QUESTION: Ken’s wife has just gone back to school, and they have to get student loans. They also have an interest-only loan on their home. Should they pay that off and take out the student loans? Or should they focus their finances on paying cash for school first? What about refinancing?
ANSWER: The first rule for getting out of debt is to stop borrowing more. The second rule is to start working on the debts you already have. You have to draw a line and say you’re not using debt for anything for any reason.
When you start working on your current debts, you have to start with the smallest and work your way up to the biggest debt you have.
You should refinance your home to get rid of the adjustable rate and to get it to a 15-year fixed rate loan. Then you should pay off your $1,500 student loan, finish your fully-funded emergency savings, and continue on with the Baby Steps.
QUESTION: Kristin asks if hospitals will take settlements for medical bills.
ANSWER: Most past-due bills will take a settlement and medical bills will usually take a settlement for pennies on the dollar since they’ve gotten most of their money from the insurance companies. Go to them with the $1,000 you still owe them, tell them you’ve got $250, and they’ll most likely take it. Just make sure you get the settlement agreement in writing.
QUESTION: Melissa and her husband have $135,000 in consumer debt. They owe $60,000 on their cars. They also have several home equity loans. What can they do to attack the debt? What if they can’t get another home equity loan to pay for the amount that they’re upside down with the cars?
ANSWER: Sell the cars and that will get eliminate $60,000 of your debt. You don’t have to get a home equity line to free up the car loans – just a small personal loan.
Being out of debt has to mean more to you than owning a car.
QUESTION: Rebecca wants to pay off debt using her husband’s $300,000 trust fund, but he doesn’t want to touch the money. He wants to use it for their kids’ college education. What should they do with the trust fund money?
ANSWER: You’ve got more than enough to pay off your debt and fund your kids’ college education and that’s what you should do.
The only problem is that you have a bad set of money habits. If you use the trust money and keep your old habits, you’ll be right back where you were before you got the trust fund. You need to go through Financial Peace University and apply new money habits that will change your family tree for good.