Author Topic: Newbie: How to dig out of the giant hole we are in  (Read 22842 times)

CBMoneyTalk

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Newbie: How to dig out of the giant hole we are in
« on: February 26, 2016, 05:41:59 AM »
Good morning, newbie here.

I stumbled upon this blog looking for a way to dig out of the debt hole we have created.   Don't have a clue as to where or how to get started and our hole is getting bigger by the month.  We have stopped all spending, but the interest on our debt is drowning us.  My husband and I make about $180K a year and have about $195K in consumer debt (student loans, cars, credit cards) along with $128K owed on our home, which is worth about $175K.  We just did our taxes and discovered we owe the IRS over $5000 this year after having our taxes taken out at single with 0 dependents all year.  When you can only afford to pay the minimum due every month, how do you start to dig out.  Lost and scared and feeling extremely stupid at the moment.  This madness has to stop, but how do we start?   Any suggestions are appreciated. 

Thanks!

My monthly budget looks like this (family of 3 - husband, wife, teen):
Take-home pay $8500
Mortgage / Insurance / Property Taxes  $1600
Utilities (Water, electricity, phone, internet)  $600
Car & Life Insurance  $560
Groceries $600
Gas $500
Entertainment $15
Prescriptions $70
Debt Payments $4600

Forgot to add.  We live in Northeast Texas.  Our commutes to work at 40&50 miles round trip.  We are in our mid-50s, have less than 30K in retirement 401Ks and have no savings.  Feeling like such an idiot. 
« Last Edit: February 26, 2016, 05:54:31 AM by CBMoneyTalk »

andy85

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Re: Newbie: How to dig out of the giant hole we are in
« Reply #1 on: February 26, 2016, 06:05:03 AM »
well, while retiring early is out of the question, at least you have a decade to right the ship. It is better to be here now than 2 years before retiring.

can you post details of your debt?...type, individual amounts, minimum payments, and interest rates? this would help create a better picture.

MsPeacock

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Re: Newbie: How to dig out of the giant hole we are in
« Reply #2 on: February 26, 2016, 06:08:02 AM »
Check out how to write a case study. It is a sticky at the top of this forum. It will guide you on laying out the details here so that you can get advice.

Details of the consumer debt would be very helpful, as it sounds like where much of the problem lies.

ender

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Re: Newbie: How to dig out of the giant hole we are in
« Reply #3 on: February 26, 2016, 06:22:51 AM »
Check out how to write a case study. It is a sticky at the top of this forum. It will guide you on laying out the details here so that you can get advice.

Details of the consumer debt would be very helpful, as it sounds like where much of the problem lies.

+1

it would also be helpful to understand your income - $180k should translate to a lot more than $8500 takehome pay, but your tax situation is very screwy and suggests something much more messed up is going on.


ShoulderThingThatGoesUp

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Re: Newbie: How to dig out of the giant hole we are in
« Reply #4 on: February 26, 2016, 06:37:56 AM »
We definitely need a case study, but your car and life insurance payments really stick out. Can your cars really be that expensive to insure? What's the last time you shopped around?

And how much life insurance do you need to be worthwhile, when under my understanding if you both get hit by a bus tomorrow the payout will have to resolve your debts before your child gets any?

What the heck are you paying $600/month in utilities for? You can't afford cable TV so don't say that. If that's the answer call up the company right now and cancel, then edit your post.

slappy

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Re: Newbie: How to dig out of the giant hole we are in
« Reply #5 on: February 26, 2016, 06:40:51 AM »
Did you do the taxes yourself? Any chance there was a mistake?

2Birds1Stone

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Re: Newbie: How to dig out of the giant hole we are in
« Reply #6 on: February 26, 2016, 07:54:16 AM »
If you make $180k/yr, how is take home only $8.5k/month?

You are not paying $78,000 in taxes/FICA as a married couple with a dependant and a home.

CBMoneyTalk

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Re: Newbie: How to dig out of the giant hole we are in - Case Study
« Reply #7 on: February 26, 2016, 10:18:35 PM »
Topic Title: How to dig out of this hole

Life Situation: We are a family of 3 (husband 53, wife 55, disabled daughter 23).  We file married filing joint status, and have our taxes taken out of our checks as married with 0 dependents.  We live in Northeast Texas.

Gross Salary/Wages: Gross salary is $13,393 monthly and $160,712 annually.  Earner 2 occasionally gets small amounts of overtime which can net an extra $100 a month.

Pre-tax deductions:
We have $683.50 per month going into 401K.  (Earner 1 deposits 6% and Earner 2 deposits 3%).  Health insurance is $300.00 and  Vision/Dental is $83.12.

Adjusted Gross Income: Our adjusted gross income is $12,709 monthly / $152,510 annually.   

Taxes:
   Federal Tax:  $2047
   Earner 1 RR retirement Tax Tier 1 $558
   Earner 1 RR Retirement Tax Tier 2 $441
   Earner 2 Social Security    $324
   Medicare   $206

   Total Monthly Income taxes  $3576.58

Income after taxes and Life/LTD insurance ($88.62) is $9,044 monthly / $108,527 annually

Current expenses:

HOA   $50.00
Property Tax   $442.00
Homeowners Insurance   $142.26
Beauty Shop / Barber   $20.00
Cable TV   $26.00
Car Insurance   $489.22
Car Maintenance, Registration, etc.   $27.50
Christmas/Holidays   $20.00
Clothing/Shoes   $20.00
Dentist   $8.33
Dining (Lunch/Dinner/Etc.)   $5.00
Donations/Gifts   $10.00
Electricity   $353.19
Entertainment   $15.00
Fuel/Public Transport   $500.00
Groceries   $800.00
Internet   $150.00
IRS   $100.00
Landscaping/Yard work   $120.00
Life Insurance   $73.00
Medical (Doctor, Hospital, etc.)   $210.00
Medicine (OTC + Prescription)   $70.00
Parking/Tolls   $40.00
Phone (cell)   $129.00
Water/Sewer   $153.00
Work/Union Dues   $150.00

Expense total   $4,123.51


Liabilities:
Balances, Interest Rates and Original Amounts are included on spreadsheet.

Mortgage   $1,033.57
Lane Bryant CC   $25.00
Best Buy   $82.00
Amazon   $100.00
JC Penney   $83.00
Discover   $150.00
401K Loan   $158.90
401K Loan   $208.56
401K Loan   $274.28
Car 2   $488.34
Car 1   $494.89
Student Loan   $497.75
Student Loan   $550.65
Visa   $725.00
Partial Consolidation Loan   $1,167.96

    Total Debt   $5,006.33


Specific Question(s):


Should we sell our home and rent somewhere, using the little equity we have to clean up part of this mess?    Rentals in our area start at $1200 per month for a 1400 sq. ft 3 bedroom home.  2 bedroom apartments start at $1100 per month.

Should we take on extra jobs?  If we do, will that further increase what we owe the IRS?

Should we stop contributing to our 401K accounts to free up additional cash to throw towards the debt?

What is the best way to tackle the debt, smallest balance to largest, or highest interest rate to lowest?

According to TurboTax we owe the IRS over $5,000 this year.  How can we reduce this and avoid it in the future? 

We have been total idiots with our money.  We really had not been watching where our money was going and until recently I had no idea how much money we actually owed.   Between the two of us we have about $60,000 in our 401K accounts.  We are supposed to retire in 9 years, but I have a feeling that may be out of reach now.  Our home is worth about $175K.  We have stopped all spending and locked the credit cards up in a safe. Any an all suggestions of how to get out of this mess is welcome.

I know well deserved punches to the face are forthcoming.  A more detailed spreadsheet is attached.

Thank you in advance for your assistance.


