I screwed up

[tada]

I have a long story, but would like some unbiased advice.

I currently am a contract engineer and take jobs around the country. I have a home in Colorado that my wife lives in. So, I support two residences.

Now, I make around $101,000 take home, and up to $135,000 with overtime. My wife takes home around $28,200.

During the last few years, we have really run up some debt. In 1999, all I owed was $177,000 on my house. But thanks to a continuing bout with manic depression, and bad decisions, we have run up $65,000 in credit card debt, a home equity loan for $42,000, a home mortgage of $252,000, a car loan for $543/mo for the Jeep I drive in the state I live, and a lease for $515 a month for a four wheel drive wagon that my wife drives in winter. I also own a small new commuter car outright.

All of these poor decisions have added up. A lot of the debt ($30,000) came from an bad investment in a rental condo. I know it sounds like I make a lot, but I am having trouble shedding the credit debt. I owe too much on the cars I finance to get rid of them without putting more debt on our credit cards. I also have to save in case my job ends and I have to go to the next one. Each move runs around $3,000.

I make ends meet, but the debt still seems staggering.

Does anyone have any advice?

[disneysteve]

So since 1999, you've gone from 177K in debt to 359K in debt plus the 2 cars. Can you tell us where that additional 182K went? What was that money used for? Is any of it stuff that could be sold, returned or otherwise gotten rid of to reduce the debt?

Clearly, there are a number of problems here but for sure the car payments of $1,058/month are sucking up almost 10% of your income. Are you upside down on your loan or could you sell the Jeep and get a more affordable car? You wife is stuck in a lease (or a "fleece" as we like to call them) so you may be stuck there unless you can use one of the services that will find someone to take over the lease. In any case, as soon as that lease ends, ditch that car and buy, don't lease, a cheap replacement. And why do the 2 of you need to own 3 cars? Downsize to 2 vehicles and you'll save on insurance, maintenance, registration, etc.

As for dealing with all the other debt, I think it comes down to really reigning in the spending to the bare minimum. No cable, no dining out, no vacations, no fancy clothes, etc. Sell everything you can sell.

Any chance your wife could increase her income? It is just her at home or are there kids? If she is there by herself, perhaps she could take on a second job.

[dreamweaver]

Sorry about the manic. What you have in your house is a disease than spending is part of.

Here is what I would do for the future. Tier your accounts so that your pay goes into an account that you have NO easy access to. Your bank will do this if you request it. I mean NO bank cards no easy access. Make it so you both have to sign for either to withdraw money from it. Then have that account pay your bills, then feed what is left to a second account. Seperate the accounts so that when you go to an ATM only the second account shows. Remove the credit capabilities from the second account. Freeze all credit cards. Mine are frozen UNLESS I notify the company that I want to use the card. I almost never charge....so this works. Operate all expenses by cash.

You may also have to set up a trust account and have it take care of your expenses and control your spending.

[PrincessPerky]

Great job noticing the trouble! Now if you focus on one step at a time it might seem like forever, but you will get there, just start walking.

If you have no kids and if your wife is on board you have a great deal of cutting you can easily do.

If your wife is not on board you need to start moving her off your cards and onto her own...of course bringing her with you is best but at least start swimming before you both drown.

If you want specific advice on where to find money to pay off debt, start listing all your bills, here if you like, then one by one, cut them out or down, till you have only the minimum plus lots of debt payment.

[humandraydel]

Can you stop contracting? Supporting two residences is silly, IMHO. I'd find a full time job wherever you can and have your wife move.

[moneybags]

But thanks to a continuing bout with manic depression, and bad decisions

The two usually go together. My only advice is to get your illness (or your wife's, not sure who it is) properly treated. I'm too familiar with this disease, and you have to get it under control or the financial solutions suggested won't work. Not to mention the other issues that go along with it. I wish you all the luck in the world with this.

[tada]

Dreamweaver and money bags, you are right about the manic depression (bipolar disorder). After about a year of trying different medications, my psychiatrist was able to find a drug which brought my disorder under control. But, I waited two years to see him. I waited to a point to where my marriage of 23 years and my job were about to be lost. But, I am doing well now, and can see the folly of my mistakes. My wife is on board, and is very nice, but she took a lot of bad times with the disorder.

Disneysteve, I can only account for about $103K of the $182K:
Condo loss $30K
Car bought $8K
Home Improvement $40K
Braces $11K
Furniture $14K

The rest of the money was wasted. I stupidly desired new cars, and bought and sold them too fast, losing money on each transaction. I was once house rich and car poor. I obviously screwed that up too. I can't believe how fast the debt was run up. But, I did it.

