Married with Children and in Debt

[Renner123]

Hello,

This is my first time posting. I appreciate any advice or comments.

Married, 40 years old. Husband 41. Combined income is 75k. I am a registered nurse and work part time. My husband owns his own small business.

We have two kids, ages 9 and 12.

We have two credit cards with daunting balances.

1. $30,000 17% (maxed out, paying minimum payment at the moment, can barely make dent. We will be long dead before we could ever pay this off)
2. $12,000 12.9%

We owe $11,900 on our house.

We have $16,820 that we can get relatively easily (stocks).

No car loans, nothing else but our house and the two credit cards. We are current on all of our monthly payments and have never missed a payment.

We are motivated to get rid of the credit card debt.

We are thinking of taking out a 5-year home equity loan for $50,000 and paying off the house and two credit cards. Is this the wisest thing to do?

To answer any questions as to why we are in so much debt: I am mostly to blame. Over the course of several years I racked up debt on the 30K card. I don't have anything to show for it. I was immature and an idiot about money.

I have serious regrets. My husband and I could be "rich" right now if we weren't in this kind of credit card debt.

I am seeking more hours. I work part-time and receive health benefits through my employer. I have worked part-time because I want to be home with my kids. My boss knows that I am interested in more hours. I am in a wonderful work situation and love my job. I have an opportunity to go full-time as soon as a person retires (she's 65) in our small department (1-5 years).

Any advice is much appreciated.

[jpg7n16]

Hello,

This is my first time posting. I appreciate any advice or comments.

Welcome to the forums I definitely think we can help!


To get started, I'd be curious as to what made you finally start looking to improve your situation.

1. $30,000 17% (maxed out, paying minimum payment at the moment, can barely make dent. We will be long dead before we could ever pay this off)
2. $12,000 12.9%

We owe $11,900 on our house.

We have $16,820 that we can get relatively easily (stocks).

And what do you expect to earn on those stocks going forward? Most planners will estimate stock returns to average 7-11% long term, is that where you're thinking?

If so, you should sell them and pay all the proceeds to your 17% card. Why keep taking risk to get 7-11%, when you can get a risk free 17% right now??

I highly doubt that you will be long gone before the debts are paid off. We've seen turn arounds like yours happen on these forums before. There's hope


What is your credit like? Would you be able to do a 12 month 0% balance transfer on some of the debt?

No car loans, nothing else but our house and the two credit cards. We are current on all of our monthly payments and have never missed a payment.

We are motivated to get rid of the credit card debt.

We are thinking of taking out a 5-year home equity loan for $50,000 and paying off the house and two credit cards. Is this the wisest thing to do?

Point #1 -- I don't think that's the wisest thing to do because it doesn't attack the real issue.

The problem is not that you have CC debt, that is just the symptom. The real problem is that you don't have a disciplined spending plan (aka budget). By fixing the budget issue, you will prevent the CC debt from coming back down the line. So that's where we need to focus.

You say you guys make $75k combined. What are your monthly expenses? Where does it all go?


Point #2 -- you only have $42k of CC debt, why would you take a $50k home equity loan??

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Other questions:
-Retirement is coming one day, what planning have you done around that? What savings have you done? Is there any plan through your work? Does your DH have a SEP or retirement plan for himself?

-In addition to the stocks, what other non-retirement savings would you have access to? Any sort of emergency fund (EF)? Any CDs at the local banks?

-Please post a full budget of your expenses, so we can help you prune it out and get out of that debt ASAP!!

[Renner123]

jpg, thank you very much for your reply.

What is your credit like? Would you be able to do a 12 month 0% balance transfer on some of the debt?

My credit score is 760. Husband's is 740. I would be fine with that but doesn't the interest rate go up? What do you think it will be with our credit scores. We have decent credit scores as you can see. We never miss payments.

You say you guys make $75k combined. What are your monthly expenses? Where does it all go?

Monthly expenses:

Mortgage payment: $412.00
Groceries: $866.00
Health Insurance: $736.00
Gas: $347
YMCA membership: $41.25
Water bill: $110.00
Electric: $180 +/-
Direct TV: $105
Netflix: $8.00
Cell Phones: $95 (no contract, pay as you go. Mine is $45, husband $25, kid $25)
Land line phone: $55.00
Auto insurance: $570 every 6 months
Home insurance: $1500 annually
piano lessons: $176
Saxophone rental: $38
Dinners Out/Entertainment: $100-200
Clothing/Cosmetics: depends. Haven't bought new clothes in a while (6 months) Buy clothes for kids (maybe $50 or less monthly)
Property taxes: $1600/year
Auto maintenance: $500-1000/year

My husband has an IRA (Vanguard) 50k
Mutual funds/stock: 40-50k
I have an employee pension/retirement thing -- probably have 3000 dollars in it.