Answer to questions asked by responders:

You have very high car insurance payments- have you gotten quotes recently? - Just switched insurance 6 months ago from State Farm to Allstate and this was $200 cheaper a month.  We have 4 drivers on the policy, 2 are under 25.  One of those is our son who just joined the military.  He will be transferring his to his own policy as soon as he gets out of training.


Vehicles we have & KBB value:
   2015 Toyota Camry – Private party value on KBB is $22,529, payoff on loan as of this morning is $25,224 – underwater by $2,695

   2013 Chevy Silverado 1500 4WD (I thought it was a 2008), Private party value on KBB is $21,597, payoff on the loan as of this morning is $29,266 – underwater by $7,669

What assets do we have besides your house?   - The only other things we own are household furnishings and clothing.  We don’t have stocks, bonds, or any investments besides our 401K accounts.  We don’t own anything else.

Are those 40-50 mile commutes in the same direction? – No, we work in completely opposite directions and live halfway between the two locations.   Husband works 4:30 to 2:30 and I work 8:00 to 5:00. 

Are you being honest with yourself about your consumer spending? I see nearly $30,000 in consumer debt (not including the consolidation loan, which I assume is the same thing) but $40 in shopping. Have you guys really cut that down recently? – Both are consumer debt, mostly incurred from buying stupid things we didn’t need, gifts for our 7 grandchildren and 5 children with 3 spouses, vacations that we “deserved”.  This got us in trouble where our monthly income was less than our monthly expenses.  The result, putting more things on credit. 

What is your electricity rate? – we were locked in to 12.8 cents per kWh which just expired this month.  This morning I switched to 2.9 cents per kWh locked in for 12 months

How many square feet is it (the house)? The house is a 2677 sq ft two story house built in 2004.  It has high ceilings in the entry and living area, is poorly insulated and has horrible windows making it difficult to keep warm or cool.   

Why is our cell bill so much?   We have 4 phones on our plan, two of them are our kids who have been told they have 30 days to vacate the plan and get their own.  That will take it down to just mine and my husbands.  Will be shopping for lower rates as well.

Why is your water bill so high? We are three people that shower daily and we do one load of laundry and one batch of dishes daily.  Other than that we don’t use water except for drinking.  The water rates here are ridiculous and we have never had a bill under $100 a month.  My husband has checked for water leaks and has not found any.  I checked with the neighbors and their water bills are in the same range.  So, I have informed the other residents of my home to 1) turn off the shower while soaping up and 2) don’t let the water run while doing dishes.  Will be looking for other ways to conserve water.

Is the amount you list for fed tax what is actually being withheld? The actual amount withheld was $1822 per month.  I just had my employer start taking out an extra $225 a month beginning next month so we wouldn't owe as much at the end of next year. 

Several have questioned about railroad retirement and pensions.   Both husband and I are fortunate to have long tenure at companies with pensions.  In addition, I work for the railroad and will receive railroad retirement as well as him receiving social security.  I checked this morning and according to their websites and our current accrual into the system, our total between 2 pensions, railroad retirement, and social security should be a monthly amount of around $6000.00. Then we will also have whatever we can throw at our 401K accounts between now and then.


My game plan right now is this:

Sell everything I can find in the house that is not a necessity to raise cash – will be selling on Facebook, Craigslist and eBay.

Unplug anything that is not being used and shut off the HVAC system until summer temps hit to reduce our electric bill.

Pay down the cars far enough to sell them and buy more inexpensive cars that get better gas mileage.

I have made a meal plan for the next two weeks which includes breakfast, lunch, dinner, and snacks.  I will be shopping at Aldi.  From the price checks I have done and the plan I have made I should be able to get everything we need for under $100.  That would take our grocery bill to $200 a month.  Saving $600 a month.

I am going to see about applying for a consolidation loan from our credit union to reduce the interest rates so we can get things paid off faster.

Will use part of the money from selling items to buy a cheap used lawn mower so we can cancel the mowing service. 

Stick to a strict written budget using only cash - have removed haircuts, gifts, lawn service, cable tv (called the cable company and turned it off), clothing budget items, reduced food budget, reduced electric budget, shopping for a new cell plan and insurance,

I want to thank everyone for the guidance and suggestions.   A lot of what was said were things I had not thought of.  Please feel free to point out anything I have missed.

« Last Edit: March 01, 2016, 04:59:48 AM by CBMoneyTalk »

marblejane

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Re: Newbie: How to dig out of the giant hole we are in
« Reply #8 on: February 26, 2016, 10:37:58 PM »
You have very high car insurance payments- have you gotten quotes recently?

What assets do you have besides your house? Are your places of work in the same direction, i.e., could you move to be closer to both jobs?

terran

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Re: Newbie: How to dig out of the giant hole we are in
« Reply #9 on: February 26, 2016, 11:05:18 PM »
I think people would find it helpful to see your total amounts of debt and interest rates, so from the spreadsheet:

 
JC Penney$2,482.4626.99%
Best Buy$884.8525.99%
Amazon$2,678.8425.99%
Lane Bryant CC$304.9624.99%
Discover$3,086.7222.90%
Partial Consolidation Loan$28,935.6421.30%
Visa$20,443.9116.24%
Student Loan$44,575.767.73%
401K Loan$3,205.905.50%
Car 2$29,647.595.49%
Student Loan$36,852.054.68%
401K Loan$4,015.394.25%
401K Loan$12,672.834.25%
Car 1$25,998.543.40%
Mortgage (12 yrs remain on 15 yr loan)$128,640.292.75%

The notes you made about the cars didn't line up with the loans, but they're a 2015 Camry and a 2008 Chevy truck.

I would probably pay off the Lane Bryant and Best Buy cards first to free up that cash flow, then just go down the list in order of interest rate. Luckily the smallest balances are also the highest rates, so paying off high interest first and paying off the smallest loans first to free up cash flow are pretty much the same thing. Maybe skip the 401k loans and just keep paying minimums since at least you're paying them to yourself and pay the car load first.

Are those 40-50 mile commutes in the same direction? If so, start carpooling now, and seriously consider selling the house and moving much closer.

Look up the values of those cars on kbb.com and report back here. It sure would be nice to sell them and get rid of a big chunk of those loans and buy something much less expensive. Again, if your jobs are in the same direction, maybe also go down to one car.
« Last Edit: February 26, 2016, 11:09:42 PM by terran »

mxt0133

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Re: Newbie: How to dig out of the giant hole we are in
« Reply #10 on: February 26, 2016, 11:29:10 PM »
Sell your cars immediately, take the depreciation hit.  Get fuel efficient compact cars that will run forever, like a Honda Civic, Toyota Corolla, even a Prius with the amount of driving that you do.

Next consolidate your loans via Lending Club, Prosper, ect.  It could lower your interest rates in half depending on your credit score.

http://www.nerdwallet.com/blog/loans/lending-club-prosper-good-options-consolidating-credit-card-debt/

If you have truly controlled your spending, then I would consider refinancing your mortgage to a 30 year fixed, which just touched 3.6%, at that interest rate it is advisable that you put the money towards higher interest debt.

It states that you have a disabled daughter, she should qualify for SSI which is Supplementary Social Income*.  Which could be up to $700 a month**.

*https://www.ssa.gov/disabilityssi/apply-child.html
**https://www.ssa.gov/oact/cola/SSI.html

Gimesalot

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Re: Newbie: How to dig out of the giant hole we are in - Case Study
« Reply #11 on: February 26, 2016, 11:30:36 PM »
My comments are below... It's bad, but you can fix this fairly easily within a few years.


