Debt Consolidation Blog

Posts Tagged ‘Financially Overwhelmed’

The Dollar Stretcher Blog
by Gary Foreman

Dear Dollar Stretcher,
My grandson, financially overwhelmed, a corrections oficer in California, is getting paid only 3/4 of his salary due to California’s money problems. He is on sick leave due to injuries to his knee which he probably received on the job but is unable to prove it. He is to have surgery in about two to three weeks. The balance he owes on his house is more than the house is worth. He has two toddlers and his wife is a diabetic, has a pump and been advised not to work outside the home. He also has other debts. He is 32 and has never been in this type of situation. I asked him if he asked anyone for financial advice and he said he wouldn’t know where to go. I would appreciate any information you can give.
Thank you,
L.W.

Sounds like LW’s grandson has a lot on his mind. Sometimes that makes it hard to know where to focus our efforts.

Often it’s helpful to look at problems from different perspectives. We’ll begin by trying to understand each individual problem. Then we’ll look at the big, overall picture.

Based on Grandma’s email we’ll consider the following problems: Grandson’s salary, his health, his wife’s health, other debts, and their upside down home.

Grandson’s salary is likely to stay frozen for quite awhile. It’s public knowledge that California is having a severe budget crunch. So the only way to increase his income would be to find a new higher paying job.

Granddaughter, although not able to work outside the home, might be able to bring in some income. Between her health and the toddlers, work might be impossible. But it’s wise to ask the question. It’s surprising how many people bring in income with small home businesses.

While we don’t know what type of health insurance Grandson has, as a general rule county and state employees have plans that should cover all but deductibles for his surgery.

If he hasn’t already, Grandson should talk to someone in the worker’s comp office. Whether he’s eligible or not, it’s good to know for certain.

As to his home, the fact that he owes more than it’s current value probably isn’t important as long as he can continue to make the payments. Unless he’s planning on selling the house or can’t make payments there’s nothing that he needs to do.

While it may be tempting to walk away from a home that’s worth less than what you owe on it, as long as he can keep up with the payments and isn’t planning on moving he’ll want to stay in the house. Letting the home fall into foreclosure will crater his credit score. And, the bank would have the right to pursue him for any shortage when the home is finally sold. Plus, the amount of the shortfall will be added to his taxable income.

The fact that he has other debts isn’t surprising. Many young families do. But interest going to credit card companies can be especially painful if your finances are tight. Finding some way to repay those debts would be very helpful. If the credit card debt totals more than $10,000 he might want to consider credit counseling. Often then can get the interest rate reduced which makes it easier to pay down the balance.

Now that we’ve looked at each individual issue, we’ll take a look at the whole picture. It could be that when taken all together that a different picture might emerge.

There appears to be two overriding issues. Do they have enough income to support their lifestyle? And, will health issues force any changes?

Let’s begin by comparing income to expenses. If there’s a gap, Grandson will need to make some changes. The first is to increase income or reduce their standard of living. That may not be hard, but it is necessary. Putting it off now will only make it worse later.

If that’s not sufficient to close the gap he’ll need to begin credit counseling and consideration of a short-sale on their home. If that’s still not sufficient, then Grandson may need to consider bankruptcy.

Health issues could have a serious affect on their plans. Consultation with their doctors should give them an idea of whether any lifestyle changes are in their future. This is something that they’ll need to consider on a regular basis.

Grandson doesn’t need to feel overwhelmed by all the different events in his life. Looking at circumstances individually and then taking a ‘big picture’ approach will help him know what actions need to be taken to prevent big problems in the future.

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Gary Foreman is the editor of The Dollar Stretcher.com. Check out their frugal living page and enewsletters including Financial Independence. Financial Independence is designed to walk step-by-step with you as you take control of your finances and achieve financial freedom!

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