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Everyday Cheapskate: Spooky Tales of Extreme Debt

Mary Hunt on

Scary stories and fiendish tales are all part of Halloween fun. But the last thing you expect is for those spooky stories and tricks to be played out in real life.

Debt has become the American way. So has denial. Super high debt levels paired with serious denial can be downright terrifying. While not all debt situations reach critical levels, when they do, the response must be equally severe.

Twenty-four-year-old Kevin has $19,000 of credit card debt, drives a heavily financed fancy $45,000 high-performance car ($580 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 $32,000 annual income. That's extreme debt.

Kevin needs to sell the car, buy a bicycle or a bus pass and get serious about his life. With no new debt and $787 monthly credit-card payments, he could 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 hair cuts and new clothes. Those are 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, private mortgage insurance (PMI) and 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 child care, car payments, credit-card debt and life essentials like food and clothing, and they are digging the equivalent of a financial grave. That's 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? The Lewis' 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. Those are extreme measures.

Meet Patty, who's 61 years old. 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 Patty incurred big medical bills before she could enroll, Patty and her husband went from being financially sound to financially critical in a matter of weeks. That's 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 packed up the papers and walked 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 minus 24 degrees 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." Those are extreme measures!

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Mary invites questions, comments and tips at mary@everydaycheapskate.com, or c/o Everyday Cheapskate, 12340 Seal Beach Blvd., Suite B-416, Seal Beach, CA 90740. This column will answer questions of general interest, but letters cannot be answered individually. Mary Hunt is the founder of www.DebtProofLiving.com, a personal finance member website and the author of "Debt-Proof Living," released in 2014. To find out more about Mary and read her past columns, please visit the Creators Syndicate webpage at www.creators.com.

Copyright 2017 Creators Syndicate Inc.
 

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