DAVE RAMSEY: Hold on to severance pay, build financial cushion

By Dave Ramsey

Q. I’m an accountant, and my company is experiencing layoffs. I just learned that I’ll be losing my job in four weeks. I’ll receive a severance check, but I have no other savings set aside. Should I use some of the severance to pay off debt or hold on to that money as long as I can?
A. I’d hang on to that money and pile up as much cash as I possibly could. Right now, the most important worries are food, lights, water and shelter. Debt is not on the list. We need to take care of your basic survival needs first and make that money stretch as far as it will go.
There are two bright spots in this scenario. One, you know the wolf is going to be sniffing around the door, and that gives you time to prepare. The second thing is you’re an accountant, and that’s a very marketable skill. Lots of companies are going to be looking for your kind of expertise as we slowly turn the corner and come out of this recession.
Here’s another thing: The better financial cushion you have during this time, the better you’ll do when interviewing for other jobs. Things will be tight, but if you’ve saved and budgeted your money well, you won’t come off as needy or desperate. You can be confident in your abilities to add value to a different company instead of being all freaked out and begging for a job.
Then once you’re settled into someplace new, you can start writing checks out of the remainder of the severance money and your first couple of paychecks to catch up on things.

Q. Several months ago, I was diagnosed with stage 4 cancer. I have about $30,000 in credit card debt and would like to continue getting my finances in order. My husband has been unemployed for six years due to his own health issues, but I do have life insurance, a 401(k) and receive Social Security. How should we handle this?
A. God bless you and your husband. I know this is a really rough time for you both. I hope you guys are sticking by each other and loving on each other a lot. That may not make these problems go away, but it will make you each stronger and bond you together in incredible ways.
If I’m in your shoes, the last thing I’m going to worry about is credit card debt. Your concern right now should be your quality of life and taking advantage of all the medical options that are available to you. That’s the primary goal. You and your husband need to use your financial resources to prioritize, but at the moment you come first. For someone in your situation, that’s not being selfish.
The hard truth is: We’re all going to die some day. Anything you own, like the 401(k), has to stand good for what you owe when you pass away. In other words, the credit card debt would have to be paid before your husband or others received anything from your estate.
I appreciate your diligence and honor in wanting to make sure your debts are handled. But in this situation, so what if a credit card company has to wait a while to get paid? It will happen when it happens. Right now, you are the No. 1 priority.
Dave Ramsey has authored four New York Times best-selling books, and “The Dave Ramsey Show” is heard by more than 5 million listeners each week on more than 500 radio stations. Follow him on Twitter at @DaveRamsey and on the web at daveramsey.com.