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We Tried the Dave Ramsey Snowball Approach But it Got Us Nowhere. – Janet

“Dear Steve,

My husband and I thankfully are still employed. We make about 175K combined per year. We have 52K in credit card debt, and our home has no equity (took out equity to pay off debt about 5 years back…big mistake.)

I used to get large bonuses (and we would pay down debt) however the comp plan has changed. We went to NCCS and they helped us establish a budget, but did not recommend we go on a debt plan (because my auto had 175Kmiles on it, and I needed to purchase a new one. They suggested that we try to settle with credit cards on our own, however I have not had any luck with this. We also have a special needs son, and I lose sleep every night thinking about how he is going to be provided for after we are gone (we only have about 150K in 401K savings…

We can’t seem to get ourselves out from under. We don’t buy new clothes, electronics…we live paycheck to paycheck. We have home repairs (leaking showers, broken fences that we can’t afford to fix. And selling our home is not an option (we would be in the red on the deal as the value has depreciated.)

We tried the Dave Ramsey “snowball”, but we never seem to have any extra money to pay more than the minimum payments on our cards. We are current, however we did have a bad month in Aug and got behind on some of our min payments. We are slowly trying to make it up (to get current) but the credit card companies charge late fees if you have any portion of a past due balance.)

Should we seek bankruptcy advice? We feel that we need to pay back our debt, however when we look at how much we have paid in interest/fees over the past 2 years, it looks like the credit card companies have us right where they want us. (in an unending vicious cycle..) We are a Christian family, and feel that even though we feel that the interest is unfair, we still made the choices to use credit…and should pay for it. What do you recommend?

Janet”

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The Answer

 

Dear Janet,

Thank you so much for submitting your question for me to answer. I appreciate your trust and confidence in me. What I am about to say is solely from my point of view. There is no perfect or one solution for every situation. I think we need to look at your situation from a comprehensive point of view and see if there isn’t a solution that can address the most issues and result in something that will allow you to better move forward with your life from this point.

Now, let’s put aside all the guilty and self-loathing that you may have accumulated as a result of your situation. The conflict between what many preach about what a good Christian should do about finances is often in great conflict with the reality of what people should do. Believe me, I’ve helped my share of ministers, pastors, and priests with their financial problems over the years.

I’m not saying that a solution is going to be anti-Christian, just that you need to carefully evaluate it and because if might be different that what people like Dave Ramsey might say, does not make it wrong. For example, Dave Ramsey is very vocal about bankruptcy being evil or wrong. In fact, that is a position I have written about before and feel his position is not correct. See Dave Ramsey – Bankruptcy Bigot or Personal Finance Saint?.

I’m not trying to slam Dave Ramsey here. I’m just trying to give you a framework that there is more than one way to solve this problem and boxing yourself in with absolute beliefs is not helpful.

So let’s look at your situation. You have some money saved in a 401K, excellent.

You are freaking out about caring for your special needs child, prudent.

You realize that you are one paycheck away from disaster and that the current situation is not sustainable, insightful.

The dilemma that you face is not that you don’t want to repay your debts, but that the minimum payments and penalties are more than you can handle. On $52K of credit card debt your monthly minimum payment is around $1,100 and that does not even include the interest and penalties you are being hit with now.

Your inability to keep up with important house repairs speaks volumes. These repairs are necessary to protect your investment but you are stretched so thin that it is difficult, or impossible, to make these repairs.

Probably the most important question you need to ask yourself is if you have a greater responsibility to repair the past, or the future. The future is the right answer.

I am always amazed that people rail against bankruptcy like you are going to go to Hell for filing bankruptcy. You are not. And there is nothing that says that even if you go bankrupt that you can’t still repay your debts for any moral or religious reason.

In my humble opinion your situation comes down to one of good stewardship and responsibility. The most prudent solution in your situation is not one that begins with self-flagellation. No, the most prudent solution is to address all the issues at one time and then move forward and do a better job.

I think you need to strongly consider downsizing from your current house and look for a rental property. This could be a house but it needs to be something where the landlord is responsible for regular repairs. Owning a home is not just about what the mortgage costs, but all the extras that go along with it. And those add up.

