By Suze Orman
Financial decisions are often no-brainers. (Do you really have to think about whether it's smarter to buy the pricey car of your dreams or opt for a cheaper model and put the leftover money in savings?) But sometimes you're faced with two less-than-ideal options, and choosing the wrong one could mean digging yourself into a deeper hole. For each of the tricky situations that follow, see if you can figure out the better of two not-so-great alternatives.
The Choice: Withdraw money from a Roth IRA or take out a loan from a traditional 401(k)
Withdrawing contributions made to your Roth means you forfeit the opportunity to let that part of your investment grow over time, but it doesn't trigger penalties or taxes. A 401(k) loan is more problematic: If you lose your job, you must repay any outstanding loans quickly; otherwise, they can be treated as early withdrawals and subject to taxes as well as a penalty if you're under 59½. While you're focused on repaying our loan, it's likely you'll have to reduce future contributions—that's no way to build retirement security.
The Better Bet: Roth IRA
The Choice: Fall behind on student loans or on credit card minimum
Credit card companies can hit you with hefty fees and raise your interest rates if you don't pay at least the minimum amount due on your bill. But if you're delinquent on your student loans, your wages can be garnished and the government can intercept your tax refund. Plus, if you were forced to declare bankruptcy, your credit card balances might be forgiven, but your student loan debt (in most cases) would not.
The Better Bet: Credit card
The Choice: Replace a broken refrigerator by tapping an emergency fund or signing up for a store credit card
A store credit card is such a dangerous come-on. By signing up for one, you might save 10 to 20 percent on a purchase or earn bonus rewards. But you could also find yourself in hot water if you fail to pay your bill in full and on time: Store cards often charge 25 percent interest on unpaid balances—around 10 percentage points above the average rate for most credit cards. Plus, opening another line of credit isn't likely to improve your credit score if you don't have enough money to pay the entire balance every month.
The Better Bet: Emergency fund
The Choice: Take Social Security benefits at age 62 or tap retirement savings sooner than expected
Collect Social Security at 67—full retirement age for anyone born after 1959—rather than at 62, and your monthly benefit will be 30 percent larger. (Just think about how difficult it would be to earn a return like that on any investment without taking on significant risk.) Until your Social Security checks arrive, offset any financial drain on your retirement by getting a part-time job, if possible, or draw on your retirement savings.
The Better Bet: Retirement savings
The Choice: Don't contribute to a 401(k), even though your company provides matching funds, or make only the minimum payment on a credit card.
You may not be able to swing more than minimum payments right now, but you can never afford to pass up free money. Many employers offer a 50 percent match on contributions, up to a certain limit. Let's say you put 6 percent of your salary in a 401(k). Your employer will kick in another 3 percent, which will make your overall contribution 9 percent and give you an immediate 50 percent return on your money. Plus that money will continue to grow over time.
The Better Bet: Credit card
Suze Orman's latest book is The Money Class: How to Stand in Your Truth and Create the Future You Deserve (Spiegel & Grau.)