Author Topic: Help me fix this!  (Read 2730 times)

FromRedToBlack

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Help me fix this!
« on: August 21, 2018, 10:52:26 AM »
Hi Mustachians,
Hubby and I want to become debt free (except real estate) but feel overwhelmed on where we should begin & how. We know to follow the baby steps and have a mini emergency fund of 1k already (we had more but I havenít worked in 8 months due to externships so we lived off it.) We are confused on where we should go from here with our family goals and current situation.

-I have $11,849.23 in credit card debt (mostly from this period of externship), car loan for $23,232.29 on 2014 Honda Pilot (62k mi) worth $22,203 on private party kbb or $19,400 dealer Trader in, and 165k in student loan debt (2 undergrad & 1 grad degree). (Iím planning on working in public schools/hospitals as Speech Pathologist & the student loan debt can be forgiven in full without tax penalty in 10 years, making min payments)

-He has $10,327 in car loan Acura TL (101k mi) worth $7300 on KBB private party, $14,500 in student loans and about $1500 misc bills.

-I will be starting a job on 9/4 making $67k & he makes about $44k inc lots of OT. I will be driving about an hour each way so need a reliable car.

-Rent is $1600 (a steal for 2/br in LA) daycare is between $840 & $990 monthly & this is a bargain! We cut cable and cell plans down and still basic expenses are about as follows:
Food: $500-650 (fam of 4)
Gasoline: $400
Car ins: $210
Car note 1: $386
Car note 2: $183
Life insurance: $346 quarterly
Cells: $170 (2 via T-Mobile)
Utilities: $100
Internet: $60
Student loans (not yet in repayment but will be in 6 Mo) approx $500 mo
Hubby loan pmt: $90

-We want to buy our 1st family house soon (to be in a path to build equity to buy rental properties long term and rent them out) and are considering moving to Phoenix AZ or San Antonio TX. We can never afford Southern CA with median homes at $550k. Income is less there (about 10k in schools) but cost of living is far less as well & we may have an opportunity to stay with family for 6 Mo in AZ. 

What do we do?!
-Keep the Honda/sell the Honda? If we sell what do I do for a car?
 -Move out of state/stay here? Buy a home out of state/rent a cheaper apartment out of state?
-Also if for some reason others think itís better to work in private sector instead for more income & forego loan forgiveness, Iím willing to hear this as well. Iíd probably make about 100k doing that but way more expensive benefits.
-Any advice is welcomed!!

Thank you so much!!

ysette9

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Help me fix this!
« Reply #1 on: August 21, 2018, 11:45:39 AM »
Wow, that is some scary expensive debt you have going on. This is an emergency. Your hair is on fire. Buying a house and adding to that pile needs to be very far down on your list of priorities right now.

What is the interest rate on the credit card debt? Likely high or will be, so that needs to be your top priority to get rid of. Next I think you have no business driving such expensive cars with car loans when you have that much debt and aren’t making a ton for where you live. I recommend getting two old reliable Japanese little things for cash and wiping out the two loans. Then use the freed-up cash flow to wipe out his student loans. Make sure you aren’t adding any more to credit cards. Cut those suckers up if you have to.

I’m not educated on student loan forgiveness at all but I know the White Coat Investor talks about that a lot. I’d be wary of that promise myself, but I just am not familiar with the specifics. I know that when people write in for advice on student loan forgiveness and say they aren’t sure about how reliable it is, he advises to make the full payments as though you were going to pay it all off to yourself but pay yourself and put that money into an investment account. That way if the forgiveness happens, you are lucky and have good savings as well. And if it falls through for any reason you will be able to wipe out the debt in one fell swoop.

