Jan 22, 2024
Debt is usually at the root of financial troubles, and it also has a funny way of reproducing itself — debt begetting more debt.
Kathy, 27, from Indianapolis finds herself in such a position. Six months pregnant, on the verge of being evicted and feeling desperate, she called in to “The Ramsey Show for advice. She told host Dave Ramsey that, for the first time in her life, she was tempted to get a credit card.
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“Where is the father in the picture?” Ramsey asked. When Kathy replied the father is “financially not” in the picture, Ramsey was briefly at a loss for words.
Here’s why he believes both parents need to rise to the challenge.
The shovel isn’t big enough
Kathy graduated in June and started working as a hairstylist. She admitted it’s been challenging ramping this business up and finding clients; she’s earning just $1,200 a month for now. To make ends meet, she has side hustles that generate another $1,300 a month.
“My shovel is not nearly big enough,” she told Ramsey.
Money is tight, which is why she’s fallen behind on her rent for 15 days. Unfortunately, her landlord has already initiated the eviction process. She’s worried about her financial situation and is considering applying for a credit card for the first time to pay rent.
Unsurprisingly, Ramsey doesn’t think that’s a good idea. “Yeah, debt problems are always solved by more debt!” he sarcastically remarked. Kathy isn’t married, but Ramsey wants to know why the child’s father won’t step up and help.
“He is excited about the baby and all that good stuff, but financially not contributing at all,” she explained. “I think it's more of a laziness problem.”
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Father needs to step up
Ramsey believes a father must provide financial support for his children, regardless of marriage. “Tell bubba, if he’s going to make a baby he gets to pay!” he said, pointing out the father doesn’t have the moral or legal right to relinquish financial responsibilities. “If you father a child in the United States of America you get to pay child support. It's how that works.”
U.S. law requires both parents to financially provide for their biological children until they’re adults. If one parent doesn’t have custody, he or she is legally obligated, in most cases, to pay child support to the parent with custody. Child support is required even if the couple is not married, according to the Office of Child Support Services.
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Kathy may need to consult a legal expert to explore her options. Meanwhile, Ramsey believes she can improve her cash flow situation by prioritizing the right expenses and boosting her income.
Kathy needs to prioritize cash flow
On paper, Kathy should be able to meet all her bills. She earns a total of $2,500 from her hairstyling and side hustles, while her rent is $1,500 and car payments are $250.
She says she hit a “rough patch” over the past month where the expenses involved with her side hustles set her back. That’s why she missed her rent payment for the first time and is now facing eviction.
Ramsey suggests she find out why her landlord is filing eviction so soon. “It may take four months or something in Indianapolis, I don't know,” he says. “You need to find that out because fear of the unknown is more fearful than fear of the known, so you need to find out what the law is in the area.”
Meanwhile, he recommends finding a hustle that’s profitable after expenses. A significant portion of earnings from ride sharing and food delivery is consumed by fuel, depreciation, insurance, car loans and parking payments.
Kathy needs to either lower expenses or do more hours to cover her expenses appropriately. “What we've got to do in this crisis situation is we have to figure out where we can come up with $1,500 the fastest from all sources and new sources,” he says.
After boosting income, he recommends prioritizing expenses based on necessity. Food and utilities must be paid first, then rent and car payments come last. Managing cash flow should help Kathy keep a roof over her head and food on the table while she figures out the rest.
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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.
