Debt has become the American way. So has denial. And super-high debt levels paired with serious denial is becoming almost ubiquitous. While not all debt situations reach critical levels, when they do, the response must be equally severe.
Kevin, 24, has $19,000 credit-card debt, drives a heavily-financed $45,000 fancy high-performance car ($480 monthly payments) and still lives at home because he cannot afford to move out. He can barely afford to eat because in addition to his debt, he pays $2,400 a year for car insurance and $3,000 on gasoline—all on less than $20,000 annual net income. Extreme debt.
Kevin needs to sell the car and buy a bicycle or a bus pass and get serious about his life. With no new debt and $787 monthly debt payments he can be debt-free in 29 months. He must also sell all of his toys and expensive gadgets, pack his lunch every day, and stop spending on anything that is not absolutely essential, including poker, $50 haircuts and new clothes. Extreme measures.
The Lewis family bought the home of their dreams eight years ago. In order to get the bigger model, the great floor plan and upgrades on all amenities, they opted for creative financing. Their highly leveraged, variable rate mortgage, together with private mortgage insurance (PMI) and a home equity line of credit they picked up two years later, eat up nearly 60 percent of their net two-paycheck household income. Add on childcare, car payments, credit-card debt and life essentials like food and clothing and they are digging the equivalent of a financial grave. Extreme debt.
The Lewis’ must sit down, take one big collective deep breath and get serious about their lives. What is really important? Is it square footage, granite counters and fancy appliances or is it spending time with the kids and the freedom to take the weekend off and enjoy their lives? This family needs to plant a For Sale sign (yes, even in this market) in the front yard today. They cannot afford this home. Period. It’s time to pare down and pack up. Extreme measures.
Meet Patty, 61. Everything was going great until her husband suddenly lost his job along with their health insurance. Patty arranged to enroll in her employer’s plan during the next open season which would commence just four weeks hence. And that’s when she got very ill.
Because she incurred big medical bills before she could enroll, Patty and her husband went from being financially sound to critical in a matter of weeks. Extreme medical debt.
As soon as Patty was back on her feet, she took on a side job. A paper route. Every morning at 3 a.m. Patty picks up the papers and walks her route, carefully placing a newspaper at the front door of each of her customers. Patty lives in Montana where the weather is often severe. So far her coldest morning has been -24 F. She receives $327 net per month—all of which goes straight to the debt.
“It’s not that bad,” said Patty. “I’m getting a lot of exercise and I’m thankful for the additional income.” Essential measures.
Question: What extreme measures have you put in place to conquer your extreme debt? Tell us in the comments here.