Pre-tax deductions:[/b] We have $683.50 per month going into 401K.  (Earner 1 deposits 6% and Earner 2 deposits 3%).  Health insurance is $300.00 and  Vision/Dental is $83.12. Vision insurance is a racket kill it! Save $25/month

Current expenses:

HOA   $50.00
Property Tax   $442.00
Homeowners Insurance   $142.26
Beauty Shop / Barber   $20.00 Learn to cut hair or find free haircuts. Save $20/month
Cable TV   $26.00 The library has free DVDs, streaming, books, and more.  Save $25 /month
Car Insurance   $489.22
Car Maintenance, Registration, etc.   $27.50
Christmas/Holidays   $20.00 If you are all adults do you need to give gifts? Save $20/month
Clothing/Shoes   $20.00 You have enough clothing. Save $20/ month
Dentist   $8.33
Dining (Lunch/Dinner/Etc.)   $5.00
Donations/Gifts   $10.00
Electricity   $353.19 I don't even understand how this is possible.  Reduce this immediately.  Save $200/month
Entertainment   $15.00
Fuel/Public Transport   $500.00 Car pool. Save $100/month
Groceries   $800.00 Meal plan & buy on sale.$100/person/month is enough to eat like a king! Save $500/month
Internet   $150.00 Cut this down.  Should only be $50 at most.  Save $100/month
IRS   $100.00
Landscaping/Yard work   $120.00 With 2 adults, this should not be a bill. Save $120/month
Life Insurance   $73.00
Medical (Doctor, Hospital, etc.)   $210.00
Medicine (OTC + Prescription)   $70.00
Parking/Tolls   $40.00
Phone (cell)   $129.00 See the superguide.  Switch plans.  Save $70/month
Water/Sewer   $153.00 Use a lot less water.  Save $50/month
Work/Union Dues   $150.00

Expense total   $4,123.51




Specific Question(s):


Should we sell our home and rent somewhere, using the little equity we have to clean up part of this mess?    Rentals in our area start at $1200 per month for a 1400 sq. ft 3 bedroom home.  2 bedroom apartments start at $1100 per month.  I wouldn't move until you have your spending under control.  You will just end up stressed and spending more.

Should we take on extra jobs?  If we do, will that further increase what we owe the IRS? You usually pay taxes on what you earn.  However, even if you pay 50% tax, earning an extra dollar nets you 50 cents you didn't have before.

Should we stop contributing to our 401K accounts to free up additional cash to throw towards the debt? I wouldn't because when you decrease your 401k contributions, you don't see a large increase in your take-home pay due to additional taxes.

What is the best way to tackle the debt, smallest balance to largest, or highest interest rate to lowest? I would do a combination.  If you make the changes above, you will have an additional $1200 to pay debt.  You can get rid of Lane Bryant and Best Buy in the first month. Use the $1200 plus the minimum payments from LB and BB to pay JC Penny off in two months.  Amazon will take another two, and then Discover will take two as well.

According to TurboTax we owe the IRS over $5,000 this year.  How can we reduce this and avoid it in the future?  You are probably making a mistake.  Have someone double check this for you.


You should also think about other ways to earn money.  For example, can you rent out a room?  What about selling stuff on Craigslist or Ebay?  Can you return any of the stuff you bought on the credit cards? 

CDP45

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Re: Newbie: How to dig out of the giant hole we are in
« Reply #12 on: February 26, 2016, 11:32:47 PM »
Glad to see you are taking this seriously by writing down your expenses.

You have $56,000 worth of car debt, for cars worth maybe half or a 1/3rd that much, but great room for improvement there.

I hate to say consolidate the debt, but that could really help out. Maybe a 0% offer for a year (watch out for a transfer fee) or maybe Prosper/Lending club?

I hate to say this because it's your behavior that got you into this mess, and unless you change that you're going to be right back here in no time. But refinancing to a 30yr loan could solve most of your debt issue, and allow you to save more for retirement and reduce your taxes.

I wouldn't sell your house to cash out equity, but if you could find comparable pricing ($200k or less) closer to work that would help.



obstinate

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Re: Newbie: How to dig out of the giant hole we are in
« Reply #13 on: February 27, 2016, 12:16:14 AM »
You could save $400 a month straight away on gas by selling your cars and buying used Priuses. That's 5% of your take-home freed up alone.

Your electricity, phone, and groceries are all way above what they need to be. Probably another $400 in savings available there, at least.

Refinance your debts, then pay the highest interest rate first.

Owing taxes is not a bad thing. That means you got a $5000 loan from the IRS for the last year. Good stuff.

LAGuy

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Re: Newbie: How to dig out of the giant hole we are in
« Reply #14 on: February 27, 2016, 01:23:44 AM »
I agree that the cars (and insurance) are the major problem here, but it looks like they're quite underwater on them. They won't be able to get rid of them without bringing a lot of cash to the table, that it sounds like they don't have. Additionally, they're facing a large payment to the IRS in the coming months. Again, with cash they don't have. I also question the expenses as listed (they're not THAT bad as listed, and don't really explain how they got into their current predicament).

I don't think refinancing is a good idea here. That mortgage and rate looks pretty good, and there's not a ton of equity there anyways to bail them out anyways. Consolidating the debt is the obvious answer, but I'm thinking their credit isn't good enough for it...especially when I see they've already got a consolidation loan at already 20%+ interest.

Certainly, there's plenty of fat in that budget to trim, and there's plenty on this forum and blog to get you moving in that direction. However, to get out of the current situation, I might be seriously considering bankruptcy at this point. Not a chapter 7, clear the decks bankruptcy, but a chapter 13 that will let you get every thing consolidated at a decent rate.

clarkfan1979

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Re: Newbie: How to dig out of the giant hole we are in
« Reply #15 on: February 27, 2016, 01:55:10 AM »
Optimize the car situation right now. Maybe try to move and reduce the commute after the teen graduates from high school.

former player

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Re: Newbie: How to dig out of the giant hole we are in
« Reply #16 on: February 27, 2016, 04:05:21 AM »
Congratulations on facing up to your debt problem, and on having the courage to post here.  That attitude will serve you well in getting everything sorted out.

I agree that you should stay in your current house for the time being: the house doesn't seem the problem, and moving will just rack up more costs at the time you need them least.  In future years you might look at downsizing to something cheaper where you can live without using the cars every time you step out of the front door.

If you can sell the cars without adding to your monthly costs that would be the place to start - $1k in loan payments alone is a killer.

You probably have a lot of things around the house/garage/garden which you could sell to bring in some money and put to paying off debt.  Getting some money in this way should make you feel as though you are starting to get ahead of where you would otherwise be.

I agree with Gimsalot's comments on your spending.  On utilities, earn to your aircon down and off (shade your house, open windows at night, etc. - there are lots of tricks), turn the shower off while you are soaping up to save water, turn off appliances that are not in use rather than leaving them on standby.  On groceries, cut down the amount of meat you are eating (have meat-free days, cut your normal portions in half) and ramp up on rice and beans.  Use muscle power on the garden (will keep you fit).  Shop around for cheaper house insurance, internet and phones.

Some of your highest rate debts are the smallest in amount.  Put all the cash you save in the next few months to getting rid of the five debts with the highest interest rates.  Then look at whether your credit has improved enough to refinance your consolidation and Visa loans to lower rates (HELOC?).

Best of luck to you.






ShoulderThingThatGoesUp

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Re: Newbie: How to dig out of the giant hole we are in
« Reply #17 on: February 27, 2016, 05:45:41 AM »
Are you being honest with yourself about your consumer spending? I see nearly $30,000 in consumer debt (not including the consolidation loan, which I assume is the same thing) but $40 in shopping. Have you guys really cut that down recently?

What is your electricity rate? In Texas, you can shop around for it; you should be doing that aggressively but also cutting usage substantially. $353/month is simply insane even in Texas.

That makes me think that you might be living in a ridiculous house even if it's only worth $175,000. How many square feet is it?