On average we generally have 1000 dollars in our checking account. No emergency fund. No cash savings account.

I am motivated to do something about credit card debt. I no longer want the credit card debt hanging over us. Hate that we pay so much in interest. Owning up to the fact that we are in serious debt and need to do something once and for all. My husband is pretty smart about money and pretty frugal. We have paid the credit cards down before. I just charged them up again. I feel like I have matured and am no longer a mindless consumer.

My take-home pay is barely nothing ($160 bi-weekly) because I only work 12 hours a week and my check goes to health insurance/dental/vision and my YMCA membership. Sometimes I work more. I am the fill-in person and fill in when an employee in our small department is out sick or on vacation.

Thank you again for your reply and any input you may have.

[Bob B.]

I've retired substantial CC debt over the past 28 months - about 18K. So, I've been exactly where you are. In fact, I'm still there.

One of the strategies I've used is one that was suggested by JPG - balance transfer to a CC with a 0% into period. Approach it in one of two ways - either transfer an amount that you are certain you can pay off within the intro period, or transfer as much as you can and be ready to transfer the balance to another 0% card before the intro period ends - usually 6 or 12 months. With your credit scores, I would guess that you could get a 12 mo. intro period. But, yes, the int. rate does sky rocket after the into period - probably 20+% APR. And, you'll probably have to pay a 3% or 4% balance transfer fee, although when I made one of my three transfers, I didn't.

I would say yes on selling the 16K stocks, and using proceeds to pay down 17% card.

I would say no on the home equity loan.

Also, look at your monthly expenses is there any fat that can be cut while you eliminate the CC debt?

I would suggest that DirecTV, YMCA membership, dinners out/ent., piano lessons and sax rental are things you should look at.

Do you need a land line when you have cell phones?

We dropped DirecTV. Even when we get our CC mess cleaned up, I doubt we will subscribe again. You don't miss it after a while.

Let's say you sell your stocks, and pay your 17% card down to $13,180. Let's also say that you transfer 1/2 of that balance ($6,590) over to a 0% into card. And, we'll assume that you had to pay a 4% balance transfer.

If you send about $800 toward CC debt every single month, you could retire your balances in about three years. If you send about $950 toward CC debt every single month, you could retire your balances in about 2 1/2 years. It is doable.

A couple of other things - pay the minimum on your lowest rate CC, and put all extra toward your highest rate card.

If you get extra money along the way - tax refunds, cash birthday gifts, sell something on ebay, extra money from your job - send it toward CC debt.

Good luck!

[jpg7n16]

Let's look at your top 5 expenses, and then think about what can be done to lower them. Does anything stand out to you in this list?

$866 groceries
$736 health ins
$412 mortgage
$347 gas
$200 dining out

What really jumps out to me is that 2 of your top 5 expenses are food related.

Groceries + dining out = $966-1066/month -- which is way too high. Have you checked out some of the frugal threads on grocery shopping? This is the real budget breaker for you guys, and the place where your monthly cashflow can see the biggest improvement. So the first question to ask is, how can you cut down on food/grocery costs?

Health insurance - I know your DH is self-employed so he foots this all on his own. Have you researched policies to see if he's getting the best deal for the coverage you're getting?

Mortgage - given how low this is compared to where it typically falls, no real issue here

Gas - $347/month seems pretty high. What can be done to reduce gas costs in your home?

My husband has an IRA (Vanguard) 50k
Mutual funds/stock: 40-50k
I have an employee pension/retirement thing -- probably have 3000 dollars in it.

On average we generally have 1000 dollars in our checking account. No emergency fund. No cash savings account.

When you say "Mutual funds/stock: 40-50k" did you mean within his IRA? Or is that a separate account? If separate, is it in a taxable account??

Again, if so - we can liquidate those and pay off your CC debt tomorrow.

I am motivated to do something about credit card debt. I no longer want the credit card debt hanging over us. Hate that we pay so much in interest. Owning up to the fact that we are in serious debt and need to do something once and for all. My husband is pretty smart about money and pretty frugal. We have paid the credit cards down before. I just charged them up again. I feel like I have matured and am no longer a mindless consumer.

Well you certainly came to a good place for some help. Hopefully we'll get you guys through this mess and on path to the future you want.

[Renner123]

Thank you very much for the replies. I really appreciate it.

