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We Make a Great Living, Why Are We Still in Debt?

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    I was in a similar boat a few years back, but substitute the loan types to a few more "home improvement" loans and add a few more "wasted money" categories.

    I just basically spoke with my wife, and we agreed to start paying down one bill, and only one bill. We picked the home center card, because it had the enormous 20%+ interest if it wasn't paid off in a year. As they seemed to put our payment to the debt-owed or must-be-paid portion at their discretion, we realized two things: We'd have to pay it off completely, and we'd have to do it at least two months early to make sure they didn't come back with "but you still owe $1.43 in interest accrued on the interest-paid portion, so you're now over your year, and the 22% of $5,000 means you now owe us $1101.43 including the deferred interest."

    Anyway, once that one was gone (interest free, as advertised), we went to the next bill, and used the money from the home-improvement center loan payment to add to what we were paying on it. We just continued this until our bills were gone. One thing I realized was that it wasn't the amount we owed, it was the fact that we had SO MANY bills to pay that made things all-too-easy to be lost in the shuffle and to make it feel like we had nothing after each month's bill sessions.

    I never did a debt consolidation, nor did I refinance. I got fairly adept at writing future value and present value formulas in Excel, and worked out the finances manually. Even "zero cost" re-fi loans just roll the money into the loan, so look out for too-good-to-be-true advertisements. Banks don't make money by giving it away for free.

    So, while I don't disagree that a budget will help, I think if you just concentrate on only buying what you NEED (not WANT), and then go after one bill at a time, within six months you'll have breathing room. This "breathing room point" is the critical point where you should stay the course. Write down NOW when you'll "reward ourselves" for your pay offs. Don't reward yourselves unnecessarily or extravagantly. When you feel some breathing room, continue to "hold your financial breath" until you are free and clear.

    Then sit back and enjoy all the "free money" you are right now wasting on interest.


      I think one of the first things is to tell your brain to stop thinking that you make close a quarter of a million a year. You mentioned that you grossed around $242,000 yet later you said you netted around 14K a month ($168,000)a year. That is a difference of $74000 a year that you aren't seeing or able to spend! My ex used to do this, he would tell everyone he earned $800/week. Yeah right, he earned $800 a week two or three times a year. The rest of the time it was between $250-400/week. We also had $42K in credit card debt, two car loans and a mortgage, and I counldn'e get him to stop spending! As far as he was concerned he was making great money and he should get to spend it.

      That being said, once you adjust your thinking about how much you are making, then you can see things a it more clearly. I would guess that you have all the clothes you and your husband need. Growing kids go through clothes at an alarming rate, yet you can dress them cheaply by going to thrift stores, yard sales, swapping with other parents, etc. Coth diapers at home (I understand some daycare centers won't allow cloth) would lower that cost and is much better for a baby bottom. As long as you have a washer and dryer, it is easy to do.

      Track what you are spending on for a couple of weeks and see where the leaks are. Does huby run out for coffee before starting his day? Do you? Have you checked that you have the absolute lowest car and house insurance? Huge savings there at times. With a 20 minute phone call last month, I knocked our house insurance down $900 a year!

      Try a no spend month. Try to eat our of your pantry. No manicures, no coffees out, no meals out, no unnessary driving. I would keep the maid as you can probably afford her and I know how being a working wife and mother can exhaust you and the woman proably needs the money more than you do. No clothes shopping. No toy shopping, nothing but essentials--ask yourself if you were making only $30,000 a year, could you afford this. If the answer is no then don't buy it. Before each purchase ask yourself if this item is more important than the kids educationa and your retirement. Put your thinking cap on. You have the resources to wipe out your debt and increase your savings tremendously. Go do it!


        Just a year and few months and you could get rid of the consumer and car debt. Than you will have a lot more money to play with.

        It is an adjustment to go from spending above your means to spending below it, but as a temporary goal challenge it is not so bad. You know it is not forever. You could pay 2-2.5K a month on your debt.