Zamboni

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Re: Newbie: How to dig out of the giant hole we are in
« Reply #18 on: February 27, 2016, 06:45:53 AM »
OP, good luck on the road out of this mess. You can do it, but you've got a lot of changes in habits ahead of you!

You've gotten some good advice already that I support in terms of the order in which you need to pay off debt and how to reduce expenses. I also support finding out about social security for your disabled adult daughter.

My main comment is that you and I have drastically different definitions of "spending." You say you have "stopped all spending,' but this just isn't even close to true.

I believe that you are currently trying to cut back. I believe you like to think of "spending" only as things like ice cream cones at DQ and going to the movies. But this is delusional. Like it or not, every dollar that goes out that isn't going to retirement account or debt repayment is "spending."

In my opinion you need to cut out everything but food & shelter. For example, no dental and vision insurance, no beauty expenses, no internet, no entertainment that isn't free, and for the love of Christ NO CABLE and NO LAWN SERVICE!

And get the spending on necessities actually optimized. Sure, you need phones for emergencies. My phone plan is $10-15 per month and has been for the last several years. It works just fine and is even a fancy smartphone. Why is yours so much? You should be able to easily cut your food bill in half as another example. Recently we've been spending ~$600/month (including dining out) for 3 adults and we eat plenty of meat, fresh produce, fancy little cups of yogurt, croissants, drink wine and beer . . . I think our spending on food is very extravagant, so how are you spending $800? Your gas bill and utilities are very high as well. I cut my gasoline bill from $220/month to $100/month a few years ago just by switching vehicles.

FACEPUNCHES and REALITY CHECK:
You say you are "supposed to retire in 9 years" and that may be out of reach?
Reality check: at your current pace you will not be able to retire voluntarily without going on welfare.
That sounds mean, right? I've watched plenty of people do it and act completely surprised when they hit their 60's and 70's. Don't be one of those people, but that means you are going to have to make some big, big changes to habits right now.

Good luck with executing your plan.

teen persuasion

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Re: Newbie: How to dig out of the giant hole we are in - Case Study
« Reply #19 on: February 27, 2016, 09:08:30 AM »
Topic Title: How to dig out of this hole

Life Situation: We are a family of 3 (husband 53, wife 55, disabled daughter 23).  We file married filing joint status, and have our taxes taken out of our checks as married with 0 dependents.  We live in Northeast Texas.

Gross Salary/Wages: Gross salary is $13,393 monthly and $160,712 annually.  Earner 2 occasionally gets small amounts of overtime which can net an extra $100 a month.

Pre-tax deductions:
We have $683.50 per month going into 401K.  (Earner 1 deposits 6% and Earner 2 deposits 3%).  Health insurance is $300.00 and  Vision/Dental is $83.12.

Adjusted Gross Income: Our adjusted gross income is $12,709 $12,326 monthly / $152,510 $147917 annually.   Health insurance, vision/ dental weren't subtracted.

Taxes:
   Federal Tax:  $2047
   Earner 1 RR retirement Tax Tier 1 $558
   Earner 1 RR Retirement Tax Tier 2 $441
   Earner 2 Social Security    $324
   Medicare   $206

   Total Monthly Income taxes  $3576.58

Income after taxes and Life/LTD insurance ($88.62) is $9,044 $8,750 monthly / $108,527 $104,998 annually

Current expenses:

HOA   $50.00
Property Tax   $442.00
Homeowners Insurance   $142.26
Beauty Shop / Barber   $20.00
Cable TV   $26.00
Car Insurance   $489.22
Car Maintenance, Registration, etc.   $27.50
Christmas/Holidays   $20.00
Clothing/Shoes   $20.00
Dentist   $8.33
Dining (Lunch/Dinner/Etc.)   $5.00
Donations/Gifts   $10.00
Electricity   $353.19
Entertainment   $15.00
Fuel/Public Transport   $500.00
Groceries   $800.00
Internet   $150.00
IRS   $100.00
Landscaping/Yard work   $120.00
Life Insurance   $73.00
Medical (Doctor, Hospital, etc.)   $210.00
Medicine (OTC + Prescription)   $70.00
Parking/Tolls   $40.00
Phone (cell)   $129.00
Water/Sewer   $153.00
Work/Union Dues   $150.00

Expense total   $4,123.51


Liabilities:
Balances, Interest Rates and Original Amounts are included on spreadsheet.

Mortgage   $1,033.57
Lane Bryant CC   $25.00
Best Buy   $82.00
Amazon   $100.00
JC Penney   $83.00
Discover   $150.00
401K Loan   $158.90
401K Loan   $208.56
401K Loan   $274.28
Car 2   $488.34
Car 1   $494.89
Student Loan   $497.75
Student Loan   $550.65
Visa   $725.00
Partial Consolidation Loan   $1,167.96

    Total Debt   $5,006.33 $6,039.90 mortgage not included in debt total
 
Take home $8,750 - liabilities $6.039.90 = $2,710.10 vs $4,123.51 current expenses
You are in the hole over $1,400 each month.



Specific Question(s):


Should we sell our home and rent somewhere, using the little equity we have to clean up part of this mess?    Rentals in our area start at $1200 per month for a 1400 sq. ft 3 bedroom home.  2 bedroom apartments start at $1100 per month.

Should we take on extra jobs?  If we do, will that further increase what we owe the IRS?

Should we stop contributing to our 401K accounts to free up additional cash to throw towards the debt?

What is the best way to tackle the debt, smallest balance to largest, or highest interest rate to lowest?

According to TurboTax we owe the IRS over $5,000 this year.  How can we reduce this and avoid it in the future? 

We have been total idiots with our money.  We really had not been watching where our money was going and until recently I had no idea how much money we actually owed.   Between the two of us we have about $60,000 in our 401K accounts.  We are supposed to retire in 9 years, but I have a feeling that may be out of reach now.  Our home is worth about $175K.  We have stopped all spending and locked the credit cards up in a safe. Any an all suggestions of how to get out of this mess is welcome.

I know well deserved punches to the face are forthcoming.  A more detailed spreadsheet is attached.

Thank you in advance for your assistance.

My comments are in red above.

Start cutting expenses immediately.  Food can easily drop to $300 / month (that's what we spend for 4 people).  Challenge yourself to shop your pantry and freezer - use up what you have on hand and buy only the necessities like milk, eggs, fresh fruit, vegetables, bread.
Get quotes for the car insurance - nearly $6k / year is crazy high.
Change internet, cell phones to lowest possible costs.
Drop landscaping.
Drop cable, all gifts, lunches, beauty/barber, entertainment expenses.
Why is your water so high?  For reference, ours is < $50 per quarter, not month.  Leaky toilets can use lots of water - our bill was way up one quarter due to a leak - check this.

Is the amount you list for fed tax what is actually being withheld?  If things are basically the same, why do you owe tax this year (did you owe last year - I see a line item for IRS)?  It looks like withholdings should cover your bill unless you have some unusual circumstances not reflected in your info.

Kaydedid

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Re: Newbie: How to dig out of the giant hole we are in
« Reply #20 on: February 27, 2016, 10:37:08 AM »
Definitely look into Social Security and other government programs for your daughter.  There might be aid for everything from adaptive equipment to out-of-pocket medical costs in addition to SSI.  Government programs are a pain, but can be a huge financial help.

Overall, there are 2 strategies you need to increase financial health.  First, get rid of money vampires (debt and waste) and second, deflate your lifestyle. 

The vampires will be the easier of the two.  Question everything you spend.  Sell anything you don't use and wouldn't buy again (see MMM article "If You Wouldn’t Buy it, You Should Probably Sell it").  Shop around whenever possible, and spend as little as you can.  Check out budgetbytes.com for some great cheap recipes.  From what you posted, looks like you have a great game plan for the short-term.

