Dave Ramsey

Q: I'm sitting down with my sister soon to analyze her financial situation, and I suspect it's not very good. At what point should someone file for bankruptcy?

   —Jamie in Mississippi

A: Filing for bankruptcy is almost never a good idea. I tell people to file for bankruptcy about as often as I tell them to file for divorce-I don't. There are always situations where good people get into bad things, but I think many divorces are the result of people just giving up-and most bankruptcies are, too.

Even if you don't have any numbers yet, what you do have is a sister who is obviously overwhelmed and asking for help. When you sit down with her, get her to draw back from the situation and not be emotional. Tell her to sell the car, take an extra job, live on a budget, and have a garage sale. Make sure she takes care of necessities like food, shelter, clothing, transportation, and utilities. She may take a few dings on her credit along the way, but you can still map out a plan where she's not only caught up but completely debt-free in about two years.

She's probably not bankrupt, but she's out of control and has lost hope. It may take a little while to clean up this mess, but you should never file bankruptcy on something you can clean up in two years. Never!

Walk her through it, Jamie. Most of all she needs a plan and the hope that goes with having one in place.

Cancel Disability Insurance?

Q: We have three children and we're trying to work ourselves out of debt. We have a household income of $54,000 and we're trying to cut every corner we can. Should we drop my husband's long-term disability insurance? It costs about $28 a month and is provided through his employer.

   —Dale, via e-mail

A: Kimberly, don't do it! Long-term disability insurance is inexpensive and a great buy. You're paying out only about $300 a year, and in return it will pay you 60-70 percent of his salary should he become disabled. Statistics show that a 32-year-old is 12 times more likely to become disabled than to die before the age of 65.

Disability is probably the most under-insured type of financial planning out there today. Everyone needs to have long-term disability insurance. Chances are you won't ever use it, but in the event that something bad happens it can help save you from financial disaster.

Disability is probably the most under-insured type of financial planning out there today. Everyone needs to have long-term disability insurance. Chances are you won't ever use it, but in the event that something bad happens it can help save you from financial disaster.

Dave Ramsey is the bestselling author of Total Money Makeover and host of a nationally syndicated radio show. For more information, visit www.daveramsey.com. All advice given is the opinion of Dave Ramsey and is taken at the sensible discretion of the reader.

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