What comes first: savings or debt payoff?

Dear Liz: Should I pay off my debts before I start my emergency fund savings?

Answer: It’s smart to put at least a few hundred dollars in the bank before you begin to pay down your debts. That way, if you face a small financial setback, you can tap your emergency fund and not have to add to your debt. But it doesn’t make sense to wait until you have several months’ worth of expenses saved before you pay debt, because that can take years to accomplish and you’d pay a fortune in interest in the meantime.

Garnishments are taking food off this family’s table

Dear Liz: Do you have any advice for a family of six with only $200 a month to spend on food? My wife and I are in dire need of advice, as our bills keep increasing but neither of us has gotten a raise in six years. We have two garnishments on our paychecks that effectively take 50% of what we make. After health insurance and 401(k) loans are deducted, we bring home $2,000 a month. Our rent takes $1,400 of that and utilities take most of the rest. Do you have any miracle advice for us?

Answer: Many families are facing your dilemma: flat incomes with rising costs. But your wage garnishments and 401(k) loans indicate you have a history of mismanaging your money, which has led to even more pain.

You need the advice of an experienced bankruptcy attorney. Wage garnishments by federal law aren’t supposed to exceed 25% of your disposable income, and state laws often provide even lower limits. If you can get your garnishments adjusted or have them wiped out in a bankruptcy filing, you may be able to create more breathing room.

In the meantime, see whether you qualify for the federal government’s Supplemental Nutrition Assistance Program (formerly known as food stamps). If you make too much money or have too much in assets to qualify, you can still visit a food bank to supplement what you’re able to buy.

If you can’t find a way to lower your costs further, the only solution is more income — not an easy prospect given the high unemployment rate, but you may be able to find a job at a competing business that pays more or start a business on the side.

Unfortunately, there are no miracles when it comes to money math. You can’t make two plus two equal five or have outgo that exceeds your income without eventual disaster.

No credit cards? You may not get the best rates

Dear Liz: I recently got a loan to buy a new car, but my bank refused to give me its best, 1.5% interest rate and I was forced to take a 2.25% rate. My credit scores are in the mid-700s, but the bank denied me its best rate because I have no revolving credit. I haven’t had credit cards for over 20 years. I have bank accounts and installment loans, including a 20-year loan I paid off in two years and a 30-year loan that was paid off in less than five years. Since when is it a law that I have to have credit cards, and why should I be discriminated against for not using revolving credit? It should be against the law (and probably is) to force me to use revolving credit cards when I do not wish to, and suffer a higher rate if I don’t.

Answer: Lenders aren’t required to give you their best rates because you think you deserve them. They are allowed to use reasonable criteria to judge your creditworthiness, which can include credit scoring formulas — and those typically reward people for having and using different types of credit (credit cards as well as installment loans). You can have good scores using only one type of credit, but the best scores are typically reserved for credit reports that have both.

The good news is that you don’t have to carry credit card debt to have great credit scores. Using two or three cards lightly and paying them off in full each month is the best way, both for your scores and your pocketbook.

Massive debts mean gambling is more than a “habit”

Dear Liz: I have a terrible habit. I’ve been clean and sober for 24 years now, but I’m a gambler. I’m in debt over $100,000. Yes, it’s bad, but it used to be worse: I owed $204,000 to banks, loan sharks, family members, you name it. In the last seven years I’ve been able to cut the debt in half, but when I’m done paying off the debt I’ll be 62 with no savings and no 401(k) plan. I’ll get a pension from my work of about $3,400 a month and $1,400 from Social Security. I’m afraid $4,800 a month will not be enough for me. Is there anything I could do now to make things better?

Answer: You don’t have a habit. You have an addiction. And it’s not clear you’re dealing with it, since you refer to yourself in the present tense as a gambler. If you’re still gambling, all your efforts to pay off your debt and build a financially secure future for yourself are likely to be pointless. Although $4,800 a month is more than most people have in retirement, you’re right that it won’t be enough to feed your addiction.

If you haven’t already, check out Gamblers Anonymous, a 12-step program based on the principles of Alcoholics Anonymous.

Anyone who wants to build a retirement fund can contribute to an individual retirement account (IRA) or Roth IRA, as long as the person or the spouse has earned income. You can contribute up to $5,000 a year if you’re under 50, or $6,000 if you’re older.

Incomes don’t count in credit scores

Dear Liz: I have high student loan debt. When I pull my FICO scores from Equifax and TransUnion, the only thing that’s keeping my scores low is that I have a 99% debt-to-income ratio on my student loans. The length of credit history and payment history are fine. I have two credit cards and I use 20% or less of the credit limits, paying in full every month, but I still have mediocre scores of 620 to 680. What to do in this situation?

Answer: Income is not a factor in calculating your FICO credit scores, so your debt-to-income ratio wouldn’t affect your scores. What you may be referring to is your credit utilization — how much of your available credit you’re using. While high utilization of credit cards and other revolving accounts can hurt your scores, it’s unlikely that high balances on installment accounts would be enough of a negative to make your scores so low.

What you need to do is pull your credit reports and examine them closely to see what’s wrong. You may have late payments or collection accounts you don’t know about, or you could be the victim of identity theft.