I assumed the CC debt was for fertility treatments of some kind or other pregnancy/childbirth expenses, worth every penny if you are trying to have kids. IMO the OP should not be criticized for the CC debt as they have already explained that it was a one time expense.Hi Walt,
-W
-Diane C-
Thanks for the input! Hopefully it didn't cost you too much sleep. Thanks, but I was awake anyway and I'm FIRE, so I can sleep whenever I want. Sigh.
Our CC and personal loan debt are related to getting pregnant and additional family planning costs once we realized IVF wasn't a viable option for us. See reply to Walt above. Doesn't matter, not judging.
The minimum payments for the CCs are listed next to each debt in the liability section. Our approach up until now has been to siphon all remaining income after expenses into the CC with highest rate and pay the minimums on the rest. This wasn't getting us anywhere fast. Thanks to the suggestions in this thread, I think we can tackle our debt much faster now. Still should be in expenses, because until they're dead, they're the same as the utility bills.
We haven't contacted the CC companies or the personal loan provider about lowering the interest rates on our accounts. Is there a justification for doing this instead of transferring the balance of our CC balances to a 0% APR card and paying it down over 12 months? Seems like 0% would be better than reduced interest. At least two reasons. Because balance transfers have a hard stop. If you don't pay it off or roll to another card are the end of the grace period, you'll be in deep doo-doo. Next, they may not offer you enough money to pay off all the cards. Lowering the interest rate only makes you more credit worthy. Also might be easier to get before you've opened new lines of credit. Minimal effort for maximal returns. Don't get me wrong, you should still do the balance transfer, but sequence it optimally.
We could contact the credit union about lowering the rate on our loan, but using ROTH contributions seems like the most expedient and cost-effective way to take care of it, unless I'm there is some information I'm missing. When you say you can't put money back in a ROTH, do you mean you literally can't contribute to a ROTH in the future once you withdrawn from it? If this is the case, we'll have to seriously consider using that approach. If you withdraw from the Roth, you are pulling out dollars you saved in 2010 or earlier. The amount you can contribute is capped annually. If you pull money from say, 2008 and repay it in 2018, then you are losing out on the contribution you could have made in 2018. You can't get the lost or withdrawn years back. Call the Credit Union already. One kills debt expediently, one does not drain hard-earned retirement resources for "expedience". It's okay to pay a little interest to protect your retirement funds.
As for asking for more credit from the credit union or borrowing against our car, are these more cost-effective options than what has been proposed by others (e.g. 0% balance transfer and ROTH withdrawal)? Again, you don't know how much $ you can get on BT's. See above and make the phone call today.
I think our tax withholdings are very low right now, but I can look into this further. Good. If you got more than $1k back last year, you're doing something wrong, especially since you have dependents.
I agree with our perspective on moving and house saving. These aren't in our best interest now, so they are going on the back burner.
GENERAL QUESTION: Does anyone have experience with Alliant Credit Union? Are they reputable? We've been approved for their 0% balance transfer card and are considering using it to &deal with the CC debt. Who cares? It's hard to find no-fee 0% BT's. Take the money and run. But make those other phone calls first.
Thanks! You are so welcome. Go give those babies a hug from me. And tell your wife she's beautiful today.
Your approach to the personal loan debt using Roth funds is well thought out. My question now, as I already put in my response to Diane above, is what reduced interest rate I should consider low enough to leave the Roth funds where they are and pay the loan balance down monthly.I like MDM's advice for order of investments in the case study spreadsheet (http://forum.mrmoneymustache.com/ask-a-mustachian/how-to-write-a-'case-study'-topic/msg274228/?topicseen#msg274228). That suggests that it would be better to put money towards tax advantaged investments than debt with rates about 5% above 10 year treasury yields (so about 7.5% today). Above 8%, I think I'd "borrow" from the Roth IRA as I described in my previous post. Between 7-8%, I'd probably just pay off as quickly as possible without touching the IRA funds. If I could get the rate below 7%, I'd start thinking about maximizing tax advantaged investment space while making minimum payments. 5% is about where I'd switch from debt payoff to taxable investing.
We'll ask card #1 for a reduced rate before we transfer, using the 0% card as leverage in the negotiation.
Phone calls have been made.
