Making It Through Medical Leave

Dave doesn't want Crystal to fund her medical leave with the plan she has in mind.

QUESTION: Crystal in Maryland has been on medical leave. The doctor advised her to take leave for another seven months, which will be without pay. She wants to know if they should take the money out of their 401(k) in order to make it through. Her husband makes $75,000 a year and they owe $40,000 on their cars. What advice does Dave give her?

Dave's ANSWER: What you've figured out is that you can’t borrow your way out of this hole. You keep digging out the bottom of a hole, and it keeps getting deeper. We have to fix the core issue, which is that your income has dropped and you have to cut your lifestyle down to your income level.

The cars have to go. You have to sell them, especially the $30,000 car. A $30,000 car on a $75,000 income when you are talking about borrowing from your 401(k) means you have no wiggle room in your life, and you need to create some. You have to drop the hammer on this $30,000 car; it was dumb when you bought it.

If this $30,000 car is worth $19,000, you’ll have to sell it. You have to do some things like that to clean up the mess. When you tell me you have $40,000 in car debt and earn $75,000 a year, immediately I see where your problem is. But you have to look at some things to get your lifestyle down to his income until you are able to work again. Even then, there’s no reason to raise your lifestyle up to your income.