Help - Expenses much higher than Income

**scfr** · 08-05-2018, 08:54 AM

Are you prepared to drastically reduce expenses? Increase income? Some combination of both? Even if it means doing things that you don't want to do or make you uncomfortable?

**disneysteve** · 08-05-2018, 09:08 AM

Welcome. Not to harp on the obvious, but you are in some serious trouble. As scfr stated, you either need to markedly boost income or seriously cut expenses.

I'm curious how you got into this situation. Did you experience a large drop in income? Your mortgage is 35% of income, which is way higher than it should be (25-28%). Your car payments are about 15% of income when they shouldn't exceed 10%. And you have a very low credit score, so it sounds like something happened and you were doing better when you took on those debts but now with a lower income can no longer afford them.

You need to immediately slash all unnecessary spending. Alarm, full cell phone plans, cable TV, etc. You need to go bare bones and come up with a budget that doesn't exceed your income. And you also need to be doing everything you can to boost income - sell stuff, get 2nd jobs, whatever.

I would recommend Dave Ramsey's The Total Money Makeover book to you as well.

Also, you list one loan with a $650/mo. payment that isn't in your name. Who does that debt belong to and why are you paying it?

Does your dad know your situation? Is he willing to put your payments to him on hold or at least significantly decrease them?

What are you actually doing currently to pay your bills? Are you continuing to take on more and more debt to stay afloat?

**Jluke** · 08-05-2018, 09:09 AM

Get a second job, nights/weekends.

**kork13** · 08-05-2018, 11:38 AM

You are truly in a bad spot, and I feel for you. This will sound rough & tough, but we're really trying to help. I really do want you to succeed, and you CAN DO IT! But right now, you need to take extreme measures. And yes, it's going to be uncomfortable.

A litany of recommendations:
- Figure out the difference between a want and a need. No spending on ANYTHING that is not absolutely a critical survival need. I'm talking food, shelter, power/water/gas/trash, and transportation to your job. Everything else takes a backseat.
- You desperately need a budget. Zero-based (your expenses are not allowed to exceed your income), prioritized based on your basic needs As stated by others, Dave Ramsey's "Total Money Makeover" book can help with that process. I can tell that you're not including alot of things that you also spend your money on each month (like gas & groceries, for example), so you need to get a handle on what else you spend each month (that's your budget), and then you need to cut down on every expense you possibly can. STICK TO YOUR BUDGET.
-- While you're at it, listen to Dave Ramsey's podcast/radio show/YouYube show. He focuses on the motivation & psychological inertia of getting control of your finances, and I think you would really benefit alot from that daily encouragement & guidance to help get yourself out of debt.
- Cut up all of your credit cards. Seriously, get out a pair of scissors right now, and shred every single one of them. I hope you can see that having them around is not helping you in any way. At this point, you need to add NO MORE DEBT to this problem.
- You need to boost your income. Are you both working outside the home? If not, the stay-at-home spouse is about to get a from-home job, or a part-time gig while the kids are at school. Is overtime an option for you? Get a second job, even if it's just delivering pizzas in the evening. Take on every extra hour of work you can, during evenings and especially on weekends.
- Stop any extra money that's coming out of your paycheck. Take retirement contributions down to the minimum to get an employer match (possibly eliminate it completely). If you got a tax refund last year, reduce your tax withholding so that you get that money every month (instead of loaning it to the government interest-free).
- Change your fundamental way of thinking about debt. It's not about the monthly payment -- look at the actual dollar amount that you owe. Thinking in terms of payments is the trap that lenders get people in, telling them "It's only $400/mo, that's affordable" when it's actually a $30k car loan spread out over the next 7 years. You owe in excess of $150k, NOT INCLUDING YOUR MORTGAGE. That's a huge number, isn't it? I hope that scares you. It needs to scare you so badly that you actually do something about fixing the mess that you're in, and so badly that you never allow yourself to get in this mess again.
- Sell both cars, replace them with cars that you buy for no more than $3k each (preferably closer to $1k). I don't care if you're underwater. Doing this will reduce your debt load by $40k in one shot. If you're underwater, go to your lender, tell them that you're going to sell your cars, and show them a KBB printout. Tell them that they already have an unsecured loan for $X amount that you're underwater, when you sell your cars, they're going to give you new, unsecured loan for the amount that you're underwater. Local credit unions are generally more willing to follow through with this arrangement. Doing this will reduce your total debt load ALOT.
- You need to radically cut your expenses. Every dollar you can save in expenditures will help you to funnel everything into your debts. Some places to start:
--- Cable: Gone. Home phone: Gone (you've got cell phones). Internet: Cut to the lowest option available. You don't need to watch TV or stream movies from the web -- you need to go out & earn more income.
--- Drop the home alarm monitoring service. Just use it as a stand-alone alarm system. This only needs to be temporary while you're getting out of debt, but that's $50/mo that can go to your debts. Burglers are deterred by alarm signs, and if they break in anyway, the blasting alarm will guarantee that they're gone within minutes. Ask your neighbors to help keep an eye on your house & to call the cops if the alarm goes off.
--- Cell Phones: Cut this down to the minimum. You can get good service for just $35-$40 per line (even including 2-3 GB of data, which is plenty, because you're going to be working all the time. Some even offer unlimited data at that price point). Do something like that for you & your husband, maybe for any kids that are driving. Otherwise, it's a "nice to have", and your kids will survive without a cell phone.
--- Raise all of your insurance deductibles. If you have anything less than a $1000 deductible, you need to bump it up.
--- Put some of your debts on hold. Tell your dad that you're in deep trouble with your money, and you need to stop paying him back until you get your other debts under control. Likewise, see if you can put your student loans into a temporary hardship deferral. Why are you paying a debt that isn't in your name? Hand it off to whoever's debt it actually is, and tell them that you simply can't afford to pay their debts. Their debt = their responsibility.
--- No eating out, period. Discover your inner home-chef. Cut your grocery spending to the absolute bare bones. Yes, that means almost every meal will revolve around nothing but rice & beans for dinner, instant ramen for lunch, and eggs & oatmeal for breakfast. Pack lunches for work & school. No juice, no soda, no alcohol. You're drinking just water & maybe milk. Get creative -- there's alot of good, healthy meals you can cook with very basic, inexpensive ingredients.

