DD wrote to me through the GetOutOfDebt.org site and asked the following question. If you have a credit or debt question you’d like to ask just use the online form. I’m happy to help you totally for free.
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“Hi Steve,
My son and his wife are having alot of probelms. My son, can’t work for awhile do to his health, He has Crohn’s diesease and a seizure disorder. They do have a condo, which is an interest only deal…My question is, they have $5000 on credit cards, and they plan to pay it with savings. He will need that money to buy health insurance, etc. What should he do? Pay it or is their a way he can lower the interest? My son asked me to write you, because he is too weak right now. He is in a Crohn’s flare up and has been having alot of seizures.
Thank you in advance for your help
DD”
The Answer:
Dear DD,
I think the real issue here is what the near and mid future look like for him. Draining cash from savings to use to make credit card payments does not make much sense. It drains assets that can’t be easily replaced at this time to pay a bill that won’t resolve the situation.
The most important payment to make would be to continue his health insurance so that he is not excluded from getting a new policy which will probably exclude coverage for his Chron’s disease and seizure disorder.
The interest only condo loan is probably a stinker. One of those adjustable rate loans that was issued in the past five years or so that are defaulting all around us because the payments go way up.
Just looking into my crystal ball I would predict that his financial situation will get worse before it gets better and that he should stop making any payments if there is no income coming in to meet those obligations. I would be surprised if he actually had enough cash in savings to keep himself going and paying bills for six months or more. If he does, let me know in the comments below. That might change my advice.
Medical issues are the single largest reason why people get into financial trouble and bankruptcy will probably be needed to clear up the resulting unmanageable debt. But he still has more debt to accumulate through his recovery so let’s let it build and file bankruptcy once he can see a light on the other side and get back to work.
The downside is that once he starts missing payments his credit will be shot and debt collectors will start calling. Just tell them what is going on, don’t let them stress you out, and let the debts flow through the normal process. If a time comes that he is not feeling better and he has been sued by one of his creditors, tell him to contact me for more help.
Please update me on your progress by posting updates here in the comments section of your question. I’m very interested in how this works out for you.
P.S. Be sure to read ‘The Secret of Surviving Through Difficult Economic Times. What I Learned On My Journey‘.