Feb 22, 2024
Low income and shallow savings are only a couple of the biggest barriers preventing young families from stepping onto the real esate ladder.
However, 27-year-old Bryson and his wife face a particularly unique challenge: they’ve maxed out their borrowing capacity on consumer debt. The young couple, from Lake Charles, Louisiana, have a newborn baby and want to find more space for their growing family.
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Unfortunately, their portfolio of auto loans, student debt and credit card balances amounts to a whopping $210,000 — which makes getting a mortgage difficult.
“I think this is the worst debt I’ve ever seen,” said YouTuber Caleb Hammer, while looking through a hefty stack of their finances on a recent episode of his show, Financial Audit.
He thinks the couple is flirting with disaster.
Flirting with financial disaster
Bryson and his wife have steady careers. He works as an operations manager for a company that provides waste valet services, while she works as a leasing agent for an apartment complex. Their combined income was $92,000; however, this was before Bryson’s wife went on maternity leave. His current salary is $48,000, but he’s working on different business ventures and side hustles to boost that income.
Unfortunately, these businesses haven't pulled in any substantial earnings so far. Instead, Bryson has borrowed money to buy trucks, vehicles and equipment in pursuit of these ventures. “You need the extra income to pay off all the debt you took out just to bring in the extra income,” Hammer pointed out.
The outstanding balance on Bryson’s RAM 2500 alone is a staggering $66,000. He even rolled in negative equity from a previous vehicle for this new truck.
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But that’s not the only auto loan in his portfolio. Bryson has multiple other loans on vehicles, including a $37,000 loan for the camper van that his family currently lives in. This loan, as well as the mortgage for the plot of land it sits on, is at 8% to 9% interest rates with balloon payments coming up in five years.
Excessive auto loans have become increasingly common. In fact, according to the Federal Reserve's latest Household Debt and Credit report, American consumers now owe more in auto loans ($1.61 trillion) than they do in student loans ($1.6 trillion).
The surging auto loan wave has caught the attention of financial experts. In mid-2023, portfolio managers Paul Van Lingen and Ara Balabanian warned their investors that auto loan “defaults and recoveries will continue to deteriorate more toward levels not seen since the GFC [Global Financial Crisis].”
Meanwhile, ProPublica reported that the number of subprime auto loan borrowers that were behind on their payments by 60 days or more was at its highest levels since 2017.
Unfortunately, this isn’t the only financial crisis Bryson is part of. He also has $11,255 outstanding on a private student loan at a whopping 14% interest rate and admitted that he and his wife have overspent on credit cards in recent years. “We haven’t been [good with credit cards] due to negligence and not really paying attention,” he revealed.
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Ever since his wife went on maternity leave — which was paid out in a lump sum — the couple have relied on only Bryson’s income to survive. If he lost that income, Hammer pointed out, the situation could rapidly deteriorate as payments continue pile up.
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No easy fix
The first step to financial recovery, according to Hammer, is to boost income — ASAP. He advised Bryson to cut out most of his side hustles and focus only on a couple of the most profitable ones. This should allow Bryson to sell some vehicles and equipment that are no longer needed.
As for the debt, Hammer prescribed the snowball method — a debt reduction strategy that involves paying off loans from smallest to largest amounts while gaining momentum as each balance is cleared.
Hammer also suggested the family move into an apartment rental to give them more space while also allowing them to sell their plot of land and the camper van. This would help eliminate the loans with balloon payments hanging over their heads.
In theory, this strategy should put the family in a much better position financially over the next three to four years. However, Hammer warned that the plan could be derailed if the couple ever added to the debt in the coming weeks, months or even years.
“I ask for one thing from you — and that's to borrow no more,” he told Bryson.
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Vishesh Raisinghani is a financial journalist covering personal finance, investing and the global economy. He's also the founder of Sharpe Ascension Inc., a content marketing agency focused on investment firms. His work has appeared in Moneywise, Yahoo Finance!, Motley Fool, Seeking Alpha, Mergers & Acquisitions Magazine and Piggybank.
