Help With Budget!!!!!

[scfr]

Regarding the credit cards and a budget, it's time to start treating your household finances as seriously as you hopefully do your business finances. I suggest you do the following:

If you are still using the credit cards, stop. Use 100% cash from now on.

If there is anything that you bought that can still be returned to the stores (clothes with tags on them, etc), take them back and get a credit on the cards.

If there are things that you really don't need (and this probably includes many, many of the consumer goods in your house), sell them. Have a garage sale, use Craigslist, ebay, half.com, etc. Take the proceeds from your sales and pay down your credit cards. Sell the big screen TVs and keep just the one smallest, oldest one. Sell the couches and sit on folding chairs, etc. (You get the idea.) Never mind that you won't get back nearly what you paid for them. Later, when you have the debt paid off and have enough saved to pay in cash, you can repurchase what you decide you really need or want.

You mentioned that in the past you have paid down $5K at once on your ccs. Does this mean that you wait until you have a big dollar amount saved up to throw at the cc debt at one time? If so, there is really no benefit to doing it that way. As soon as you have some money that you can pay towards the ccs, do it. It doesn't matter if it's $5K or $500 or just $50 or $5. Go ahead and pay those cards down and soon as you have some cash! It will save you interest in the long run.

Start tracking all of your spending. This includes not only bills you pay, but every penny of cash that leaves your wallet. Carry a little notebook around with you to record all of your spending. (For many people, myself included, this was a step we took in our path to financial security that seemed small at first but turned out to be huge. I can't recommend highly enough that you do this.)

After you've tracked your spending for a couple months, sit down and make a budget. Be sure to include cushions for the "not so unexpected" irregular things like car breakdowns and vet bills. And in your monthly budget, be sure include how much you want to pay down on the ccs each month. When you get to this stage, you'll need to take a serious look at your spending and decide where you are willing to cut back. (This is something only you can decide for yourself. I can tell you that you should stop spending anything on dry cleaning and go strictly to wash & wear clothes, but I don't know the circumstances of your life and whether or not this is feasible for you. What I can say for sure, is that this process will involve making some tough choices and lifestyle changes.)

With $79K in cc and car debt, it may take you a couple years until you are completely debt free, but it can be done.

P.S. - Don't stop thinking about the possibility of selling that out-of-state property. I think it's a good thing to consider, if not now then perhaps a bit in the future. I also think renting out a room in your house sounds like a great idea. It would mean giving up a bit of privacy, but in exchange you'll become financially free much sooner.

[gamecock43]

I know CCfreedom would benefit both financially and peace of mind from selling the rentals, and people are trying to really calculate exactly how much she is losing a year on them, but when she sells them, dont forget the realtors fees and all that. Thats a hard hit to take if she thinks she can just break even on the properties.

[disneysteve]

My current house did not lose much equity..It is still holding its value at almost $900,000 and I bought it for less than that.

I'm surprised nobody has picked up on this yet.

You earn $132,000 and are living in a $900,000 home.
You are single and have 4 bedrooms.

I earn about the same and live in a $300,000 home.
I'm married with one child and have 3 bedrooms.

See the problem?

If you have positive equity in your home, sell it. You can't afford it. Even without the credit card debt, a home costing almost 7 times your income is ridiculous. Sell it and buy something cheaper, maybe 500K or so (I know things aren't cheap in LA). If you could walk away with maybe 350K after closing costs, you could pay off all of the credit cards, pay off the car, set aside an emergency fund, start some retirement savings and pay down some of your housing debt on the rentals. You'd be in far, far better shape.

Bottom line is you need to stop living beyond your means.

[disneysteve]

"I really don't think I can sell these properties." isn't going to cut in these forums.

I just had to laugh at this. This can be a tough crowd.

[tripods68]

Few comments, I commend you for tackling your problem 'head on' due to high debts relative to your income. The one thing you have going for is you don't have any "Family" to raise yet. Being a self entrepreneur gives you lots of freedom and risk-taking ability that most Americans don't have with regular 9 to 5 jobs with kids. I believe you are in the position to get rid of your CCs if you follow SCFR suggestion, which I agree wholehearthedly. Use cash for now until your business picks up and you paid down your debt.

As fars the rental, there is a point in buying a rental properties and keeping it at a loss that make sense and where it doesn't make sense. That's up to you to judge. You say you would be paying roughly IRS anywhere 6K to 8K in taxes for write off purposes versus losing roughly around $8400 per year. You're still at operating at loss nonetheless but a minimal. So I would say, keep the rentals and keep raising your rent each year until you reach the breakeven point where you are finally making profit. At the same time focused paying down CCs.

Good luck

[LivingAlmostLarge]

Holy cow. Steve it's okay to buy a $900k home, what you really need to know is what is the mortgage. It seems like CCFreedom cashed out all equity to buy their "dream" home. And perhaps the mortgage is $300k like yours but the house was $900k (Just assuming, not sure).

Now onto the rentals, here's the problem. Ever year you lose money you'l have to make it back when you sell. So the problem?

When you try to sell in 5 years it has to have appreciated not only enough to clear the mortgage, but also the realtor fees, money lost over 5 years, etc.

