How to Attack Debt

[FifthElement]

Good afternoon everyone,

I wanted some insight on how to properly pay down debts if you are in the situation of already being behind. First I'll give some background on my situation:

1) In March 2014, I left one job for a better paying one to avoid getting laid off. This is when I first started considering a budget. However, I was later fired from the new job before I could actually put the budget into action.

2) I have been either on unemployment or underemployed since July 2014. I was making around 1400 per paycheck, to only bringing in $420 per week or less than that. As a result, I fell behind on credit cards, my car, car insurance, and my rent.

3) I now have a permanent job with a decent income, and I get my first full check on the 5th.

So, I have taken different strategies to make a budget (changing due dates, applying the 50/30/20plan, couponing, and also Dave Ramsey). I am 60+ days late on everything except rent, energy bill, cable, and Cricket phones.

Thankfully, I will have more money coming in on the regular, but I am not sure where to start. I know Dave Ramsey has stated to save $1,000 first, then work on debts from smallest to largest. But I wonder if there is a better method when it comes to major bills that are already late.

ETA: I had considered getting a loan to pay off everything, but it is not possible at this time since my credit tanked after I was terminated.

Thank you in advance for your responses.

[JulieAlbright]

You will get a bunch of arguments on the most mathematically correct, motivating. or efficient way to do it.

I'm kind of of the opinion that you need to

1. Make a budget where you are spending only on the necessary items

2. Get everything current, quit paying late fees and anything that has jacked your rates up into the 20%+ columns, find ways to lower those rates and then

3. Get all Michael Jordan Nike-like and just do it. Pick the high interest stuff, pick the lowest balance stuff, pick whatever the heck you want just pick something and get them paid off.

And then once you are debt free sit back and let all the nay-sayers explain to you how you did it all wrong, knowing that a good percentage of them are still paying debts. In my book accomplishment trumps method.

[Petunia 100]

Glad to hear you have a new job.

It's too bad you let your credit cards get behind. A good strategy to avoid that would have been to take an advance on one, then use the advance to make all minimum payments. This strategy does not help you eliminate debt, but avoids the situation of becoming past due. The cow is already out of the barn on that one.

Have you contacted your creditors, let them know what is going on, and let them know what you can pay and when you will be able to pay it? If not, do that immediately. Also, ask if they will reduce the amount owed to become current.

In my opinion, the best way forward is to cut every expense you can, so that you can pay down your debt as quickly as possible. That means you need a budget. If you'd like to post your budget, I'm sure you will receive a lot of input.

[FifthElement]

Thanks for the responses so far...

So in a perfect situation (if I were up to date with my bills) here are my monthly payments:

Rent- 420
Car - 471
Cable - 115
BGE - 100
Credit Cards (all 3) - 75
Phone - 50
Netflix/Hulu - 7.99 each



So in total, this is approx $1246 out of $2100, leaving me with $854 for the month. Before I was terminated, I had modified some pay dates they would fall towards the end of the month, leaving one paycheck either solely for me or to put towards savings or another debt. However I am still considering going back to the 50/30/20 plan.

I have contacted a number of my creditors and explained the situation. Others were happy to help, such as my Capital One credit card and my landlord. Others, well...weren't as gracious.

[Petunia 100]

Thanks for the responses so far...

So in a perfect situation (if I were up to date with my bills) here are my monthly payments:

Rent- 420
Car - 471
Cable - 115
BGE - 100
Credit Cards (all 3) - 75
Phone - 50
Netflix/Hulu - 7.99 each



So in total, this is approx $1246 out of $2100, leaving me with $854 for the month. Before I was terminated, I had modified some pay dates they would fall towards the end of the month, leaving one paycheck either solely for me or to put towards savings or another debt. However I am still considering going back to the 50/30/20 plan.

I have contacted a number of my creditors and explained the situation. Others were happy to help, such as my Capital One credit card and my landlord. Others, well...weren't as gracious.

How much do you spend monthly on food? gas? car insurance? medical expenses?

How much do you need to get current on all bills and debts?

Does your new employer offer a 401k plan? If so, is there a match? When will you be eligible to participate?

[FifthElement]

How much do you spend monthly on food? gas? car insurance? medical expenses?

How much do you need to get current on all bills and debts?

Does your new employer offer a 401k plan? If so, is there a match? When will you be eligible to participate?

Food and gas are variable amounts, but typically it's between 60-70 per month for gas. I live in the same city I work, so I drive no more than 5-10 miles a day. For food, it would normally be $300; I made a calendar of basic foods to cook each day throughout the month. I was only able to do it once, and the total came to $300 for groceries.