My wife is a paralegal who is underpaid, and is terrified of finding another job. It is hard for her to fit in, so she gets comfortable in a job and does not want to leave. I would like her to make more, but I do feel for her situation.

As far as contracting goes, I would not be able to pay my bills on a direct job wages. I ran the bills so high, that I contract because the pay is high enough to carry the debt load. I also get a big tax advantage (really) from having a residence in another state and collecting tax free per diem money. We used to move from town to town following jobs, but that had to end. Plus, with the housing downturn, I don't think I could get enough for my house right now to move my wife to where I work.

We have stopped all credit spending, and live on cash, just like we did before I melted down. The bills are going down. And I try to make as large a payment as possible on each card. At least the interest rate is low at 4.99%.

On to the cars. The Jeep is way upside down, to a tune of $5K. The lease looks like it has to be completed, or I have to find someone to take it over and be liable for the car (according to the leasing company). We have thought about taking the lease car and the car we own, trade them in on a less expensive car, and use the equity in the owned car to pay off the difference owed on the leased car. It would lower the monthly payment and eliminate licensing, insurance, maintenance, and gas costs for the 3rd car. There is no reason we need three cars. Like I said, the illness causes a loss of rationality.

To list all of my bills could take a while. But to cut to the chase, I need to eliminate non essential expenses. I have cut the cable. We have one home phone bill with Vonage for $14.95/mo. We do use cell phones. I have no phone on the road except my cell. We have a family plan that runs $79/mo, and we always stay under our limits on minutes. It keeps me from having another phone bill where I temporarily reside. The utilities are kept minimal. We don't eat out since we are in separate towns. We do spend some money on traveling to see each other, but I buy tickets early with cash, and buy early and keep the cost low. We see each other every three weeks. Other than that, the real expenses are the cars and credit cards.

But let's be real. Even with a written, tight budget I try to keep, I find expenses that I did not count on, that limits my payments to the credit cards.

We are really trying, and I am just looking for some encouragement on a day I don't feel so well.

All of your ideas are right on the spot. And, I do not want you to think that all I make is excuses. Everything you all suggest will be taken to heart.

[boefixepa]

Hang in there and keep fighting. It's amazing how quickly life can change. I've got an aunt and uncle I love dearly and two of their sons have this illness and it's a hard challenge to over come. Just keep chugging and pluggin and you will get out of this.

It appears your credit it still intact...so anything you can do to keep interest rates low is great. I don't know if that 4.99 in an introductory rate, but if it is keep your eye on it. Make sure you transfer it before the rate expires, start looking now, if needed, for a 0% interest credit card to do that.

Look into consolidating anything you can. If you have more than one CC this may be the way to go. That will help with the cash flow and if you can do it on an 0% or near there card that will help.

If you can't get out of either car, can you sell the one you own to get you in a better position? Could you pay off the lease with the money from the comuter car, and then get into a less expensive car. Or get right side up on the Jeep. Or pay off a CC?

Just han fin there and keep fighting you will get back on your feet....it's just going to take some time.

[jamai]

the first step is realising you've been reckless with your money and you've done that.
you now need to sit down and make a plan, do some research and see if you can move some of that debt to lower interest rate credit cards (if you have a good credit rating), you have a good job so i think you can steady the ship within 2 years!

[humandraydel]

Tada,

Fair enough on the contracting for the higher wages. Sometimes, when benefits are factored in, direct employment can be a better deal. I suggest you list your annual expenses and make a pareto chart to see where the big chunks of money are going. These "vital few" are where you can really focus to save the most money. What are you doing for health insurance, for example? Have you shopped around lately? What about going to a high deductible or catastrophic plan?

[mbhunter]

It takes a lot of guts to come into a public forum and admit that you have a lot of debt. Congratulations!

It sounds like you've already started the debt reduction process. Look at where you were when you owed the most, and look where you are now. How much have you shed already?

The longer you continue to reduce your debt, the faster it will go down, because you're paying less interest and more principal for the same payment.

In addition to this forum, there are dozens, if not hundreds, of bloggers going through the debt reduction process, for all the world to see, if you would like other real in-the-trenches perspectives rather than from debt reduction gurus.

Lots of people are more than willing to offer advice and cheer you on because they know what it's like.

[Buckyloulou]

SO glad you got the bipolar disorder diagnoses and are being treated. My girlfriend has that, and while I'm SO grateful that she doesn't have the overspending problem that's so common with BP, I know what a difficult struggle BP is. Kudos to you for working so hard to beat it.

Now, on to the finances!

You don't make enough money to support two residences. Period, end of story. No, I don't think you sound "rich." I make over $100K, and I, too, am struggling to get out of debt. But there's no way a $135K income supports two residences. Get real about that.

Sell the cars.

Do you have stock investments (outside a 401K) that you could liquidate?

