Author Topic: Reader Case Study. Goal: Debt Reduction, Budget Plan.  (Read 5128 times)

snyder66

  • 5 O'Clock Shadow
  • *
  • Posts: 37
Reader Case Study. Goal: Debt Reduction, Budget Plan.
« on: March 05, 2014, 02:47:38 PM »
Income:  $4800 per month after tax income.

Savings:  $15,658 in Vanguard
Retirement:
                    AXA:               $8256
                    My Roth IRA:  $ 53,891.18
                    Wife's Roth:   $ 43,870.90
                    Wife's 403B:  $ 10,527.06
My wife also has a solid pension that will be in the range of $80,000 per year in retirement.

Liabilitites:
                    Capital One Credit Card:  $4164.72  16.9%
                    Chase Credit Card:           $5201.21   0% for 15 months
                    Car Loan:                          $1784.65   3.99%
                    Mortgage:                         $182480    5.5%
Expenses:

                Auto Insurance:     $75 a month
                Gas and Fuel:         $100 a month
                Cell Phone:             $164
                Car Loan:                $145
                Netflix:                     $8
                Mortgage:                $ 1564.
                Groceries:                $800, probably more.  Still in progress...
                Dining Out:              $100
                Life Insurance:        $100, estimate
                Pet Supplies:           $100
                Cable/Internet:       $100
                Sports/Activities:     $75

This is all that I can think of for now.  I know that we have more expenses than this.  Still working on our Mint budget.
Obviously, The credit cards should be paid off first.  Car loan will be next.  After that, or during, We need to cut monthly costs.
Cell phone and cable will be the first.

4alpacas

  • Handlebar Stache
  • *****
  • Posts: 1897
Re: Reader Case Study. Goal: Debt Reduction, Budget Plan.
« Reply #1 on: March 05, 2014, 03:00:27 PM »
Your cellphone bill and cable are a good place to start, but your grocery bill is insane!  How many people are you feeding? 

Also, look into how much the interest rate on the Chase credit card will be after the 15 month 0% period.  My guess is the interest rate will be very high.  I would make sure I would be able to pay off the balance before the interest starts piling up. 

How much are you putting toward your debts now?

Good luck!

aj_yooper

  • Handlebar Stache
  • *****
  • Posts: 1091
  • Age: 8
  • Location: Chicagoland
Re: Reader Case Study. Goal: Debt Reduction, Budget Plan.
« Reply #2 on: March 05, 2014, 03:07:39 PM »
+1 on your savings, retirement savings, and an average income.  Your food bill seems very large, if it is for 2. 

What caused the credit card debt?  If it wasn't a calamity, you have a big spending problem that needs to be cured before anything exceptional develops.  Your mortgage rate is very high too. 




Thegoblinchief

  • Guest
Re: Reader Case Study. Goal: Debt Reduction, Budget Plan.
« Reply #3 on: March 05, 2014, 03:09:33 PM »
I would STRONGLY consider withdrawing any penalty-free funds from the Roth and killing off the credit card debt. You should have at least $10-15K that's past the 5 year threshold.

Grocery bill is insane. My personal rule of thumb is $150 per person, including all alcohol and household necessities. Dining out when you have that kind of cc debt is dumb. Is a restaurant worth a 17% loan?

$100 for pet supplies seems high as well.

Attack the cc in interest first. Then kill the one before interest goes out of deferment. Consider stopping retirement contributions temporarily to do this AS FAST AS POSSIBLE.

Then, once your living expenses are cut, attack that mortgage. 5.5% is a good enough real rate of return versus market+inflation that I'd pay it down or shop a refi once the cc debt is off your record.

MDM

  • Walrus Stache
  • *******
  • Posts: 9607
Re: Reader Case Study. Goal: Debt Reduction, Budget Plan.
« Reply #4 on: March 05, 2014, 08:55:07 PM »
Is the $4800/month for one person's income or is that a combined total?  From the $80k/yr pension estimate, it would seem the $4800 could be hers alone.  But you both have Roth's, so both working...? 

What I'm getting at is, if you are both working, then you should be able to pay the credit cards quickly without touching the Roth.

A minor point: any kids?  If not, cancel the life insurance.

snyder66

  • 5 O'Clock Shadow
  • *
  • Posts: 37
Re: Reader Case Study. Goal: Debt Reduction, Budget Plan.
« Reply #5 on: March 07, 2014, 02:33:22 PM »
We have 3 children.  The pension is my wife's, she's a teacher.  We both work.  She earns twice as much s I do.  I work full time from April-December, part time the rest of the year.  There isn't a large drop off in salary, because we save money in childcare in my down season of work.  The high grocery bill is due mostly to our consumption of organic food.  But, It could be lower...

aj_yooper

  • Handlebar Stache
  • *****
  • Posts: 1091
  • Age: 8
  • Location: Chicagoland
Re: Reader Case Study. Goal: Debt Reduction, Budget Plan.
« Reply #6 on: March 07, 2014, 06:19:17 PM »
So the grocery bill is pretty normal for 5 (@150/person-organic). 

Is your wife good on doing a budget plan and rejiggering spends?

And, was there an issue that led to the debt or were you more not paying attention to the spending?  No need to be judgmental of your spending.  Just work at tightening it all up so you will be more money efficient and grow your savings.  Your debts are manageable.  Personally, I would  not withdraw money from a Roth to fix the credit card debt.  You don't need to take extreme measures as the amount is not that high.