However in the months between July and Novemeber, I was either taking the bus or only using my car for school. Which leads into the next question; no car insurance right now. I couldn't afford it, so it ended up running out, and my car stayed at home. I actually got a good quote, so car insurance will be re-instated in December.

Medical expenses - when I did have insurance, the premiums were deducted from my paycheck. As far as copays, they were only $20 per visit, and I only saw the doctor whenever I needed to. I do have VA but I've barely used it.

Current Debts:
Rent - 400 past due <30 days
Car - after I pay today, I will be $1,000 <60 days
Cable - 115, almost 30 days past due
Energy bill- 250 past due <60 days
Credit cards - past the limit and late, almost 90 days accumulative. Right now, they only want the over-limit amounts for all three cards, which is a total of $1200. So, I need nearly $3000 to get all caught up.

401K - yes, my employer offers a plan, will be eligible on December 1st.


I forgot to mention that I do have a boyfriend, and he recently got a new, better paying job as well. We have talked about combining our income, and listing our current debts, then later splitting the rest after all the bills were paid. He will be making more than I do, and has full benefits as well. So there will be an approximate of $4000 coming in each month.

[Petunia 100]

Food and gas are variable amounts, but typically it's between 60-70 per month for gas. I live in the same city I work, so I drive no more than 5-10 miles a day. For food, it would normally be $300; I made a calendar of basic foods to cook each day throughout the month. I was only able to do it once, and the total came to $300 for groceries.

So allowing $70 for gas and $300 for food, your $854 after bills per month is down to $484.

However in the months between July and Novemeber, I was either taking the bus or only using my car for school. Which leads into the next question; no car insurance right now. I couldn't afford it, so it ended up running out, and my car stayed at home. I actually got a good quote, so car insurance will be re-instated in December.

How much for car insurance? That is going to reduce your $484 further. You should also be setting aside an amount each month for vehicle maintenance. You will need oil changes, new brakes, new tires, etc.

Medical expenses - when I did have insurance, the premiums were deducted from my paycheck. As far as copays, they were only $20 per visit, and I only saw the doctor whenever I needed to. I do have VA but I've barely used it.

So minimal. Even so, that $20 copay has to come from somewhere. It is a good idea to set a small amount aside each month for medical expenses too.

A good way to handle this is to open some online savings accounts. They are free, have no minimums, and pay a comparatively high interest rate. So, you might open one named "medical", and deposit $5 per month into it. You might open one named "car maintenance" and deposit $30 per month into it. (You can even set it up so that these deposits happen automatically every month. You don't have to think about it, just record it in your checkbook.) Then when these expenses arise, you have the money to pay for them. This helps you avoid debt. It takes a little time to build up the money, but it is a great long-term strategy.

Current Debts:
Rent - 400 past due <30 days
Car - after I pay today, I will be $1,000 <60 days
Cable - 115, almost 30 days past due
Energy bill- 250 past due <60 days
Credit cards - past the limit and late, almost 90 days accumulative. Right now, they only want the over-limit amounts for all three cards, which is a total of $1200. So, I need nearly $3000 to get all caught up.

Cancel the cable at least until you are current on all of your debts. You can't afford it. Offer the cable company $10 per month until you have paid them in full.

You have $484 - car insurance - $30 car maintenance savings - $5 medical savings to work with. About $350 per month to use to get current?

Will your landlord accept 1 months rent + $100 going forward, until you are current? Ask. If not, what will they accept?

Will your credit cards accept double the minimum payment each month until you are back under the limits? Ask.

Will the car loan company agree to add the past due payments on to the end of the loan? Ask. If not, will they accept 1 month's payment + $50 until you are current? Ask.

Just tell each creditor "I was unemployed and got behind. I have a job now. I want to pay what I owe and get my account current as soon as possible. I can make a full month's payment, plus something towards what is past due, each month going forward. But, I can't pay you what I don't have."

What is your situation with your car debt? How much is the car worth, and how much is owed? Your car payment + insurance + gas + maintenance is a huge chunk of your monthly income. It is going to be very difficult for you to get ahead financially while you are spending so much of your income on a car. Please think about that.

401K - yes, my employer offers a plan, will be eligible on December 1st.

I recommend you enroll and contribute 3% for now. Once you have your finances back on track, start bumping that up until you reach 15%. The plan most likely offers a target retirement fund, or a balanced fund. Choose one of those. (If you want to come back and share what your investment choices are, people can offer their opinions on those too).

