What should I do?

[TheStreetCeo]

A reader on my blog posted this question. It's a tough situation. I know what I would do but could use somehelp before I reply to my reader.

"My family and I have this debt:

Interest free loan $6500.00 balance $285 per month minimum payment

Closed credit card account zero interest(lifetime) $10,100 balance $195.00 minimum fixed per month

Credit card zero interest until Aug 2010 $7200.00 current minimum payment is $72.00

The problem my family and I have is we have a monthly budget deficit of $700. We have three kids 14 yrs, 6yrs, (first grade next year) and 8 months. My husband works fulltime and I stay at home with our son while taking care of another child to earn money. We looked into me going to work fulltime but my pay is all chewed up with our kids daycare. I make $750 per month taking care of this one child and it allows me to raise my own and is about even if I had a fulltime job and paid daycare. Once we pay off these loans and credit card we will almost be even with regards to our monthly budget. We are having to use our savings account money (balance $8600.00) to compensate for our monthly deficit. We do not spend much money at all and have very little frills i.e. basic cable basic internet, and no home phone. My husband is an entreprneur so can handle off the wall ideas on how to make extra money. Can you help?"


Any help you all may have would be great, it's a tough one.

Thanks

[buildmybudget]

Are there any assets that can be sold to pay off the debt?

[TheStreetCeo]

Interestingly enough that was one of my first questions to her. She replied with yes, but nothing substantial. Her family has garage sales often and sells what they can to make small gains.

Their on the right track in my opinion and try to stick to buying needs and not wants but stray as most people do.

[Broken Arrow]

I don't normally respond to questions like this, but this struck home because I was in a very similar situation years ago.

Can you get a fuller picture of their entire budget? For example, what is their rent or mortgage? Grocery bill?

What about family? Do they have any family support nearby?

Where are they living? Is where they are a place that they absolutely must stay in, or is there a cheaper place to live?

[disneysteve]

We do not spend much money at all and have very little frills i.e. basic cable basic internet, and no home phone.

Almost every time I've seen this claim, it has turned out not to be true once the full budget was revealed. It certainly isn't true here. A family running a $700/month deficit should not have even basic cable or internet. Those are LUXURIES. They can't afford luxuries right now. I suspect that their budget is filled with other items that they don't think are important but would all add up if eliminated.

[TheStreetCeo]

I asked for additional information this morning. I'll post it if I get it. they live in Wisconsin I know that for sure.

[disneysteve]

If she makes $750/month taking care of one child, she could eliminate the whole monthly deficit by taking care of another child. I'd look to get that 2nd child ASAP.

What type of work does the husband do?

Is there any way she could work during hours when her husband is home to care for the kids? Maybe one of them could deliver newspapers in the morning or pizzas at night.

[TheStreetCeo]

Disneysteve,

I made that comment to her regarding adding and extra child to take care of the deficit once and for all. It's on the table however legally she couldn't take on another infant because the laws state she can have only two infants at one time (one is hers).

I'm sure your right when you said they probably wouldn't have a a deficit if they really cut out everything. She told me her cable and internet were basic and combined with their cable company for 2 years at a special rate of $72.00 per month. My thought was if they have truly cut out wants then having some sense of being normal could go a long way and that $72.00 for basic cable and interent may be worth keeping.

[disneysteve]

She told me her cable and internet were basic and combined with their cable company for 2 years at a special rate of $72.00 per month. My thought was if they have truly cut out wants then having some sense of being normal could go a long way and that $72.00 for basic cable and interent may be worth keeping.

Like it or not, they can't afford it. The mindset of trying to maintain normalcy gets a lot of people into trouble. They don't go into survival mode until it is too late for it to help.

By the way, our limited basic cable and economy cable internet costs less than half of what they are paying.

When you are spending $8,400/year more than you are earning, you need to take drastic measures.

[maat55]

There is no such thiongs as "I can't work more" or "I can't cut anymore out of my budget". Aside from that, if you are truly spending the minimum possible, it is time to sell the house and move to a lower cost area.

Too many people run up credit cards, spend all their savings or both before making the proper changes needed to stop the bleeding.

I would sell my house and move in with family before I would depleat my EF. let alone build up other debt.

[jpg7n16]

Interestingly enough that was one of my first questions to her. She replied with yes, but nothing substantial. Her family has garage sales often and sells what they can to make small gains.

Their on the right track in my opinion and try to stick to buying needs and not wants but stray as most people do.

If they have garage sales, they likely have a garage - and therefore a house.

Do they have too much house? Too much car?

I mean even if they had $0 of these debt, they wouldn't be making ends meet - so these debts aren't the problem. They're just something for her to blame her situation on.

Walk through her largest monthly expenses and try and reduce them. Don't start by changing to generic soap - start with the big ticket items.

(yes you can reduce house payment by moving to a smaller/more affordable house. yes you can reduce car payment by downsizing in car.)

If the problem is actually on the income side, then tell entrepreneur hubby to get a stable job at a company. "entrepreneur" seems like code for self-employed. Or part time job on the side until business improves.

Edited to add:

If you could get us some income figures and total expenses with a listing of at least the top 10-15 expenses (all expenses is best) that would go a long way towards us being able to pitch in with useful ideas.

[disneysteve]

Do they have too much house? Too much car?

Walk through her largest monthly expenses and try and reduce them. Don't start by changing to generic soap - start with the big ticket items.

(yes you can reduce house payment by moving to a smaller/more affordable house. yes you can reduce car payment by downsizing in car.)

This is a great point that comes up often here. People post about problems with their finances and it turns out they are spending 45% of income on their mortgage or driving a $30,000 car. Switching to generic corn flakes won't solve the problem.

[TheStreetCeo]

Your right Steve generic probably isn't the problem here. I've reached out to ask follow up questions but have yet to hear back. They may have been looking for a silver bullet on how to fix the deficit and after I explained there simply isn't one and that a long look at their finances would be necessary they may have gone dark on me. Time will tell.

I'll try again throughout the work day today (because everyone I do business with is on vacation) I have nothing to do but post.

[disneysteve]

Your right Steve generic probably isn't the problem here. I've reached out to ask follow up questions but have yet to hear back. They may have been looking for a silver bullet on how to fix the deficit and after I explained there simply isn't one and that a long look at their finances would be necessary they may have gone dark on me.

That happens all the time on this site. Someone will post that they recently bought a house and have 2 car loans and they are now looking for a way to make ends meet. Oh, by the way, selling the house or cars isn't an option because they are way upside down on all of them.

Folks never seem to come on and ask, "Can I afford this house or car?" They don't post until after they make the purchases and at that point, there really isn't much for any of us to offer except to sell the house and cars.

[Joan.of.the.Arch]

Well, I always hope that the replies to those kinds of posts help some other reader, perhaps someone who is on the verge of making the same mistake but will come to understand that they need to do things differently.