The long-term (lifestyle deflation) will be where your future really gets made.  Some suggestions:
1.  If possible, look into living near your work, by either changing jobs or where you live.  Since there's two of you, the easiest would probably be for one person to find a job near the other, and move close to both jobs.  If so, you can sell the Silverado once you're no longer underwater, and either sell the Camry and buy a cheaper vehicle (preferred) or pay down the Camry.
 
2.  Driving one person 200+miles/week in a 4WD, 18mpg, 3-year-new vehicle is absolutely insane.  If #1 isn't an option, pay off all your 10+% consumer debt then downsize from the Silverado.  Pay down the loan until you're no longer underwater, then pay cash for an older, fuel-efficient vehicle.  I'd personally keep paying down the loan until you had enough equity to pay for the older vehicle (preferably <5k).  MMM wrote an article on the most frugal car choices-check it out.

3.  Downsize your living space.  Either look into an apartment or a smaller house.  The bigger the house, the bigger the ongoing costs, from taxes to maintenance to the desire to have more stuff to fill it up. 

4.  Break free of the consumer mindset.  Use your creativity and come up with several options for each problem that comes up, then evaluate them based on cost vs. efficacy.  Avoid advertisements, lifestyle magazines, home improvement shows as much as possible-they're a major source of brainwashing.

You are in a SERIOUS DEBT EMERGENCY.  Absolutely look into a second job to help pay down debt.  Every dollar you can fling at debt will bring you closer to killing that payment and having a future where you're not dependent on your family for financial support.  Good luck, and please let us know if you have further questions!
« Last Edit: February 27, 2016, 10:39:05 AM by Kaydedid »

wenchsenior

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Re: Newbie: How to dig out of the giant hole we are in
« Reply #21 on: February 27, 2016, 10:54:54 AM »
I almost never comment on case studies, and in terms of specific advice about cutting particular areas of spending, there is excellent advice here.

However, I am commenting because my husband and I also live in Texas...we got a very late start in terms of financial stability...no home, no savings, consumer debt, no stable income until he was 40, and then we had a decade of digging out of debt. Now he is in his mid-50s and is the primary earner (we have a combined gross income of about 120K/year). No kids, but we support one parent to the tune of ~10k/year, so I feel well-qualified to compare our costs with yours.

First of all, it is very brave of you to finally take stock of your situation...this is scary and can feel overwhelming. I do not feel this has been emphasized enough: You are in a very serious situation, and unless you have very generous pensions on the horizon, retirement at anything approaching your current spending in 10 years is a total pipe dream. I mean, just run the numbers: If you are contributing ~315$ biweekly to your 401ks, and the stock market returns a robust 8% average over the next 10 years, you will wind up with around 260K to retire on, or an income stream of ~10K/year to add to your SS. You won't be in poverty, but you sure won't be affording your current lifestyle.

Having said that, you have very good income, and tons of room to cut spending and kill your debt. I want to facepunch you with the reality check, but I also want to encourage you that HUGE progress can be made if you just buckle down to it. I know, because we did it a few years ago.

Over the course of three years, with 40K less in gross income than you have at your disposal, we got into and then paid off 45K in debt, while simultaneously funding an emergency fund to 20K, increasing our ongoing 401K contribution by 10K/year, simultaneously paying 6K/year toward a parent's daily upkeep. Now, 6 years on from that debt crisis, we are still supporting the dependent, but we are now completely out of debt except for 90K in mortgage, and we are saving more than 1,000$ per week.

We don't spend nearly as much as we used to, and you know...for the most part we don't miss it. Honestly, I'm not even sure what the hell we were frittering a lot of it on before. But once we changed our habits, the change stuck.

You MUST do this thing. And you CAN!

Good luck.

« Last Edit: February 28, 2016, 07:15:10 AM by wenchsenior »

Sibley

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Re: Newbie: How to dig out of the giant hole we are in
« Reply #22 on: February 27, 2016, 06:53:09 PM »
OP, you've gotten some good advice. Good luck carrying it out, and come back for encouragement, facepunches, ideas, and solutions.

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Re: Newbie: How to dig out of the giant hole we are in
« Reply #23 on: February 27, 2016, 09:13:16 PM »
It's clear that you need to kill those high interest store cards.  I second the plan to pay down the Silverado ASAP and get something efficient.  Insurance should be cheaper along with gas and car payments.  Then do the same with the Camry.  This will save you hundreds of dollars per month so you can start making progress on the other debts.

Another thing I don't think has been suggested is moving.  It sounds like property  is cheap in your area.  Look into getting a smaller house with a smaller mortgage, Lower utilities and lower upkeep.  It sounds like the house was the right size when you had five at home, but now a 1,200 so place should be fine and save you lots of money, and paying it off in retirement might be more within reach should you choose to once the other debt is gone. 

You have a good income, so with some changes in cars and housing, the debt isn't insurmountable,  but it will take a serious, sustained effort to get yourself on the road to retirement.

Nords

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Re: Newbie: How to dig out of the giant hole we are in - Case Study
« Reply #24 on: February 28, 2016, 06:05:42 PM »
You have very high car insurance payments- have you gotten quotes recently? - Just switched insurance 6 months ago from State Farm to Allstate and this was $200 cheaper a month.  We have 4 drivers on the policy, 2 are under 25.  One of those is our son who just joined the military.  He will be transferring his to his own policy as soon as he gets out of training.
When life settles down a little for your son, see if his membership in his military insurance company will make you parents and his siblings also eligible for membership in that insurance company.  If your son is a USAA member then you're eligible for membership by virtue of being immediate family. 

You'd want to compare quotes, of course.  GEICO might still be cheaper than USAA, but I'm pretty sure that USAA rates will be cheaper than both State Farm & Allstate.

SeanMC

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Re: Newbie: How to dig out of the giant hole we are in
« Reply #25 on: February 28, 2016, 06:25:54 PM »
I want to second that you should probably look very seriously into declaring Chapter 13 bankruptcy, especially if you want to stay in your home but work out a reduction and consolidation plan for repayment on all that consumer debt.

Texas grants a generous homestead exemption, so it shields the thing you have equity in. And the hit on your credit record shouldn't matter unless you are looking to apply for new loans or new credit (which you shouldn't be!) or applying for new jobs (hopefully you don't have to and if you do, you're likely going to need bankruptcy anyway). Given the level of debt, I couldn't imagine you have a good credit rating anyway.

Of course, you still need to figure out curbing spending. And, ultimately, it still might make sense to downsize and rent in the long-term.

This is not legal advice, standard disclaimer applies. but look into it...

Urchina

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Re: Newbie: How to dig out of the giant hole we are in
« Reply #26 on: February 28, 2016, 10:19:30 PM »
There is lots of great advice here already, so I'm just going to comment on your electric bill. Is it that high because you have electric heat as well as A/C? That's a crazy high bill and I am having a hard time wrapping my head around it. We pay between 15 and 23 cents per kilowatt hour, have a family of 4 with ample lights, two refrigerators (one of them a 14-year-old energy hog), and run a whole-house fan for a couple of hours a day and pay about $40/month in electricity.

If you have electric heat and it gets cold, maybe close off rooms in your house and only heat a few, or use a space heater in the room you spend time in most. If your clothes dryer is electric, I found that by hang-drying our clothes using 2 $10 racks from IKEA that I could save $20 - $30 a month on our electric bill.

Also, part of the reason your car insurance is so horrific is that you're insuring new cars. Selling both, buying 2 10-year-old Honda civics or Toyota corollas or something similar would probably result in lower premiums. Sure, you'd lose money on the vehicles but you could get out from one loan at least, save a couple hundred monthly in gas and another couple hundred (probably) in insurance. You could check with your insurance agent to see how much the savings would be. Also, check AAA's insurance rates. For us it's cheaper to buy a membership and get most of insurance through them (the savings on premiums more than covers the membership cost), plus we get all the roadside assistance benefits of membership.