And remember, that means you have less to work with each month to get current. Even so, it is very expensive to put off saving for retirement. Get started. Don't wait.

I forgot to mention that I do have a boyfriend, and he recently got a new, better paying job as well. We have talked about combining our income, and listing our current debts, then later splitting the rest after all the bills were paid. He will be making more than I do, and has full benefits as well. So there will be an approximate of $4000 coming in each month.

Do you live together? Is the $400 rent just your share? Is the rent current as far as the landlord is concerned, but you owe back rent to your boyfriend? What about the electric and cable?

In my opinion (I am a divorced, middle-aged woman), you should keep your finances separate unless/until you are married. What you could do is talk about how you split your living expenses. If he is making about twice what you are, he may be OK with paying a larger share of the living expenses. For example, he might pay 2/3 of the rent and utilities, while you pay 1/3.

[FifthElement]

A good way to handle this is to open some online savings accounts. They are free, have no minimums, and pay a comparatively high interest rate. So, you might open one named "medical", and deposit $5 per month into it. You might open one named "car maintenance" and deposit $30 per month into it.

I do have one savings account, but I hadn't thought about additional ones for medical or car expenses. I live in Maryland, so the account for car maintenance would definitely come in handy.

Will your credit cards accept double the minimum payment each month until you are back under the limits? Ask.

I actually contacted Capital One and Credit One this morning; turns out I am only past due on 1 of the 3 credit cards. I forgot that I made a minimum payment to my second Capital One card last month.

Will the car loan company agree to add the past due payments on to the end of the loan? Ask. If not, will they accept 1 month's payment + $50 until you are current? Ask.

Since I will be making a payment to them today, I will contact them tomorrow and ask. Right now because its 90 days late, they won't work with me. The situation surrounding my car was marred by bad timing: I found out two weeks after I got the car that I was going to be laid off the following April. I did everything I could to give that car back.

Do you live together? Is the $400 rent just your share? Is the rent current as far as the landlord is concerned, but you owe back rent to your boyfriend? What about the electric and cable?

In my opinion (I am a divorced, middle-aged woman), you should keep your finances separate unless/until you are married. What you could do is talk about how you split your living expenses. If he is making about twice what you are, he may be OK with paying a larger share of the living expenses. For example, he might pay 2/3 of the rent and utilities, while you pay 1/3.

We do, and we split the rent costs. We are behind 1/2 of a payment to the landlord. We will be having a discussion tonight, as I believe he should foot at least the cable bill(since he has less debt that I do and watches more TV then I do), and we can go half on the BGE, which would only be 50 for each of us. May be a bit higher now that it's almost winter-time. I am not comfortable with having joint accounts right now.

[snafu]

Petunia has offered wonderful advice and you seem open to explore ways to get out from under the burden of debt. I wonder if boyfriend is wiling to get onboard. I too believe that common expenses are more equitably shared based on percentages of income.

I'm hoping you'll avoid over spending and over indulges common during the holiday season and find celebration and joy doing other things. There are so many community/school/church/ethnic events and celebrations that are free or nearly so and so many organizations that work hard to bless those who are extremely disadvantaged. We've made it a family tradition to work as kitchen staff or servers at a shelter every Thanksgiving. I hope you'll believe me when I tell you it's so much fun! The [mostly] guys have an enormous sense of humour and they've spent at least two days getting cleaned up just for us. During the week leading up to Christmas, in spite of living in a ghastly climate, we trudge around the neighbourhoods that do the best holiday decorations. We try to get to a couple of ethnic celebrations every year and they are so welcoming to people like us who don't know the language or the tradition of their costumes and culture.

It's terrific fun to join carollers that perform for seniors or at hospitals. If you can donate a few hours at a Food Bank or delivering Food Boxes the reward far exceeds any bought gift. You are remarkably well to do compared to those who are indigent. Our community has a Sandwich Patrol whose volunteers are beloved and whose experiences move me to tears.

If you and boyfriend can make a meal plan and stick to it with foods that you like, take leftovers for lunch etc. the savings are huge compared to restaurant meal + beverage + tip. Consider having friends in for potluck with everyone bringing some edible & drink. I hope you have a Slow cooker/crock pot. It lets you throw ingredients and a lot of spices together and gives you a hot meal ready the minute you walk through the door. Best, it uses the cheapest, toughest cuts of meat [braising] making it fork tender. If you don't have this appliance, check for gently used at Goodwill or a nearby Thrift shop. Treat it as an adventure if you've never yard sale or thrifted.

