Trying to dig my way out

[bettie]

Hi everyone! I'm new to the forum and have been reading posts on here all morning, so I figured I'd chime in with my situation and see if anyone has any advice or sees things I'm missing. This is going to be a long one

I'm a newlywed and a new mama. I'm 28, my husband is 32, and our little girl is almost 3 months. My husband is an immigrant without a degree but without any debts at all. I have a BA but lots of debt. I'd always wanted to be debt-free before getting married, but I met my husband in 2008 while studying abroad--long story short, we fell in love and decided to get him a K-1 Visa to come live in the US. Last year I decided to really focus my energy on paying off as much of my debt as possible before the wedding in June 2009 (with the plan to continue aggressive re-payment after as well) I started off pretty well, until my husband arrived and we had our little surprise baby. As soon as I found out I was pregnant (after freaking out, of course) I decided to stop the aggressive repayment and just do minimums so I could put a bunch of money into savings each month to help make ends meet while I went on maternity leave. My husband wasn't able to work last year until August, so we were living on what I made until then. I started my maternity leave in January 2010 with about $2,000 in savings. I'm now about to return to work in 2 weeks and we currently have $1,100 in savings (our tax return was much larger than I had anticipated.)

I currently have $18,700 on high-interest credit cards (these WERE mostly moderate and low interest up until fairly recently, and now the interest rates are atrocious.) I've been accumulating this debt over the past 10 years and although a big chunk of it is due to a car accident that I had 8 years ago, I admit that it grew and grew due to irresponsible spending and poorly planned debt-repayment on my part. That and a serious dose of denial, but I've finally decided to pull my head out of the sand and get my situation under control so that we can provide a good future for our daughter and the future child(ren) that we hope to have.

So, $18,700 spread over 7 CCs and $23,900 in student loans ($11,373 is unsubsidized Stafford, $10,120 is subsidized Stafford, and $2,300 Fed Perkins.) We're working the snowball on the creditcards (using the vortex excel spreadsheet), and based on a monthly payment of $800 we should be free of that debt in 33 months. Minimum payments amount to $686/month, and $800 is a conservative amount that we'll have no problem paying each month, but I expect most months to be repaying closer to $1,000-$1,200 which would have our credit cards paid off in 18 months. I'm paying $70/month for the student loans on the Income Based Repayment plan.

That's it for our debt. We don't currently own a home or a car, and we haven't used the credit cards in over a year. In fact, I finally dug them out of the drawer and put them through the shredder because once we get out from under this debt we never plan to use em again.

[bettie]

Monthly Budget

Sorry, that post was getting long and the baby started to cry, so I decided to post it and return to fill in the gaps of info.

I'm still trying to work out the kinks in our monthly budget, but here's what I have

Rent 885.23
Utilities 120 (cable/internet/water/power)
Cell Phones 50
Transportation 100
Student Loans 70
Grocery 350-400
Household 50
Laundry 36
Diapers 75
Entertainment 10 (netflix)
Credit Cards 800
savings 25

Total $2,625

I work as a waitress and my husband is currently underemployed working as a barista. Our incomes vary based on how many hours we get and the seasons. But last year I averaged about $2,000 a month. My huband currently brings home $660/month but he is underemployeed and will be looking for a new job with more hours and hopefully better pay. But as I said, my income varies. Some months I made $1800, but during the summer months it was closer to $2500. Also I was pregnant for a greater part of last year. Not sure how that will change my income this year, though.

[minnie1928]

Couple of quick questions before I go to bed....

1. You mentioned you have a BA, are you trying to get a job related to your degree?
2. Your list of expenses, daycare is not on the list. Does that mean that you and your husband work different shifts and watch the baby while the other one works?

Comments about your expenses:
1. $50/month for a cell, can you go prepaid? I pay about much, much less than that per year on my prepaid cell.
2. Grocery/diapers...are you using coupons or shopping for the best deals? I'm not sure where you are located, but I live in a high COL area and on a per person basis...I can do it for less.
3. Drop the cable tv. You have internet and netflix, so why not stream your tv shows/movies and watch them that way?

[bettie]

Thanks for the reply!

1.Job--I will be trying to get a better job and hopefully one related to my degree (Comparative Literature. Lucrative ) But for now I'm working at the restaurant because it's what I have experience doing (worked my way through school) and because when I got home from studying abroad the economy had just tanked and no one was hiring. I was lucky to even find the serving job. I'm thinking of going for teaching credentials, but that means more money spent, so for now I'm waitressing.

2. Daycare--we plan to work opposite schedules so that one of us is always home with the baby. That should work for us, at least through the end of 2010. My husband is going to try to get a job valet parking which would be much more money than he makes now, and would naturally put us on opposite schedules since I work mostly lunch shifts.

