Overwhelmed by Medical
Jewel wants to take money out of her 401(k) to pay off some credit card debt and medical bills. She's only receiving $1,090 a month from Social Security. Dave thinks it will be tight, but it's probably a good plan.
QUESTION: Jewel in San Antonio wants to take money out of her 401(k) to pay off some credit card debt and medical bills. She suffered a heart attack last year, which shut her kidneys down. She’s getting her life back on track, but the bills are overwhelming her. She’s only receiving $1,090 a month from Social Security. Dave thinks it will be tight, but it’s probably a good plan.
ANSWER: You’re going to have to set your budget to live on $1,000 a month, but without medical bills and credit card debt, you can probably pull that off if you’re very careful. It sounds like you’ve got this on the run. It’s going to be very tight for you. Having $1,000 is certainly not a lot of wiggle room. You have to be very careful with your written budget to live on that and stay on that.
But it sounds like you’ve addressed the medical bills and credit card debt. You just don’t have any wiggle room because you have no savings at this stage. The trick is to cut up those credit cards and never touch another card for the rest of your life. You can’t pay it, and since you can’t pay it, if you were to borrow money on a credit card knowing that you can’t pay it, that’s like stealing. You can’t borrow any more money ever because you don’t have the ability to repay it.
If your car breaks down in the meantime, you are stuck until someone helps you fix the car or you save enough money to fix it. After you pay everything off, quickly start building an emergency fund as quickly as you can out of your income and also any money left from the 401(k). Your next big goal after paying off this debt is to build up a rainy day fund as fast as you can and as big as you can.
I think you’re doing a very good job with as limited as your resources are. The good news is that this is giving you some peace with these steps you are taking.