          Others are addressing the debt concerns better than I can, but I did notice something odd. I live in Atlanta as well and am fairly well acclimated to the utility costs. You never mention the size of your home, but with two kids, and a mortgage in the $400k+ range . . . I'm guessing we are talking about something in the 2,500-3,000 square foot range? How on earth are your total monthly utility bills (power/water/gas) in the $200 range? With that amount of space, people, lawn care, etc, that is shockingly low for the area and climate. You must either have an extraordinarily efficient home, or are underestimating those numbers significantly.

          For comparisons sake, we have a detached 2/1 with about 1,000 square feet. Recently renovated, double pane windows, etc. Here are our last three power bills.



            I have observed a variation on the following theme many times over the years.

            People seem to confuse accumulating wealth and having good cash flow.

            Most people making a $200k have good cash flow, obviously, but they'll never accumulate wealth because they're living at about $205k.

            Want to know who has accumulated wealth? The least glamorous businesses -like the hardware store guy, or the auto parts store guy. He's probably driving a three year old Ford.

            Joe the lawyer, making $200k needs to keep up with his neighbors in his splashy neighborhood; landscapers, Mercedes for him, BMW or Escalade for the soccer mom. Rolex watch, of course. Season pass at the ski resort, membership at the private golf club. Their feet are to the fire with three kids expecting to go to private colleges. If they have daughters -whoa! Weddings with 350 people, soup to nuts, open bar, cigar rolling guy, $6k for the band.

            Meanwhile, Fred the mobile home parts supply guy has accumulated $3 Million in the past twenty years. He managed to build that financial wall around his family that Jim Rohn talks about -that cannot be penetrated.

            Joe the lawyer is trying to figure out where he can come up with an extra $500/mo to cover the BMW payment. Don't talk to him about college tuition. He'll drive off that bridge when he gets to it (an old Ted Kennedy quip).

            Sound familiar, anyone?

            The obvious solution to money problems, is to quit spending it. Do the math. It's pretty elementary.

            If you must spend, pay cash. Pay off the credit cards and don't charge more onto it than you can pay off in the current month.

            Pretty simple stuff.

            Vic Doke
            burialInsuranceAdvice dot com


              Urgent personal finance advice

              From our old friend Seth Godin:

              Urgent personal finance advice

              If I could only share one piece of personal finance advice to grads or to just about anyone, it would be this:

              Only borrow money to pay for things that increase in value.
              It's a short list: your business, your house and your education, mostly. Stocks if you're smarter than me. That's pretty much it.

              If you have credit card debt, you're in big trouble. Your bank account has a huge leak in it, and it's getting worse. Hence the urgency.

              If you have credit card debt, that means that every time you spend money (even cash), you're borrowing money to do so. And so, if you're going out to dinner or buying a new pair of shoes, you've just broken the single most important rule of personal finance. You're spending borrowed money on stuff that is decreasing in value.

              This is an emergency. It's an emergency because every single day you wait, the problem gets worse. A lot worse.

              My suggestion: Go to defcon 1, and do it immediately. Shift gears to live well below your means. That means:

              No restaurants
              No clothes shopping
              No cable TV bill
              No Starbucks

              It means:
              Take in a tenant in your spare bedroom
              Carpool to work
              Skip vacation this year
              Eat brown rice and beans every night for dinner. Act like you have virtually no income.

              The result? You'll save $5,000 to $20,000 a year. Send all of it to the credit card company. Do this until you're debt free, the faster the better.

              There. Now you're rich. Now you get interest on your savings instead of paying the bank. Twenty years from now, this emergency action will translate into perhaps a million dollars in the bank, depending on how much you earn and how serious you are.

              You can thank me then.