It is a nice thing to think about real estate investing one day, but you are in no position to do that now. You need to be on a solid footing first.
« Last Edit: August 21, 2018, 11:48:58 AM by ysette9 »

FireHiker

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Re: Help me fix this!
« Reply #2 on: August 21, 2018, 12:05:30 PM »
-That seems really high for T-Mobile...ours is $140 for 3 phones, unlimited talk/text/data including netflix. Are you financing phones or something?
-Internet sounds about right for the area. We can sometimes negotiate ours down to $39.99, currently $49.99. Takes some work and switching around though to keep it down.
-Rent is definitely a steal; you can keep the two kids in the same room longer if you have to. I've known plenty of people who have made that work through elementary school.
-if food includes eating out you're doing pretty well, although there are certainly tips around here to get it even lower
-if you are planning to drive an hour each way then you need to get out of the Pilot immediately. We used to have one, and the gas mileage for 2 hours of driving a day would be outrageous. A Pilot is NOT (!!!) a car for a one hour each way commute! Holy hell no wonder you have $400/mo down for gas. I would get out from under the two car loans and get two reasonable used cars. I recommend a Civic or Corolla or something for your commute; those are reliable cars that run for years and years with reasonable gas mileage.
-you have a lot of usual expenses not listed here; I recommend you start tracking every penny in and out if you aren't already. You may be spending much more than you realize.

Good luck, and welcome. :)


FromRedToBlack

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Re: Help me fix this!
« Reply #3 on: August 21, 2018, 12:07:43 PM »
Thank you so much for the reply!!

How do we sell cars we are upside down on AND get reliable cars to commute far distances without another loan? Or do you suggest getting another smaller loan for a cheaper car?

Yes the credit cards are priority #1, I plan to attack them and hopefully pay them off by q1 2019. Interest ranges from 0- 18%. Not adding to the cards at all.

Thatís a fantastic idea to pay extra on the student loans to yourself. Once we have the cards paid etc thatís a great idea.

So, youíd suggest we not move out of CA in about a year & just attack the debt from here? I realize that buying a house for us or income is a ways off but I wanted to mention it as itís our end goal. I very much appreciate your advice!!


doggyfizzle

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Re: Help me fix this!
« Reply #4 on: August 21, 2018, 12:10:08 PM »
So lumping all the debt together, you owe ~210k.  Dump the Pilot, immediately.  If youíre driving an hour each way for work, that car is not an economic means of transportation.  Like the previous poster said, get something small and reliable (Japanese).  Iíve seen 2010-2014 Prius ads on Craigslist for 10k and less with fewer than 100k miles on them.  A car like that also has plenty of room for 2 kids and will save you a fortune in gas costs vs the Pilot.

As far as the Speech Pathologist employment - some advice from firsthand experience with someone who worked this position in CA schools: it is grueling f*cking work.  The pay is good (typically better than classroom teachers), and you still get the same schedule as a regular teacher, but the Special Ed requirements, IEPs, etc can wear you down.  Iíd suggest paying your student loans in full in case you decide to jump ship to private sector (better pay, worse benefits) where you have a bit more control over your workload.  Alternatively, in the summers you could always work part-time in a rehab hospital for some extra money that could be used on a down payment for your first rental property.  My mom did this in CA, and would typically pull between 35-100 an hour at the rehab hospitals.

Also some advice on schools in AZ (firsthand), teacher pay and school funding is very low compared to most of CA.  While housing might be cheaper, donít expect your salary to grow commensurate with experience like it would if you stayed in CA.  One positive for AZ might be if you could convince your family to watch the kids PT to help keep child care costs down while youíre knocking out debt.

Also, what does your SO do?  Any opportunity for him to increase his salary?

Looking over your budget, the only thing Iíd suggest trimming would be cell phones and gas, which would be accomplished easily by ditching the Pilot.

kpd905

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Re: Help me fix this!
« Reply #5 on: August 21, 2018, 12:48:02 PM »
Did you say you cut your cell phone plan down? And it is still $170/month for two phones?  I would link into Ting, my wife and I pay $45/month combined for two phones on the T-Mobile network (they also offer the Sprint network).  If you decide to sign up I can send you a link to get $25 credit.

What type of life insurance do you have?  Is it term life?  If so, it seems too expensive.  If it is whole life, you need to get rid of it and switch to term.