I know I'm beating you up here, and I'm sorry that it sounds like I'm riding your case. But as I said upfront, you need to get extreme if you want to get this under control. You CAN do it. You just need to focus on boosting income, slashing expenses, and putting every dollar you can toward paying off your debts.

So once you've cut your budget down to the bare bones, make a list of all your debts, with total amount owed, interest rate, and monthly payment. Make minimum payments on them all, then send every possible dollar you can to just one of them. You can do it either from smallest to biggest (paying off your little $1k debts before your $10k & $15k debts), or from highest interest to lowest (paying off 25% interest credit cards before a 5% HELOC or whatever). As you pay off each debt, you'll gain more momentum. Cheer a little bit, and turn your focus onto the next one. Do that debt after another, until you have them all paid off. Yes, this will take time -- likely 2-3 years. But if you really bear down & focus on cleaning up your debt, YOU CAN DO IT! And when you get there, it'll feel like an incredible weight is lifted up off your shoulders. You'll celebrate, and feel so free that you won't know what to do with all of your income that is suddenly 100% yours to do with as you like. So what do you do? Save & invest it, build up your wealth over time, and you can create a happy life & retirement for yourself and your family.

I wish you all the best. You really can do it, and we're happy to help encourage and advise you along the way. Don't quit -- WIN!

**disneysteve** · 08-05-2018, 11:47 AM

kork has given you great advice.

Regarding order of debt repayment, I am normally a proponent of highest interest rate first but in this case, I agree with Dave Ramsey. Go after the smallest balances first. You list several $1,000 debts. Pick one and focus on that. Then the next one, then the next. Clear a few of those little debts and get them out of your life, even if they have low interest rates. That will free up cash quickly and reduce the number of payments you need to keep track of each month, lessening the risk of missing a payment or being late on one.

I also totally agree about the cars. You can't afford to be servicing $44,000 of auto loans. Even if you have to borrow the difference, you will still come out way ahead. Put them up for sale right away and start shopping for the beaters that will replace them.

**Nutria** · 08-05-2018, 01:51 PM

Do I stop paying on the loans?