Talked to the credit union (current rate = 8.9%) and they gave us 2 options:
Option #1: Refinance the current balance for 48 months at 6.99% (monthly payment ~$380)
Option #2: Reduce the balance of the loan to less than the value of our car (~$12k) and refinance using an auto equity loan with an interest rate of 3.5%. The credit union would be added to our title as a lien holder. $25 to add a lien holder to your title in Massachusetts.
I'm not sure if there are any fees for refinancing. There was a $75 charge for the original, so maybe it will cost the same (or maybe not).
Option 2 seems like the way to go if I'm not mistaken. We can continue monthly payments until the balance falls below the KBB value of our car, then refinance at 3.5%.
We were also approved for a 0% APR card for 12 months through Alliant with no transfer fees and no annual fees. We will move the balances of credit cards 1 and 2 to the new card and cancel the younger of the two cards (card #2), as we don't plan to use it. We'll ask card #1 for a reduced rate before we transfer, using the 0% card as leverage in the negotiation.
-MDM-
I think the 3.5% would change our approach to simply repaying at the minimum rate and start saving again, as you suggest.
Thank you for your suggestion!
-seattlecyclone-
The bonus comes next fall, so it will be a while before I can use it. However, with the refinancing and balance transfer discussed above, we may have to think about whether we put all the money towards debt, or do a combo of investing and debt repayment.
Thanks for the post!
And thank you all for your help! I'm a bit disappointed that I hadn't considered doing any of this before...
Option #2 seems like the best option to me.
But is it possible to go ahead and refinance the 12K?
Then you have only 3K to pay off at 7.9% and the rest of the debt is at a much lower interest. You start saving on interest now vs. later. Since you are paying so little interest, I bet you could pay off the 3K balance at 7.9% very quickly.
The only way you can do this, though, is if you have the cash flow to carry another payment.
Securing what you can to the car to get a low rate isn't a bad idea. Do note the auto insurance coverage that the auto loan would require and include the costs of any additional insurance you must purchase in your consideration.
If the new Alliant card does not transfer all of your credit card balances, you can always apply for another card with a promotional rate to transfer more. Of course every inquiry and new credit line will temporarily lower your score. Generally keeping credit cards open is better for your credit score than closing them. I certainly don't carry any credit cards that I don't want to use (you could even destroy the physical card - I keep mine locked up at home), but the accounts are left open.
Another update on the credit union loan.Hippity, hoppity, hooray!!!! So excited for you! Glad you made those phone calls! Assuming the same interest rate, take the longest term but pay it off as fast as you can. It feels so good to do. #askmehowiknow
After discussing the loan options again, we should be able to refinance ~$12k of the balance (dependent on the value of our car on KBB) using the auto equity loan at 3.5%. The credit union would be added to our title and our insurance policy as a lien holder. No additional insurance is required by the credit union.
The remainder of the loan, ~$3,700, could be refinanced at 6.99%.
The result would be two new loans, both with lower interest rates than the original loan.
What's left is to decide how long the terms for each loan will be. I'm thinking long terms (48+ months, they go up to 72 months) make the most sense. The smaller monthly payments would allow us to accumulate an emergency fund in the short term, then we would switch to making larger payments and complete repayment early. Is this a reasonable approach?
Don't close those old cards! You need them to help balance your credit utilization numbers because your new card will be maxed out.Securing what you can to the car to get a low rate isn't a bad idea. Do note the auto insurance coverage that the auto loan would require and include the costs of any additional insurance you must purchase in your consideration.
If the new Alliant card does not transfer all of your credit card balances, you can always apply for another card with a promotional rate to transfer more. Of course every inquiry and new credit line will temporarily lower your score. Generally keeping credit cards open is better for your credit score than closing them. I certainly don't carry any credit cards that I don't want to use (you could even destroy the physical card - I keep mine locked up at home), but the accounts are left open.
Thanks robartsd
Good point with the auto loan insurance. Not sure what that will cost per year, but hopefully it's still worth it to refinance.
Diane C - Be careful not to underinsureyour caranything before you've built up a beefier EF. Too risky right now. Save that trick for later.
The balance on the Alliant card will be enough for both cards, so no issue with needing multiple new cards. They also offer 1% on savings and 0.65% on checking accounts, which isn't too shabby.
The credit card we will close is the newest card we have and one we mainly opened for airline rewards. We don't use it anymore, so no big deal to close it. It happened to have a lower rate at the time we needed credit, so we used it.
