Credit Card Debt vs College savings

[it99]

It's almost a year(in August) when I originally posted the below question about paying down credit card debt. Someone suggested I try to pay off as much as I could on the credit cards to possibly pay it off it 3 years. Then I can start saving for college( my son would be 12). I just wanted to update people on my progress and ask for suggestions. My 40k of CC debt is now down to 35k, so I paid off 5k this year. I think to get it paid off in the 3 years suggested I would have had to pay down 13k a year. In another 2 years from now my car will be paid off and i'll have an extra 400 to use each month. We've had a ton of unexpected expenses this year with things on our house or car breaking. Given the slow progress of paying down the debt what are suggestions beyond just trying to pay it down as quick as I can. At this rate, my son will be close to college age before the debt is paid off. I have an IRA with 9K in it. I know that's I shouldn't touch it, but I'm gettin more desperate with the credit cards. When should I abondon paying down CC and start saving for college???? Thank you.


Last years post:

I'm wondering if I should try savings for my childs college in 9 years(I have 10k so far and want him to go to a private school0 or concentrate on paying off credit cards. Currently been saving $75 a month.

Have 131k mort, 42k 2nd mort, 17k auto, 40k credit card debt(12-16%). Income 112k.
We've been just doing min payments on credit cards because money has been tight.
It scares on the credit card statements how much you end up paying if your just doing min payments.

Should I even be bothering with college savings right now until I get a good chunk of credit card payed off?

[disneysteve]

We're going to give the same answer we gave last year. You earn too much to be this broke.

You need to list your income, expenses and debts for folks to review. Something is seriously out of whack in your spending if a couple earning over 100K/year could only manage to save 5K in a year's time. My wife and I make a little bit more than you and save at least 25% of it each year. If you list everything here, we can point out where you can cut back to free up cash.

I don't think you should abandon the credit cards to save for college. What you need to do is abandon the overspending to pay off the credit cards. Without seeing your budget, though, I can't give any more specific advice than that.

[My English Castle]

The credit cards should be your major focus--and super savings and economizing.
You need Dave Ramsey. Saving for college with that much high interest debt is digging you deeper in the hole. Serious serious economizing. No dinners out, no new purchases--buckle down.

[it99]

We save from my work between what I put in and my company match 15% towards retirement.
So we do save a lot for retirement. So I'm not as worried about retirement. I cant' put any less in by company rules. So I can't get extra income that way.

About the IRA:
IRA : 9k balance, I think these are valid guesses at penalty.
Penalty will be taxes(1/3 income) +1k penalty = 3k +1k penalty = 4k

If this helps me pay off my credit cards sooner, in 2-3 years, then when I'm done paying off CC, I'll have 1K-1.2K extra a month that I'm not paying towards CC. I can make up the 4k penalty in 4 months.

As far as budget, we've trimmed a lot out of our budget but min CC payments are like 1K, plus extra that you want to pay towards balance. I've gone through using budgeting software, Yodlee, and Mint and have everything in there. They are not accurate as far as doing your exact bugdget. They miss items in your bank statement or things get categoriezed wrong and it takes a long time to go through every item in bank register and categorees. If you set up rules it's inaccurate.

[BuckyBadger]

If you don't post a *detailed* budget, no one can help you.

Your income is much too high to have only been able to pay off $5k in a year.

[it99]

We've cut everything as much as we can we shop aldis to subsidize or groceries.
We have all our cable\computer\phone\cellpones bundled in a FIOS package
FIOS -$244 \month
We eat out once a week for about $30 so that's $150/month.
Energy bill $300/month
Meds : $300/month
Car insurance: $84 /month
Life insurance: ?
Gym: $20 /month
Mort: 1.5 k /month
2nd Mort: $750
Credit Card min : $800
That's the basics then just misc. things the wife and kid need.
Gas we get at BJ/s the cheapest around here

This year we've probably had 5k of unexpected items we've had fix with car or house.
Those are killer. I think if everything stops breaking we can get to saving more each month.

[riverwed070707]

Originally Posted by it99

We save from my work between what I put in and my company match 15% towards retirement.
So we do save a lot for retirement. So I'm not as worried about retirement. I cant' put any less in by company rules. So I can't get extra income that way.

