Alabama woman has a car loan at 27% interest and owes $70K in student debt. Ramsey Show hosts offer a way out
The cost of living and higher interest rates are squeezing many wallets across the U.S. But for low-income single parents, the financial pressure is amplified.
Danielle from Birmingham, Alabama, is trying to raise her son on a part-time salary, but is struggling to pay off her auto loan at 27% interest rate.
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She believes the car dealership locked her into a doomed contract. “They took full advantage of me,” she told the co-hosts of The Ramsey Show during a recent episode. “The interest is just killing me.”
A series of unfortunate events have left Danielle into this difficult financial situation. Unfortunately, such cases are becoming increasingly common.
Bad credit
Based on her conversation on The Ramsey Show, Danielle doesn’t appear to have bad spending habits. Instead, her situation seems like the result of bad luck.
Shortly after her son was born, Danielle walked into a car dealership and drove out with a brand new Nissan. The car would go on to have repeated transmission failures which ultimately made it impossible to drive.
Struggling to keep up with repair payments for the transmission issue, Danielle allowed the car to be repossessed, which impacted her credit score.
According to Experian, 12.1% of American adults have a poor FICO credit score (below 579). Lower scores can make accessing credit more difficult or prohibitively expensive.
Danielle’s credit history pushed her auto loan interest rate to 27% when she purchased a Jeep Compass to replace her Nissan.
She now owes $10,000 for the Nissan and has a $14,406 balance for her new Jeep. Keeping up with these auto loans is her top priority, but she also has some credit card debt and $70,000 in student loans.
Roughly 35% of Americans say they are currently carrying the highest level of debt they’ve ever had, according to a survey by Northwestern Mutual. Paying down this debt is a top priority for 61% of those surveyed.
However, Danielle’s ability to pay down debt is limited. She works part-time and earns less than $26,000 a year. To make ends meet, she signed up for Instacart deliveries on weekends.
To make matters worse, her relationship with her boyfriend broke down which means she doesn't have anyone to split rent with. She currently pays $450 a month, but expects that cost to double soon.
Read more: Cost-of-living in America is still out of control — use these 3 'real assets' to protect your wealth today, no matter what the US Fed does or says
Drastic changes needed
George Kamel, co-host of The Ramsey Show, recommended selling the Jeep and replacing it with a cheaper used car. Meanwhile, co-host Rachel Cruz encouraged Danielle to go back to full-time work. This could potentially raise her annual income to $41,000.
Cruz also suggested Danielle to delay her plans of studying for an advanced physician's assistant degree after she graduates from her current course. “I know it’s probably crushing your dreams right now,” Cruz told her. She estimated that pursuing further studies could push Danielle’s student loan balance into the six-figure range.
Danielle wondered if moving to another state could help financially. She told the co-hosts that she completed her course in Alabama, which is cheaper than other states, but she wants to move to Pennsylvania to look for a higher-paying job after graduating.
In Pennsylvania, the average salary for a physician’s assistant is $123,776, according to ZipRecruiter. A six-figure income could make a sizable impact on Danielle’s situation.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
