What to do when a debt collector contacts you

Dear Dave,
I got a call from a debt collector regarding $2,000 I owe in medical bills. I’m trying to get my finances in order and pay this off, but I’m afraid they’ll follow through on their threat to garnish my wages. Can you give me some advice?
Mike

Dear Mike,
First, I want you to take a deep breath and calm down. Debt collectors like to play on your emotions because they think you’ll give in and do something you can’t really afford to do. Most of them don’t care about you or your situation as long as they get some money.

They won’t garnish your wages because they can’t. They would have to go through the formal, legal procedure of first suing you and then winning the case. They broke federal law by saying they would garnish your wages but hadn’t sued you. If I were in your shoes, I’d be filing a complaint against these bozos with the Federal Trade Commission.

Don’t react with fear and panic in the face of debt collector threats. Talk to them and explain your situation. See if you can work out a compromise. If they get nasty or break federal law again, let them know you’ll be filing another complaint with the FTC. You’d be surprised how reasonable these people can be when faced with the possibility of government intervention.

In the meantime, do everything you can to scrape up as much cash as possible. Have a big garage sale and sell everything in your attic or basement you don’t need. Then, when you get this mess cleaned up, pay off the rest of your debts — if you have any — and start living on a written.

Dont borrow money for expensive Weddings

Dear Dave,

My wife and I make good money, and our daughter's college education is pretty much paid for through pre-paid tuition and scholarships. We just started your plan to get out of debt and take better control of our finances. When we get to Baby Step 5, which is saving for college, can we substitute that with saving for a wedding? — Bob

Dear Bob,

That would be fine. I'm glad you're thinking ahead. It's always a good idea to save toward a wedding if you have the financial resources to do so, because weddings are real and they're coming.

The average wedding in America today runs around $35,000. Of course, you don't have to pay anywhere near that amount to make it a beautiful occasion. Your household income, debt, savings and other factors will all play into how much you can afford.

Just remember to pay cash for the wedding, Bob. If you have to go into debt to make it happen, then you're talking about too much money. It's as simple as that. Crunch the numbers with your wife, and see what you two can handle.

And remember, there's absolutely no correlation between the cost of a wedding and the success of the relationship! — Dave

Keep a fully funded emergency fund

Dear Dave,My husband and I are in our 50s, and we have just $12,000 to pay off before we're debt-free. We've paid off almost $70,000 in debt in the last two years. We would like to buy a house soon, but we know we also need an emergency fund. It would take us almost a year to build up an emergency fund, so should we make adjustments to the Baby Steps since we're getting older? — Dawn


Dear Dawn,

No! It shouldn't take you two a year to build up an emergency fund considering the rate at which you've been paying off debt. You need a fully funded emergency fund or three to six months of expenses set aside before you start saving for a down payment on a home.

You've been making great progress, and you obviously have a good income to be able to pay off debt that quickly. Maybe in your case you could lean a little more toward the three-month side with your emergency fund before you start saving for a house. Then, after you're all moved in, you could revisit the emergency fund and beef it up to six months.

Just stay on course and stick with the plan, Dawn. Fifty isn't old. You two have plenty of time to get your finances in order, find a great home, and look forward to many great years ahead! — Dave

Skipping to the altar

Work hard and struggle for the future payoff

Remember, you don't have experience right now and that you're going to need to work like crazy, learn everything you can and make yourself a valuable team member.

Will there be struggle? Oh yes. Guaranteed. There really isn't a yellow brick road. You need that struggle in order to succeed. Embrace it. It's part of the journey!

Live like a college student

I tell young people who call our radio show that you're already used to living like a broke college kid, so keep living like one until you start making grown-up money. That way you can clean up any debt you might have, build up your emergency fund and start saving for the things you want and need down the road like a better car and a down payment on a house.