              Posted by Seth Godin on June 09, 2008
              sethgodin.typepad dot com/seths_blog/2008/06/urgent-personal dot html


                Monthly Net Income (including $1300 rent from tenant): $14K

                Mortgage 1 - Primary: $2200 (4.25%, just re-fi'd)
                Mortgage 2 - Primary: $500 (high rate, 8%)
                Mortgage 1 - Rental: $1275 (6.5%)
                Mortgage 2 - Rental: $150 (low rate, 4%)
                Car: $442
                Student Loans: $550
                Credit Cards: ? (Minimum Amount)

                Total Debt Minimum Payments: $5117 + CC

                HOA dues - Rental: $200
                Health Insurance: $520
                Child Care: $1850
                529 Plans for Kids: $400
                Maid: $190
                Electric: ~$150
                Home Security: $20
                DirecTV: $90
                Husband's Disability Insurance: $71
                Life Ins/both: $70
                Car Insurance: $140
                Water/Natural Gas: $100
                AT&T - Cell and home phone: $250
                Home Insurance: $45
                Grocery: $600 ? ($35/person/wk)
                Gasoline: $300 ?
                Medical: $100 ?
                Auto Repairs: $200 ?
                Home Repairs/Yard Care: $485 ? (1% of mortgages annually)
                Gifts: $150 ?
                Wants/Clothes/Life: $200 ?

                Total Expenses: $6131
                Total Debt Payment: $7869

                See if you can cut your expenses down to $5000 / month:
                -Maid $190
                -DirecTV $90
                -Wants $100
                -Health Insurance: Raise your deductible and make sure you aren't paying for accident insurance (unless you have someone break a leg every year) $100
                -Stop contributing to 529 plans $400
                -Drop your home phone ?
                -Lawn care ?

                Total Expenses: $5251
                New Debt Payment: $8749 (Snowball starting with the lowest balance)

                A few things:
                - After a two year hiatus (had to wait to start contributing), I've just started 401(k) contribs again. Maxing out at $17K. NO MATCHING.
                - Husband has solo 401(k) - $17k/year
                Is your Net Income before or after 401k contributions?

                I want to pay down but also learn how to better manage what we have. Spending is very tough. We'll be doing okay and then have a car repair, or flights to visit family, etc. We've been spinning our wheels since we've had kids.
                These aren't emergencies, they should be included in your budget. Stop complaining about your kids being expensive -- we have two kids and live on $4000 a month. You need to write a budget and track your spending.


                  In my budget my kids play a very important role as their expenditure is very high. The biggest expenditure is their school fee and clothing. Kids grow so fast that their clothes wear-out very soon, so I have to shop for their clothes every trimester.


                    Not sure which type of school fee you are talking about, but if it is a cost of a private school, that is WANT use of money and unless they have to wear very specific uniforms at their school, the clothing costs for children can be very variable so you could be talking about wants and needs here. If you can't afford it, you don't by it. Have you shopped thrift stores and yard sales? I see so many kids clothes at yard sales that it almost makes me sick at times to think that one family has forked over ao much money for all these clothes and are selling them in practically new condition. Kids grow fast, but that doesn't nesessarily mean that their clothes are worn out. Have you tried repairing tears and buttons that have come off? Or are the clothes you are buying your kids name brand stuff that 'everybody' has and your kid doesn't want to be different? Children should know the realities of life and the number one item (as it will help them with their budgets in the future) is only buy what you can afford and when you can afford it. Buy less and wash more, mend as needed, recycle clothing into new garments. There are lots of books out promoting this, so currently a very 'in' thing to do.


                      I could be the happiest man in the world if I could be in your place.

                      We hardly earn 2000 euro per month and we have to pay around 2000 euro to the banks for several loans and house mortgage.

                      We have nothing for retirement and we ought to the banks about 250,000 euro, if I could earn 1 to 2 thousands more I would be the happiest man in the world.

                      Cheers fRIEND

                      Originally posted by Alw1977 View Post
                      Hi everyone! New around here and looking for some advice/resources on how to improve our financial situation. My husband and I make a great living. Our annual gross income is around $242,000. We live in the SE U.S. and don't have a crazy expensive home - our mortgage is about 20% of our net income. We've managed to accumulate a decent amount of consumer debt over the past three years. We're up to about $26K at this point. Yes, it's a lot.