I'd also have your kids cover the cost of their car insurance. If they want to drive, they can be responsible for the associated costs.

Finally, I would aggressively pursue carpooling or bus options to work. It's not as convenient, perhaps, but you are not currently in a position to be picky about that.

Good luck!


Jacana

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Re: Newbie: How to dig out of the giant hole we are in - Case Study
« Reply #27 on: February 29, 2016, 04:59:39 AM »
You have very high car insurance payments- have you gotten quotes recently? - Just switched insurance 6 months ago from State Farm to Allstate and this was $200 cheaper a month.  We have 4 drivers on the policy, 2 are under 25.  One of those is our son who just joined the military.  He will be transferring his to his own policy as soon as he gets out of training.
When life settles down a little for your son, see if his membership in his military insurance company will make you parents and his siblings also eligible for membership in that insurance company.  If your son is a USAA member then you're eligible for membership by virtue of being immediate family. 

You'd want to compare quotes, of course.  GEICO might still be cheaper than USAA, but I'm pretty sure that USAA rates will be cheaper than both State Farm & Allstate.

Unfortunately, USAA eligibility is only passed to spouses and offspring of the member, not to siblings and parents. But your son can look into membership for himself.

Axecleaver

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Re: Newbie: How to dig out of the giant hole we are in
« Reply #28 on: February 29, 2016, 08:04:45 AM »
One piece of advice I haven't seen mentioned yet is to reduce your withholding and throw that at the debt. It's much better to get a larger paycheck today to pay down those 26% interest rate cards. At tax time you can negotiate a repayment plan to the IRS (caveat: not sure how it works if you already have a repayment plan in progress, and you ask for a new one). The rate the IRS charges is the short term rate +3%, which is 0.65% today. That's a better rate than all of your debt except the house.

I would reduce your 401k contributions to capture all of the company match, and then throw the rest at debt until it's gone.

You can do this!

Also, noticed that your SO has a railroad retirement instead of social security. That's a gold-plated pension that will help provide for basic needs in retirement, along with your SS benefits. Definitely won't be the standard of living you're used to, but you won't  be completely destitute.

Bankruptcy in situations like this, especially if you can change your behavior dramatically, may be worth considering. That is not a popular perspective here, but it's worth looking at.

StacheInAFlash

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Re: Newbie: How to dig out of the giant hole we are in
« Reply #29 on: February 29, 2016, 02:38:12 PM »

Also, noticed that your SO has a railroad retirement instead of social security. That's a gold-plated pension that will help provide for basic needs in retirement, along with your SS benefits. Definitely won't be the standard of living you're used to, but you won't  be completely destitute.


Yes! Surprised no one had mentioned this yet. I honestly don't know much at all about the Railroad Retirement, but I've heard through the grapevine that it is a crazy good pension... whenever I do my taxes, the tax software always mentions it, so I know there must be a whole host of tax laws unique to it. It would be nice if OP would touch on this a bit as it may have serious influence on the advice people give in terms of long term planning and bankruptcy, as well as give us all a bit of inside info on the pension as most people aren't too knowledgeable on the subject.

AZDude

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Re: Newbie: How to dig out of the giant hole we are in
« Reply #30 on: February 29, 2016, 02:59:39 PM »
Sell your home, move into something much smaller. Take the ~$50K in cash and use it to buy a couple of fuel efficient vehicles. Sell your current cars. That leaves ~$40K. Minus $5K tax payment. Pay off the 401(k) loans.

Now you are ~$1200 better each month. Keep the remaining cash as a buffer/emergency fund. Target the credit cards. You should be CC debt free in 14 months.

At that point, you will have just the student loans and the consolidation loans. Roughly $108K. If the math is right, at that point you should have something like $5K a month extra. Which means 20 months or so and you will have that monster paid off.

So 34 months, or less than 3 years, and you can be debt free. Good luck.



Easye418

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Re: Newbie: How to dig out of the giant hole we are in
« Reply #31 on: February 29, 2016, 03:14:45 PM »
OP, everything that should be done has been written by all of the people in here.  I have nothing to add except you can do it and turn your life around. 


Sell your home, move into something much smaller. Take the ~$50K in cash and use it to buy a couple of fuel efficient vehicles. Sell your current cars. That leaves ~$40K. Minus $5K tax payment. Pay off the 401(k) loans.

Now you are ~$1200 better each month. Keep the remaining cash as a buffer/emergency fund. Target the credit cards. You should be CC debt free in 14 months.

At that point, you will have just the student loans and the consolidation loans. Roughly $108K. If the math is right, at that point you should have something like $5K a month extra. Which means 20 months or so and you will have that monster paid off.

So 34 months, or less than 3 years, and you can be debt free. Good luck.

You make it sound so easy...  I think this is highly unlikely as I think people who are living like this now would never agree to live how you want them to live. 

I do think it will require serious sacrifices and balancing of the budget to turn the ship around. 

OP, good luck on the road out of this mess. You can do it, but you've got a lot of changes in habits ahead of you!

You've gotten some good advice already that I support in terms of the order in which you need to pay off debt and how to reduce expenses. I also support finding out about social security for your disabled adult daughter.

My main comment is that you and I have drastically different definitions of "spending." You say you have "stopped all spending,' but this just isn't even close to true.

I believe that you are currently trying to cut back. I believe you like to think of "spending" only as things like ice cream cones at DQ and going to the movies. But this is delusional. Like it or not, every dollar that goes out that isn't going to retirement account or debt repayment is "spending."

In my opinion you need to cut out everything but food & shelter. For example, no dental and vision insurance, no beauty expenses, no internet, no entertainment that isn't free, and for the love of Christ NO CABLE and NO LAWN SERVICE!

And get the spending on necessities actually optimized. Sure, you need phones for emergencies. My phone plan is $10-15 per month and has been for the last several years. It works just fine and is even a fancy smartphone. Why is yours so much? You should be able to easily cut your food bill in half as another example. Recently we've been spending ~$600/month (including dining out) for 3 adults and we eat plenty of meat, fresh produce, fancy little cups of yogurt, croissants, drink wine and beer . . . I think our spending on food is very extravagant, so how are you spending $800? Your gas bill and utilities are very high as well. I cut my gasoline bill from $220/month to $100/month a few years ago just by switching vehicles.

FACEPUNCHES and REALITY CHECK:
You say you are "supposed to retire in 9 years" and that may be out of reach?
Reality check: at your current pace you will not be able to retire voluntarily without going on welfare.
That sounds mean, right? I've watched plenty of people do it and act completely surprised when they hit their 60's and 70's. Don't be one of those people, but that means you are going to have to make some big, big changes to habits right now.

Good luck with executing your plan.

This guy is right.  I have a feeling it is going to be extremely painful and long process, but like the others have mentioned, you have taken the first step and you are listening to these fine people. 

I almost never comment on case studies, and in terms of specific advice about cutting particular areas of spending, there is excellent advice here.

However, I am commenting because my husband and I also live in Texas...we got a very late start in terms of financial stability...no home, no savings, consumer debt, no stable income until he was 40, and then we had a decade of digging out of debt. Now he is in his mid-50s and is the primary earner (we have a combined gross income of about 120K/year). No kids, but we support one parent to the tune of ~10k/year, so I feel well-qualified to compare our costs with yours.

First of all, it is very brave of you to finally take stock of your situation...this is scary and can feel overwhelming. I do not feel this has been emphasized enough: You are in a very serious situation, and unless you have very generous pensions on the horizon, retirement at anything approaching your current spending in 10 years is a total pipe dream. I mean, just run the numbers: If you are contributing ~315$ biweekly to your 401ks, and the stock market returns a robust 8% average over the next 10 years, you will wind up with around 260K to retire on, or an income stream of ~10K/year to add to your SS. You won't be in poverty, but you sure won't be affording your current lifestyle.