Don't close those old cards! You need them to help balance your credit utilization numbers because your new card will be maxed out.I'll second the opinion that the open credit card will be better for you.
Cut them up so you can't use them, but do not close! In fact,if you've had them a while,try to get the credit line increased before you transfer the balances.
Hmmm, adding this thought. Take the longest CU term and focus paying down the Alliant card first so your utilization rate drops as quickly as possible. Maxed out cards look bad to credit score bean counters, even if it is a fucking brilliant move for you personally. Plus you only have 12 months to kill the Alliant CC balance. Hopefully you're fully aware of the consequences of failing to do so even by a single penny. You are, right?
Well, I've never had a balance to transfer. I'd be gobsmacked if there wasn't a "gotcha" for the bank if you didn't pay it off, or why would they offer them?With the high interest rates charged on credit cards, it only takes a couple of months of interest to add up to a decent return. Even if most people transfer balances, pay only minimums, and start looking for a transfer deal again after their first bill with the regular rate it would probably still be profitable to the bank - I imagine that most people who have balances to transfer are poor enough at planning and personal finance that the majority of the transferred balance ends up being on the hook for the regular interest rate for quite a while.
So, are saying there is no gotcha? Extremely hard to believe... We're talking about banks here, right?Well, I've never had a balance to transfer. I'd be gobsmacked if there wasn't a "gotcha" for the bank if you didn't pay it off, or why would they offer them?With the high interest rates charged on credit cards, it only takes a couple of months of interest to add up to a decent return. Even if most people transfer balances, pay only minimums, and start looking for a transfer deal again after their first bill with the regular rate it would probably still be profitable to the bank - I imagine that most people who have balances to transfer are poor enough at planning and personal finance that the majority of the transferred balance ends up being on the hook for the regular interest rate for quite a while.
This sounds ideal to me.
As long as it is on the condition that you will get at least a one month e-fund and still stay aggressive about paying these suckers off. But, I wouldnt get distracted from the debt payoff too long, as I want your cash flow to get better quickly....
Everyone has different levels of comfort when it comes to e-funds. When I was paying off 170k of car, student and mobile home loans, I kept a one month buffer ("live on last month's income" per YNAB's advice), plus about a 1k emergency fund. This was enough for the entire 2.5 years we were paying off debt super aggressively. Only now that we got all debt over 3% paid off are we building a multi-month fund.
Don't close those old cards! You need them to help balance your credit utilization numbers because your new card will be maxed out.
Cut them up so you can't use them, but do not close! In fact,if you've had them a while,try to get the credit line increased before you transfer the balances.
Hmmm, adding this thought. Take the longest CU term and focus paying down the Alliant card first so your utilization rate drops as quickly as possible. Maxed out cards look bad to credit score bean counters, even if it is a fucking brilliant move for you personally. Plus you only have 12 months to kill the Alliant CC balance. Hopefully you're fully aware of the consequences of failing to do so even by a single penny. You are, right?
I'll second the opinion that the open credit card will be better for you.
Minimum payments until you get your bonus next fall would be fine. Kill the 6.99% loan and credit card debt with the bonus if possible. If it falls short, you could pay off as much as possible, then transfer the balance again just before the 12 month promo rate expires. I'm not sure what Diane C getting at as far as paying off the balance. I think she may be referring to "No Interest For a Year" deals where if you pay off a purchase within 12 months there is no finance charge, but if you don't pay in full interest is charged retroactively for that period - I've never seen a credit card balance transfer promo structured that way.
Unfortunately I am an expert at rolling CC debt over to 0% interest cards. There is no catch just a transfer fee of 3%-5% on some.What I'm not sure of is what happens if the balance transfer is not completely paid off (or rolled over) by the end of the grace period. Seriously, these are the people who invented two-cycle billing. There must be a gotcha built in. Also, that BT fee adds up. Hopefully it's 3-5% of a much smaller number every time you roll the balance to a new card.
This sounds ideal to me.
As long as it is on the condition that you will get at least a one month e-fund and still stay aggressive about paying these suckers off. But, I wouldnt get distracted from the debt payoff too long, as I want your cash flow to get better quickly....
Everyone has different levels of comfort when it comes to e-funds. When I was paying off 170k of car, student and mobile home loans, I kept a one month buffer ("live on last month's income" per YNAB's advice), plus about a 1k emergency fund. This was enough for the entire 2.5 years we were paying off debt super aggressively. Only now that we got all debt over 3% paid off are we building a multi-month fund.