Bob B. Congratulations to you for getting rid of so much debt. That must be a fantastic feeling!

I am very interested in taking you and jpg's advice on the 0% balance deal and selling the 16k stocks. We do not want to take out home equity loan if we don't have to. We will own our house in about three years.

Piano lessons and Sax are my kids' thing. Both kids take piano lessons. One plays sax in the band at school. Can't really picture taking that away from them. I think I can try to cut other expenses before I take away lessons and instrument at this time. Maybe that's a foolish decision, I don't know.

I am more than willing to give up DirectTV. My husband on the other hand... I think we can sit down and talk about it.

We could probably get rid of land line. Nobody calls it except our parents and telemarketers.

Health insurance - I know your DH is self-employed so he foots this all on his own. Have you researched policies to see if he's getting the best deal for the coverage you're getting?

Health benefits are from my job. This is what comes out of my paycheck for a family of four. It's a lot and I pay a premium for working part-time instead of full-time. My status is "part time with benefits". We used to privately pay for health insurance when I worked per diem when my kids were little. What we have now is a better deal, believe it or not.

Gas: I think our gas bill is pretty reasonable but I could be wrong. We could probably get it down. At $347 per month, that's $80 per week for both vehicles. Some weeks are less. It costs 50 dollars to fill my tank. I drive to work twice a week. On other days I'm a homebody for the most part. Husband and I ride our bikes around town a lot when the kids are in school. We only drive one kid to school, the other bikes. He drives to his business three times a week. He has a 2007 Toyota Tundra pickup truck, I have a 2004 Honda CRV. Our jobs are close to home except for one day. One day week I have a 60 mile roundtrip commute when I work in another county. I work for a large hospital system and work one hospital one day, another the next.

When you say "Mutual funds/stock: 40-50k" did you mean within his IRA? Or is that a separate account? If separate, is it in a taxable account??

Again, if so - we can liquidate those and pay off your CC debt tomorrow.

They are separate. Around 100k combined. Taxable I presume. I will have to ask my husband specifics. I don't think my husband is keen on touching either.

Food out: Definitely agree that we can cut this down. We don't eat out that much but we don't need to eat out at all. When we eat out it is mostly because we are invited out.

Groceries: We shop at Walmart and nearly nothing frivolous. I bet we could get it down.

Thank you again for the advice. We are motivated to start tackling our debt.

[Renner123]

Back to add a few questions:

1. My husband uses the 12% card to purchase stock for his business. This is the card with 12,000 dollars on it. Should we try to get another type of card to purchase stuff for business? How should we approach buying stock for business? I was thinking of an American Express type card that must be paid off each month. Should we obtain a debit card to use?

2. We don't own debit cards. Never have. We use cash, and credit, obviously. Should we be putting some money in an actual savings account separate from checking? Should we have debit cards. We never got debit cards because husband was afraid I would be careless and drain checking account. This sounds like a dumb question but really want to know what we should be doing in this case.

3. I could possibly put my entire take-home pay (since it's not much) in a savings account, instead of checking, through direct deposit. Is this a good idea?

Thanks for any advice.

[cascade11]

Sell the Stocks and pay down the $30k card in half immediately. This is a no-brainer. Will your stock portfolio return greater than 17%?.....more like needing a 25% return, when your add in taxes? NO.

[jpg7n16]

We used to privately pay for health insurance when I worked per diem when my kids were little. What we have now is a better deal, believe it or not.

More than anything, I wanted to get your mind thinking on how you can reduce expenses that may seem fixed.

Sometimes health insurance is fixed, sometimes there are better deals out there. Sometimes gas bills are necessary based on current transportation, other times you may discover that you're making more errand trips than are necessary. Combining errands to one day may reduce the number of trips, and thus your gas bill.

When you say "Mutual funds/stock: 40-50k" did you mean within his IRA? Or is that a separate account? If separate, is it in a taxable account??

Again, if so - we can liquidate those and pay off your CC debt tomorrow.

They are separate. Around 100k combined. Taxable I presume. I will have to ask my husband specifics. I don't think my husband is keen on touching either.

And how keen is he on having $42k of CC debt that is charging more than he'll likely make?


Husband's funds (although they're not just his, they're your family's):
makes 7-11% long term [taxable + risk of loss + uncertainty]

Paying CC debt:
Saves 17% [tax free + guaranteed rate if paying down debt]

Which would you prefer?

Food out: Definitely agree that we can cut this down. We don't eat out that much but we don't need to eat out at all. When we eat out it is mostly because we are invited out.

Groceries: We shop at Walmart and nearly nothing frivolous. I bet we could get it down.

