Each week on SOAPnet’s new original reality series Bank of Mom and Dad, a twenty-something woman who is drowning in debt must pay the ultimate price ... letting her parents move in! With the assistance of money coach Farnoosh Torabi (that's me), Mom and Dad will teach their daughter to rethink her spending habits and transform her relationship with money.
This week we met “daddy’s little princess” Stacey from Landsdale, Pa. The 23-year-old is as an assistant kindergarten teacher struggling to make ends meet. She has more than $25,000 in debt, including several charged-off credit cards. When Stacey turned 18, she exercised her freedom by signing up for five credit cards, which she quickly maxed out.
Furthermore, Stacey has dropped in and out of college with no degree so far, lives at home with her divorced mom (because she can’t afford rent) and spends far too much on frivolous items (like $200 a month on doggy clothes for her pet).
Each month, aside from neglecting her credit dues she ends up short on her car payment. To make matters worse, her car is in her grandmother’s name and by not making the payments Stacey is effectively ruining her grandma’s credit (not to mention their relationship). Oh, Stacey. Here’s what mom, dad and I suggested:
FIND MORE AFFORDABLE WHEELS
This was a difficult message to get across to Stacey, since she is in love with her sports car. Our advice was to sell the vehicle and find a more affordable used car. The obvious dilemma with this is that Stacey wouldn’t be able to pay down her existing car loan by selling the car at the current market value, but it was financially better than what she’s dealing with now.
Here’s how we advised her to do it: Strike a deal with her local credit union to use some of the money she earns from selling the car to help pay down the existing car loan, then take out a private loan to pay off the remainder of the car loan. Begin paying down the private loan. Paying off the entire car loan allows her to transfer the car’s title to the buyer. With some of the other money she gets from the sale she could use it to buy a less expensive vehicle. In all, she could save at least $100 a month with this strategy.
I designed a chart for Stacey illustrating that the more education she has the better her chances of earning more money. With only two years of college under her belt Stacey is in no position to demand a lot of money from her employers. If she wants to address her debt, start saving and be financially independent, she needs to finish school and invest in higher education.
Let’s not beat around the bush. Stacey is lost. She can’t decide on whether to finish school, even though mom and dad have generously offered to pay for her education expenses. Who turns down a free college education? Someone who doesn’t know what she wants from life, perhaps, like Stacey.
She parties like she’s 19 and has no concept of taking responsibility for her actions, proven by falling behind on her credit card and car payments. The first step in any kind of financial action plan is establishing goals and owning your adulthood. Stacey needs to soul search a bit and spend less time at the bars and more time thinking about her future.
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