My Debt Situation - advice please

**Jluke** · 11-29-2015, 04:45 AM

Welcome

You have a healthy salary
You have a lot of 0% debt which is eating up your monthly income.
Your car loans are too much and too high interest - sell one or both

How much is in your Savings/Emergency Fund?

Pay off the 17% credit card first
Then tackle the 0% that expires next

Once you get that taken care of you may want to look into refinancing your mortgage to a shorter term or paying extra on it each month. You do realize how much interest you will pay on a 30-year loan?

**Singuy** · 11-29-2015, 05:35 AM

So you are saying your wife doesn't have a job but her income based payment is calculated from your income?(I believe they only consider family income and not individual income)

At 760/month based on the income based payments x 25 years..the loan is actually accumulating @ 9% interest rate which is way worst than regular payments @ 6.8% x 10 years.

I would look into selling one of those cars and buy a car for 4000, go get a home equity line of credit@ 2.99% or something low (with no closing cost) and use that money to tackle your cc debt and student loans. (I don't know your credit score but be very careful, most low % home equity line runs that promotion for the first year and they force you to draw the amount out from day 1).

You should get about 30k out of the house, leave the line of credit in the loan so you don't have to pay interest on it. Take out as needed when your credit card debt is no longer at 0%. Basically you are reducing your CC debt's high interest to 2.99% every time you take the money out as needed.

Lastly, you may want to look into changing the loans from income based to a regular 10 years.

**nore** · 11-29-2015, 06:16 AM

We file taxes jointly for the obvious tax benefits. As a lot of you know, they use tax returns to base the payments off. So technically the repayments are based solely off my income.

Current emergency fund is 0$ which is highly disappointing, we always maintained $10,000 EF but it just dissapeared over the last year or so. Plan is to remove the credit card debt then build it back up.

I hate driving junk cars, but I also realize that the payments are high and we are losing a lot of money each month to interest and payments. I'm considering "snowballing" my payments into the smaller of the auto loans once the cards are paid off. Selling the truck (the larger auto loan) is an option, I owe about what it is worth. But I would need to find a reliable replacement asy commute is long for work.

Refinancing the mortgage is doable too. I fully understand the amount of interest associated with a big loan over that span of time, so I would like to either pay it off as quick as possible or refinance to shorter term at a better rate. Which I think is doable once I pay off the other debt and my credit score escalates.

**cooliemae** · 11-29-2015, 09:04 AM

Have you looked at refinancing the car loans....assuming you have decent credit, there are plenty of places out there where you get get a much better interest rate....

**disneysteve** · 11-29-2015, 09:50 AM

Your take home is $6,200.
You listed expenses of $5,885.
That means there is $315/month unaccounted for.

First job is to find that money and for the next 3 months, put it into an emergency savings account.
Then put it toward the 17% credit card after that.

You mention one credit card that gets paid off monthly. Stop using a credit card until you clean up the mess. If you don't have cash, you don't buy it. Period.

The cars, as noted, are a problem. You are spending $795/month. Rule of thumb is to not exceed 10% of income which would be $620/month. You need to sell and replace one or both vehicles to get you in line with that number (or less).

You are only saving 6% for retirement which isn't nearly enough. You need to get that up to 15% which you can do once you get more affordable cars and eliminate some of the debt.

Can you tell us any more about your wife's situation? Why can't she work for another two years? Is it a medical issue? A legal issue? Is there anything she could be doing to earn money - buying and selling online, crafts, etc?

**Singuy** · 11-29-2015, 09:57 AM

Because your wife is not working, you should get a substantial tax return back. Make sure to minimize the tax return with high withholding numbers since you are so many loans with interest.

My suggestions from above will increase cash flow for loan payback and emergency funds ONLY. It can cause more harm than good if the techniques are used irresponsibility.