For the credit cards, have you looked into any balance transfer offers to help pay them down faster?  Chase Slate has a 0% balance transfer, with no interest for 15 months.

I would focus on some cost reduction now before those student loan payments start, or you'll be in trouble.

formerlydivorcedmom

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Re: Help me fix this!
« Reply #6 on: August 21, 2018, 12:55:14 PM »
Texas also has poorly funded schools.  Benefits are very expensive here for employees at many school districts.  I love San Antonio and many of the surrounding communities and would happily live there, but beware the cost of benefits if you decide to move here.  There are several school districts in the San Antonio area, and I'm not sure how competitive they are.

As you consider whether to move or pay more than the minimums on student loans, keep that in mind.

FireHiker

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Re: Help me fix this!
« Reply #7 on: August 21, 2018, 02:12:05 PM »
As for the cars, even if you have to get a loan on something more reasonable that's used, you should be able to reduce your monthly costs that way. I would probably focus on the Pilot since you're planning to drive it 2 hours each day, it has the worst gas mileage, and your loan balance is relatively close to the value so you aren't quite as upside down as the Acura.

I did a quick search on Carmax in So Cal (not sure if they're any good or not for value; someone else is more likely to have better car advice, I'm sure) and found a 2010 Honda Civic with only 64k miles for $12k. I'm sure you can get an even better deal if you go with someone a little older or shop around, but balancing reliability and affordability, with the fact that you don't really have any cash to spend on a car, it's at least one of the options out there.

FromRedToBlack

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Re: Help me fix this!
« Reply #8 on: August 21, 2018, 03:12:31 PM »
Wow thank you all so much!!

I will look into getting rid of the Pilot & paying down credit cards immediately! Also going to look into cheaper phone plans. We switched from Verizon and it seemed to be a good savings but I will look into some other options!

Iím shocked by your responses @doggyfizzle...thank you for the perspective! I didnít even consider some of that!! I love your idea of working in rehab/hospitals as well...as a new SLP, some are difficult to get in but I will definitely try what I can do for per diem and Summer work. The family will help a little with childcare but they work too so it would be more like for date nights or something not during the day. Thank you so very much!

Also itís a great idea to try to balance transfer to a 0% card maybe I can get approved for the entire amount one one 0% card. I will apply once I have my first paycheck from new job.

Thank you @FireHiker thatís a really good idea! CarMax out here is a good baseline for prices but hasnít been really reliable for cars for me. I got a car from them and so did my aunt and both were always in the shop.

@kpd905 the insurance is term yes from a policy formerly through work. Itís for myself hubby and kids. We looked into other policies and for the amounts this was the best option.
 
@formerlydivorcedmom wow I didnít realize that the schools in/around San Antonio were poorly funded. Ugh itís so hard to get ahead anywhere!

I appreciate the advice so much and please feel free to keep suggesting. I need all the help I can get!!

therethere

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Re: Help me fix this!
« Reply #9 on: August 21, 2018, 03:37:17 PM »
First things first. Ensure your loans are the correct type for PLSF. From what I hear that is one of the major slip-ups. Do some research as to exactly what type of loans count.


omachi

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Re: Help me fix this!
« Reply #10 on: August 21, 2018, 03:47:43 PM »
It would help a lot for those making suggestions if you listed everything. It's hard to show how things can swing in your favor without. At least list net income and net expenses with your various categories. There's a case study sheet that will help you do that. But for an example of what's missing, you list your total credit card debt but not what you pay monthly on it.

Anyhow, based on your list's higher ends, you have an outflow of $5685 per month. Assuming a generic 20% interest and a 4% minimum payment on the cards, that's another $480 per month. So you're looking at about $6165 per month, unless there are other things not listed. Your gross salary is $9250 per month, but taxes will take a bite out of that. Given kids and all their tax implications, I'm not going to guess how much. What's your take home look like?