3. Cell phone--that $50 is for both my husband's and mine. We have virgin mobile prepaid with their 24.99/month plan for each of us. We don't have a land line. But we use the exact amount of minutes included in the virgin mobile plan, so it seemed like a good deal. Other options would be considered, if anyone has suggestions for better rates or companies!

4. Grocery/Diapers--this is the part that I'm struggling with the most right now. $75 for diapers is just a figure that I found online for the average monthly cost of diapers, so far we've used giftcards and bought in bulk from Babies R Us. We currently have a stockpile of about 400 diapers, which should last us through next month. Possibly into the first few days of June. As for the grocery, we've already brought that figure down, we were closer to $450 and upwards! We live in LA and we eat lots of fruits and veggies. I've been keeping all of my reciepts from this month's grocery stops and I plan to analyze them in greater detail at the end of the month. We do have a glass of wine each a night with dinner (nothing fancy, 2 Buck Chuck) but that can be eliminated to save us around $25 or more a month. We also might have to cut down on animal-based proteins and eat more lentils, beans, etc. I don't clip coupons, but I use the register-generated ones when they apply to us. But once I'm more aware of what we're eating each month maybe I can start looking for coupons. Thing is we don't really eat much processed or packaged foods. Also we have WIC right now, and still the food budget is that high! Any suggestion on how to lower it are welcome!

5. Cable--I'd totally drop it if I could, but we live in a 2 bedroom apartment with my brother and he considers the internet/cable thing a necessity. The way I see it, by living here with him we're saving at least $200-300/month in rent (if we were in a one bedroom on our own) and we're really nicely located at an intersection with LOTS of bus stops, so we don't need to think about a car. I kind of figure that the added $60/month or so that we spend on cable and internet is canceled out by savings on rent and transportation.

[Joan.of.the.Arch]

If you are looking for ways to further cut down, yes I'd suggest the cable is one place. (By the way, I would put cable under "entertainment" rather than "utilities," as cable is not really necessary. Maybe your internet service is via cable?) Another place on the budget I'd look at would be food. If I were you, I would ask my husband about traditional foods in his country. So often the traditional foods in any country are among the least expensive. If he doesn't know how to make them, perhaps one of his relatives could tell you. It would be a fun thing to share and to keep in your new family.

Maybe the "household" category can be cut back. Not sure what you have in there. Toilet paper, laundry detergent, shampoo, toothpaste, toiletries In general, cleaning products, vacuum cleaner bags, paper towels, printer paper & ink, dish detergent, dishwasher detergent...? If you use a lot of cleaning products, I think you can find advice on this forum on how to simplify and save.

Does your DH have health insurance for all of you through his barista job? (I'm guessing your waitress job does not come with insurance.) If so, that might be worth more than equivalent per hour pay at a full time job without insurance. I'm hoping that somehow you have found insurance at least for the baby so that you do not hesitate to go the doctor for your little one. I think all US states now have special kid-only state pools of insurance for low income families.

Actually I think you are probably managing pretty well on what you two are earning. Stick to it and watch for opportunities to earn extra bits and you will get there. If you have family in the area, do let them help you if they offer. Enjoy your little baby.

I want to acknowledge, too, that it is probably tougher that you graduated during a recession. Your opportunities might have been different otherwise. Hang in there. You still have a decent life, I'd say.

P.S. Sorry, somehow I had missed reading your response directly above mine.

[bettie]

Maybe the "household" category can be cut back. Not sure what you have in there. Toilet paper, laundry detergent, shampoo, toothpaste, toiletries In general, cleaning products, vacuum cleaner bags, paper towels, printer paper & ink, dish detergent, dishwasher detergent...? If you use a lot of cleaning products, I think you can find advice on this forum on how to simplify and save.

This is another area that I kind of guessed on for our budget. I just lumped all of the stuff that you mentioned together and figured $50 would be enough to cover it, but I really have no idea how much we spend on average per month for that stuff. I plan to read the frugal forum for tips on how to save there. I could probably cut that part of the budget by almost half and still be fine. But in my experience those expenditures seem to vary month to month depending on what we run out of. So some months it might be $15-20 and some months it might be much more. I guess what I'd like to do is find the right number and then if we don't use all of it one month, roll that amount over to the next. We're currently accumulating jars to use envelope style, which I think will help.

Does your DH have health insurance for all of you through his barista job? (I'm guessing your waitress job does not come with insurance.) If so, that might be worth more than equivalent per hour pay at a full time job without insurance. I'm hoping that somehow you have found insurance at least for the baby so that you do not hesitate to go the doctor for your little one. I think all US states now have special kid-only state pools of insurance for low income families.