Next, you need to leave that 401(k) money where it is, protected.

Finally, you should consider going bankrupt, and here is why. Bankruptcy will allow you to hand the house back to the bank and discharge your credit card debt. This reduction in obligations will allow you the best and greatest boost in your ability to start saving money each month. You can use part of the savings to repay your creditors on your terms and you can save the rest in a mutual fund or savings account to build up a financial cushion to care for the future needs of your special needs child.

Let me address another common guilt center of your situation. By going bankrupt some will scream that you are violating your promises you made to your creditors. You are somehow now a liar and a cheat. I don’t think that is true at all. Life is about a constant series of dynamic situations and demands. Is the farmer that loses his crop to a flood and then unable to make his mortgage payment a liar or a cheat, or is he one impacted by unforeseen consequences?

Financial and credit agreements are written as absolutes without any consideration of life as it unfolds in front of you. The credit agreement says you need to make this payment every month or else. Life just doesn’t work like that. We have no single idea what tomorrow will bring. it might bring marital uncertainty, accident or illness. We might die in our sleep. Who the hell knows.

But there is another promise that you made, and that is to your son. You have a duty and an obligation to care for him and to protect him. He needs you to harbor him in a good environment, and keep him warm and safe.

The Bible is filled with choices that were made and those choices had consequences that impacted others. Was the impact to others immoral or the breaking of the peace or a lie?

Janet, please do me a favor, find a local bankruptcy attorney for you to go talk to, and there are many Christian bankruptcy attorneys out there as well. After you talk to the attorney don’t feel like you need to make an immediate decision about what to do. Think about it for a few days, pray about it, and then let me know what you decide to do.

Oh yes, the reason the debt snowball approach is not going to work for you is simply because you are stretched beyond your limit and don’t have any money to apply to it to make it work. That approach is not going to do it for you.

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.

Big Hug!

We Tried the Dave Ramsey Snowball Approach But it Got Us Nowhere.   Janet
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P.S. Be sure to read ‘The Secret of Surviving Through Difficult Economic Times. What I Learned On My Journey‘.

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We Tried the Dave Ramsey Snowball Approach But it Got Us Nowhere. - Janet by

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About Steve Rhode

Steve Rhode
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
  • Jackiculv

    this is in response to “no debt plan”‘s unsolicited judgement. there are a lot of ways that the rest of someone’s income can be sucked up, not just by credit card debt. did you skip the part where her son is special needs? you have no clue how much that can cost. also, maybe they have student loans that aren’t part of their debt that they are talking about, maybe that high cost of education is getting them that big income that you say should be enough… i know how she feels because i’m in the same boat. and i don’t have a special needs child. but i do know this, on paper my husband and i should be living large. but we are not. that’s why i’m on this website. our income goes right out the window to tuition for our daughter and son, my student loans, home equity loan, both car payments, insurance… so save your self-righteous comments please. think before you accuse.

  • Justin

    Thanks Steve :)
    “Riding is my church.”
    Love it!I can relate.

  • Justin

    No, actually I haven’t gotten a second opinion yet, being that I’ve burned through all of my vacation days this year on family matters, not enjoyable ones. I will probably look for a second opinion somehow in the near future. The bankruptcy laws seem to be against me, maybe it’s just my viewpoint at this stage of the game. Know any good bankruptcy attorney’s in south Florida?
    PS: How’s the bike doing?

    • http://GetOutOfDebt.org Steve Rhode

      Justin,

      Look for one through http://nacba.org/

      The bike is wonderful. A couple of big trips planned and I’m really looking forward to them. Riding is my church.