About the IRA:
IRA : 9k balance, I think these are valid guesses at penalty.
Penalty will be taxes(1/3 income) +1k penalty = 3k +1k penalty = 4k

If this helps me pay off my credit cards sooner, in 2-3 years, then when I'm done paying off CC, I'll have 1K-1.2K extra a month that I'm not paying towards CC. I can make up the 4k penalty in 4 months.

As far as budget, we've trimmed a lot out of our budget but min CC payments are like 1K, plus extra that you want to pay towards balance. I've gone through using budgeting software, Yodlee, and Mint and have everything in there. They are not accurate as far as doing your exact bugdget. They miss items in your bank statement or things get categoriezed wrong and it takes a long time to go through every item in bank register and categorees. If you set up rules it's inaccurate.

You are correct, the software while helpful will not do all the work for you. You have to put in a little time and effort and then you will start to see results. You've gotten yourself into quite a mess by not paying attention to where your money is going and continuing to neglect this will keep you right in the situation you're in.

Without knowing how you're spending, here are some of the things I would do to help tackle that debt sooner (none of which would include tapping my retirement).

• cut cable immediately
• sell your car(s), pay off the loan and get something cheaper -- you can't afford the one you have
• Phone bill -- should not be more than $100/month. If you have data, cut it. If you have a landline, cut it. If somone at home needs a phone for emergencies, get a trac phone they can use if needed
• cut up the credit cards. if you haven't stopped using them STOP NOW
• Limit dinners out to once or twice a month MAX - skipping them all together is better
• Take a look at other unnessary purchases - no snack stops at the gas station, no McDonalds on the way home, wash your car yourself, no vacations until you can afford them, etc

You sound like you want the debt gone but you don't want to make the sacrifices it takes to get rid of it -- there isn't an easy out, the money isn't just going to land in your lap. You got here becuase you're spending more than you make. If you want to put your son through school you're going to have to make some drastic changes.

[riverwed070707]

Originally Posted by it99

We've cut everything as much as we can we shop aldis to subsidize or groceries.
We have all our cable\computer\phone\cellpones bundled in a FIOS package
FIOS -$244 \month
We eat out once a week for about $30 so that's $150/month.
Energy bill $300/month
Meds : $300/month
Car insurance: $84 /month
Life insurance: ?
Gym: $20 /month
Mort: 1.5 k /month
2nd Mort: $750
Credit Card min : $800
That's the basics then just misc. things the wife and kid need.
Gas we get at BJ/s the cheapest around here

This year we've probably had 5k of unexpected items we've had fix with car or house.
Those are killer. I think if everything stops breaking we can get to saving more each month.

For starters, what is your income? You listed what you make in your OP but I assume that's gross -- what do you net each month?

Where's your car payment? Home maintenance? Gas for cars? Car maintenance? The reason everyone is so adament about a detailed budget is becuase most people who don't pay attention to their spending really have no clue how much they are overspending on non-necessities. We can't help you if you can't even tell us where your money is going.

[disneysteve]

Originally Posted by it99

We've cut everything as much as we can

We have cable\computer\phone\cellpones
We eat out once a week
Gym: $20 /month

You've contradicted yourself. If you think you've cut everything you can, you need to take another look. I've clipped a few things that lead me to say that and I suspect there are numerous others.

You need to have a detailed, accurate budget that accounts for every dollar that comes in. I think the big problem here is that you simply don't know where your money is going. As a result, it doesn't really go where you need it going.

Come back when you can post a complete budget and we'll be happy to help.

[it99]

Monthly net is 7524
Car payment is 415
gas probably 200 maybe
car varies, just this month we had a 1k repair .
other months nothing
Every 5 monts oil change 65 for synthetic oil

[it99]

one more : smoking(not me) $150/mont

[riverwed070707]

OK here's my last attempt at trying to explain this. If you were really only spending what you have listed here for us then you would have $2,611 left over at the end of each month to put toward your debt...instead you're struggling to get by. Is it at all concerning to you that you are spending $2600 A MONTH that you can't account for?! If all of that was going toward debt you'd be paying off your creditors at the rate of $31,000 a year. Something to think about. Yes it's work, but you need to account for every penny that passes through your hands and you will be able to make progress.

[disneysteve]

Originally Posted by riverwed070707

If you were really only spending what you have listed here for us then you would have $2,611 left over at the end of each month to put toward your debt...instead you're struggling to get by.