Having said that, you have very good income, and tons of room to cut spending and kill your debt. I want to facepunch you with the reality check, but I also want to encourage you that HUGE progress can be made if you just buckle down to it. I know, because we did it a few years ago.

Over the course of three years, with 40K less in gross income than you have at your disposal, we got into and then paid off 45K in debt, while simultaneously funding an emergency fund to 20K, increasing our ongoing 401K contribution by 10K/year, simultaneously paying 6K/year toward a parent's daily upkeep. Now, 6 years on from that debt crisis, we are still supporting the dependent, but we are now completely out of debt except for 90K in mortgage, and we are saving more than 1,000$ per week.

We don't spend nearly as much as we used to, and you know...for the most part we don't miss it. Honestly, I'm not even sure what the hell we were frittering a lot of it on before. But once we changed our habits, the change stuck.

You MUST do this thing. And you CAN!

Good luck.


Excellent post.  I hope you post more often.


To everyone else posting and the OP, thank you from the bottom of my heart, your lessons have paved a bright future for me as a 26 year old.  I am very blessed to make $150k a year and understand how much power I have over my future because of spending and saving habits. 

Seriously, I am not a MMM by any means but I am a saver.  I truly feel that face punches and reality checks, as harsh as they can be, is the most valuable thing someone can do on this forum for someone.

Bravo once again.  Cheers.
« Last Edit: February 29, 2016, 03:18:36 PM by Easye418 »

TealBlue

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Re: Newbie: How to dig out of the giant hole we are in
« Reply #32 on: February 29, 2016, 03:29:25 PM »
I too am in a debt payoff mode and just wanted to say good for you for putting all of this out there.  I know that asking for help and displaying your numbers is probably difficult but it's a necessary first step.  You have gotten some really great advice and I hope you decide to act on much of it.  Best of luck! 

justajane

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Re: Newbie: How to dig out of the giant hole we are in
« Reply #33 on: February 29, 2016, 03:48:07 PM »
I actually don't agree on selling the cars, as you are going to take a major bath on them. With their income as high as they have and their mortgage as small as it is, they could make some serious headway by just not buying shit and cutting their budget to the bone.

Seriously, don't go in any store but the grocery store and maybe Target or Walmart. Don't go in one for at least six months or a year. Don't shop at Amazon. Don't buy anything. You most likely have clothes to last you a long time.

And turn the A/C up. And do your own yard work. And cancel cable. Switch to Netflix. Seriously. There's more television on Netflix than you could ever hope to watch. If your husband wants to watch sports, go over to a friend's house and get some social time.
« Last Edit: February 29, 2016, 06:14:58 PM by justajane »

SouthernLady

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Re: Newbie: How to dig out of the giant hole we are in
« Reply #34 on: February 29, 2016, 06:47:58 PM »
Just to clarify something mentioned above, life insurance does not go to pay off your debts unless your estate is the beneficiary of the life insurance policy.  If the beneficiary is a named individual(s), the life insurance goes directly to that/those persons.  Since you have a disabled child, life insurance may be a justifiable expense. 

little_brown_dog

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Re: Newbie: How to dig out of the giant hole we are in
« Reply #35 on: March 01, 2016, 06:17:56 AM »
Just wanted to echo the sentiment that you can do this!

When I first got married, my student loan debt was approx 100k (6.8%)-  more than our combined annual gross income. After taxes, it was much more than our annual income. It was excruciating to throw all of our extra cash, everything we had, at it only to watch the balance barely drop month after month. But we kept at it. Somewhere around the year and a half mark, things really picked up speed. Less than 5 years later, we are student debt free!

Paying off large amounts of debt is more about psychological resilience than actual monetary amounts. If you can commit to downsizing your expenses, living modestly, and don't give up even when it seems like the balance is barely dropping, you will get out of this a lot faster than you think. People trip up when they discouraged ("it's barely going down"), let their expenses slide ("might as well go out to eat and buy these new shoes, it's not like the extra $100 will make a difference anyway"), and then find themselves in the same position (or worse) later on.

norabird

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Re: Newbie: How to dig out of the giant hole we are in
« Reply #36 on: March 01, 2016, 10:28:00 AM »
Wanted to mention that you should not be buying clothes or shopping recreationally which it seems has been happening based on the Lane Bryant card. Have you read Your |Money or Your Life? Are there expenses you feel like you 'deserve' and are entitled to even with the debt? Examine that, then re-examine it.

Mr. Green

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Re: Newbie: How to dig out of the giant hole we are in
« Reply #37 on: March 01, 2016, 10:50:27 AM »
I just wanted to say congratulations on seeing the light. It's obvious that you really want to fix your situation by how open you are being with your finances and that's not easy to do. I wish you luck with your journey. It may be hard at first but as some of those credit card balances start going away things will snow ball and things will really start to change.

horsepoor

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Re: Newbie: How to dig out of the giant hole we are in
« Reply #38 on: March 01, 2016, 05:45:05 PM »
Wanted to mention that you should not be buying clothes or shopping recreationally which it seems has been happening based on the Lane Bryant card. Have you read Your |Money or Your Life? Are there expenses you feel like you 'deserve' and are entitled to even with the debt? Examine that, then re-examine it.

Yes, I think the part about gazingus pins was really helpful to me in identifying those things that I tend to just buy without thinking.  It sounds like clothes and gifts are your gazingus pins, and getting past those will be critical and make it easier to do this in the long term.

Cassie

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Re: Newbie: How to dig out of the giant hole we are in
« Reply #39 on: March 01, 2016, 07:26:03 PM »
I agree with Jane. Good luck.

jengod

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Re: Newbie: How to dig out of the giant hole we are in
« Reply #40 on: March 01, 2016, 09:40:13 PM »
Please get a copy of the book The Total Money Makeover by Dave Ramsey, and enroll in a Financial Peace University class. As a couple, you guys need to get on the same page that this debt is awful, your consumerism is unreasonable, and that the process to escape this trap is X, Y, Z. Dave Ramsey is simplistic yes, but that means that his plan can work for any idiot AND any genius. Behavior modification is going to be so important here, and he is very good at encouraging long-term habit change.

1. Use DR's debt snowball plan, but if you must rebel, pay back those 401k loans first. No bueno.
2. Sell the cars IMMEDIATELY, and buy something that you are embarrassed to be seen in. You may need to get a personal loan from a local bank or credit union to cover the difference on value versus payoff amount.
3. Cancel all these awful store credit cards the absolute minute they are paid off. These stores are not giving you "discounts" on their cheap merchandise for having a store credit card, they are tricking you into paying them 25% interest, which is where they really make their money.

RE: Water bill. Look at outdoor irrigation. Do you have a lawn and plantings? What happens to your bill if you don't irrigate for a month?

RE: The house. Don't sell, but do use it as a resource. 2677 sq ft two story house for three people is nearly 900 sq ft per person. I highly recommend you clear out a bedroom with an attached bath and take in a boarder/housemate for a while. You are living in a cavernous mansion that could be an income stream. Most people would reject this out of hand, but you are not a special snowflake. The income bump from having a room renter could significantly help with your debt reduction. Sounds like you both work a lot so you might not even notice the third party in the home.
« Last Edit: March 01, 2016, 09:51:32 PM by jengod »

Villanelle

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Re: Newbie: How to dig out of the giant hole we are in
« Reply #41 on: March 01, 2016, 10:05:24 PM »
It's time to crack down on every penny that goes out.  Bump the thermostat up/down at least 4 degrees.  Limit the kids (and yourselves to 5 minute showers (maybe allowing 10 minutes every other day for kids with long hair if they wash and condition). Find some uber cheap recipes (likely meatless) and make them over and over.   Cable gets cancelled.  TOMORROW!  And lawn service?  No.  Just no.  You simply can't afford it.  It's not an option for you, any more than a $5million yacht is an option for you.  They are both equally stupid and unaffordable in your current situation.   If the kids want to drive, they can pay for their own insurance.  (Boot camp kid is now getting a paycheck, though I do understand that is going away soon.)

