Newark, New Jersey, assisted the Chalks with a recovery plan.
DEAL WITH CREDIT DEPENDENCY
The first order of business for the Chalks is to get a handle on their cash flow. After analyzing the couple’s finances, Salter says they are short more than $500 on what they need to cover their expenses monthly. They must stop buying things they want and only buy essentials over the next year as they eliminate debt. Credit card payments are consuming their income, so they should try to lower their interest rates. “They should call the credit card companies and negotiate. This will allow them to pay off their bills at a faster rate, or have a lower payment when they need a little breathing room,” says Salter.
Salter also advises the Chalks to close all of their credit card accounts except for two major cards with the lowest interest rates. Too many open accounts may work against their credit rating. Fortunately, the Chalks now have a little something to work with. They should use $1,500 of the $2,000 they receive from the financial fitness contest to pay off balances on their Chevron, Dress Barn, and Victoria’s Secret cards. That move will free up more than $100 each month.
ESTABLISH AN EMERGENCY FUND
The Chalks have learned how life can snatch you from your comfort zone at any time. They need backup, says Salter. They should use the remaining $500 from the financial fitness contest and a recent $1,000 windfall to start an emergency account. After adjusting their budget and paying down more debt, they should devote $300 a month toward the emergency fund.
BUY DISABILITY INSURANCE
The Chalks’ current life insurance policies will cover the mortgage and some living expenses, but their greatest threat, says Salter, is disability. Wanda has no disability insurance through her employer and Robert’s employer’s policy provides him with 60% of his income. She needs coverage, and he needs additional coverage. “The Chalks cannot afford to not have disability insurance,” says Salter.
After the Chalks take care of their more pressing financial concerns, Wanda should explore getting long-term healthcare insurance.
FIND NEW INCOME
Robert worked two jobs but stopped once Jaden was born. The Chalks now have two choices: They have to severely cut back on expenses, or Robert should get another part-time job, says Salter. They simply don’t have the means to meet their financial goals.
“To move the family forward, Robert should seek a part-time job that will earn $1,000 a month,” says Salter. “This money should be used to pay off credit card debt and fund their financial goals.”
Ideally, the money could be used to fund the children’s education. Approximately $500 of the part-time income should go toward their college education each month. Salter recommends a 529 plan, where money grows tax-free and can be withdrawn tax-free when used for college. Says Salter of the family’s future, “They can rebound. It’ll take discipline, perseverance, determination, and time. But it’s doable.”
Winner No. 42 Wanda & Robert Chalk