Credit Card Maxed Out? In a Deep Financial Hole? "Toughing It out" May Not Be the Answer

In my many years as an advisor, I’ve found that the hardest part of my job isn’t managing the numbers or dealing with the ups and downs of the market.

What’s far more difficult for me is seeing a client get completely overwhelmed and embarrassed by money problems. Self-judgment. Guilt. Self-criticism. They can all rear their ugly heads. And perhaps the worst part of all is knowing that some folks are too embarrassed to share their money problems—even with their trusted advisor.

Last month, I had what seemed like an easy phone call with Jane. Her husband Gary is hoping to retire in the next few years, and she wanted to review their finances to see where they stood. The couple moved to Arizona two years ago after Jane received an early retirement package. With her husband’s $65K annual salary, her pension, and other investment income, their income is $90K a year. They owe $150K on their home, including a $110K mortgage and a $40K HELOC at 5.5% and 6% respectively. After running some ballpark numbers, I told Jane it looked like Gary could retire in about three years when he turned 65. According to my calculations, with Medicare reducing their health insurance costs and their combined pensions and IRA-401(k) withdrawals, they should be able to live quite comfortably.

The next day I received this email from Jane.

I was too embarrassed to tell you this yesterday, George, but our finances aren’t quite as simple as it seems. In fact, I expect Gary’s retirement will have to wait indefinitely as we’ve gotten ourselves into some pretty hot water financially. Our income simply isn’t enough to cover anything but our basic expenses, so we’ve used credit cards to cover ourselves. I’m mortified to tell you that we’ve racked up more than $30,000 in high-interest debt that is costing us more than $700 a month in payments. With that on top of our mortgage and home equity loan payments, etc., you can see why retirement is out of the question, at least for quite some time. We’re in a terrible mess. It’s so bad that we can’t even afford the $14,000 needed to repair our air conditioning—a tough situation in the Arizona heat. It hit 113 degrees here yesterday, but without the funds, I’m afraid we’ll just have to “tough it out.”

Though I doubt you can help at this point, I would appreciate your input. I'd prefer to communicate via email. I couldn't listen to your kind voice, all I would hear is disappointment and pity. Just sending this email has me in tears.

It was heartbreaking to read her note. Clearly, Jane was terribly embarrassed about her situation—reacting as if she’d done something wrong or had gotten herself into this bad situation. While I was able to see the numbers as a financial puzzle to be solved, Jane viewed the situation as an insurmountable personal failure. The good news: I already had some very realistic solutions forming in my head. Of course, I had two distinct advantages that Jane didn’t. First, as an advisor, I’m experienced to see the forest—not just the trees. Second (and perhaps most importantly), since it’s not my own money we’re looking at, my perspective isn’t clouded by emotion and self-judgment, so I can be objective.

I immediately reached out to Jane (via email, of course!) to let her know that what she was facing was actually a small problem that she only perceived to be unsolvable. In fact, she had assets available that could be quickly and easily leveraged to address her needs. She called that afternoon, and together we kicked into gear. Here’s a high-level view of how we’ll turn down the heat:

On my recommendation, Jane immediately withdrew an additional $2,500 from the existing HELOC at the local bank. We added that amount to another $2,500 on her credit card to make the required $5K deposit on the much-needed AC repair to get it ordered. We then withdrew $14,3000 from her ROTH to cover the remaining cost of the air conditioner to get them out of the heat—literally—within the week. Whew!

We placed the remaining funds from the ROTH withdrawal into Jane and Gary’s checking account as an emergency fund to keep them from resorting to credit cards for future car repairs, home repairs, and other unbudgeted expenses.


To reduce their mortgage payments, we’re refinancing both the primary mortgage (5.5%) and the HELOC (6%) to an amortized 30-year fixed rate at 3.75%. This will reduce their payment from $1200 to less than $800 a month.

The next item on the agenda is to tackle their high-interest credit card debt, using a one-time withdrawal from Jane’s $800K IRA to pay it off. With the increase in expendable monthly income, they should be able to pay off the remaining of $11K in credit card debt by early 2017. If they’re short, we’ll make another withdrawal from the IRA next year. And they’ll keep $5,000 to $7,000 in the bank for emergencies so they don’t keep dipping into the credit card “well” to cover surprise expenses.

No matter how wise or successful you may be in other areas of your life, financial planning can feel like a dark, murky, mysterious world—and it can throw things out of perspective. To get through a trying financial situation, rest assured that no matter what your challenges, “toughing it out” may not be the only answer. Talk to a trusted financial advisor, get the guidance you need, and take control of your finances. It’s the best way to get out of the heat and stop sweating.