It will I suspect take longer than 5 years to recoup everything. And if you owned the rental for 22 years, if you hadn't refinanced to buy your current home it would have been very cash flow postive which would have been better.

But what can you do? Sell the properties. So you are losing money on it "only" $6k. That is $6k that could go to $80k in CC and car debt at what at least 5% interest, maybe more?

Couple of scenarios, what happens if you lose your business? People start paying late? How do you survive? What happens if the tenant stops paying rent or damages the place majorly? How will you fix it? Without any equity, how will handle damages?

[disneysteve]

Holy cow. Steve it's okay to buy a $900k home, what you really need to know is what is the mortgage. It seems like CCFreedom cashed out all equity to buy their "dream" home. And perhaps the mortgage is $300k like yours but the house was $900k (Just assuming, not sure).

OP said the mortgage payment is $3,800. That works out to a loan of somewhere in the $650,000 neighborhood depending on the interest rate.

I'll stand by my opinion that the home is out of proportion to the income and debt situation.

[LivingAlmostLarge]

I must have missed where they listed the price of their mortgage. Sigh.

Ouch CCFreedom, you have a lot of fixed expenses on your income. What happens if someone doesn't pay you or you don't get rent? Wowsa. I'd be worried about cash flow.

[CCFREEDOM]

I dont owe $900,000 for my mortgage..where did you guys come up with that? I owe a little over $600,000 and the house is worth $900,000. That is one asset I will not sell. I got a very good deal for it. I just need to pay off my credit cards and have the extra $2000,00 I am paying in credit cards available to me for savings.

I dont have accounts receivable in my business...everything is paid up front so no one is late on their payments. I make somewhere around $12,000-to $15,000 a month and my fixed business expenses are roughly $4,000.00.

Right now my IRS taxes each year are about $5,000.00. If I didnt have the rental properties...it would be $11,000.00 to $12,000.00. So please take that into consideration...seems like everyone is jumping on the loss in one area rather than the whole picture. I know I could be in a positive cash flow situation which would be desirable..but I am not. By sellin these properties...I would be selling on a shortsale...having to pay taxes on the shortsale and still paying another $6,000.00 each year on top of the $5,000.00 I am paying right now.

My money situation has been ok until the last 6 months when I opened that other business and I lost money and had to use credit cards. If I could get beyond this and just pay off what I borrowed for those months..I will be ok and even better now as I am now on a budget and more conscious of my spending habits.

I will be renting a room out of my house and that will help me get out from some of these bills.

Thanks for your great input...really appreciate it

[JinCO]

I agree with Steve. I would sell your primary residence and buy something less expensive. This would quickly eliminate a lot of your debt and allow you to start saving towards your dream home. I would also be concerned about cash flow. It seems like you don't have a lot of room for error if case your income decreased or one of your rentals was vacant.

[disneysteve]

I dont owe $900,000 for my mortgage..where did you guys come up with that? I owe a little over $600,000 and the house is worth $900,000. That is one asset I will not sell. I got a very good deal for it.

It wasn't a good deal if you couldn't afford it.

I didn't think you owed $900,000. I said your mortgage was probably in the $650,000 range (which sounds like it was about right). That means if you sold it today, you'd clear nearly $300,000 after expenses. Buy another home for $600,000 and that 300K could pretty much solve all of your current financial problems.

I make somewhere around $12,000-to $15,000 a month

Earlier, you said you make between $11,000 and $12,000 but have made as much as $15,000. That's a bit different than what you are saying now. That's why I was using the $132,000 figure for your income ($11,000 x 12).

seems like everyone is jumping on the loss in one area rather than the whole picture

I disagree. I think several of us are looking at the big picture rather than just focusing on the credit card debt. You can't fix that problem without addressing the other issues - the losses on the rental properties, the humongous mortgage on your home, etc.

I will be renting a room out of my house and that will help me get out from some of these bills.

I think that's a great idea and that money should be going 100% toward the credit card with the highest interest rate.

I know you are living in your "dream home" and that's great, but I think it is contributing to your demise. If you've realized a $300,000 profit, even given the current market conditions, now might be the ideal time to cash out.

[CCFREEDOM]

Thanks DisneySteve..


So lets say I didnt have the credit card bills for which I am now paying $2600 per month and cannot even claim on my tax return...would you still feel the same?

[disneysteve]

Thanks DisneySteve..


So lets say I didnt have the credit card bills for which I am now paying $2600 per month and cannot even claim on my tax return...would you still feel the same?

I would still feel that a rental property on which you are losing money is a bad idea.

As for the primary residence, that would still be a stretch, though not terrible if you were otherwise debt-free and on a tight budget. I'm not a fan of being house rich and cash poor, but it is doable I suppose.

I don't think you've said... Do you have any savings, retirement, emergency fund, etc.?

[tripods68]

Putting your rentals on short sale will not be a good thing for your credit especially if you rely heavily on credit card usage of your business.

[disneysteve]

Another question - Since the business is relatively new, what are the prospects for the income to increase in the near future? Can you realistically expect the $12,000 to rise much? Will the $15,000 become more the norm than the exception?

If so, that helps too. An extra $3,000 or $4,000 per month would do wonders to improve your situation. That alone would allow you to pay off the $79,000 in debt in about 20 months.