Don't know what to do...need advice

[Kharisma]

Backstory:
This is my first time visiting this board. I'm in such financial straits that I'm embarrassed. A few weeks ago, while perusing another board I read someone's post who was in debt. Some of the responses were pretty harsh to him. However, it took my reading those posts to wake up from my own slumber. I'm in as worst shape as that poster. I finally had a light bulb moment. Since then I've started Suze Orman audio-book The Money Class, which I borrowed from the library. I have a long way to go but realize that I have to start someone. I am an artist who is currently working in an office for a company. I was unemployed/underemployed for a year 2011-2012. After obtaining full-time employment (temp position hasn't gone permanent yet) at the end of 2012, it was a pay cut of $5,600 a year. I live in a very high COL area and plan to move but at this point can't do so without obtaining employment elsewhere first. I actually have two questions but I'll ask one at this time. I have a reimbursement check coming in a few day from work in the amount of $689. Below are my monthly bills and debts. My question is in a situation like min, where should I apply the reimbursement money? Thanks in advance.

Yearly Salary: $36.5 K
Bring home monthly: $2027.24

Rent/utilities/cell/internet/cable/car insurance: $1,278
Public commute to work bus/subway $318
Credit card A $61 (balance $3,000. APR 13.25%)
Credit card B $75 (balance $2,700. APR 22.90%)
Credit card C $57 (balance $1,759. APR 26.99%)
Emergency Savings: $ 0

[Wino]

By stating your minimum payments, we can see that you are still focused on payments and not on balances. This is not "bad." It is "normal." As Dave Ramsey says, though, "Normal is 'broke.'" So don't despair.

We need to have more than your CC bills. We will need to see your budget: rent, transportation, food, utilities, makeup/toiletries, entertainment (you're going to need this one at zero, for a little while), etc. Just start writing down what you expect to spend and then, make sure you record what you actually spend. Your budget will become correct within two to three months. I doubt your first attempt will be there. Use old checks, credit card receipts, bank statements to help you determine where you have been spending your money, which should help you nail the budget side. For example, I notice that "food" didn't even make your list, and I'm just going to hazard a guess that you did, indeed, eat this month.

You need some cash set aside for an emergency fund, but we don't even know whether your check can be diverted for that. Assuming you have the full amount left, your bills are "easy" to stack, because they fit both "methods;" your highest interest is also your lowest balance, so you should pay minimum on the top cards, and maximum on the bottom card until the bottom is paid off. At that time, continue minimum payment on the top card, and pay maximum on the "other" card.

First thing I'd do, though, is cut up the bottom card and the middle card. Those interest rates are usurious. Once the bottom card is paid off, you have $57 more per month to pay toward the middle card. Once it is gone, you'll have $132 per month to pay toward the top card. I would suggest you take the top card and put it in a coffee can full of water, then put it in the freezer. If you absolutely must have a credit card, you can get to it in a few hours, but there will be no impulse spending.

Well, that's a lot for you to digest. Start tracking your expenses more closely, then we'll give you advice. Offhand, I'd say to put $300 to $500 into the bank for emergencies, then throw every nickel you can find toward the credit cards bottom to top. Assuming no increase in pay, and $200 per month in food as the only expense not listed, it is going to take you just over two years to clean up the credit cards.

Can you cut back your living expenses, take in a roommate, or get a second or higher-paying job? Anything you can do to decrease expenses or increase your income will cut the timeframe it will take. You've started down the right path. Now it is just a matter of whether you stay on the path.

Good luck,
Wino

[Kharisma]

Response

Wino, thanks for responding.

Rent is $878
Electric & gas $45
Cable $50
Cell & internet $130
Car Insurance $175

Total = $1,278

Entertainment = $0 (usually unless I have a friend come to town as I've had for past month and spent approximately $130)

Clothing = $ 0 (usually but I spent a total of $60 this past month on needed items which were on sale).

Of course, I listed my CC totals earlier but after re-doing the math, I was a little off with that also: $199 for the month (paying only minimum on all three cards)

There were also a few other things I forgot to include or should have included: my monthly R/T commute to work via bus, subway, and tolls (for the two days per week when I drive to see clients) should have read: $318.


I already have a 2nd job (p/t about 2-3 hours a month. Yes, you read correctly, a month). It adds approximately $100 of additionally income per month.


I also am a Christian and I pay tithe (10% of gross income per pay period) to the church that I am a member of. I know some people may feel that tithing is a scheme, stupid, outdated, or unnecessary but I want to continue paying tithes to support the church's mission in upkeep of the building and supplying the needs of the less fortunate.