I'm confident you can get through this bad patch quite quickly without sacrificing the joy of everyday life.

sorry...over long

[Green43]

Agree with above, at least put enough in retirement to get the match, wish I had followed that advice when I was your age. Get rid of the cable, it is too expensive and you can get enough through antenna and internet to get by. Just a suggestion buy ask for money for xmas to use toward your cc, a $100 payment will most likely double with the removal of late payments and reduced balance. JM $.02

[Eagle]

Good afternoon everyone,

I wanted some insight on how to properly pay down debts if you are in the situation of already being behind. First I'll give some background on my situation:

...

So, I have taken different strategies to make a budget (changing due dates, applying the 50/30/20plan, couponing, and also Dave Ramsey). I am 60+ days late on everything except rent, energy bill, cable, and Cricket phones.

@FifthElement
Welcome! Looks like with the new job you’re going to get your life back on track. Hang in there!

You've been given some good advice. I agree with calling to negotiate all your bills. I also agree you can't afford cable right now. Here's an updated list of your budget/expenses:

Rent- 420
Car - 471
Cable - 115
BGE - 100
Credit Cards (all 3) - 75
Phone - 50
Netflix - 7.99 each
Hulu - 7.99 each
Gas – 70
Groceries – 300
Car Insurance - ?


Regarding what Dave Ramsey says on combining finances before marriage read this post here.

[Eagle]

@FifthElement
After you get your bills current get $1000 quickly into your emergency fund. Sell stuff, get an extra part-time job, whatever it takes. This is Baby Step 1.

Once you do that and get your Baby Step #1 emergency fund ($1000) set up then start Baby Step #2 using the debt snowball (paying off the account with the lowest balance first).

1. Create a list of all of your debts: credit cards, car loans, student loans, mortgages, etc… (Note: You probably need to exclude your mortgage from the list until you have the other debts paid off)
2. Next to each one write down the total balance owed.
3. Re-order these from smallest to largest debts (use Excel to make this simpler.)
4. Pay the minimum payment on all of the debts – except the smallest one.
5. Put every extra dollar you can find towards paying off that smallest debt.
6. Celebrate like crazy when you get that first debt paid off.
7. Take the amount you were paying towards the first debt and put towards the next smallest debt. Do this until this next one is paid off.
8. Celebrate again!
9. Continue this process until each one is paid off!

Hope this helps! You can do it! We'll be here to cheer you on.

[mrpaseo]

Lots of great advice already, I saw that you mentioned that you had two credit cards with the same company. When this happened to me (I had a card, then they sent me a better card with a higher limit and lower interest so I applied and got it) I called them and told them that I do not need two cards so they took the two limits, added them together and gave me the lower interest rate.

Might be an options to get rid of one of the cards/payments.

Best of luck,

[ktmarvels]

I live in the same city I work, so I drive no more than 5-10 miles a day...
However in the months between July and Novemeber, I was either taking the bus or only using my car for school. Which leads into the next question; no car insurance right now. I couldn't afford it, so it ended up running out, and my car stayed at home. I actually got a good quote, so car insurance will be re-instated in December.

It may already be too late for this, but why not sell the car? You have a short commute to work and apparently have ready access to public transportation. Why take on/maintain the extra costs of car payments, insurance and gas? Mr. Money Mustache would say you should just get a bike!

Also, why the cable bill AND Nextflix AND Hulu?

[FifthElement]

Hi everyone,

Sorry I haven't responded...final exams

So here is an update, some good, some bad:

1)My boyfriend got an unexpected bonus check of $690 in addition to his paycheck, so we capitalized on that and took care of our energy bill.

2) I couldn't get to my oldest Capital One CC account in time, and it was closed. It sucks since I've had that card for almost 10 years, but it is what it is. However it has not been charged off yet, and they are only asking for $75 by Jan 4. I will be sending them that payment this Friday. My other Capital One account is over the limit, but current. I will also be sending them a payment on Friday to over the over-limit balance.

3) My Kohl's card was also closed. I am awaiting to hear back from them about the minimum payment needed to prevent a charge-off.

4) I opened a second saving account with Capital One. There's on;y $10 in it right now, but it's a start.

5) The boyfriend received a payment history for his truck, and we only have 5 payments left. After Friday, it will be four. I left it up to him to decide if he wants to payoff early, because he no longer wants the truck. Or a car payment.

Remaining Credit Cards:
My main plan of attack is to continue making the minimum payments to take care of the over-limit amounts. Once I do that, I will pay 70% of the balance to reflect my credit usage on my credit report.