‘It almost seems kinda hopeless’: Austin man with 5 kids is drowning in $16,000 in credit card debt and facing 2 lawsuits. Dave Ramsey has a surprising solution

Some households are stretched so thin that a single surprise out-of-pocket payment plunges them into a deep financial hole.

That’s what appears to have happened to Austin, Texas-based Sam, who said an unexpected tax bill related to his recent home purchase put his family into financial trouble.

“Things seemed to be going OK, but then we ended up getting taxed on the actual build of the house,” he told the hosts of The Ramsey Show on a recent episode. “That started a slippery slope where we started having to pay more than what our mortgage originally was, and we ended up relying a lot on credit cards.”

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The mortgage payment has since been lowered, but Sam and his wife are staring at roughly $16,000 in credit card debt​​ on multiple cards that are all in collections. They’re also facing lawsuits on two of these cards.

“It almost seems kinda hopeless,” Sam said on the call.

Hopelessly indebted

A growing number of American households might be feeling similarly hopelessly indebted.

Households across the country are collectively sitting on $17.29 trillion in total debt as of the third quarter of 2023, according to the Federal Reserve.

Much of this is housing debt, but non-property-related debt is steadily increasing. From the third quarter of 2022 to the third quarter of 2023, housing debt grew from $11.99 trillion to $12.49 trillion — a 4.2% increase. Over the same period, non-housing debt grew 6.4%.

Credit cards alone account for $1.08 trillion in aggregate. That’s larger than the gross domestic product of most countries.

Sam and his wife have premium memberships in this unfortunate debtors club. They have eight to 10 credit cards, all of which are in collections at the moment. His wife faces a lawsuit related to one card with a $3,000 balance, while he faces a similar lawsuit for another one with roughly the same amount.

Despite Sam’s anxiety over the situation, Ramsey was far less concerned about the collections and lawsuits. “Their lawsuit is useless,” Ramsay told him. “They can’t garnish wages or take a lien on a house in Texas. Their lawsuit is hanging out there in the ether… There’s nothing they can do about it.”

Creditors may not be able to garnish wages or put a lien on a primary residence, according to TexasLawHelp.org. However, Sam is better off speaking with an actual lawyer to see if this is true in his case.

Other aspects of the family’s finances encouraged Ramsey even further. Sam and his wife earn roughly $6,000 in monthly income. They have five children, all old enough to be in school or working, which means they don’t have daycare expenses. Their car payments are just $250 a month, while the monthly mortgage payment has dropped from $2,700 to $2,100 recently.

“Looking at the numbers… what you’re feeling is way more emotional than it is financial,” co-host Jade Warshaw told Sam. She and Ramsey believe Sam can quickly turn the situation around with four easy steps.

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4-step solution

Warshaw and Ramsey recommended a simple plan to help solve Sam’s financial and legal troubles.

• The first step is to list all debt and expenses to create a holistic view of the financial situation.

• Next, Sam needs to create a budget that focuses spending on essentials (food, transportation, utilities and housing).

• The third step is to boost income, potentially by $1,000 a month.

• Finally, Ramsey wants Sam to list all his credit card balances in ascending order and call all the issuers and negotiate a (potentially lower) lump sum settlement with each.

Mitigating debt from the smallest to the largest amount is known as the snowball method and is commonly used by people struggling with different balances and forms of debt.

Meanwhile, some credit card companies are willing to consider negotiated lump sum payments, and some attorneys specialize in such settlement cases.

This strategy could rapidly improve Sam’s financial position.

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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.