The cars need to go.  The money you will loose is a sunk cost.  It is lost.  Forget about it.  Buy something at least 8 years old, and that gets amazing gas mileage.  You will make up the difference in gas and insurance. 

The great news is that you make a lot of money, especially for a not-obscene COL area.  The bad news is that to get this ship turned around, the low hanging fruit isn't gong to be enough.  You need to find every last piece of fruit on that tree, and it is going to be that way for a couple years at least. 

electriceagle

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Re: Newbie: How to dig out of the giant hole we are in
« Reply #42 on: March 01, 2016, 10:50:16 PM »
As everyone else has said, the cars are killing you.

Almost $500/mo for car insurance is absurd, unless someone has a DUI. If someone does have a DUI, they need to put their license in a sock drawer and become a carpooler. Back when I had a car, insurance (in my high cost/risk city) was $600/year. I just can't see that high a rate without a DUI.

Since your son is in the millitary, you should be able to get insurance from USAA.

$500/mo on gas is absurd as well. These days, gas is around $2/gallon. Thats 250 gallons of gas, or 6250 miles @ 25 mpg. You're driving from New York to LA twice every month!

pdxmonkey

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Re: Newbie: How to dig out of the giant hole we are in
« Reply #43 on: March 01, 2016, 11:05:26 PM »
I would like to point out that if take home pay is ~$8750 and you OWE $5500 in taxes you likely need to subtract another 500 off that take home pay as you will likely owe that amount in taxes again next year. So the take home pay after accounting for all taxes would be more like 8250.

Can you qualify for a home equity loan? Get a home equity loan at a lower rate and pay off the 20%+ loans if you can. Cut up the credit cards and never get more.

dess1313

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Re: Newbie: How to dig out of the giant hole we are in
« Reply #44 on: March 01, 2016, 11:20:58 PM »
I think people would find it helpful to see your total amounts of debt and interest rates, so from the spreadsheet:

 
JC Penney$2,482.4626.99%
Best Buy$884.8525.99%
Amazon$2,678.8425.99%
Lane Bryant CC$304.9624.99%
Discover$3,086.7222.90%
Partial Consolidation Loan$28,935.6421.30%
Visa$20,443.9116.24%
Student Loan$44,575.767.73%
401K Loan$3,205.905.50%
Car 2$29,647.595.49%
Student Loan$36,852.054.68%
401K Loan$4,015.394.25%
401K Loan$12,672.834.25%
Car 1$25,998.543.40%
Mortgage (12 yrs remain on 15 yr loan)$128,640.292.75%



the top 5 credit cards are killing you in both monthly payments, and interest.  consolidation of these could make a huge difference when you try to snowball payments. 
the amount of driving is killing you in non-fuel efficient vehicles.  trying to get out of these could be very expensive but you need to consider it.  it would depend on how much of a bad hit you would take doing so

even your 'consolidation loan' has over 21% interest!  are you able to do a 2nd mortgage as another form of consolidation loan where you are?

keep your head up and keep digging. it won't be easy but you can make progress.  question every $ that goes out, and ask is it absolutely essential to keep the roof over my head?  keeping your power on is important, but keeping the house very cold/hot is not.  i think you're making some good plans and there's been a ton of good suggestions on here.  good luck

Villanelle

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Re: Newbie: How to dig out of the giant hole we are in
« Reply #45 on: March 01, 2016, 11:52:40 PM »
Do you have stuff around the house you can sell?  Clothing, electronics, DVDs and CDs, and just about anything else.  Sell it.  Nearly anyone can make $500 selling stuff from around the house, and since it seems like you've done a lot of buying, you probably have more to sell than most.  Make it a goal to make $1000 selling stuff around the house.  Be brutal.   Do you have jewelry?  If so, you could probably even double that.  Imagine being able to wipe out nearly all of the JC Penney card based on selling your DVD collection, a few higher end hand bags and dresses, a couple pieces of jewelry, a camera and what else you can find.  You can use Craigslist, local stores (consignment, jewelry, etc.), websites (ThredUp, ebay), Amazon, and whatever else is appropriate.   

Not only will this bring in cash, it will be a reminder of all the things you bring in to the house that you don't need. 

Daleth

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Re: Newbie: How to dig out of the giant hole we are in
« Reply #46 on: March 02, 2016, 12:03:45 AM »

And how much life insurance do you need to be worthwhile, when under my understanding if you both get hit by a bus tomorrow the payout will have to resolve your debts before your child gets any?

Is that true? I doubt it is, if the child is named as beneficiary instead of the insured's estate. That's a question for an estates & trusts lawyer, but it's an important one to nail down. And with a disabled daughter, it is CRITICAL to nail down. This is worth spending a couple hundred bucks talking to a good estates & trusts lawyer.

ShoulderThingThatGoesUp

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Re: Newbie: How to dig out of the giant hole we are in
« Reply #47 on: March 02, 2016, 05:05:31 AM »

And how much life insurance do you need to be worthwhile, when under my understanding if you both get hit by a bus tomorrow the payout will have to resolve your debts before your child gets any?

Is that true? I doubt it is, if the child is named as beneficiary instead of the insured's estate. That's a question for an estates & trusts lawyer, but it's an important one to nail down. And with a disabled daughter, it is CRITICAL to nail down. This is worth spending a couple hundred bucks talking to a good estates & trusts lawyer.

It sounds like I was wrong. No need to drop $500 on a lawyer.

justajane

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Re: Newbie: How to dig out of the giant hole we are in
« Reply #48 on: March 02, 2016, 05:45:49 AM »
I can see selling the Chevy Silverado, but I would hardly call the new Toyota Camry a non-fuel efficient vehicle. In that case, it's the commute not the car, which is much harder to change.

I stick by what I said that they can kick ass here without selling the house or the cars. I imagine they will have to bring money to the table if they get rid of those cars and try to buy cheaper ones. That's the nice part about having a high income like they have. They don't have to unload the cars. I see no reason why those high interest credit cards can't disappear in a few months, as long as they don't buy anything.

What am I missing?

OP, you can do this, even if you disregard some of the more aggressive advice here.

teen persuasion

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Re: Newbie: How to dig out of the giant hole we are in
« Reply #49 on: March 02, 2016, 06:12:11 AM »
I can see selling the Chevy Silverado, but I would hardly call the new Toyota Camry a non-fuel efficient vehicle. In that case, it's the commute not the car, which is much harder to change.

I stick by what I said that they can kick ass here without selling the house or the cars. I imagine they will have to bring money to the table if they get rid of those cars and try to buy cheaper ones. That's the nice part about having a high income like they have. They don't have to unload the cars. I see no reason why those high interest credit cards can't disappear in a few months, as long as they don't buy anything.

What am I missing?


OP, you can do this, even if you disregard some of the more aggressive advice here.

You are missing that the presented budget has sloppy math and is over $1400 in the red each month.  I see that the OP  has edited a previous post multiple times (confusing to me - I'd prefer to see new posts, I only normally see new posts) with the changes they plan to make.  However, it looks like the changes are just above $1k / month, so they are still in the red. 

Some of the plans, like another consolidation loan, are hard for me to quantify, so it's still fuzzy.  If it were me, I'd prefer to knock off a few of the smallest balance / highest rate ones individually, rather than create another large bill.  Snowballing is the way to go to make progress here.