Yes, I do eat. Now that I have listed all of my expenses, I don't know how I afford to eat. I must be robbing Peter to pay Paul. Or maybe taking money that is due to Paul to buy my groceries. I eat out rarely and when I do, it's usually to grab something simple and quick while I'm on the go (fast-food restaurants such as Subway as I did today). Between my long work hours, long commute hours, p/t job (the commute is as long as the hours I work), and my involvement with church activities, I really don't have time or energy for entertainment on a normal basis so I don't allocate money for that. I hope I've better clarified my financial picture.


However, I need clarity.
1. Which credit card are you recommending I should pay off first?
2. Are you recommending that I create a savings first before attempting to pay off that CC?
3. If so, to what amount should I build up my savings before turning my focus on paying off the CC? Thanks in advance.

[stoney508]

I think wino is saying is put money towards CC C then B then A. After you pay one off put the payment from one after you pay it off toward the next CC. If you can reduce your commute or any other exepnse that would be another option to help increase the amount you would have to pay each month. Is there a chance you would reduce your tithe (not sure how to spell this) for a short period to at least pay off one CC maybe 2 of them and then increase it again? You would still be contributing but you would also be helping your personal finances to the point you could help out more in the future if you so decided to.

[Wino]

Credit card A $61 (balance $3,000. APR 13.25%)
Credit card B $75 (balance $2,700. APR 22.90%)
Credit card C $57 (balance $1,759. APR 26.99%)

Balances, lowest to highest = C, B, A; called "Debt Snowball"
Interest rates, highest to lowest = C, B, A; called "Debt Tsunami"

Both typical pay off methods (as above) say you should pay off the cards C, B, A

Question 1: Reverse the order listed, and pay them off C, B, A. Minimum payments to A, B, and everything that is left over to C. Once C is paid off, then send minimum to A, and everything left over to B. Of course, at that point send everything left to A.

Question 2: Yes. Put at least $300 aside for an emergency. $500 is better, but I don't think you can afford it. DO NOT SPEND the money on anything that is not an emergency. Emergencies often involve ambulances, plumbers, electricians, and firemen. They rarely involve coffee or clothing.

Question 3: Dave Ramsey, who champions this type of debt payment method, recommends those with normal incomes to set aside $1000. He has a plan for low earners to set aside $500. You're borderline, but I think you can do $500 until you get at least credit card C and B paid off. You could then bring the fund up to $1000 before paying off credit card A.

About tithing: Talk to your minister (priest, chaplain, whatever), and ask if you can get what amounts to a temporary indulgence. Conversely, can you tithe less and keep a ledger of what you "owe" the church? You are sending nearly a third of Credit card C's balance per year in interest. I am not suggesting you delay tithing if your faith or conscience requires you to tithe as soon as you get paid.

You need to start writing down your budget. What you spend, where you spend it, and how much. From that, you PRE-PLAN your spending for the next month. And you have to follow your budget. Every dollar has a job when you get it, and they can't do part time or freelancing.

One hundred dollars per month beats $10 per week. See if you can get another short part time gig. That extra money will really ease your situation. Even $300 per month is a big difference in your life right now.

Lastly, I'm championing the cause that we change their names to "debt cards," and not "credit cards." They don't give you credit. They put you in debt, and their name should reflect the reality. So, from this point forward, I'll be calling them your "debt cards."

[Wino]

I think wino is saying is put money towards CC C then B then A. After you pay one off put the payment from one after you pay it off toward the next CC.

Yes, exactly.

[asdf]

You said that your gross income is $36,500, which comes out to about $3k per month. Yet you also said that your take home pay is $2k per month. Where is the extra $1k (a third of your stated salary) going? Is the tithing part of that $1k? How many allowances are you claiming on your W-4 withholdings? Are there other withholdings from your salary aside from tax purposes?

[asmom]

Why are you paying to ride the bus/subway and paying car insurance monthly? Here are my suggestions:

1. Stop tithing for 6 months while you work on getting your house in order. God will likely forgive you if you do not give for 6 months out of a whole LIFETIME. If you must, you can double contributions later to make up.

2. Choose one: mass transit or car. If you must commute by mass transit, is there a way to get your car insurance lowered since you are not driving a lot of miles?

3. Call your CC companies and ask to renegotiate on your interest rates. Better yet, if you can find a line of credit at 0% interest temporarily, I'd go for that but beware balance transfer fees.

4. I'd put the $689 toward credit card 'C'.

[Kharisma]

Ok

Stoney and Wino,

Ok, I think I got it -- pay off Credit card (debt card) C, then B, then A.

However, I should save $500 first (in my savings) before I start working on paying off card C.

Thanks.