For this I'd recommend spending some time in the "Frugal Q&A" section, or searching for other food/grocery related posts. If not starting your own to get ideas. I know of other posters who feed families of 5 on $300-400/month.

Not saying that's where you should be, but just saying there's room for improvement

Back to add a few questions:

1. My husband uses the 12% card to purchase stock for his business. This is the card with 12,000 dollars on it. Should we try to get another type of card to purchase stuff for business? How should we approach buying stock for business? I was thinking of an American Express type card that must be paid off each month. Should we obtain a debit card to use?

Similarly to people, I believe businesses need a cash buffer. I have no issue with using credit cards for rewards, but have huge issues with keeping a balance.

The main trap for the business is in holding a balance while inventory sits on hand. Increasing your cost of inventory, and reducing your profits.

2. We don't own debit cards. Never have. We use cash, and credit, obviously. Should we be putting some money in an actual savings account separate from checking? Should we have debit cards. We never got debit cards because husband was afraid I would be careless and drain checking account. This sounds like a dumb question but really want to know what we should be doing in this case.

I prefer CCs with rewards over debit cards. But then I'm very capable of paying it off each month.

If the behavior benefit of not building a balance is worth it to you, debit cards are great.

3. I could possibly put my entire take-home pay (since it's not much) in a savings account, instead of checking, through direct deposit. Is this a good idea?

Thanks for any advice.

I think you should sell enough of the stocks/funds to pay off your CCs immediately. Then by focusing on reducing expenses (large to small), you can free up cash each month.

Step 1) Pay off all CCs - sell the stocks/funds and do it ASAP
Step 2) Build up 3-6 months expenses in cash for an EF -- likely on the higher range as DH is self-employed
Step 3) Use your income for retirement savings, until you're on track and saving enough
Step 4) Use your income for other goals as necessary

[Wino]

Sorry for the length of what I'm about to write. This once again brings up my pet peeve with much of the advice given on SA; everyone tends to look at debt as a mathematical equation and not a psychological problem.

We are motivated to get rid of the credit card debt.

We are thinking of taking out a 5-year home equity loan for $50,000 and paying off the house and two credit cards.

You started by asking if you could get out of credit card debt by borrowing money. Apparently, debt secured by your home isn't even "real debt" in your mind. I don't mean to say you don't know that a mortgage/heloc is money you owe, rationally. I mean to say that you seem to think that having your house on the line rather than your reputation on the line is better for some reason. You are willing to quite literally bet your house that you'll pay off the new debt without incurring any additional debt.

Only once in this thread has anyone mentioned that the debt is the symptom, not the problem. The problem is that you are spending more than you make, yet you make about 40% more than most households in the US. Median US household income is about $53K per year, latest figures. Therefore, you have about $15K in spending every year that others who are not paid at your rate could even afford. This doesn't even count your accrued debt, which was spent over and above the $15K just mentioned.

If you pull the money out of savings and pay down your debt, but don't change your lifestyle and credit card spending, then I predict that in less than 5 years, you'll have once again maxed out your credit cards, but this time you'll have no savings to pay them off. In other words, you will be worse off than you are now.

You want to keep paying for saxophone and piano lessons. You want to keep spending $1000 per month on food. You want to keep cable TV. You want to keep four cell phone plans. You want to keep two large cars (yes, even the CRV could be down-graded to a more fuel-efficient vehicle), as well as keep the expenses that go with two cars; maintenance, gas, insurance, etc.

You and your entire family need to make a lifestyle change. I suggest you start by WRITING DOWN every penny you spend. Take away the credit cards altogether. If you don't cut them up, then at least put them in a coffee can full of water and freeze them so you cannot make any impulse buys. Once you know exactly where your money goes, you can either decide to live with the debt and keep your present track toward no money and high payments for what you have correctly decided that you "don't have anything to show for it," or you can decide to cut back your lifestyle first to pay off what you owe and to save some money for emergencies. Whether you pull money out of savings or retirement or selling your car or downsizig your house is not the question you should be asking, and none of them will lead to you getting out of debt permanently.

You have said you want to get out of debt, but you apparently don't want to make any changes that will actually do anything to get yourself out of debt. The advice to take money out of savings and pay for your debt is good - mathematically - on the surface, but it won't solve any problems that you are having which can be summed up in one phrase: living beyond your means.

You need a lifestyle change, not less debt. My advice: Find "Dave Ramsey" on the radio dial or download his podcast, and listen to him for a while. I'm not recommending you buy anything he is selling. In fact, I'm recommending you DO NOT buy anything he is selling. I recommend you listen to the stories of the people who call in and announce they're "debt free." Listen to what they did to get to where they are now.

