| The problem: living paycheck to paycheck |
| By Steve Reents • Bankrate.com |
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| Leah Kelly |
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| Leah Kelly |
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| Leah and Lamar wish to relieve themselves of debt. |
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| They can systematically pay it off and begin building wealth. |
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While Lamar was still in school, he and Leah lived off credit cards and student loans for about two years. During that period, Leah started an in-home day care business which has grown to be successful.
Now that her husband is working, the couple is making a good income. "But our debt is so out of control that we are still living paycheck to paycheck," says Leah. Besides the student loan debt, they have six credit cards with a total balance of more than $13,000. In addition, they own two cars on which they owe more than $24,000. Finally, they own a home, on which there's a $93,000 mortgage.
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| Key issues |
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Assess risk exposure. |
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Calculate free cash flow. |
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Develop a systematic debt-reduction plan. |
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Determine savings priorities. |
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Explore deferment or forbearance options for student loans. |
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| Jump these money hurdles » |
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Lamar works out of town and incurs more than $500 a month in living expenses. After paying all their bills, including Lamar's out-of-town living expenses, the Kellys have $550 a month left over in free cash that they can apply toward debt.
The Kellys also need protection against disasters. If the unthinkable should happen and one or the other should die prematurely, it wouldn't be possible to pay all the bills on one income.
Life insurance is one way to protect against this possibility, and because the Kellys are young, it's pretty cheap. In addition, neither of them have disability insurance. This is a gaping hole in their financial security.
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This report was prepared by Steve Reents, a Certified Financial Planner with Kring Financial Management of Smyrna, Ga. |
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