This question was sent in by one of our readers, Jean Gallagher:

I recently had to take out a $15 k loan ($500 a month payments), for attorney fees and to get my daughter a car. My air conditioner / condensor unit went out and I had to finance $6200 to get it replaced. My husband and I both had surgery done so we are drowning in medical bills. My mortgage is $1000 a month (this includes escrow).

Both our income combined is $2500. I have a $2500 cc that is maxed out, a $3000 limit on a credit card that is cut up and thrown away (as instructed by Wells Fargo to do). I just got another credit card in the mail from the company I bought my air conditioner / consdensor from because my credit is very good (according to them). We are are living like spartans now because we can’t make ends meet and this $7500 credit card looks pretty enticing as far as my doctor bills are concerned.

I am in debt but don’t want to create anymore….how do I take care of all out outstanding doctor bills with out having to use the $7500 credit card? Should I transfer the balance of the $2500 credit card to the $7500; cut up the $2500 one but keep it active and then pay my past due bills on what’s left of the $7500.00? Help!!
Thank you
Jean Gallagher

Thanks for your question Jean!

If it were me (and this is what I would really do – but understand that I am not a financial adviser.)
I would take the $7500 card, balance transfer the $2,500 card to it if you can. Then I would use the $2,500 card to absorb some of your medical bills. There are several important things to remember though:

1) You would be balance transferring your card because it will lower your debt ratio back down to around 30 percent (as far as your credit cards are concerned.)

2) I would make sure that I did not go over 30% of the 2,500 card either. Once you start putting medical bills on it.

3) Go ahead and start an emergency fund. Even if you can only put in $20 every time you get paid, it will still be there when you need it.

4) If your $3,000 card is only cut up and not maxed out, you could consider re-ordering the card and using it for your medical bills as well.

Now, if I understand correctly you guys are making about $30,000 a year and you are $23,700 in debt before your mortgage and your medical bills.

Were I in your shoes (and I have been very close) I would also do the following things:

• Contact the hospitals and doctors you owe money to. See if there is any program you can get into to reduce the bills based off of your income. I believe that $30,000 is right around the cut-off, so you will probably qualify. Especially since you have a child. This could cut your debt considerably.
• Make sure your daughter is the new owner of that car payment. Even if she is making the payment to you each month. If she is old enough to drive, then she is old enough to pay for the car and insurance, at least in part. Trust me when I say you are not doing her any favors by giving these things to her. My parents did this for me. Instead of appreciating it, I abused it, and I never learned how necessary it was to keep a job to pay your bills until I got in trouble.

  Now, I doubt your daughter is like me. However, the time you have remaining with her in your home is limited. Don’t be afraid to talk to her about your financial situation, and why it is necessary for her to work. This will be a far greater gift than the car ever was. It would be an excellent time to talk to her about credit cards too, before she has credit card companies giving away free iPods and T-shirts on her college campus in return for applying for a credit card.

• Pay down as much of your credit card balances as you can each month. Start with the one that has the highest interest rate first, even if it is not the lowest balance. This will save you money over the years it may take you to pay the cards off.
• Make sure you do not charge anything on those cards but your medical bills, and only after you try to get them lowered.
• Try looking for ways to increase your income. If you enjoy writing, try heading over to Freelance Writing Gigs They put up lists of on-line writing jobs early each morning. This is something you could do from home, no matter what your medical condition may be. You or your husband could also consider having one of you take on part time employment at a job close to you.

It will be a struggle to pay this debt down, but if you are determined enough, you will be able to do it. You also sound like you have an excellent credit rating. Unless you are forced to go delinquent, I would not work with a credit counseling agency, or consider bankruptcy. In fact, you would probably do better to simply have a free consultation with an accredited financial advisor or an accountant. Get your paperwork together, and take it with you. I know that you will be able to work out a budget that will get everything re-paid on time! I would avoid taking out new loans to pay everything back – with the exception of the new credit card.

This entry was posted on Friday, July 18th, 2008 at 10:05 am and is filed under Personal Finance. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.