Money Makeover: CJ and Thai

Money Makeover: CJ and Thai
Dr. Phil speaks with couples who are resolving to get a handle on their finances.
"From the exterior of our house, you would think that we have the perfect suburban life," says CJ. "We drive an SUV and the house is maintained well. The problem is, we've been living beyond our means since we got married."

"It's always been a struggle to make ends meet," says CJ's husband, Thai. "We end up spending our next paycheck before it's even here. Last year, we had home improvements. We had a screened-in porch put in, the hardwood floors were put in, the granite countertops. I'm not sure how we are going to buy our Christmas gifts. I don't know if it's going to happen this year. On paper, it looks like we should be able to survive, but every time I do the checking account, it's always in the red."

"Around the 10th to the 15th of every month, we'll start looking for stuff around the house to sell on eBay," says CJ. "We built the house while we were engaged. We were supposed to spend $150,000 on the house, but we spent $168,000. The financial situation is putting a bigger strain on my husband, being the provider for the family, and I feel guilty, but at the same time, I don't do anything about helping him with the bills."

They turn to Dr. Phil: "For our New Year's resolution we'd like to get back on track. Can you help us?"
"You're selling the children's clothes and toys on eBay to get enough money to pay the utility bill until you can get to the next paycheck, right?"
"That's only once they outgrow the clothes. It's not the clothes they're currently wearing," clarifies Thai.

"I'm not saying you're shaking them out of their shorts, but you're cutting it so close that you're floating checks. You're writing a check hoping that it doesn't get processed before you can beat it to the bank and make a deposit."

"Yes."

"Have you ever heard the term re-engineering? A lot of people will come in and consult on a situation and say, 'Let's see if we can do this better.' When I approach a situation, I approach it from a re-engineering standpoint and ask the question, 'Do we need to do this at all?' That's what I want you to do. I want you to look at your financial situation by saying, 'Nothing is sacred, nothing is off limits, do we have to do what we're doing at all?' You said your greatest fear is that you would lose your house and car?"
"Yes. Because if the next major thing would happen to our family, we won't have any money to recover from it. If some kind of emergency happens, there's no money to fall back on, we're not going to be able to pay our bills," says Thai.

"You can't pay them now," Dr. Phil points out. "You are house poor. Not only are you in a house that you cannot afford, you then went and borrowed an extra mortgage and added onto the house that you couldn't afford."

Dr. Phil turns to Elizabeth Warren: "What do you think of the home equity loan to pay off debts and improve the house?"

"You can't borrow your way out of debt," Elizabeth explains. "It's not going to work. What happened was that you borrowed more money, and the only difference now is that you said on that money, 'If I don't pay it off, come and get my house.' Don't ever, ever, ever borrow money against your house to pay off credit card or any other kind of debt."
"You put your house on the line," adds Dr. Phil. "The thing you said you are most worried about losing — keeping your family warm and dry and safe — you put it on the target block by taking out that other mortgage."
"The first thing that you have to be willing to do is have this re-engineering mindset where you say, 'Nothing is sacred. There are no fixed bills, we don't have to keep this house, we don't have to keep this car, live in this neighborhood, use these schools. We don't have to do any of the things we're doing.' And then the second thing you've got to do is understand how you're measuring success. Does peace have any value?"

"Absolutely," says CJ.

"Because don't you get tired of going to bed and laying there and staring at the ceiling wondering, 'What are we going to do money wise?' Wouldn't you rather be within your means and making even dramatic sacrifices for a few years to get yourself healthy again financially?"

"That would be great," they both say.

"What emotion led you to the decisions that you've made? And why were those upgrades to the house important? In what way has that enhanced the quality of your children'gllives? Your lives? The future of your family?"

"We didn't have a backyard," says CJ. "If you opened up the door, they'd fall down a hill."
"You put granite countertops in the kitchen, you put hardwood floors in the den, you built a screened-in porch in the back, and you want to talk about some sod and a fence?" Dr. Phil asks.

"The granite countertops are not my husband's fault, I wanted those," admits CJ.

"The most expensive words in the English language are 'Might as well.' They'll loan us the money. 'Might as well' extend it to the dining room ..."

"I'm guilty of that," admits Thai.

"My husband can't say no to me. If I want something, he wants to try to make it happen," says CJ.

"What if you had that $19,000 in your pocket today? What would that mean to you?"

CJ gets emotional. "That would feel great. That would feel better."
"You've got $9,000 in credit card debt," says Dr. Phil. "I asked Elizabeth to run the numbers on that. You're paying the minimum."

"It's going to take you about 32 years to pay it off," say Elizabeth. "And you're going to pay about $22,000 in interest. So think about that, you're still going to be paying when your grandchildren are older than your children [now.]"

Elizabeth goes over an action plan for CJ and Thai, to help get their finances in order:

  • Sell the car. "Buy a clunker for cash. Get out from underneath that huge car payment. It's eating you up," says Elizabeth.

    When CJ argues that an old clunker won't fit four car seats, Dr. Phil says: "That's not true! I can guarantee you that you can go buy a 1980 Suburban if you have to and put 10 car seats in it."

  • Make a choice to cut extras or no private school. "If you're going to try to do this, you're going to have to cut everything else off your spending list."
  • Create emergency fund of $1,000. "So if something does go wrong, you don't have to go into debt," she says.

  • Prioritize debt: 1) Utilities (catch up and keep up), 2) Student loans, 3) Credit cards, "Minimum monthly payments — that's for suckers. They're stealing from you," says Elizabeth.
    4) Medical bills.

  • All extras pay cash. "But when it's gone, it's gone."

  • Cut up credit cards.

  • Challenge everything. "Do you need to sell this house and live somewhere cheaper for a period of time?" Dr. Phil asks. "The idea is to say, 'We've made some bad decisions.' Don't compound them by saying, 'I'm a prisoner.' The main thing is that you have to get a mindset that 'We don't have to have any of the things that we have.' And then you make some choices."