Low hanging fruit from what you've posted - sell the Honda, replace with a cheap car. You're upside down, so you may need to save towards this for a little bit. Given that you're $3k upside down on the Acura, it doesn't make a ton of sense to have to pay that now when it's serviceable. It's basically a luxury Accord, so should be reliable. I'd say steal the Acura and make him drive the cheap car, but it probably gets about the same terrible gas mileage the Pilot does. So make the cheap car reasonably reliable and fuel efficient. You should be able to find something reliable with 100k mi around $5-6k that gets ~40 mpg highway.

With the inexpensive car you can cut payment and gas costs. Then once it's paid off, cut insurance costs.

I'm guessing the phone plan is financing phones. Any way out of that? Switch carriers to somebody that'll pay off a phone for switching then buy a bargain phone to replace?

Beyond that, long term plans should motivate short term moves. I wouldn't consider buying a house with that kind of debt on that income. You basically have the equivalent to a mortgage on a first home in my neck of the woods. But probably with worse interest rates. I'd consider moving if you aren't tied to your location and you would end up better off and as stable. If lower pay negates all the lower cost of living, it's a wash and the stress of moving, moving expenses, etc. won't help. Also consider the strength of the job market in each of your locations. How long would it take to find another job after a layoff at each place?

Do the math on public vs. private employment. Depending on your student loan interest rates, you may make way more in the private sector than you'd lose by paying interest, and have a better salary once they're paid, too. By your numbers, if $33k - benefits > extra interest each year, then private would be better. And you could probably draw out student loan payments while you kill the higher interest credit card debt with that extra income, too, making private more attractive to you.

kpd905

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Re: Help me fix this!
« Reply #11 on: August 21, 2018, 03:55:49 PM »
You do not need life insurance on the kids unless you are relying on them for income.  I would drop that.

ysette9

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Re: Help me fix this!
« Reply #12 on: August 21, 2018, 10:04:33 PM »
Second the advice to drop life insurance on kids. There is zero reason to have that.

As for finding a reliable car, the path we take is as follows. First start with a Consumer Reports car-buying guide from your library. Figure out which makes, models, and years are reliable and have good gas mileage. Then go to Craigslist or wherever and start looking for those specific cars in your area. Once you find a viable option, find a local mechanic and ask for an appointment to do a pre-purchase check. Take the car in for the check and use whatever info comes out of that to negotiate the price down if necessary.

We’ve bought several used cars this way and had good luck. You can get a very decent car with plenty of life left in it for $5-6k.

Tuskalusa

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Re: Help me fix this!
« Reply #13 on: August 26, 2018, 09:44:17 AM »
Agree with others who say that you need to sell the Honda. Here are some suggestions for raising cash to sell when youíre upside down. Hope it helps!

Step 1:  Find $2,000 by freeing up cash. ($1k for loan shortfall + $1k for down payment on cheaper replacement car)
  - Look around your house for any big ticket items you could sell. And kid stuff you donít need anymore?  Any silver you can mail to Midwest Refineries (see MMM article about this)? 
  - Any OT or side gigs you can take on to raise some cash.
  - Any Bills you can cut immediately to reduce cash flow (groceries, cell phone, etc.)
  - Throw enough cash at the Pilot loan to get it turned around.

Step 2: Buy a cheap commuter car. Lke about $6k or less. Like a used Prius, Corolla, etc. Use that other $1k you raised for a down payment.

Step 3: Sell Pilot on Craigís list. I think youíll get the most money here 

Step 4:  Celebrate!  :)


sparkytheop

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Re: Help me fix this!
« Reply #14 on: August 26, 2018, 10:26:55 AM »
You say he makes $44k, including lots of overtime.  Is he able to get a higher paying job?  If he can get a job paying $21/hour, he can make $44k before any OT.  Honestly, I'd start there.

ShoulderThingThatGoesUp

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Re: Help me fix this!
« Reply #15 on: August 27, 2018, 06:27:09 AM »
How do you know youíll be driving an hour if you donít know where youíll live yet?

FromRedToBlack

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Re: Help me fix this!
« Reply #16 on: September 26, 2018, 08:26:47 AM »
So a couple updates since I last posted:

I took your advice and went to the library to review consumer reports for cars.