This is something I thought about last night after I went to bed--I didn't mention that we don't have insurance. I was covered by the University until I graduated, and then I qualified for pregnancy-related medi-cal. DH has not had insurance since he arrived in the US. Baby is currently covered under Medi-cal, I think for the first year. DH will be looking for new jobs soon and will be applying at Trader Joes, which offers benefits like health coverage even for part-time employees. If he gets that job we'll apply for insurance through them. If not we'll have to purchase it on our own and I have absolutely no idea how to go about that. I've never had private health insurance unless I was covered by University or somehow found a job that offered it. Otherwise I just went without, but I realize that's not wise now with a baby. Any suggestions would be greatly appreciated.

Also, how important is life insurance? Is that something thatg can wait until we're further out of debt?

I did manage to list 30 books for sale on Amazon yesterday and if I sell them all that will bring in $250 to go towards the debt. I've already sold 2! And I have about 45 more books that I could list as well.DH has a guitar that he has mentioned selling, but I'm kind of against that. I already feel bad that I'm the one who brought so much debt to the marriage and that we now have to sacrifice so much because of it.

[bettie]

I also wanted to ask about the interest rates on my CCs. They used to be fairly low to moderate, but when the credit crunch hit (I had $23K in cc debt then!) all of my cards dropped my limits down to right above the balance, so suddenly I was maxed out on every card, which dropped my credit rating, which in turn gave them an excuse to raise my interest rates. Even worse, two of my cards were recently closed by the account holder due to my overall high debt-to-credit ratio, thus further damaging my credit score. And the cycle continues. I know it's my fault for carrying so much revolving credit that I wasn't able to pay off quickly once this started to happen. But now I'm paying upwards of 20%, most of them colser to 30%, on every card and it's killing me. I know in the past it would be recommended that I call the cc companies requesting a lower interest rate, but is that even possible these days--especially with a less than stellar credit rating? I've been current and on-time with all of my payments for about a year and a half on all of them, does that even count though?

This debt snowball would roll a lot faster if we weren't fighting against so much interest.

[jpg7n16]

...This debt snowball would roll a lot faster if we weren't fighting against so much interest.

... or if you had a higher income.

That's your main issue, really. Your combined income is too low. 2nd job possibilities?

The extra 10% in interest is costing you like $2000 a year. A 2nd part time job would make like $10,000-20,000 a year.

I mean if you made a combined $5,000 a month, this picture doesn't look nearly as bad. At $5k a month, keep the current budget, and this CC debt is completely gone in 1 year. Then your budget can increase by the $800 you're paying towards credit cards, and would allow you guys to afford proper insurance, retirement savings, emergency fund, etc. The point I'm making is that a lot of your troubles get smaller as the income gets higher - because that's the real problem.

Can you imagine your life with a $5k income and an $1800 budget? Your wealth would grow so fast!

On a separate note, if your tax refund was really large, talk to your HR about changing your withholdings to withhold less. That would give you extra cash each month (but less of a refund). But since you could use the extra cash flow each month to pay down debts, it would save you some interest.

[bettie]

... or if you had a higher income.

That's your main issue, really. Your combined income is too low. 2nd job possibilities?

I agree, this is mostly an income problem. Our income is super low right now, mostly because of DH's situation. He is only bringing in $660/month right now because he's getting minimum wage and the cafe he's working at is only giving him 22 hours a week.

We're planning to look for a new job for him with more hours and hopefully a pay raise out of minimum wage, but that won't be likely until July. Right now he's taking Free night classes to improve his English, and those meet Monday-Thursday from 5:30-9PM. That makes getting a new job tough now.

One of us has to be home with the baby, so since I work lunches he's home during the day and I'm home at night while he's at class. Once the class ends he'll be able to devote those hours to a wage-earning job, but we definitely see the classes as a necessary and beneficial time-investment.

I mean if you made a combined $5,000 a month, this picture doesn't look nearly as bad.

I wish this were possible, but I just don't see how we could possibly make a combined ncome of 5K a month. Unless maybe DH gets a job working as a valet parker--we've heard that they make really (relatively) good money in LA, that might be able to get his monthly income closer to $2500. But even if he gets a job working 40 hours at night and manages to get a $1/hour pay raise, he'll still only gross $1440. He'd have to be making around $16/hour in order to make $2500, and I don't see that happening.

If he can bring his monthly take-home to above $1000--closer to $1300-1400 if possible--and if I work 6 days a week I should be able to make between $2300 and $2500 monthly, which brings us to around $3600-4000/month.

Our tax return this year was about $1,700. It was more than I expected, but I went from filing as a single college student to married flinig jointly. So I kind of had no idea what to expect. And this year we'll have the baby too.

[jpg7n16]

...Once the class ends he'll be able to devote those hours to a wage-earning job, but we definitely see the classes as a necessary and beneficial time-investment.

