Dave Says

Tuesday, November 20, 2007 at 3:04am

Dear Dave,

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?

— Tony

Dear Tony,

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!

—Dave

Dear Dave,

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?

— Lori

Dear Lori,

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.

— Dave

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Filed under: City Business
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By: HokeyPokey on 12/31/69 at 6:00

Hello Dave, how are you? I am fine.Listen, Dave, I'm a bit concerned about this direction you're going and what it says about you, OK?The American Economy is built on a principle of unlimited growth, a limitless future and Manifest Destiny. That Economy requires consumers to buy without ceasing. These investments into the Economy require fortitude, judgment and credit, lots of it.All that pays off because the increased collected value of the Economy eventually pays off its own debt leading to bluer skies and limitless horizons.Dave, you're trying to put the skids on the Economy by preaching to people that they should not invest in it using freely available Credit.Dave, why do you hate America?

By: Blanketnazi2 on 12/31/69 at 6:00

LOL, Hokey!

By: jwk6179 on 12/31/69 at 6:00

Why do most of these letters to "Dave Says" sound so familar? It sounds like Dave Ramsey and his staff are using the same 5 or 6 letters over and over, just changing the names and a fact or two to make it sound different. Isn't that one of the things he was booted from the Tennessean for? If these letters are from real people and are not made up by him and his staff, why does he leave the city from where the letter writer is from on there?

By: Truthby on 12/31/69 at 6:00

Tony I appreciate your honesty and openess. Others are offering some excellent advice here. You and your wife are still young. You make a lot of money. I wouldn't file bankruptcy. Concentrate on paying the highest interest expense first which is probably the credit cards. Work two jobs if you can. Cut everything from your life that is not essential-food, water, shelter. If you have to sell and move into a smaller house, that is OK. It may help to save you some money. But if you are going to lose money, you may want to hold out. Cutting up the cards was smart. Work together with your wife. Try not to fight and get emotional. Keep your eye on the ball and cut back where you need to. I always pay my credit cards of in full each month.

By: WickedTribe on 12/31/69 at 6:00

I don't even know why Tony is writing. The only thing I can see that they might need to do is refinance the house. Since they don't give any hint what their monthly mortgage payment is, the remaining principle to pay off tells us next to nothing.It could have been a $500,000 house with a $4000 a month mortgage payment, or it could be a $143,000 house with a $1000 a month mortgage payment. Huge difference one way or the other.But aside from the unknown factor of the mortgage payment, I don't see anything for them to worry about. $70,000 per year is more than enough to cover the debt listed there comfortably. That is however assuming they're not leaving something out such as two $30,000 cars still financed, etc.

By: idgaf on 12/31/69 at 6:00

By: Truthby on 11/20/07 Concentrate on paying the highest interest expense first which is probably the credit cards. Work two jobs if you can. Cut everything from your life that is not essential-food, water, shelter. ********************************Better advice then dave.I hate when he tells them to pay off the lowest bill first rather then the highest interest rate to get the most bang out of their bucks.I know a girl that took advantage of the free or low interest offers from other credit card companies to knock down the balance lickety split. Just have to pay attention when they go up and switch them over.

By: Nashvols111 on 12/31/69 at 6:00

Dave gives bad advise on home purchasing also. He talks about buying within limits of a certain percentage of income, and usually that is fine. But if that certain percentage of income puts you in the ghetto and you child hangs out with a bunch of thugs, Dave is not concered with that possibility. Dave is entertainment, not always a truth teller. Be aware and take a look at all angles before just accepting advice.

By: idgaf on 12/31/69 at 6:00

Another is selling an upside, down car that you bought new to buy someone elses headache that you don't know if it was taken care of.My advice to a new couple that needs two cars is to buy new every 5 years and trading in the 10 year old, preferably at the end of the year when you can get a deal.

By: grinningdutchman on 12/31/69 at 6:00

If anyone is really serious about getting good financial advice, I'd suggest listening to Clark Howard's radio show or website. The advice is much more practical and realistic, and Howard has mch more knowledge--book smarts as well as "street smarts