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As a Couple Tries to Get Out From Under Debt, a Financial Adviser Weighs In

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Anna Garcia and Luis Cardenas are married and raising two children in Bay Town, Texas. After several tough years, the couple is trying to get on more solid financial footing so they can pay off debt and rebuild their savings.

Mr. Cardenas, 29 years old, is a construction worker whose contract jobs usually last more than a year. He earns about $55,000 a year before taxes.

Currently, he is working for a solar-panel installer. The job will end on Dec. 15 and he expects his next contract, with a new employer, will start in January. Ms. Garcia, 28, takes care of their two children, ages three and five, and is not employed.

The couple purchased a home in January 2021 valued at about $230,000. They have a fixed-rate mortgage with 2.9% interest rate and a $1,500 monthly payment. They have no other assets or savings.

They have about $5,000 in debt—from a period when Mr. Cardenas was between jobs—on a credit card that charges 26.24% in interest. They are not currently using the card. The minimum payment is $193, though the couple tries to pay more each month.

They pay $750 a month on a $19,000 car loan at 6.4% interest. In addition, the couple has about $6,000 in medical debt.

Other monthly expenses: $840 for food, $380 for utilities, $320 for gasoline. They also pay $1,400 for car insurance twice a year. The children qualify for government-funded healthcare through Medicaid. The couple do not have health insurance for themselves but say they would potentially enroll if a plan was affordable for them. Often, Mr. Cardenas’s employers offer plans with high annual deductibles and copays, stopping them from signing up.

Advice from a pro

Nilay Gandhi,

a certified financial planner with Vanguard Personal Advisor Services, in Malvern, Pa., says the couple need to cut monthly spending to free up cash for paying off their debts. Cheaper cellphone rates and auto insurance can be available from other companies. The couple can also buy groceries from retailers that offer discounts on gasoline.

They should seek to refinance as much of their debt as they can, including their car payments. Any savings, he says, should go first to paying off the credit card. If they pay $500 a month—and don’t increase their debt—the couple could pay off the card debt in about a year, he says.

In the meantime, he suggests negotiating with the card company for a lower rate, and if that fails, applying for cards that offer lower rates and allow for transfers. “They may want to consider working with a bank or credit union to see if a personal loan [with a low interest rate] can be obtained and use that to pay off the credit-card debt,” Mr. Gandhi says.

The adviser also urges trying to renegotiate the medical bill before it is handed over to a collection agency. The hospital’s patient advocate might help them receive discounts, set up manageable monthly payments or postpone payments until their credit-card debt is paid off, he says.

For health insurance, he recommends shopping around. If the monthly premium in the employer health plan is more than 9.12% of their household income, the couple may qualify for tax credits or subsidies if they buy a policy on the government-run healthcare exchange. Mr. Gandhi suggests they check with the new employer’s human-resources department to see whether they are eligible for subsidized healthcare coverage outside the employer plan.

Mr. Gandhi also recommends catastrophic coverage if employers offer it, and disability and life insurance, once the couple’s cash flow improves.

Once the debt is paid down, Mr. Gandhi urges the couple to use the money they were paying toward debt to create an emergency fund that covers three to six months’ worth of expenses. The fund could then be used to pay for unexpected bills in the future.

Ms. Ward is a writer in Vermont. She can be reached at [email protected]

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