To what end? The interest will just accumulate quickly, making it even worse.

Want to sell the car and downgrade with the payment of $730 per month but I owe $7k more than what the car is worth.

Sigh.

The bottom line is that -- no matter how much you two earn -- you're poor. It's a fact and you -- and your spouse -- must realize that and adjust your lifestyles to meet that reality.

Thus...

Kid�s School -$900 month -- Public School
Cell phones - $200 -- Cheaper phones, no games, no phones for kids, etc.
Personal loan to Dad - $1,000 month -- Renegotiate/defer
Cable/Internet/Gas/Electric/Water - $500 month -- Reduce cable to the minimum package and reduce Internet to minimum speed.

You didn't mention food, but that must be adjusted, too. Great Value and Equate brands at Walmart, planning meals and cooking on the weekend, no more fast food, take-out, pizza, etc.

And your kids must be told. Not all the gory details, but that you all can't afford what you used to be able to do.

**Keshet** · 08-05-2018, 04:34 PM

I was curiou sabout the school also. can you really afford that?

**disneysteve** · 08-05-2018, 04:38 PM

Kid�s School -$900 month

I totally missed this when I read the post initially. How can you possibly be paying for this? You're $3,000 in the hole EVERY MONTH. You can't afford private school. Hopefully, there is still time to un-enroll them for the coming year and get them signed up for public school. You may have already missed the registration deadline but I'm sure if you go in and explain that you've suffered a financial hardship, something can be done to accommodate you. Kids transfer in all the time but it would be preferable to have them start at the beginning of the year with everyone else.

**prosper** · 08-05-2018, 06:23 PM

I think you have done a great job of realizing you need to make a change and listing all of your debts. To me that's the hardest step and worth celebrating. Next, don't stress. "It is what it is." Stress will not help you pay your bills. No matter what you do somebody's going to be mad at you and stress will not help. You made a mistake, but do your best and be satisfied with that. Do not dwell on this all day. Do not start your morning checking emails and voice messages. Exercise, go to bed early, wake up early, read, and enjoy your family. Do not let this situation determine your piece of mind.

Financially, you have received some great advice. You will have to earn more money and cut expenses to the bare bones. There is no quick fix. If I were you, my first overall goal would be to break even. Celebrate every win like you won the lottery!!! The beginning of this journey is going to be rough but it will get easier.

**Bill1515** · 08-06-2018, 09:09 AM

I REALLY appreciate all the advice and here are some actions taken. What I know need help with is what is next??

What got us here is a job loss. Was out of work for 6 months.
Loan for $650....It's my debt/loan but is in my dad's name.
Also my school loans, over $100k. Already been deferred for 2 years, payments start now.
Kids school...sorry but this is thee #1 on our list. Rather not have a car, sell the house, and continue sending them to school for the $900 month.

In the past few days.
Signed up for Lyft and Uber. Did rides all weekend. Made $400 in 3 days. Will do more and more..$$$
Had the discussion with Dad. We are going to hold off for 2 payments and then do $600 per month.
Sat down and cut each and every credit card.....DONE!
Bought total money makeover.....Did not read just yet.
Wife was approved today to increase the hours to 40. This should bring in ~$500 more per month.
We do not eat out, eat in everyday.

Approaching breakeven but dpending on the uber/..........
My questions,
credit/loans: what should be those next steps?? I have heard that I can call the companies on the credit cards and loans and negotiate? that true? or do i continue paying the min on some (wife's) and only stop paying on mine?
Cars..........need more help here......I want to start with one. Do i sell outright when it's worth $25K and then still owe the $7k to finance company, or do I go and trade in and get a beater?

**bjl584** · 08-06-2018, 09:38 AM

Originally posted by Bill1515 View Post

I REALLY appreciate all the advice and here are some actions taken. What I know need help with is what is next??

What got us here is a job loss. Was out of work for 6 months.
Loan for $650....It's my debt/loan but is in my dad's name.
Also my school loans, over $100k. Already been deferred for 2 years, payments start now.
Kids school...sorry but this is thee #1 on our list. Rather not have a car, sell the house, and continue sending them to school for the $900 month.

