We speak about the perils of debt quite often on this blog and when I try to share my concerns with people it falls on deaf ears. Or in other cases I’m told “don’t worry about the national, state or county level debt everything will be fine” and “the creditors aren’t coming to take back our municipalities, possessions, and the like”. We are always told to take off the tinfoil hat, stop being alarmist…we don’t know what we are talking about…fine!
I want to share a story of an acquaintance of mine who lives his life with this same attitude about his own debt!
This guy is married with 2 kids; both of whom have hereditary health issues…first question is why have another kid if you know the issues are hereditary? Any who. They own a house near a golf course and own two new very nice cars; one a pickup truck and the other a Mercedes.
They also are the proud owners of $75k in credit card debt. Combined they bring in $7,500 a month, which is a very solid middle class income and should support such a lifestyle. However they have been doing nothing but keeping up with the “Joneses,” more on this later.
Sensing that he was in trouble, he asked for help from an organization for which I volunteer. I was tasked to visit him and evaluate whether a onetime gift of $2,000 would make a difference. I rolled my sleeves up and put my finance background and degree to work.
What I found was shocking. This guy took keeping up with the Joneses to a whole new level. In fact, I think the Joneses would have a hard time keeping up with this family! His house is pristine with every upgrade possible; granite counter tops, marble floors, top notch security system, I was in awe! I actually thought I was at the wrong house at first. I went over his expenses with him and the picture finally came into focus. Their expenses–mortgage, car payments and incidentals–totaled almost $6,200k a month. Keep in mind this is making only a minimum payment on the credit cards, so in essence the balance was growing each month. This guy and his family are on a debt treadmill and sadly they were about to fall off.
First recommendation, let’s sell the house. This guy and his wife both commute almost an hour each direction for work! Easy solution right? However, they are upside down by over $100k–even in today’s environment where housing prices are sky high. (I think there is/was a consolidation loan here). As a result, they are stuck in a house way above there means, but ok…moving on.
Let’s sell those cars. Who needs $900 a month in payments? You don’t need a brand new truck or a Mercedes just to get to work. But he can’t do that either because both loans are 7 years and the cars have nil value as far as a trade in goes…high mileage. What they need is an economical vehicle, one where they can forgo the expensive full coverage insurance. (As an agent by trade, I estimate economy vehicles run about $300 a month to insure).
Next, I brought up food expenses…$1K a month, that’s a lot of eating out, regardless of whether it’s a chain restaurant or fast food that is a lot of money. He didn’t want to make changes here either. So I looked next at the incidentals and said ditch the cable and security system, again resistance. I said you live near a golf course, you don’t need a security system, and this one was top of the line, think all remote controlled by your Alexa device, and every square inch of the place covered by cameras, almost as if it was an illegal marijuana grow. The cable thing I do not get one bit, it’s actually becoming a thing to cut the cord…oh well.
After looking at different options, it hit me that he had no intention of righting the ship. However, my appointed task was completed. I now needed to sign paperwork which determined if he could apply for a one-time grant of $2,000 to help with his situation.
As I contemplated this man’s situation, I was reminded of a quote from Dean Warner from Animal House “Being fat, drunk, and stupid is no way to go through life son.” In this man’s case, drunk refers to his debts. He is drunk on debt and the worst part; his wife and kids are unaware that there’s even a problem. Yes you read that right! He is on his second marriage and this one looks all but lost.
He claims that he is 100% reliant on this one-time grant to “help with his payments.” This is false. This money is just enough to kick the can past Christmas and hope in the future that a miracle happens. This guy doesn’t want help. He, like a growing number of voters in this country, want their debts wiped out…a clean start…a new slate. A fresh new start so he can spend again…but he doesn’t want bankruptcy or the consequences that come with it.
This is part of a larger problem in America today, we run our lives just like our Government. We spend money we do not have and make a minimum payment every month. By doing that we lie to ourselves, saying we paid our bills this month. We live in the moment without a plan for the future. In this family’s case, I hate to say it but a diet is not going to help. This family needs a significant lifestyle change. Their debt needs to be handled and living outside of their means must cease ASAP.
How would I handle this issue if it was me? Easy. Ditch the cable, security system, and other unnecessary add-ons. This will free up about $900, at least in my estimation. The $1,000 on food…cut that in half at least, decide you like ramen noodles and quit going out to eat. Start brown bagging it at lunch and cut out the fast food. That should amount to about $1,400 or so in extra cash. Use this money to start immediately paying down that credit card debt. Trade in both cars and get a couple economical rides that have higher mileage. You need to unload the car payments and high insurance bill. As far as your house goes, look at it as most people view an economy hotel, a place to lay your head and serve as a dwelling, not a place to entertain people. Frankly no one cares about your marble, granite, or anything else, it’s not medieval times and you don’t live in a castle. Learn how to do yard work so you can ditch the gardener, ditto for the housekeeper. Take a look at the Cadillac cell phone plan and get something cheaper. Oh, I bet that’s under long-term contract too.
Most importantly you need to sit down and have a review with your wife, she needs to know the situation. Be honest and have a plan that will work, more on that in a second. The short term disappointment she has in you will be ok in the long run because she has to know you were living a lie. Truth be told, you can’t afford a divorce so there is that. As far as attacking the debt goes, start with the lowest amount owed and pay that down first, then move to the next one. Try calling the lenders and try to negotiate a lower interest rate or something. Burn the phones finding anyway to cut your expenses, however stick to your plan, as credit card/cable/security companies love to try to talk you out of it, actually they have entire departments of commissioned associates dedicated to it. Put about $1K in a savings account for emergencies.
Cut up your credit cards. Do not put them away for “emergencies.” With your track record, you need to get rid of them, they got you into this mess. Oh, FYI birthdays and Christmas are not “emergencies.” Then find a non-profit debt consultant or watch some Dave Ramsey and Suze Orman videos on YouTube. Find somebody to hold you accountable. The biggest problem is you both have champagne taste on a beer budget. The climb out of this is not easy and will not be fun but it’s doable. Need vs Want?!?!?!?!?!?! Know/learn the difference.
Final point: as far as keeping up with the Joneses goes, remember this, the Joneses are most likely in the same shoes as you; spending money they do not have, trying to impress people they probably do not like, on stuff they don’t need. Stop treating your life like your fantasy football team. No one cares about your possessions just like they don’t care about your team.
I think you know my decision on giving him the $2K.
Editor’s note: Johnnie Does is spot-on with this article. My wife and I attended Dave Ramsey’s Financial Peace University five years ago. Since then we’ve paid over $100K in debt (not including our mortgage). This only works if both people in the marriage are committed to getting debt free but it is really worth it.