Jim is a 38-year-old divorced father of one child who lives in a small town in Kansas and works for an Internet startup. He has no health insurance. Recently, he was denied a job because of his bad/unstable credit history. He has been late in paying his mortgage, and at times he has let his mortgage loan payments lapse. The last time he knew what his credit score was—2 years ago—it was close to a dismal 550. He wants to address his debt.
In addition to more standard advice, such as investing in catastrophic health insurance, the experts agreed that Jim should focus on increasing his income and offsetting his expenses. A roommate could yield $2,500 to $4,000 annually in income and would offset his mortgage and utility bills, notes Chris Ure of UBS.
Dean Hedeker of Certes Capital Wealth Management says Jim’s biggest issue is his credit score, so he needs to pay down his debt. He should attempt to negotiate with his ex-wife, so he can claim their child as his dependent on his tax return. She might not need to take the deduction if her income is high enough. This move would save Jim $1,548 in taxes, which he could use to negotiate debt settlements. For example, he can offer to make a $1,000 payment if the creditor is willing to reduce the debt by $2,000.
Carol Fabbri of Fair Advisors points out that Jim’s low income might help him to qualify for state and federal reduced-tuition programs that will help him go back to school to get more marketable skills. He also might qualify for programs that will help to pay for child care and, possibly, health insurance.
Two of the experts suggested that Jim should get a part-time job.