[Kharisma]

Gov't takes it

You said that your gross income is $36,500, which comes out to about $3k per month. Yet you also said that your take home pay is $2k per month. Where is the extra $1k (a third of your stated salary) going? Is the tithing part of that $1k? How many allowances are you claiming on your W-4 withholdings? Are there other withholdings from your salary aside from tax purposes?

I live in a state that deducts from every paycheck state and city tax. Of course, I also pay federal taxes, FICA, state disability, and EMed. The gov't in one form or another takes about 1/3 of my salary before it reaches my hands. Legally, I can't get around that. I bring home about $2,027.24 a month with the exception of months that have five weeks. Then it's approximately $2,534.05.

[KTP]

How are you tithing when that money is owed to someone else?

Doesn't it say render unto Caesar that which is Caesar's? The credit card company owns the money that you are paying the church. If you lose your job and have to default on the credit cards, it is somewhat like you stole the money from them and gave it to the church.

I would stop tithing until you pay off all the credit cards. Having no emergency fund isn't very responsible toward God either. He expects you to take care of your household first.

[Kharisma]

Response

Why are you paying to ride the bus/subway and paying car insurance monthly? See my answer below. Here are my suggestions:

1. Stop tithing for 6 months while you work on getting your house in order. God will likely forgive you if you do not give for 6 months out of a whole LIFETIME. If you must, you can double contributions later to make up. Hmm, I'll think about it. One thing is true. If it's hard to give $1 now to the church out of every ten dollars I earn, it will be much harder later to give $100 when I've amassed a thousand dollars. I'm more apt to look for a p/t job just to pay my tithe. Lol

2. Choose one: mass transit or car. If you must commute by mass transit, is there a way to get your car insurance lowered since you are not driving a lot of miles? I have a job which requires me to drive at least once a week to the homes of clients who live out in the rural areas where there is no mass transit (about 145 miles R/T door to door my home to theirs). The rest of my clients live in the city where I can take mass transit so I do because it's more convenient and less stressful and I avoid traffic jams, construction, and car accidents which shut down traffic on freeways daily. I am reimbursed for my gas and subway/bus fare but it takes two full months or longer before I receive it.

I have to wait until the end of the month even if I've completed all my client visits within the first two weeks of the month. Then, there is tons of company paperwork to be completed to request a reimbursement. After that, the paperwork has to be given to my supervisor to sign off on but she is often tied up in meetings or out of the office so that pushes it back 1-2 weeks. Afterwards, it's sent inter-office mail, which only goes out twice a week, to our company location in another county. They cut the checks only on certain days and then mail the hardcopy check back to my company (they won't direct deposit to independent contractors/temp employees). It's almost 2-3 months time for this cycle to complete usually but sometimes it works a little faster and two different months' reimbursement checks will arrive for me at the same time. Clearly, the company appears to present obstacles to discourage or slow down employees from requesting the reimbursement for business-related travel. They do many things in this vein which tends to counteract true productivity or benefit the employee. I can't wait to leave. As I said in my earlier post, I'm looking to change jobs/relocate but must obtain a new job first.

3. Call your CC companies and ask to renegotiate on your interest rates. Better yet, if you can find a line of credit at 0% interest temporarily, I'd go for that but beware balance transfer fees. I will ask, thanks.

4. I'd put the $689 toward credit card 'C'. According to Wino and Stoney's advice, shouldn't I put $500 of it in a savings first then put the remaining $189 towards card C?

[Jillycd]

Welcome to the forum! Congrats on taking charge of your finances.

I agree with those stating to put the $500 in to an emergency fund and use the remaining towards your debt. You will sleep a little better knowing you have a bit of money in the bank. The debt snowball seems the best option for you to pay you debt cards off. Have you stopped using all the cards listed? You will only get out of debt by not adding more debt to the cards each month!

Perhaps you could donate 5% of your income to the church and volunteer more time? I see that this is very important to you, however I agree with the others that you really should tackle your debt first.

Best of luck! The group is here to help!

[SeanH]

Perhaps your church would be willing to accept a tithe of your time (volunteering) instead of your income until your fiscal house is in order.

[Kharisma]

True

How are you tithing when that money is owed to someone else?

Doesn't it say render unto Caesar that which is Caesar's? The credit card company owns the money that you are paying the church. If you lose your job and have to default on the credit cards, it is somewhat like you stole the money from them and gave it to the church.

I would stop tithing until you pay off all the credit cards. Having no emergency fund isn't very responsible toward God either. He expects you to take care of your household first.

True. I agree with everything that you've said. When I think more about this, I think I can find a way to still tithe AND pay my debts by bringing in more income through increasing my part-time work.