By Mindy Fetterman, USA TODAY
When Janet Davis, a planner at Lubitz Financial in Miami, took a good look at the stacks of financial records Dana Dwyer brought into her office, she thought: "Hmmmm. Dana thinks she's organized, but she's not."
Dwyer had brought in "a briefcase full of documents and lots of information," Davis says. "But she didn't really know where her money was going."
After looking over Dwyer's student loans, credit cards, car loan, checkbook and ATM statements, Davis drew up a summary of what comes in and what goes out each month. The 24-year-old Dwyer has total debt of about $48,000, which includes $12,000 in student loans, $11,500 in a car loan and $3,400 in medical bills.
PROFILE: How can she afford health insurance?
But the roughly $20,000 in credit card debt that Dwyer built up in college, and from buying clothes for her former job with a Ralph Lauren store in Miami, is really hurting her. Even though she earns about $65,000 a year now as a bartender in Miami, Dwyer is having a hard time paying all her bills and paying them on time.
"She didn't know where the money went," Davis says, "but obviously, it went out."
Davis discovered the leaks:
- $200 a month on drinks with friends at bars in town.
- $200 a month on other entertainment.
And here's the killer: $850 a month (some months) on clothes. Dwyer's reason for spending so much on clothes: She was in the fashion industry and had to look the part. "She has a lot of discretionary spending that she can cut back on to start cutting down her debt," Davis says.
Dwyer is committed to shrinking her debt. But frankly, the planner worries that Dwyer is too focused on that debt right now. She thinks Dwyer's lack of health insurance is her most-pressing financial problem.
Last spring, Dwyer was between jobs, and uninsured, when she wrecked her car. The medical bills were $16,000.
She's still uninsured.
Davis recommends that Dwyer buy an individual health insurance policy — she could get coverage for about $300 a month in Florida — before she focuses on paying down credit card debt. "She's one more bad drive down the street from being right back where she was" when she had a wreck, the planner says.
Davis is concerned, too, that Dwyer turned her credit card debt over to a credit counseling program, when she could be making the payments on her own. The program she signed up for "essentially forces you into default by not making your payments," Davis says. After that happens, the company tries to negotiate with creditors to lower total debt.
"It sounds good," Davis says, "but it can ruin your credit rating for years."
She's recommended that Dwyer try to leave that program and start making credit card payments again. "She wants to buy a house one day," the planner says. "And she can't do that if her credit is ruined."
And finally: Cut spending.
Davis says Dwyer has "a lot of discretionary spending. She's not scraping to get by." But she needs to be more disciplined in how she spends.
"I think she realizes she can cut back."