Exactly what I've been trying to say. So far, the expenses you've listed total $4,913 against a monthly net income of $7,524. Where is the other $2,611 going? If you don't know, you need to find out ASAP. That is nearly 35% of your monthly income. There must be some pretty big expenses that you haven't mentioned yet accounting for over $31,300/year.

[dczech09]

I think we need to put a few things into perspective here. It has been stated over and over again that there is no way someone with $112k income should have so much debt. My concerns are primarily the credit card, the car loan, and the home equity. The mortgage is fine; that is not what is killing the OP. Also it is clear that the debt itself is not killing the OP; it is the fact that they do not know where $2,611 per month is going. Have we factored in taxes, 401k, fringe benefits? Someone said that the OP has $7,500 per month in income which amounts to $90k per year. Are you telling me that only $22k went to taxes, 401k, and fringe?

So what we need to understand is what is take home pay. Gross pay is irrelevant because that is not what the OP has to play with.

Next, why hasn't anyone suggested selling the car? I think that a $17k car loan is way too much no matter what income you're at; especially if you're already carrying some debt. Sell the car and get a reliable/inexpensive car for cash.

Next. Emergency fund. The OP stated that some financial problems came up as a result of emergency home repairs, water heater replacement, yadda yadda yadda. This is something that an emergency fund should have covered. Obviously a $5k emergency fund is not sufficient as that is not even one month of income.

Finally, spending is out of control somewhere. We need to know what the take home pay is. Even after everything is considered, I still think there is money that is not being accounted for. Plain and simple, ants are picking up and carrying away some money and the OP doesn't know about it. Get on a budget, income minus outgo equals exactly zero.

As for the kid. Why does the kid want to go to a private school? Better yet, why are you (OP) willing to pay for this or feel obligated to pay for this? You've got your hands tied with your own finances. Even after you pay off the debt, you gotta get on top of retirement. Judging by your retirment figures that you have posted, and that you have a kid that is 9 or 10, you are behind on your savings. Do yourself a favor and have a convo with your kid. Make a deal that you will cover a state school tuition. If your kid is still dead set on private school, then make the kid pay the difference. Whether that means he works or gets student loans himself. Ultimately, you gott make your kid understand that school is a luxury and not a necessity. Also someone should tell your kid that it does not make sense to go to a private school for twice the cost for the same education as a state school.

Finally, if you cannot pay for your kids college, then so be it. As Dave Ramsey would say, he should praise you for FEEDING him and keeping a roof over his head. Bottom line: STOP WORRYING ABOUT THE COLLEGE STUFF!!!! Get your own finances in order first.

Just my two cents

[disneysteve]

Originally Posted by it99

Monthly net is 7524

Originally Posted by dczech09

what is take home pay.

dczech, OP answered that question. That's where the $7,500 figure came from.

[Brandie]

dczech09 Thank you for posting about not needing to put the kid through college! I keep trying to figure out why parents feel it is their duty to do so. My husband's friend is divorced and she has two kids with her ex and the parents pay a third each with the children paying the remaining third. Whether it's by scholarship, grant, or job money doesn't matter to the parents as long as the kids pay. As for me, I've gone to community college since it's what I could afford. One financial guru (I think it was one of the Dave's) said something like you can get a scholarship/loan/grant for school but you can't get one for retirement.

[dczech09]

Originally Posted by disneysteve

dczech, OP answered that question. That's where the $7,500 figure came from.

Ok my bad. So that still means the OP does not know where the money is going. This is a bigger problem.

And thanks Brandie! I don't know why parents feel they're child abusers if they don't pay their kids college. I'm on the hook for my college, and so is my sister who is in college. When we were growing up, my parents were pretty close to the poverty line. We made do with what we had. Obviously this meant my parents didnt have the resources to pay for college; they had a hard enough time keeping food on the table. My sis and I handle our own college and hardly consider our parents abusers; we're happy with the modest lifestyle that we learned to live with and we understand that college is not this big necessity that everyone preaches it to be.

If a parent is having a hard enough time managing their finances and handling necessities and retirement, then how can a kid expect them to pay for their college, much less a private school? People need to prioritize things when budgeting and realize that college savings is fairly low on the list.