Thanks wintertell. I think we'll doing something similar to what you suggest for a couple of months, then get back to aggressively paying down debt.
What I'm not sure of is what happens if the balance transfer is not completely paid off (or rolled over) by the end of the grace period. Seriously, these are the people who invented two-cycle billing. There must be a gotcha built in. Also, that BT fee adds up. Hopefully it's 3-5% of a much smaller number every time you roll tabalance to a new card.
Another alternative would be to get your e-fund to 1k, and then save a set amount each month (e.g. 200) to get you up to a one month fund. Then you can really make progress on helping your cash flow and have a buffer against future debt. For us, both a lower monthly nut AND an e-fund were needed to stay out of debt. At first but was difficult because our cash flow was so tight - not a lot of room for error.
Diane C- There is no "gotcha" with Citibank, Discover or Chase. Just the interest rate goes up at the end of the term and then I transfer again. Trust me I have done it too many times.
Can your wife provide child care to one child about the age of her own children?
My Mom did child care for many years. Here in California the law allowed her to watch her own children and one other family's children without being a licensed provider.
Get a pack n' play for $30 off CL. Boom, extra crib.
Actually, we just used a pack n' play as a crib the whole time for our own kids. Never could understand why you'd want something ornate/expensive instead of cheap/portable. It's basically a dog crate for a small human, after all.
-W
Get a pack n' play for $30 off CL. Boom, extra crib.Good tip, Walt! I just found a perfect one for the same price on NextDoor. Didn't have to go far to pick it up, which was nice. Then I found a sheet for it, still in the package, for $1.00 at an estate sale.
Actually, we just used a pack n' play as a crib the whole time for our own kids. Never could understand why you'd want something ornate/expensive instead of cheap/portable. It's basically a dog crate for a small human, after all.
-W
The other perk to banks of CC balance transfers is that once you pay it off and start using the CC, the bank earns 1-2% of the transaction from the vendors.Oh, that's it! I knew there was a catch but I couldn't remember what it was. A long, long time ago, I considered running up a balance just to take advantage of one of these offers just to help increase my credit score. (Hey, I had a company car and no debt, I had to get creative. Also, no snark please. This was pre-MMM and pre-internet and you had to figure shit out all by yourself in those days.)
Diane C., I'm not even referring to hidden interest charges to you (the consumer)... I mean every credit card company charges the Merchant (Target, Amazon etc) a Terminal Fee every time you swipe. That's why your Gas station lists a cheaper price for Cash vs CC.Yeah, babybug, I totally get that, but people paying off balance transfers aren't paying merchant fees, those were levied at the time of purchase, however long ago. The paltry merchant fees are not what the banks are really after. I understood your point completely, I was just thanking you for breaking through the cobwebs in my brain. Bravo!
Even if you never carry a balance so you never pay interest or annual fees, the bank collected 1-3.5% for _every_ transaction you did. The Merchant happily pays it for the increase in sales it gets for accepting CC.
See here:
https://www.valuepenguin.com/what-credit-card-processing-fees-costs
YR, I'd suggest that your wife consider newborn babies only. They sleep a lot, aren't mobile, you can carry them easily in a sling and you presumably have all the gear you need. A lot of parents don't want their six-week-old with too many other kids at a regular day care. Wouldn't be surprised if she could charge a premium. I'd also recommend just one at a time. All little kids seem to love babies, so your kids would probably enjoy the experience.
With regard to doing daycare maybe she would be lucky enough to find someone who needs only part-time care (i.e., someone who works 1-3 days a week or only mornings). Centers charge much more than 1/2 for 1/2 time care b/c they have to deal with caregiver:child ratios.
Or once your oldest is in school look for someone who just needs an hour or so in the morning until school starts. Obviously a child who goes you your child's school.
The reason that the one newborn daycare option is so attractive is that she can do it right alongside her regular responsibilities from the comfort of home0. It's not nights and weekends and it pays better. Put another way: babycare lets her get paid for work she's already doing. Much better return for her efforts.
What's up with the misc? Do you have a good idea of where it's going every month? Also the groceries are high given how little your kids are. Tried Aldis yet? Costco? There's another store in New England that's super cheap who's name I've forgotten?
What's up with the misc? Do you have a good idea of where it's going every month? Also the groceries are high given how little your kids are. Tried Aldis yet? Costco? There's another store in New England that's super cheap who's name I've forgotten?