**nore** · 11-29-2015, 12:03 PM

My wife is able to work for a lot of reasons. Probably the main reason is if you really do the numbers she won't earn enough for it to be worthwhile at this point due to having to pay for child care for two children. One of which isn't in school yet and won't be for 2 more years. Once he is of school age working is a much better option. She would profit $200/300 a month for a lot of headache and stress that just isn't worth it to me. Instead I can make extra money by working more or selling stuff from around the house. Working from home for her is another option but it would have to be suitable and worthwhile doing.

We found it difficult to make set budgets because of the way I was getting paid, it is a little easier now getting paid by weekly. I would often work a lot some months brining home $8000 or more. We try to take that money and pay down debts. I know I will have the CC with the 17% interest rate paid off by years end. Our set monthly expenses just seem so variable, how do people deal with that?

**disneysteve** · 11-29-2015, 03:58 PM

Originally posted by nore View Post

Working from home for her is another option but it would have to be suitable and worthwhile doing.

Certainly, the simplest option if she is home caring for a child is babysitting another child. Around here, teen babysitters get $10+/hour cash. If she can get a friend or two to make her their go-to sitter when they need to hit the supermarket or hair salon or gym or doctor appointment, she could easily pick up a few hundred dollars a month.

Our set monthly expenses just seem so variable, how do people deal with that?

What expenses are so variable? Do you mean something like the utility bills? If so, consider going on the fixed payment plan if your utility offers it. We pay the same amount every month and then in month 12, we either have a credit or owe a little extra depending on actual usage.

**nore** · 11-29-2015, 04:33 PM

Variables include things like groceries, utilities, medical expenses, etc. These categories are often much less than budgeted for in our monthly budget. But sometimes they go over during peak electricity times, or for holiday family seasonal times groceries go up.

I see people on here making much less than us doing much much better, we have a good grasp on money. But it seams like we fall off the wagon every so often.

I want to ask opinions on removing money from a 401k to pay a debt? I would like to remove 11k to pay off the 16k personal loan. It sounds like it wouldn't be possible but due to the loan being with a bank in another country outside the USA I could turn my 11k into 16k due to the exchange rate. I realize I will be paying a 10% withdrawal fee as well as taxes (around 25%) and I'm fully willing and ready to do it just to have some burden removed. The debt come a time where working wasn't possible, and we had to survive. We barely scraped by and really come out of it pretty good considering. I know how taboo it is to do this, but it still seems like an option worth exploring. I feel like I can make up this money quickly later in life. My career will only continue to grown and I expect to be making 250k a year by my mid 30s with everything going well and as planned.

**PhilDanley** · 11-29-2015, 06:59 PM

How Accurate is Your Budget?

Based upon your numbers you've got $315 left over each month. Do you have any emergency fund? If not, I'd sock this money away for the next three months and get to $1000 in a savings account.

How much of your $1900 living expenses can you pare down? This is where a budget would be invaluable for you.

Saving for retirement is admirabale but IMHO, getting these debts handled ASAP is more important. I'm assuming you are putting 6% of your salary into your retirement account. If you were me, I'd cut this back to 3% and put that extra money towards your emergency fund, then towards your debts. You can start adding more towards retirement later.

You've already paid off $7000 of debt in the last six months. Way to go! So after your emergency fund is established, I'd continue to make minimum payments on all of your debts except the $1280 credit card (I know it is 0% interest). You can knock that one out the fastest with your excess income and then add that $130 payment to your $1950 credit card.

I paid off $20,200 in non-mortgage debt in 23 months following this strategy of paying off the lowest balance debts first. I hated paying the interest but seeing victory over the smaller debts kept my heart in the game that my head knew had to be played. Good luck!

**PhilDanley** · 11-29-2015, 07:02 PM

How Accurate is Your Budget?

Based upon your numbers you've got $315 left over each month. Do you have any emergency fund? If not, I'd sock this money away for the next three months and get to $1000 in a savings account.