Weedy Acres

  • Bristles
  • ***
  • Posts: 280
Re: Reader Case Study. Goal: Debt Reduction, Budget Plan.
« Reply #7 on: March 08, 2014, 06:28:15 PM »
No need to cash out a Roth to pay off the credit cards and car.  Just cash out your taxable Vanguard account.  I'd do that today.  Get those debts out of your life. 

Whether the groceries are reasonable depends on your kids' ages.  If they're all teenagers, then that might make sense.  If they're toddlers, then it's still way too high. 

Babymoustache

  • 5 O'Clock Shadow
  • *
  • Posts: 90
  • Age: 45
  • Location: New Zealand
Re: Reader Case Study. Goal: Debt Reduction, Budget Plan.
« Reply #8 on: March 09, 2014, 01:45:20 AM »
I'm sure you could get that phone bill down. I used to think I had a good deal when I was paying a similar amount. But, some great ideas and suggestions from other mustachians have helped me get it down to $49 per month.... It can be done! :)

wtjbatman

  • Handlebar Stache
  • *****
  • Posts: 1313
  • Age: 36
  • Location: Missouri
Re: Reader Case Study. Goal: Debt Reduction, Budget Plan.
« Reply #9 on: March 09, 2014, 10:14:21 AM »
Definitely don't withdraw money from your Roth to pay down CC bills. That is terrible advice. Once you withdraw that money, you've now lost principal that you can never replace. If you touch any of your investments/savings, make it the taxable account first.

Your debt priorities should be Capital One -> Car Loan -> Chase CC, unless you won't be able to get the Chase paid off before the 0% APR promotion runs out, then you should switch car loan and Chase.

Another Reader

  • Walrus Stache
  • *******
  • Posts: 5078
Re: Reader Case Study. Goal: Debt Reduction, Budget Plan.
« Reply #10 on: March 09, 2014, 10:25:52 AM »
I would NEVER, EVER cash out a retirement account to pay off something like a credit card.  As previously stated, you can never put the principal back into the account or get the years of tax free growth in the case of a Roth.  Same thing about using a Roth as an emergency fund.  Have an emergency fund.  Cut costs or boost income to pay off debt faster.  Don't sacrifice your future financial well-being to solve a relatively small current problem.

snyder66

  • 5 O'Clock Shadow
  • *
  • Posts: 37
Re: Reader Case Study. Goal: Debt Reduction, Budget Plan.
« Reply #11 on: March 09, 2014, 12:36:23 PM »
Thanks to the last 2 posters.  I did withdraw some of my Vanguard money, not the Roth money, to pay off that Capital One bill.  There's not way that will pay me back the 16%.  Next, I'm working on the Carl Loan.  Thank You All!

MDM

  • Walrus Stache
  • *******
  • Posts: 9607
Re: Reader Case Study. Goal: Debt Reduction, Budget Plan.
« Reply #12 on: March 09, 2014, 01:05:41 PM »
Snyder66,

Probably a good move on the Vanguard->Capital One - nice work.

Took your OP and added some guesses / things to consider.  See ??? entries below.  Assuming this is all correct (and you note that you are in fact getting better numbers):
- Take home pay appears sufficient to get the non-mortgage debts paid off within 15 months.
- Didn't see any mention of ongoing pre-tax deductions, either for retirement or the various health, childcare*, etc. options.  It would be good to make full use of whatever options you have to use pre-tax dollars.

*Just realized that "Childcare" is probably a significant monthly expense that doesn't appear as a line item below.  Oh well, that's only an example - the point is for you to develop and maintain your own budget anyway.

CategoryMonthly amt.Comments
Salary/Wages$5,591
Pretax Health Ins.$0
Pretax Vision/Dental Ins.$0
Health FSA$0
Daycare FSA$0
HSA$0
Pretax Commuter costs$0
FICA base salary/wages$5,591
401(k)$0
Income subject to IRS tax$5,591
ESPP$0
LTD$0
Paycheck deposit$5,591
Other$0
Rental real expenses$0
Rental depreciation expense$0
Rental taxable income$0
Federal Adj. Gross Inc.$5,591
Add Daycare reimb.$0
Add Health care reimb.$0
Federal tax$364 2014 rates, stand. ded., 5 exemptions
State tax$0
Medicare/SS tax$428
Total taxes$791
Income before other expenses$4,800 Matches OP
Monthly Expenses:
Mortgage$1,564
Extra Mortgage pmt.$150 ???
Home/Rent Insurance$80 ???
Household$100 ???
Groceries$1,000 OP said "$800, probably more"
Pet$100
Dining (Pizza, etc.)$100
Medical$50 ???
Fuel/Public Transport$100
Water$30 ???
Gas and Electric$100 ???
Cable$50
Internet$50
Entertainment$8
Sports/Recreation$75
Phone$164
Car Insurance$75
Life Ins.$100
Miscellaneous$200 ???
Capital One Credit$0
Chase Credit Card$347
Car Loan$145
Roth IRAs$150 ???
529 plan$0
Total Expense$4,737
Remainder$62
LiabilitiesCurrentOriginal Prin.RateOrig. Length
Capital One Credit$0 $4,165 16.90%1
Chase Credit Card$5,201 $5,201 0.00%1.25
Car Loan$1,785 $4,900 3.99%3
Mortgage$182,480 $254,700 5.50%25