We've Made Some Big Mistakes. How Can We Clean Up the Mess?

Sandy's husband had an ATV accident a few years ago. They were both in-between jobs at the time and had no insurance. They still have $20,000 in medical bills to pay, in addition to $8,000 in credit card debt. Dave tells them where to start in order to clean up the mess.

QUESTION: Sandy’s husband broke a few ribs and his collarbone a few years ago when he flipped their ATV. He’s fine now, but they still have $20,000 in medical bills because they were both between jobs when the accident occurred and did not have medical coverage. They also have two credit cards, one with a $1,000 balance and the other a $7,000 balance. Sandy says they only have $200 a month they can put toward debt, and she asks Dave where to start.

ANSWER: I call it stupid tax anytime I do something stupid that costs me money. You’ve got a real pile of stupid tax here, Sandy. Not having health insurance at any time of your life qualifies, regardless of being between jobs or not. Ouch, what a mess!

You didn’t tell me your income, but I will tell you a couple of things. Number one, you’re probably going to have to get your income up. You may have to take on a couple of part-time jobs or get some overtime. My grandmother used to say, “There’s a great place to go when you’re broke — to work!” If you only have $200 a month to put toward your debt, you’ve got to create some margin, and that may be on the income side of the equation.

The other thing I’ve found is this: People can find money magically when they feel like it’s life or death. “Magically” means that you do a budget. You do a written game plan where every dollar has a name before the month begins. When you write down every dollar, and you and your husband sit down and agree on where every dollar is going to go before the month begins, you’re going to have an ah-ha moment that feels like you got a raise. You waste a bunch of money, because you’re normal if you don’t do a written plan. And normal pretty much sucks.

So here’s the deal. Every dollar has a name before the month begins. You’re going to feel like you got a raise, and you don’t need to see the inside of a restaurant unless you’re working there. Don’t talk to me about a vacation, and please don’t talk to me about buying anything that is not necessity based. You have a mess on your hands. See, when you start living with a scorched earth idea — beans and rice, rice and beans — you’re going to find a lot more than $200 in your budget. That’s what I’m telling you. And on top of that, you have a new part-time job to create extra income or you’re picking up overtime to create extra income. Boom! As soon as you do that, guess what? There’s even more margin.

I’m thinking if you’re pretty typical, we just turned your $200 into $1,200. And when we do that, we’re going to make $28,000 in debt go away in about two years. That’s my prediction for you, Sandy, if you fit typical case studies of people we work with. I did not prescribe anything easy. It’s going to be hard, and all I can promise you is it’s going to work and it’s going to be worth it.