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The Budget Doctor Q&A

Question: I get paid every two weeks. My mortgage is automatically deducted bi-weekly, about 3 days after I get paid. Just like the past several months, by the time I've decided which bills I can afford to pay and which will need to be late (to avoid $25 overdraft charges on my bank account), there isn't enough left...and it's about 13 days before I get paid again. I've also got two dogs that need life-saving treatment at about $400 a week. I have pet insurance that covers nearly all of that but it takes 3 weeks to get the insurance claim reimbursement. I've never been in a situation like this and I can't see any light at the end of the tunnel. What resources are available to help me cut my monthly credit card payments (debt of about $40,000) and be able to start saving at least $100 a month? I have no savings at this time and my credit cards are all maxed out.

Answer: Thanks for writing. Your situation is much like most Americans; you are spending more than you make by using credit cards as though they were found money. The short answer is to call Take Charge America at 800-823-7396 (or another reputable credit counseling firm with no Better Business Bureau problems) and find out if you qualify for a debt management plan. About 35% of callers do qualify and they get some relief from some creditors, although the plan they have to follow is difficult. Folks that don’t qualify either:

1. Have too much money to qualify and just need budget advice, or
2. Are in so deep that there is no realistic way to pay off the debt in a five year period. These folks are advised to see an attorney.

The longer answer is to develop a budget and follow it. That means writing down your income and your expenses. If your expenses are greater than your income, you need to lower the expenses and/or increase your income. This means making choices. You may have described your problem already. If you have two sickly dogs you are paying the insurance plus food, toys, licenses and all the other pet costs. Most people would have to sacrifice in some other area to afford this.

Do you have an inexpensive car and no payment? Do you have a modest home and furnishings? Do you have a very small entertainment budget? Do you eat at home? Somewhere in your budget there is a key to success. You need to find it and act on it. It will probably be painful and it will probably take you at least as long to get out of debt as it took to get in debt. Of course it may be that you live very modestly and can’t earn any more than you do. If that is the case, you may have to ask yourself if you can afford to own two sickly dogs. Perhaps there are animal protection societies in your area that could care for one or both. Or there may be local groups that provide free medical care to animals. And there are groups that provide help to people. Start with any local social service firm and ask to see a counselor.

I don’t know of anyone that will take over $40,000 in credit card debt, but many credit card companies will put you on a hardship plan if you explain your problem. DO NOT take out a second mortgage or home equity loan to pay on your cards. If your income is less than $80,000 a year there is a definite chance that bankruptcy will be your best option. You do not want to risk losing your home.

Without knowing more particulars about your income, expenses, age and other factors, I can only guess about a good course of action but I know you need to create a budget and ask for help.

Good luck! The Budget Doctor