Diane has a host of financial worries. At age 49, she’s been out of work since January, and she’s been trying to make ends meet. Her expenses are cut down to the bone, and she has credit card debt to contend with.
“To get my ‘alive’ credit card balance down or totally paid off and then possibly canceling it. And get my other ‘dead’ credit card paid off totally,” she says. “Also, to start saving.”
There was a time when she saved, but she cashed out her IRA to pay credit card bills and for a costly car repair.
Diane has been receiving unemployment benefits, but they barely cover her expenses. After six months of collecting, she’ll be moving to the next tier of benefits, which will be lower than what she started with.
She was at her last employer for 12 years, and she’s still looking for work. She’s hoping for something in the veterinary field, and she says she’d consider anything.
“Don’t laugh, but I applied to the company that handles Barnum & Bailey Circus,” she said. “They have job opportunities and I sent them my cover letter and résumé. I love animals. I have cats at home, so I might have to shovel … but that’s okay. I did that enough for my past employers.”
Diane, whose name has been changed, has $500 in a checking account and $680 in savings.
The Star-Ledger asked Douglas Buchan, a certified financial planner with Main Street Financial Solutions in Pennington, to help Diane get on the road to financial recovery.
“First, let’s talk about all of the glass half-full stuff,” Buchan says. “She’s in good health, she does not have any dependents, she doesn’t have any extravagant expenses and she doesn’t have debilitating debt that she cannot climb out of rather quickly.”
Buchan says this is all good from a financial perspective. But Diane is correct that she has debt that is growing and needs to be addressed sooner rather than later.
Buchan says debt is not always a bad thing. Taking on debt to buy an appreciating asset, such as a house, can make a whole lot of sense for a number of reasons. Credit card debt, on the other hand, falls into the “bad-to-ugly debt camp.” He says it can be tough to escape from.
Diane currently has balances on two different credit cards, one with an 18.99 percent interest rate and one with a 5 percent interest rate. The higher interest rate card is the one Diane calls “dead” — she can no longer make charges to that account.
“The first thing she needs to do is call the company offering the 5 percent interest and ask if she can roll her other credit card with the higher rate to them,” Buchan says. “The next step is to ask the credit card company for some interest rate relief, most specifically to extend the 5 percent rate for six months to a year.” Buchan says it’s not a sure thing — calling the negotiation “more art than science” — but says if Diane sells her situation well enough, and if she has paid them on time in the past, there’s a decent chance they will lower her rate for an extended time.
“Every dollar counts,” he said.
Diane says her landlord doesn’t know she’s unemployed, and she’s been able to make her rent payments.
Buchan says New Jersey laws are extremely kind to tenants — something all landlords know but few tenants do.
“I don’t think it would be a bad move to let the landlord know the situation and ask for some sort of reprieve on the monthly rent for a short period of time or until she finds work,” he says. “I’m not suggesting she doesn’t pay rent, but I am suggesting that the landlord cannot legally throw her out for missing a month or two.”
The real problem for Diane is income.
Buchan says the government is quite successful at making the unemployment game confusing.
“Normally, unemployment is 26 weeks,” he says. “During periods of high unemployment, the federal government extends benefits. Tier 1 extends the benefits for an additional 20 weeks and Tier 2 extends for another 14 weeks. Usually, each tier will result in a decrease in benefit.” That’s what Diane is facing today, but the only thing she can do to fight it is to get a job.
Diane says she’s trying, but she doesn’t want to take “just any job to get something and then regret getting it.” But at this point, she doesn’t have the luxury of choice.
“I truly respect her desire to find something that she loves, but at this point, I think it’s a mistake,” Buchan says. “She’s currently spending more than she receives in unemployment and her unemployment check is most likely going to decrease starting next month.”
He recommends she get a job — any job — and then keep looking for the perfect one.
“It’s so much easier to find the perfect job when you already have a good job,” he says. “Start earning. Anywhere.”
But then, he says, don’t become complacent. The best time to look for the ideal job is when you’re currently content in your existing job, he says. Further, he says studies show that it gets significantly harder to find a job the longer you are unemployed.
Once Diane is working and earning more than her necessary expenses, Buchan says the key will be discipline. She will need to start paying herself first, so her first bill should be paid to herself in the form of savings.
He says Diane should build an emergency fund so that if a job loss occurs again, she’ll have something on the sidelines and won’t be forced to get into credit card debt.
“I’d like her to eventually have six months’ worth of living expenses, or around $7,500, in a money market fund for “just in case,’’ he says. “That may sound unrealistic, but it’s not, over time. Rome wasn’t built in a day, neither was anyone’s wealth. One brick at a time.”