                      Let me explain. In the last three years we've had two children. Medical costs (births cost $2500 and $6000), day care costs ($1800/month) and necessities (diapers, formula, clothes) have eaten into the budget more than I thought it would.

                      Frankly, about 50% of our debt is due to poor habits. The other 50% came from emergencies that we couldn't fund at the time they happened - $1800 in car repairs here, $1100 in rental property repairs there, you get the picture. Okay, it's probably all due to bad habits.

                      At this point, we need to formulate a plan, and fast. We're 35 and 37. We have $200K put away for retirement (money we cannot touch), and we make too much money to be living month to month. We're obviously smart people, but are too cavalier with money. Frankly, we've been so tired with the babies and FT work that we often just buy what we need when we need it and don't price compare. We are obviously not financial whizzes.

                      We have about $14000 in liquid savings right now. A sad emergency fund, but that's where we are. Am I best to liquidate this fund to pay off the debt? One card is $12K and is a 0%. The other is our Amex and that's up to $14K - we're obviously paying a higher rate on this card. Our credit is good - both above 725.

                      I don't have my bills spreadsheet with me now, but I believe we have about $2K-$3K left each month to throw at debt or add to savings. I'd like to get our ship righted in a year. Any additonal info needed to help with a plan?

                      Debt List:
                      $26K Consumer Credit Debt
                      $8K Car Loan
                      $50K Student Loans (Int Rate is low - around 1.5%)
                      ~$400K on Primary Home
                      ~$180K on Rental Property (rented at $1300/month)

                      Net Monthly Income: ~$13K month

                      I'd love to hear people's thoughts on liquidating our savings to pay down debt.


                        Yikes! At today's exchange rate, you owe about $2500USD a month on less than that for income. What do you live on? Especially with $312K USD staring you in the face. You are in what we call a pickle here -- deep trouble.


                          I read, and re-read your post and gave it a lot of thought. I also read the other responses. Here are my thoughts:

                          1.) Am actually ok with the maid service. If that helps you stay organized and spend time with your kids. Than it sounds like a good return on your money.

                          2.) I think your grocery costs might be too high. You may need to coordinate with your spouse or get a babysitter so that you can put a weekly menu together and do a weekly grocery shop. Cook up the food and then you are set for the week. Invest in a crockpot, throw some simple things together so that you don't have to cook when you get home after work. Go to the grocery store only on the weekends. Use what you have in your home. I'm assuming that you have a lot of food in your house like most Americans (including myself!)

                          3.) Pay off your car. Just get it done. Take 3 or 4 months and focus on that. There is no reason to continue paying when you make more than enough to pay it off by the end of December.

                          4.) Once you pay off the car loan use the extra money on the credit card with the lowest amount owed. Continue from there (paying off the other cards)

                          5.) Once everything is paid off then knock off the student loans.

                          6.) From your email it seems like you're concerned, and a bit baffled by the situation. But, it also feels like you're a bit uncomfortable with some of the ideas that may cause some short-term discomfort. Which is ok (no judgement, as I totally understand) Choose one thing to help cut expenses such as not eating out as much, or cutting down on shopping for a short period of time. Evaluate your progress and, if you feel comfortable with it-continue. If not, discontinue and try something else.

                          7.) You can't depend on any money that is not in hand. Many children have been surprised when their parent's wills have been read. You are young enough to accumulate a serious amount of money in a fairly short amount of time. But, it will involve some sacrifice on your part. You should ask yourself "What am I willing to do?" I think you're halfway there. Whatever you decide-we are here for you!


                            From your budget, I do not see anything major wrong relative to your income.

                            You save an extremely high amount of money per month. I would recommend focusing on one debt at a time using that 4.5k extra, and pay it down entirely. Then move to the next. Mortgages, leave them be fore now.

                            When student loans, car debt and cc debt are paid off, focus on a larger emergency fund. Keep topping off your retirement accounts. Then you can think about refinancing on your home to pay more per month, pay those off faster, and the equity will be a large part of your worth because I have a feeling houses will definitely rise again in value in the long term.

                            Actually your income is so high this is a straightforward solution.