Jenny and Luke were thrilled when fertility treatments helped them welcome a daughter in 2008. A year ago, Jenny gave birth again, this time to a baby boy. These abundant blessings, however, have come with their share of challenges.

Jenny, 43, and Luke, 42, were once financially secure, but the cost of the fertility treatments as well as tests that Jenny had during her pregnancies contributed to the couple's $26,000 in credit card debt, $7,000 in hospital bills, and lack of an emergency fund. "We're tired of living on a shoestring," Jenny said. "I don't sleep at night."

When I looked at the Illinois couple's finances, though, I was impressed by how small their debt was in spite of their difficulties. Luke, a machinist, had suffered a layoff, and Jenny hadn't worked since losing her drafting job for an interior designer in 2010.

But things are looking up: Luke has a new job that pays $48,000 a year, and Jenny has just accepted a part-time position. Their total income will be more than $60,000—almost as much as it was before their kids were born. If they follow my four-step plan, their earnings should cover the needs of their expanded family.

Never Be Afraid to Negotiate

With their income, the couple should be ideal candidates for a credit card debt management plan. I recommended they contact either the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies, two nonprofits that can connect them with a counselor who will negotiate with their credit card issuers to set up a reasonable repayment schedule.

Jenny and Luke don't have $7,000 to pay their overdue medical bills, but they received a tax refund for half that amount. They should offer to settle their debt with one lump sum payment of $3,500. That may be even more than the hospital would receive if the account were sent to a collection agency.

Make a Tactical Move

Jenny and Luke's house is too small for their family. It's also not in a great school district, and private school for their 5-year- old would cost $6,400 annually. So I want them to sell their property and rent in a nearby town with good public schools. Renting will boost their housing expenses by $500 a month, but that's still cheaper than tuition. By selling their home, the couple could net $15,000—enough seed money for an emergency fund.

Be Sure the Kids Are All Right.

Jenny and Luke have a total of $500,000 in term life insurance, far less than they need. (I recommend having coverage valued at 25 times a dependent's annual expenses.) According to SelectQuote, an online insurance marketer, Luke could buy $1.2 million in coverage starting at $74 a month, and Jenny could purchase a $750,000 policy for $44 a month. (They currently pay a monthly premium of nearly $60 for a quarter of the coverage.) The couple also has two unnecessary $25,000 whole life insurance policies. Unlike term life insurance, whole life insurance builds cash value in addition to paying death benefits, which makes these policies pricey. Jenny's and Luke's new term life insurance should set them back only slightly more than their old policies combined.

Ramp Up Retirement Savings.

Luke can take advantage of his employer's 401(k) plan and matching contributions, but Jenny has no savings of her own. One spouse is typically the beneficiary of the other's 401(k) assets, but I advise everyone to have an individual account, too. (Nonworking and lower-paid spouses can use some of their partner's earnings to fund a spousal IRA.) Right now Luke and Jenny need to finish paying a car loan that costs them $240 a month, but then I want them to put that amount in a Roth IRA opened in her name. (The funds in that account will be available tax-free when she retires.) They should eventually set aside about $460 a month to meet the annual maximum contribution, which for Jenny would be $5,500.

I know my plan could improve this family's financial situation in two years. "I'd love that," Jenny told me. After all, it's her little ones who should be keeping her up at night, not her money woes.

Suze Orman's latest book is The Money Class: How to Stand in Your Truth and Create the Future You Deserve. Submit a question to Suze Orman.


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