      Steve

  • Justin

    OK I can understand a lawyer telling them they need to go chapter 13 because they’re income is too high at $175k a yr. What I don’t understand is when a lawyer tells me that I have to go chap 13 because my making less then $60k a yr is too much to file chap 7. It would be nice if they took into consideration that I have 8 kids (6 under 18) still living at home, and my wife & I to support! I’ve been trying since last June to come up with $500 just to get a retaining fee and start-up package with the lawyer, and have only saved about $20! I drive a long distance to and from work and spend about $250 mo on gas for my car and another $100 for my wives who needs it to take my kid to school. $300 a month on electric, $200 a mo on water/sewage, $1200 mo on food, $1500 a mo on mortgage, orthodontic bills, education expenses and various other unforseen bills make it hard to come up with the cash. I’m sure any income can be justified as too little in the right circumstances, but I’m dying here!
    Other than that Steve, things are fine. :)

    • http://GetOutOfDebt.org Steve Rhode

      Justin,

      I never asked you. Did you ever get a second opinion from another bankruptcy attorney on that answer?

      Loved your last line.

      Steve

  • http://www.nodebtplan.net No Debt Plan

    I am confused here.

    They make $175k per year. Let’s tax that at 35%. That leaves them with $113,750 or $9,479 per month.

    By Debt Guy’s calculations the credit card minimums should be about $1,100 per month.

    Where is the other $8,379 going? Surely your mortgage isn’t more than $2,000 or $2,500 per month?

    I am seeing a huge discount. $175,000 is a TON of money even after being taxed to death on it. I’d like to see the numbers behind the budget — how much is your housing cost, how much is your car, car insurance, home insurance, groceries, entertainment (you shouldn’t have any entertainment costs, you can’t afford it), etc.

    I would love to know how a family is breezing through $9k per month. I don’t want to come off as a harsh guy without a heart… but look at that number. $9,000 per month and you have nothing left over? There is a significant problem somewhere in this math equation.
    .-= No Debt Plan´s last blog ..4 Counter-Intuitive Ideas to Help You Get Out of Debt =-.

    • http://GetOutOfDebt.org Steve Rhode

      You raise some good questions with your comment.

      I hope Janet can respond to answer your concerns and from that, my bet, is that we’ll find that their life, for whatever reason, has expanded to fill all available income.

      Steve

      • Jackiculv

        this is in response to “no debt plan”‘s unsolicited judgement. there are a lot of ways that the rest of someone’s income can be sucked up, not just by credit card debt. did you skip the part where her son is special needs? you have no clue how much that can cost. also, maybe they have student loans that aren’t part of their debt that they are talking about, maybe that high cost of education is getting them that big income that you say should be enough… i know how she feels because i’m in the same boat. and i don’t have a special needs child. but i do know this, on paper my husband and i should be living large. but we are not. that’s why i’m on this website. our income goes right out the window to tuition for our daughter and son, my student loans, home equity loan, both car payments, insurance… so save your self-righteous comments please. think before you accuse.

      • Jtarkm

        Seriously???? Really??? “their life has expanded to fill all available income”?????

        Total b.s.  Grow up. And lose the whole “oh, we feel your pain” crap.  That’s exactly what is wrong with you touchy-feely types.  Get in the real world and quit looking to everyone else to carry your total lack of responsibility!  This is disgusting.

    • Jtarkm

      EXACTLY – this is total b.s.!!!

  • http://www.nunleylaw.com Dan Nunley

    Janet,

    Steve has given you good, sound advice. Listen to him. I am a bankruptcy attorney who also happens to be an ordained minister, and I have counseled many Christians in situations similar to yours. I would suggest that you take a look at some of the posts on my blog such as “Is It A Sin For A Christian To File Bankruptcy?” http://www.oklahoma-bankruptcy-attorney.com/bible-bankruptcy/is-it-a-sin-for-a-christian-to-file-bankruptcy/

    I don’t know enough about the specifics of your situation, but you may have a difficult time qualifying for Chapter 7 bankruptcy due to your healthy income level. If you are unable to pass the Means Test and qualify for Chapter 7, you should consider a Chapter 13 bankruptcy which will immediately stop the high interest, late charges and other penalties the credit card companies charge, and will allow you to pay back what you owe based on a payment that your budget says you can afford as opposed to the payments that the credit card companies demand.

    If you do not know of a knowledgeable, experienced consumer bankruptcy attorney near you, I would suggest that you use the Attorney Finder provided by the National Association of Consumer Bankruptcy Attorneys http://www.nacba.org/attorneyfinder/

    I wish you well.

    Dan Nunley
    http://www.nunleylaw.com

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