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.