Sell stuff. Homes, cars, appliances - sell, sell, sell, sell and simplify your lives. I know you said you couldn't make it without the contracting -- but that lifestyle seems to be part of your problem.

Get your family on one place. Your costs will drop dramatically....

[minnie1928]

Originally Posted by tada

But let's be real. Even with a written, tight budget I try to keep, I find expenses that I did not count on, that limits my payments to the credit cards.

Two years ago I read Total Money Makeover by Dave Ramsey. Dave is one of the financial gurus that people either love him or hate him. Anyway, his plan is in "baby steps" and the first baby step is to put $1000 in the bank as an emergency fund. This would be used to cover expenses that are EMERGENCIES, not "ooooh, there's a Wii! I better get it while I can!". This would help in the situation you mention above.

Another thing that would help is if you create a budget. I'm a HUGE fan of Quicken and using it to track how all my money is spent. Regardless of how you do it, you need to see where all your money is going. Once you have a trend (about 3 months would be a good start) then you can use that information as a solid basis for a budget. If you have bills that occur less frequently than monthly (quarterly, annually, etc), remember to put money back for those bills too.

What I've done is when my husband gets paid (monthly) I send my budget money to HSBC. That way it's out of my hands, harder to get to, and earning 5.05% while it sits and waits. But when the bill arrives I know I have the money already saved and simply move it back to my checking account. The peace of mind this provides is priceless.

Good luck and keep posting!
kelly

[Moneymonk]

Cut your overhead. Downsize in Housing and Cars.
There are your biggest payments

[Ro828]

...get to a Financial Freedom class. I am currently in search of one near me, but my friends in TX took the class and it has changed their lives.


Just wanted to also say, I got tears in my eyes looking at all the kindness extended to Tada. Everyone who responded is helpful and sincere...such a difference from some other forums I've seen. So, thank you for having alot of class, y'all.

[myself]

These things may have been said already, so my apologies if I'm repeating anyone.

1. Pack your lunch. Some folks pack 1-2 weeks of lunches ahead of time, and simply grab one out of the freezer.
2. Stop your current cable/satellite TV service. Go to the local library and borrow books and/or movies, but of course make sure to return them on time. Take a walk in the park, and enjoy what you do have already.
3. Track each and every expenditure. Personally my favorite is to use a credit card that has no balance, and will be paid in full every month. Then download the transactions into Quicken (they do have free versions available, I believe), or Excel (most banks export in either format.
4. Get out of that lease as soon as you can. Offer to give the car back early, and see what their response is.
5. Take a really good look at your tax situation. Since you're married, and guessing that you filed "married filing jointly" with the IRS, it seems that your wife is working for about $9.07/hr (or less, if you live in a taxable state). Based on her earnings of $28,200 and your income, that would cause close to half of her paycheck to disappear due to taxes. Here's how it breaks down:

• Federal tax bracket: 28% - if you're annual income is over $128,500/yr.
• $28,200 Income
• - $7,896 Federal tax
• - $1,692 Social Security
• - $ 465 Medicaid/Medicare
• - $ 0 State tax
• $18,147 Take home pay
• $18,147/2000 = $9.07/hr

Now, if you both were maxing out your 401K ($15,000/each), that would shield her paycheck from being taxed right now. Although it would also limit your income as well (if your budget depends upon her paycheck, this wouldn't be a good thing, but it may be a good thing).

Hopefully this information can/will be of good use to you.
Good luck with everything!

[Ima saver]

Everyone is giving such good advice. I just wanted to say welcome. I know you can buckle down and get yourself out of debt!! It just takes time.

[fairy74]

I also want to say kudos for getting help with your disorder and getting your financial life restarted.

Just a quick tip for your wife: I'm an attorney and worked as a paralegal for five years before going to law school and she is being massively underpaid---there are many good career coaches who can help her to find a situation where she would be comfortable but not be undervalued. It's worth looking into.

Best wishes to you both.

[DebbieL]

I believe the original poster's wife brings home $28k after taxes and he brings home over 100K after taxes (that's how I'm reading it from his original post).

[Kate Ann]

I don't know about fixing the whole puzzle piece as I'm a n00b to this site.

However, I don't know that anyone suggested a simple step like paying off your credit cards by paying them off from smallest balance to largest. Pay off the lowest balance credit card first with the largest payment you can reasonably afford, while making the minimum payments on the others. Once the first card is paid off, take the amount you paid towards getting that first credit card paid off, add that amount to the minimum monthly payment for the next card that has the lowest balance and get that balance paid off, while making the minimums on the rest....
Every time you pay off a balance, you'll feel SO good. I know, I just did it, and am now down to one cc balance to pay off.

You can do it.