dealing with one bank.
Anderson: We have a ton of questions on the website. John writes,
I'm 28 years old with no credit card or student loan debt, my condo is paid off, I have a great job. Should I be taking advantage of the great deals you discussed on your website yesterday?
Suze: Yes, my dear John, of course he should be taking advantage of it. He doesn't have to use his money to get out of debt. How does he take advantage? How do you take advantage of what's going on here?
Suze: Very simple. Continue every single month, keep putting your money in the market in something giving you a good dividend, exchange traded fund, like the dvys that buy the Dow Jones industrial average. You can get a 4.7% yield, if you do it in little amounts of money over a long term, you will be fine. If you have a big amount of money and put it all in one lump sum you will be making one of the biggest mistakes.
Julie: Is it a total mistake to take out my husband’s $70,000 401k to pay off our credit cards? We have 3 kids in college and have racked up debt which now hurts! We want to start over and WON’T do it again! I have around $100,000 in my 401k which will stay put.
Suze: Are you kidding? You are not to touch a penny in your 401(k). Why? Number one, when you take it out, if you're not of age, 59 1/2 years of age, what's going to happen? You will pay not only ordinary income taxes on it, but you're going to pay a 10% penalty as well. The $70,000 you have in there or $100,000, all said and done, you will have $50,000. What are you doing? You will be taking out the money while everything is low here. Don't you dare touchit. And here's the other thing to remember 401(k)s are protected against bankruptcy. So are retirement accounts. If you ever have to claim bankruptcy, keep the money in the 401(k), don't use it to pay off credit card debt.
Chelsea: I am 14, and I graduate High School in 2012. What can I do right now to ensure I can get a (college) loan, and will organizations and colleges become stingier with scholarships?
Suze: I'm not sure there's anything you can do to guarantee you will get a student loan except this, go out there and talk everybody to and in my opinion, tell them, why don't we pass something like this bill so we can free up money so it will be easier for people to lend you money when you need it.
Dee: We use two credit cards and pay off the balance in full each month. Our credit history is impeccable. I am hearing that our credit card companies may reduce our lines of credit thus lowering our FICO score. Is this true and why would the companies do this?
Suze: They're doing it because they don't want you to use your credit card, run up these lines of credit and all of a sudden say, sorry, I can't pay you back. Credit cards will be lowering the lines of credit, home equity lines of credit will be taken away from many of you. That will increase your debt to credit-limit ratio, 30% of your FICO score and your FICO score will go down and will hurt you and then what happens? Your car insurance premiums will go up. Is that true? It is.
Sandra: I currently bank with a local credit union. The bank is NCUA and ASI insured. Do I have the same security as a FDIC insured institution?
Suze: You absolutely do, don't worry about it.
Tonaka: In light of the economic crisis, I am very concerned for my parents, who are both receiving Social Security benefits. In a worse case scenario, would they continue to receive these benefits?
Suze: They will continue to receive social security benefits. Does social security have problems for many of us years to come? It does. You know what, let's get through today before we worry about our social security of tomorrow.
Anderson: Also, a lot of people wrote to me today, tou said in the past, if you're in it for ten years in the stock market, it's the best investment. In 1998, Dow Jones was at 7632. Yesterday, down almost 800 points. Wouldn't it have been better for someone to be in municipal bonds getting 5%?
Suze: It could, yes. Who could predict what's going to happen. If you had known back then, should you have been in municipal bonds at 5% tax rate? Possibly, but here's the thing. I went back for almost ten years. If you put money in the Standard & Poor's 500 index, you would be up on your money today if you did it every single month even though the market is far lower today than it was back then.