You can also find Clark Howard and his podcasts to find ways to save money.

Here's my actual advice: Learn to say, "No" when you see something you, your husband, or your kids WANT, but don't NEED. "Do I really need this" should be a question you ask yourself before you buy anything. If you cash-flow your pay off, you'll have to actually make the lifestyle changes to get out of debt. If you mathematically take the easy way, you'll find yourself back in the same situation in a short time.

[Renner123]

Thanks again for the replies.

We are selling the 16k and putting it toward the 30k CC next week.


Here's my actual advice: Learn to say, "No" when you see something you, your husband, or your kids WANT, but don't NEED. "Do I really need this" should be a question you ask yourself before you buy anything. If you cash-flow your pay off, you'll have to actually make the lifestyle changes to get out of debt. If you mathematically take the easy way, you'll find yourself back in the same situation in a short time.

Yeah. I agree with you Wino. Thank you.

[snafu]

Have you called CC to ask the interest rates be lowered? If they say no, ask for a supervisor. If you make payments every month and are up to date , I'd be quite persistent.
For the short term, what are you willing to drop? I'd suggest dropping the land line as parents could surely phone a different number. If practical change it to speed dial on their phones.

I suggest creating a weekly meal plan of meals your family like and will eat. Try your best to avoid prepared foods and prepare more from scratch. Start with using what you already have on hand so avoid semi annual purge of expired foods. For the days you work, use a crock pot or prepare a roasted [beef/pork/poultry/lamb] that could be combined with a side dish as a 'plan-over.' Both DH & you take food from home when working away from home.

If DKs particularly enjoy music lessons, I feel they need 'skin in the game.' Since they need to learn money management, they could be paid for specific, age appropriate chores. They need to contribute some of those earnings towards lessons or resultant costs. No work, no money...no money no lesson that time frame. We likelly took it too far and had our sons sign 'Contracts' so they fully understood what was expected and it was a 1st step towards responsibility.

I like the idea of moving debt to a 0% credit card but only if you can clear the amount in the scheduled time frame. Of course you can't charge more so it wouldn't be practical for business with constant purchase of stock. The business should be paying it's expenses. Interest on a business account would likely be a tax deduction for the business if kept totally separate. $ 30 K would need about $ 2,500. to clear in 12 months.

Could DH be persuaded to relinquish Direct TV for the short term to stop paying $ X in interest on the CC?

You can do this, you've already taken the 1st giant step of awareness

[Renner123]

Thank you snafu. Really appreciate your advice.

I am so willing to dump DirectTV. I am fine with my computer and books. Husband -- not so sure. I would 100% on board for giving it up for a year. I think we would be more than fine with Netflix streaming, computers, and our tablets.

Landline-- yes, I think we could do without it.

Kids and music -- great ideas. I am incorporating more and more chores into my kids' lives. They don't receive an allowance. They never have. I've never been the kind of parent who buys them stuff at the store on a regular basis. They don't receive toys or stuff often -- Christmas and birthdays just about.

Good points on transferring credit card. I am not 100% sure if we can clear amount in 15 months. I was thinking that when the interest rate went up after 15 months it would be lower than 17%. Will have to investigate before we transfer anything. We will ask current CC to lower interest rate first and see what happens.

So ready to work seriously to get rid of debt. We have been on lean for a good couple years in our household but never had a serious game plan.

Thank you again!

[jpg7n16]

I'm gonna jump back to a previous point, that seems to be sidetracked by the idea of the 0% interest transfer.


You have enough to pay off your debts. Today.

I'm not talking about the $16k stocks anymore. I'm talking about the $50k stocks/funds you have in a taxable account which you can access any time w/o penalty.

I didn't expect someone with $40k+ in CC debt, to be sitting with $50k in a brokerage account that they can access at any time. That is craziness. Now that I know that, I dont' believe that the 0% balance transfer should be done. The 0% idea was a way to reduce interest costs while you cashflow your way out. But there is no need to cashflow your way out.


You should sell your investments and pay the debt off. Then start focusing on building a good EF, keeping the CCs at $0, and building up investments over time.

So ready to work seriously to get rid of debt. We have been on lean for a good couple years in our household but never had a serious game plan.

You said you're serious about getting out of the CC debt. How serious are you really?

Game plan:
-Sell the investments
-Pay off the debt

Done. That's all it takes. You'd be finished in a couple days. You'd be rid of the debt. You'd be free.

[VanReb]

Some absolutely great advice on this thread. Thanks!