My wife and I are both 30, and we’re afraid we may have to file bankruptcy. We make $70,000 a year, have a credit card debt of $23,000, a home with a $143,000 balance, $10,000 in student loans and $5,000 in medical expenses. We’ve cut up the cards, but things look pretty bad and we’re thinking about selling the house. Are we bankrupt, Dave?
First of all, you’re not bankrupt. But I’m afraid you will be if don’t makes some changes and fast!
If you guys aren’t living off a monthly budget, get busy today and put one into place. Turn off the television tonight, sit down together and give every dollar a name on paper. Making a budget really is that simple. It’s just telling your money where to go ahead of time instead of looking back and wondering where it went. You guys have a pretty good income, and if you’ll follow a plan you can be out from under all this mess in less than two years.
This is obviously starting to matter to you guys. Otherwise, you wouldn’t have taken the time to write about it all. The great motivator Les Brown once said that people change their lives when they come to a place where they say, “I’ve had it!” So, if you’re sick of this mess and determined to clean it up, then you WILL get out of debt. It won’t matter if it means giving up a few luxuries or delivering pizza at night. You won’t care what anybody else thinks. You’ll just do it!
After you get your budget in place, put $1,000 for your emergency fund in the bank as soon as possible. Don’t touch it for anything except legitimate emergencies, and this doesn’t mean debt! Then, let’s start rolling the debt snowball, paying off your debts from smallest to largest. First, make minimum payments on all but the medical expenses, and scrape together as much as you can to knock that one out fast.
Next, take the money you were paying toward the medical expenses and bundle it with whatever else you can pull together and go after the student loans. Then do the same thing with the credit card debt. After that you can fully-fund your emergency fund with three to six months of expenses, begin investing 15 percent of your household income into Roth IRAs and other pre-tax retirement vehicles, and look toward college funding if any kiddos come along and paying off your home early.
You guys can win if you just have a plan. Get focused, get intense and knock out this debt!
We adopted our disabled foster child about a year ago. This little girl has spina bifida, epilepsy and cerebral palsy. We don’t want the older kids to feel that they’ll be financially responsible for her when we’re no longer around.
We’d like to put together a special needs trust, but we don’t know the best way to fund something like that. We’ve also heard of an insurance policy that pays after the second parent dies. Would you recommend using that?
A trust is a really good idea for this baby. I’d recommend funding it with a term life insurance policy to start. They’re very affordable. Then, you can switch the funding – once you’ve built up enough cash – over to a mutual fund.
I wouldn’t take out a Second-to-Die policy. They’re usually tied to a cash-value program, and you need to stay away from those at all costs. Cash-value insurance is a horrible investment tool!
I can tell you love this little girl very much, Lori. By taking the steps we’re talking about, you can make sure she’s taken care of for the rest of her life.
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