Oh I absolutely agree

I wish this were possible, but I just don't see how we could possibly make a combined ncome of 5K a month. ...
If he can bring his monthly take-home to above $1000--closer to $1300-1400 if possible--and if I work 6 days a week I should be able to make between $2300 and $2500 monthly, which brings us to around $3600-4000/month.

Hey 3600-4000 would be a big improvement. That would give you guys some breathing room at least.

But as far as getting the income up to 5000 a month... it's not impossible. 5k/month = 60k/yr. If you get a new job with your degree making $40k+ and he gets a full time position making $20k+, you're there Or 30k/30k. Once he gets situated, I don't think that's a big obstacle.

Obv this may not happen straight away. It may take a little while to get there, but once you're there, you can breathe normally again

Our tax return this year was about $1,700. It was more than I expected, but I went from filing as a single college student to married flinig jointly. So I kind of had no idea what to expect. And this year we'll have the baby too.

Yup! Your refund should be even bigger this year. I'd see about asking someone in payroll about what it would take to reduce the withholdings about $150-175 a month. You guys could really use that cash right about now. And with the dependency exemption you'll get from your baby, you'll probably wind up still getting a refund back next year. Then adjust it again at that time.

[bettie]

Oh yeah, we'll definitely be shooting for the 5K+ mark in the future! I'm just a bit stuck on the short term and worried about that for the time being, but I see what you're saying. Long term plans, once the debt is paid off (Credit Card debt, at least, and maybe a good chunk of the student loans) we intend to throw the extra money that we were putting towards repayment into an account to save up for 6 months living expenses. Once we get there we plan to funnel the extra money into a car fund and start looking at investing for retirement and a couple of college funds. I'm hoping that it takes us under 5 years to get all of these things accomplished. Wish us luck!

Also, as far as the withholding--does anyone have advice about that? I just took a look at DH's paystub and he has 2 allowances. I think I claim 1. I have no idea what either of those numbers mean or how we arrived at them--or what we SHOULD be claiming now in order to keep more of our cash every month. Anyone know about that and have advice for us?

[bettie]

I listed a bunch of books on Amazon yesterday and 5 of them have already sold bringing in nearly $50. I still have to ship the books, which will cut into that profit, but Media Mail tends to be pretty cheap so hopefully I can ship them all for under $10. I have more than 30 other books listed, so I'm crossing my fingers that they sell!

[ktmarvels]

First of all I want to congratulate you on what you have accomplished so far. You sound very motivated to pay off your debt and are making strides to do so. Keep trying to take advantage of every opportunity to either cut costs or earn income. Is there anything else you can sell?

1. Health insurance- This is very important, especially for your child, but for the two of you as well. I would try to make a job that has benefits a high priority or look at what options are available on your own.

2. Life insurance is important for anyone who has someone that depends on their income. This would be true for both you and your husband. Again, this is something that may be offered through an employer or on your own.

3. Your brother. You haven't gone into this situation much other than you pay for cable because he wants it. Try to examine other household and food costs to make sure he is paying his fair share. Also it's ok to have a discussion with him and let him know that you are trying to pay off your debt and secure your little one's future and cannot spend money on things you once did. If you decide you don't want to pay for cable, he may decide to pay for it, or decide that he can live without it too.

4. Your withholding. I would check with a tax professional. But it is my understanding as a general rule of thumb the number of allowances should equal to the number of exemptions claimed on your tax return (generally the number people in your household). The fewer allowances you have, the more they take out of each paycheck. There are be online calculators for this.

5. Your interest. Have you tried talking to the companies and asking them to lower the interest rate? They may not be as willing to do it now, but the worst they could say is no.

Good luck and keep it up, you'll be out of debt in no time!

[creditcardfree]

4. Your withholding. I would check with a tax professional. But it is my understanding as a general rule of thumb the number of allowances should equal to the number of exemptions claimed on your tax return (generally the number people in your household).

This is not true. We have 9 withholding allowances, but only 4 exemptions on our tax return and we always get a refund. There is a withholding calculator at the irs website. There is also one here. You likely can claim more than 3. Once you know the number, you each need to fill out a new W4 with your employer.

[bettie]

Thanks for the suggestions!

I definitely plan to look into health insurance for DH and me soon, and possibly life insurance as well.

As for my brother--the only expense we share with him is for cable and internet services. He knows that money is tight right now for us, so he has actually been paying the cable/internet/utilities while I've been on maternity leave, which has helped a ton. We don't eat meals with him, nor does he eat the food we buy. He pretty much orders delivery for every meal.

Trying to think of more stuff to sell on Amazon. It's kind of addictive. I've had 2 more books sell last night!