Also since you're in Boston, you should hit up the Frugalwoods blog if you haven't yet. They early retired from Boston. A lot of the older posts are on making a 14k yearly spending plan work in that area.
As for when I'd like to retire, I don't have a specific year in mind. When I started this thread I was much more concerned with our hair-on-fire debt as well as reducing spending and maximizing our savings. Once I reached a comfortable savings rate (whatever that could be), I'd give more thought to when I could reasonably retire based on those numbers. Maybe now is the time to hammer out a plan.
1. The awesome comments posted since your update have offered great advice. Love this community!
2. If you itemize, consider deductibility. Might make sense to prioritize killing the CU loans before the SLs.
3. Grocery and Misc. are still low hanging fruit. I knew the answer was "Market Basket" from reading the FW blog, and I live in CA! Please rethink the "weekends are crazy" POV. Weekends are when the other smart people save money by shopping at MB and Costco. Make a plan, suck it up and save big time.
4. If I didn't recommend "The Complete Tightwad Gazette" Book (blue cover edition) before, I'm recommending it now. It's old and occasionally laughably dated, but the core advice is rock-solid and very suited to your current life situation. Both of you should devour it. I guarantee it will help you answer all of your questions and reach your goals sooner than you ever thought possible.
I think you're doing pretty well, including that 10% into 401k. Nice. Agree with previous posters that if you can concentrate on knocking out that CC debt, you have a nice cushion to start saving.
If you love where you live and it works well for your wife home with two little kids, be careful about moving somewhere cheaper to save $200-300/month just for savings' sake. If she can take the kids to the park or library, socialize, get groceries within walking distance of home, there's a big quality of life value to that price.
Taking care of two little kids ages 2 and 1 is a big job. Taking on other kids could be good money, but could also complicate things unnecessarily...additional nap times, your kids' nap times interrupted, more germs/sick kids in the mix, etc., so proceed with caution there. In my experience, those little kid years were somewhat all-consuming, but they don't last forever. Enjoy the freedom you've bought yourselves by being generally frugal and careful. Things can change dramatically when the kids hit school age, and savings can accelerate dramatically at that point.
You live in a HCOL area, which means there are people there who are working and will pay a premium for services. How about a side job for your wife checking on a neighbor or two's pets on weekdays? I make $15/pop for dog walks/checks daily, and check two dogs, so bring in $600 cash for going out and getting some exercise daily. Plus it could be fun for the kids. (I found these jobs by putting an ad on craigslist...And $15 might be low for a HCOL area...I've seen $20-30 per check in areas like SF.)
i think you're on the right track. Bravo.
| Monthly Average Expenses | Comments | ||
| Rent | $1,700 | $20,400 | |
| Home/Rent Insurance | $12 | $147 | |
| Car Insurance | $47 | $560 | |
| Car Maintenance, Registration, etc. | $75 | $900 | |
| Child activities | $50 | $600 | |
| Childcare | $60 | Input to Child Care credit | $720 |
| Clothing/Shoes | $25 | $300 | |
| Dentist | $30 | Input to Item. Ded. | $360 |
| Dining (Lunch/Dinner/Etc.) | $100 | $1,200 | |
| Electricity | $75 | $900 | |
| Entertainment | $50 | $600 | |
| Fuel/Public Transport | $75 | $900 | |
| Gas/Oil for heating | $150 | $1,800 | |
| Groceries | $400 | $4,800 | |
| Hair Care | $25 | $300 | |
| Internet | $50 | $600 | |
| Medical (Doctor, Hospital, etc.) | $7 | Input to Item. Ded. | $84 |
| Miscellaneous | $140 | $1,680 | |
| Phone (cell) | $50 | $600 | |
| School (non-college) | $417 | $5,000 | |
| Subscriptions (paper/magazines/etc.) | $11 | $132 | |
| Wine/Beer/Tobacco | $50 | $600 | |
Non-mortgage total | $3,599 | $43,183 | |
| Loans | |||
| Student Loan | $31 | $373 | |
| Student Loan | $10 | $121 | |
| Student Loan | $39 | $469 | |
| Student Loan | $49 | $585 | |
| Personal Loan | $240 | $2,885 | |
Total Expense | $3,968 | $47,616 | |
| Total to invest | $3,099 | $37,189 |