Dear Bruce: I have a 1997 Honda Civic that has seen better days. I still owe $2,000, but it may not last much longer. My credit is poor, and I'm upside down with this car loan. Should I think about trading it in for a newer, previously owned model? How do I avoid owing more than the car is worth? — R.A., via e-mail

Dear R.A.: Unhappily, the only way to avoid this dilemma is to keep the car long enough and pay off the loan. If you trade it in, you'll be further upside down — that is incontrovertible. The best advice at this moment would be to nurse your 10-year-old automobile and make whatever repairs are necessary — unless they are catastrophic — to keep the thing on the road. Your poor credit and upside-down situation will dictate a high interest rate if a loan is even available at all. You can't borrow yourself into prosperity — and continuous refinancing will only bring more debt.

Dear Bruce: I am 84 years old. I plan to sell my three-bedroom home for $175,000 and invest the proceeds in safe government bonds. My monthly income is $1,400. Would it be wise to buy or rent a small two-bedroom house, rent a two-bedroom apartment or buy a condo? My girls asked me not to buy a condo, which could be difficult to sell, in case the need for a nursing home arises at some point. The girls are helpful at present. I would appreciate your suggestions to help me make a wise decision at this stage of life. — B.P. in Florida

Dear B.P.: Selling the home is very likely a good idea, although your timing could be better — the real estate market in Florida is in a state of flux. While prices have dropped considerably, they have decreased from unrealistic levels, so the drop is not as severe when considered in that context. I don't see any reason for you to buy a condo or rent a small house. Why tie up your capital in a condo? I am also wondering why you need a two-bedroom apartment, which just results in extra costs.

As to the investments: In your position, government bonds are absolutely safe, which allows you to sleep tight at night; that strategy makes sense. You have to consider the cost of living in your present house — taxes, insurance, upkeep, etc. There are lots of folks in Florida who have property on the market without taking into account the rather substantial diminishment in value; they will be looking at the "for sale" sign for a long, long time.

Dear Bruce: I am preparing to go through mediation with the insurance company for workers' compensation for medical benefits. They would like to get rid of me and, of course, I would like to get out of having to deal with them. Should I accept a settlement of cash and invest the money, or should I put the money into an annuity (which will pay enough to cover my monthly medical expenses over my lifetime)? — X.D., via e-mail

Dear X.D.: You must consider a number of variables before making a decision. The first one, of course, is the interest rate on the annuity option. If converted, what would your monthly payment be? Upon your demise, would the annuity decease or would there be some payment to your survivors? You didn't mention age, but obviously the older you are, the higher the annuity payment — especially when considering it would recapture its investment eventually. On balance, I would prefer to invest the cash myself. If you use the money for some other purpose, it is your right to do so. Furthermore, the money is yours to become part of your estate.

In general, an annuity is a good thing for those who have little financial acumen and/or discipline. But if you have the ability to invest and the discipline to handle funds correctly, the cash option likely will work to your advantage.

Dear Bruce: I retired early at age 62 to care for my husband, who is 70 and disabled. I need to roll over my 401(k), which is worth about $200,000, and a financial adviser suggested an index annuity with deferred sales charges on a 10-year program, going from 9 percent to 0 percent. I forgot to ask about additional fees. I am trying to earn enough from a home-based business so that I don't have to use any of it for at least a few years, because our Social Security isn't enough. I have an emergency fund set aside in a money market in case the home business doesn't make money. Under what circumstances is an annuity a proper purchase? — R.H. in Michigan

Dear R.H.: I can't imagine why there would be any good reason — other than the commission to be earned by the "financial adviser/insurance salesman" — for this type of expense. You have a significant period of time where your $200,000 can work in a self-directed IRA at your discretion, without any immediate tax impact. If you need to get at your money, you will be paying a substantial penalty, and the 9 percent to 0 percent would put you at age 72 before you reach the bottom. There may be other fees as well. If you need the money, you can withdraw (without penalty) only the appropriate taxes in the aforementioned self-directed IRA. I can't think of any circumstance, given the little I know of you, where an annuity makes any sense whatsoever — except to the salesperson.

— Send your questions to: Smart Money, P.O. Box 2095, Elfers, FL 34680. E-mail to: bruce@brucewilliams.com.