How much of your $1900 living expenses can you pare down? This is where a budget would be invaluable for you.

Saving for retirement is admirabale but I believe getting these debts handled ASAP is more important. I'm assuming you are putting 6% of your salary into your retirement account. If you were me, I'd cut this back to 3% and put that extra money towards your emergency fund, then towards your debts. You can start adding more towards retirement later.

You've already paid off $7000 of debt in the last six months. Way to go! So after your emergency fund is established, I'd continue to make minimum payments on all of your debts except the $1280 credit card (I know it is 0% interest). You can knock that one out the fastest with your excess income and then add that $130 payment to your $1950 credit card.

I paid off $20,200 in non-mortgage debt in 23 months following this strategy of paying off the lowest balance debts first. I hated paying the interest but seeing victory over the smaller debts kept my heart in the game that my head knew had to be played. Good luck!

**snafu** · 12-03-2015, 09:21 AM

Managing money takes a modest amount of thought and planning based on your specific facts. Most helpful is a budget to take away emotional responses and keep within net income. You and DW decided it was preferable for her to remain home with the children. That choice is understandable/admirable but it requires a different set of protocols for spending.

We all want to help you solve the problems outlined and improve your situation for the long term. Credit cards were not designed to serve as an emergency fund. They want to transfer your money to their pockets. Savings accounts give a little over 1%, credit cards take as much as 22% in interest.

Since you have the skill sets to service your vehicles, those need to be older, paid in full, sufficient to cover 'needs' as opposed to 'wants' until net income increases to make desires affordable. Does your job require you transport an expensive to insure truck full of material from job site to job site? It helps to write out requirements and research older vehicles that have adequate seating for two DKs, two adult. Vehicles with modest repair features are easily reviewed in Phil Edmonston's Lemon Aid books. [available in most libraries]

Since you have a job with duties and responsibilities, SAHMs likewise need to source out low cost/best places to keep expenses within the parameters of their budget. For example, if clothes need to be replaced, they may be found on CriagsList, Facebook sales,and thrift stores like Goodwill. Quality food is most often found around the perimeter of each food store. Convenience and take-out food is full of salt, fat and unpronounceable chemicals.

Taking money out of your retirement fund is not smart on many levels. Your retirement depends on compounding of modest sums contributed over a very long time frame. When you are retired your options for earning income are extremely limited but the need for food, shelter and health care doesn't disappear. Any expensive health issues need $$$$. As already explained, when you get on better financial footings you need to increase contribution.

The loss is exacerbated by taxes, fees and penalty. Worse yet is the lost time frame. You will have exchanged a short term problem into a long term, serious mess.

You've had so many terrific suggestions. I hope you'll temporarily leave your credit cards in the fridge freezer and revert to cash. It's so much easier to control spending when it's limited to cash in your wallet. If you force yourself to write down where every dollar went, you'll easily see the leakage. If you need to carry a card fearing an emergency situation, wrap it in a dozen elastic bands to remind you to avoid spending.

During the economic downturn we made a family pact to stop impulse purchasing. We worked with 'to buy' lists, easily noted on our cell phones. If the item wasn't on the list, it was considered 'impulse.' No bargain, no special price was allowed. If I forgot to write a needed grocery item, I somehow managed. If we needed more gas we found an alternate mode of transportation. [painful for our two teenagers]. The lessons learned were impressive.

**jean_charry** · 12-04-2015, 02:53 AM

you can be out of debt

To get out of debt, one effective strategy is to pay first the one with the highest interest. It is also a wise way if you can borrow (yes it is okay to borrow money) with the lesser interest to pay for the debt with higher interest.. or the better if you can borrow from someone who would not put an interest on it. Just make sure you can pay that person on your promised time..

**Jovanny** · 12-21-2015, 11:34 PM

You have two auto loans. It is better to sell one of the cars and don�t buy another one until your wife returns back to the job.

My Debt Situation - advice please