Income is still up in the air and will balance out next month. I got a job since I last ďspokeĒíwith you guys but havenít gotten paid yet. Initially I start out at a lower salary (43k) until my degree posts and then it will increase. I sign my new contract on Friday. Salary will be approximately 67k annually since I started later in the school year  (a little hard to figure out monthly since I donít get paid until 10/5). My job is actually 12 minutes away so I can get a much cheaper car now. (I still need a car since my kids are across town and the window between me getting off and getting them wouldnít allow for public transportation and I live in LA.) I was planning on Driving an hour because the District told me Iíd be placed at the far end of the district and itís an hour away approximately, but they had an emergency placementthat arose that was right down the street from my house! Once I have an actually check I can update with net income.

As a the registration on the Pilot is due ASAP (September) and Iíve been waiting for a job Iíd love to sell the Pilot as soon as I get paid in October. Easiest would be a trade in as I am upside down but I know Iíd get more private party. I did an instant cash offer via KBB and they said $19,400 and I owe $22928 so $3500 upside down. A portion of that is my extended warranty which Iíll get back perhaps about $500. I know the dealership probably wonít give me the full instant cash offer (theybalways try to haggle)  so I have to factor that in as well. What are your thoughts on this method of trading in the car, getting one for 8k or less out the door  (so itís still reliable and has a lot of life left)  and then attacking the debt all together say 12k vs 22k? Or do you guys just still say sell and buy both  private party?

Hubby is looking at other forms of employment but heís been in his industry for a 12 years so heíd be entry level pretty much anything else. Heís a medical  claims auditor. He is looking at some side hustles and ways to leverage his other skills to monetize them.

Due to my new job a few things will be more affordable. I get free health ins for the whole family (no out of pocket premium), and I get daycare flexible spending account so I can take that money saved and build up our emergency fund again since itís pretty much gone from 8 months of limited work. Then I can use it to attack some of this debt. Also gas costs will go way down. Also I can get insurance for hubby and I very cheaply.

As far as cell phones, yes we stupidly financed phones so that is why the bill is higher but I can qualify for a 20-33% discount on service through work so that should help on the bill. Iíll also look into other carriers and see about them paying off the other ones.

We considered moving to AZ next year but feel even more confused by this option. Family has offered to let us stay with them for 4-6 months. But pay is about half for my profession with higher caseloads and hubby would be probably slightly lowered as well. It seems moving out of state puts us in the same position after we left living with family. As the pay is pretty relative to cost of living. Please tell me if Iím missing something.

I really appreciate all of your help, thereís no one else I can talk to about this stuff. Everyone says student loans and cars donít count as debt and other silly things.


Tuskalusa

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Re: Help me fix this!
« Reply #17 on: September 27, 2018, 09:08:06 AM »
On the Pilot, I think you have two options.

Option 1:
Take the trade in value and apply the difference to a new loan (along with the cheaper car).  In this situation, youíd want to go for the absolute cheapest reliability car possible (Honda Fit, Toyota Corolla, etc.), as you will also have the added debt from the loan overage.

Option 2:
Sell the Pilot when you have the money to cover the overage from the loan. This key thing here is to try and get that loan overage money as soon as possible, since the car will keep depreciating. If you think you can raise this money in the nex5 couple months, my general feeling is that selling to a private seller will put you further ahead.

Good luck!  Congrats on the new job!  Totally awesome thatís itís close to home!

FromRedToBlack

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Re: Help me fix this!
« Reply #18 on: September 29, 2018, 06:54:50 AM »
Thank you very much @Tuskalusa!!

ItsALongStory

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Re: Help me fix this!
« Reply #19 on: September 29, 2018, 07:51:14 AM »
Is a side hustle such as Uber/Lyft an option? Just use whatever you make from that to pay down the loan and at least get to zero equity and then offload it. I understand this will make the valuation of your vehicle drop faster than normal and it's probably not great on gas but at least you could get the side hustle up and running fast and accelerate the path to a healthier financial situation.