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Living paycheck to paycheck

As of November 2023, 62% of Americans were living paycheck to paycheck, according to a new report by PYMNTS and LendingClub. A whopping 45% of those struggling adults earn more than $100,000 a year.

To be fair, $100,000​​ isn’t what it used to be. Rampant inflation in recent years has eroded the purchasing power of even upper-class Americans. However, lifestyle creep is another issue that’s pushing many into financial trouble.

Alyssa and her husband have combined student loans worth $140,000, auto loans worth $60,000 and a mortgage of $240,000. Their total debt burden, $440,000, is more than triple the size of their annual household income.

Alyssa recognized that she could pay down consumer debt quicker by setting more money aside for her auto loans and student loan payments. However, she thought her top priority should be cash for emergencies and providing a safety net for her nine-year-old daughter.

“The fear… [is] making sure we have enough,” she said. “Because with me being self-employed and him doing construction and things like that, I get worried about catastrophic expenses.”

“You know what I’m worried about?” Ramsey responded. “You make $130,000 a year and you’re freaking broke! That’s what I’m worried about.” He said Alyssa needed to shift her priorities and make dramatic changes to her lifestyle.

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Dramatic lifestyle changes

According to Ramsey, “it’s time for… some urgency here.” Alyssa and her husband can tackle their debt if they cut back expenses, even on a temporary basis. He recommended selling the cars and replacing them with cheaper alternatives to lower the auto loan burden.

In 2023, the average auto loan balance was $23,792, which means two loans for two vehicles should be roughly $47,584, according to Experian data. Alyssa and her husband’s combined auto loan is only 26% higher than this amount. Still, trading in their cars for cheaper alternatives would certainly help.

However, student loans are the real outliers in the couple’s personal finances. The average student loan was just $38,787 in 2023, according to Experian’s research. Alyssa’s husband has $40,000 outstanding, which is slightly above average, but her balance is significantly higher at $90,000.

To eliminate this debt, Ramsey recommended an overhaul of their lifestyle. “The more dramatically we change our life… the faster this is going to turn around and we're going to have a pile of cash and we'll be out of debt,” he said.

He estimated Alyssa and her husband could save $40,000 to $50,000 a year by replacing their current cars, cutting back on vacations, and not eating out.

Alyssa said they had already scrapped plans for a cruise. “You’re going to learn to say ‘no’ a whole lot,” said co-host George Kamel, but the sacrifices would ultimately be worth it. “You deserve freedom, not this life of stress.”

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Vishesh Raisinghani Freelance Writer

Vishesh Raisinghani is a freelance contributor at MoneyWise. He has been writing about financial markets and economics since 2014 - having covered family offices, private equity, real estate, cryptocurrencies, and tech stocks over that period. His work has appeared in Seeking Alpha, Motley Fool Canada, Motley Fool UK, Mergers & Acquisitions, National Post, Financial Post, and Yahoo Canada.

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