Q: In the past 3 years we have amassed $6,000 in medical bills, $4,000 in credit card debt, and we are $1,400 behind on childcare.
We’re paying $200 per week for the child care which is $15 more than they charge. We have recently paid off my wife’s van which has freed up almost $400 per month.
We want to pay down these loans. My question is, do we spread the $400 amongst the three debts we have or should we concentrate on paying them off one at a time?
A: The good news is that you’re not in such debt that you can’t get yourself out in a relatively short period of time.
First, I’d go to your medical care provide (doctors or hospital) and ask them if there is any kind of discount they can give you on your bills. Then, ask them for a payment plan that would preferably be interest-free. Tell them you will live up to the terms and conditions of the plan. Then, ask them if you can start the plan in five months.
You should also ask how this will be reported on your credit history. Ask them to suspend reporting the debt until your payment plan starts. Also, you should ask them if they report on-time payments to the credit reporting bureaus.
Next, take the extra $400 each month and put $200 toward your credit card bill and $200 toward your child care. You need to know your children are being well taken care of and you want the child care providers to know that you’re making every effort you can to catch up on the bills. In five months, you should only be about $300 behind on your child care bills, and you’ll have paid off more than $1,000 on your credit card debt.
At that point, your medical payment plan will start. Put $200 toward your medical bills, $100 toward your child care bills, and $100 toward your credit card debt (make sure you are at least making the monthly minimum payment on time and you are making no new charges on the cards). In three months when you’re current with your child care bills, you can put the extra $100 toward your credit card debt.
Once you’ve paid off your credit card debt, you can put the entire $400 toward your medical debts. Over the course of 18 months, you ought to be able to pay down most of your debts.
What can you do to speed this up? Look through your expenditures to see if you’re wasting money anywhere. You should write down all of your expenses and see if there is any way you can cut anything further from your budget.
Next, consider getting a part-time job that can help pay down these bills quickly. While it seems like $11,400 is a huge amount of debt to carry, a second job can quickly make a dent. You may also need extra income to help in case you have another emergency, like an unexpected car repair or if your children get sick.
I’m not sure where the medical bills stemmed from, but if you don’t have health insurance, consider buying a catastrophic care policy with a high deductible. You can go to www.ehealthinsurance.com for more information on health insurance plans sold in your state.
The key thing about paying down debt is making sure you keep your credit score as high as possible. By making at least the minimum payments on time, and setting up a reasonable payment plan that you can live with, you will ensure that you’ll have options down the line.
Good luck, and let me know how you’re doing.