In the past few days.
Signed up for Lyft and Uber. Did rides all weekend. Made $400 in 3 days. Will do more and more..$$$
Had the discussion with Dad. We are going to hold off for 2 payments and then do $600 per month.
Sat down and cut each and every credit card.....DONE!
Bought total money makeover.....Did not read just yet.
Wife was approved today to increase the hours to 40. This should bring in ~$500 more per month.
We do not eat out, eat in everyday.

Approaching breakeven but dpending on the uber/..........
My questions,
credit/loans: what should be those next steps?? I have heard that I can call the companies on the credit cards and loans and negotiate? that true? or do i continue paying the min on some (wife's) and only stop paying on mine?
Cars..........need more help here......I want to start with one. Do i sell outright when it's worth $25K and then still owe the $7k to finance company, or do I go and trade in and get a beater?

You've made great progress so far.

Usually, the CC companies will only negotiate with you if you are late on payments.

I'd dump the car and get a beater. Whether you sell outright or trade depends on a few things. Selling outright will get you more $$$, but it could take longer. You might take a bath at a dealership, but you can chalk it up to a hard lesson learned. You have a good amount of equity. You should be able to get something decent free and clear or real close to it.

**snafu** · 08-06-2018, 09:43 AM

Well done on immediate actions. Call CCs and explain negative situation but don't stop making payments. Try for extended deferment on SLs due to dire situation. You cannot afford private school until the financial numbers improve. Does the school give scholarships? Child can return from public school when you can afford it. Parents and possibly grandparent can offer enhanced time and learning support.

**disneysteve** · 08-06-2018, 11:48 AM

Originally posted by Bill1515 View Post

Kids school...sorry but this is thee #1 on our list. Rather not have a car, sell the house, and continue sending them to school for the $900 month.

Is cutting back to one car, even temporarily, a possibility for you? Even if you could eliminate the smaller payment, that frees up $330/month.

Signed up for Lyft and Uber. Did rides all weekend. Made $400 in 3 days.

That's awesome! Great job. Hopefully you can keep doing that in your free time and keep making great money. If you can bring in an extra $1,500/month, that will go a long way to help your situation.

Had the discussion with Dad. We are going to hold off for 2 payments and then do $600 per month.

Also great. So that frees up $2,000 over the next 2 months. Use that to pay off 2 of your $1,000 debts. Pick the 2 that have the highest minimum payments. That will help cash flow the most. And then going forward, you'll have an extra $400/month.

Wife was approved today to increase the hours to 40. This should bring in ~$500 more per month.

Congrats to her! Is she able to pick up additional work beyond the 40 hours or does she need to be home for child care? Could she drive for Uber/Lyft too? Or get some other sort of part time job?

We do not eat out, eat in everyday.

Good for you. Are most meals cooked from scratch or do you buy a lot of processed and prepared foods? Eating at home is great, but there may still be ways to further trim the food spending.

credit/loans: what should be those next steps?? I have heard that I can call the companies on the credit cards and loans and negotiate? that true? or do i continue paying the min on some (wife's) and only stop paying on mine?
Cars..........need more help here......I want to start with one. Do i sell outright when it's worth $25K and then still owe the $7k to finance company, or do I go and trade in and get a beater?

I think you can fix this without stopping payments on debt and further wrecking your credit.

You are short $2,900/month.
Earn $1,500 with Uber. That leaves you short $1,400.
Pay off two $1,000 loans with payments of $45 and $47. That leaves you short about $1,300 ($1,308 to be exact).
Reduce payments to dad to $600. That leaves you short $900.
If either you can earn more than $1,500 with Uber or your wife can also do something on the side to bring in $900/month, then you're even. And every time you pay off a debt, you improve your situation, even if only by $25 or $27 or $40 each time. It will all add up.

And after you BOTH read Total Money Makeover (TMM), I suspect you will find other places that you can cut back that don't involve defaulting on your credit.

Selling one or both cars will obviously help too. You can do this. It may not be easy or fun or pretty but you're on the right track and any sacrifices will only be temporary until you dig yourselves out of the hole you're in.

**disneysteve** · 08-06-2018, 11:51 AM

And I didn't include dropping the home alarm ($50) and cutting cable (?) in my calculation. So that takes you down probably to an $800 deficit give or take. Much better than the $2,900 you started with.

Help - Expenses much higher than Income