Reader Case Study: Love and (Debt) War

[freshmeat]

Hello all! As newlyweds, where to start? Definitely will be paying off the credit cards/her student loans within months/this year while some loans are in deferment. Our remaining income barely covers minimum payments. It's really his student loans, that were handed out like candy while he was in school for 9 years, that has us fumbling. Considering consolidation, especially federal with IBR (half of his loans are federal, half are private). Is that the way to go? And if so, how to qualify with his fair credit/her excellent credit? How to manage it until income increases? Already planning alternate incomes (hobbies, selling unnecessary items). Any advice is appreciated!

Here goes:

Income: $4,100
$2100 (her, with health & retirement that is being matched, may go back for master's degree as job reimburses 8 units/year)
$2000 (him, as MFT intern in CA, income to increase in next 3-4 years)

Current expenses: $2,248
$825 Rent
$106 Utilities & Internet
$320 Fuel
$280 Groceries
$77 Cell phones
$153 Car/rental insurance
$87 Other necessities (laundry, etc.)
$400 Church

Assets:
$1,000 (savings)

Liabilities:
$327,600 student loans (his, rates between 3.763% and 9.75% with balances from $1000-$63000)
$5,000 student loan (hers, 6.8%)
$1,000 student loan (hers, 6.8%)
$1,000 credit card (23.99%)
$600 credit card (27.24%)
$4,575 credit card (25.24%)

[process]

i just want to say it's nice to see someone with as much student loan debt as I have!  Although, I am much older and a lot of mine is interest that has accumulated over the years.  My plan for paying it off is working in public service for the next ten years.  Is most of his federal?  That may be an option for him. 

[eman resu]

Hi,

I don't have any knowledge of consolidation processes, so can't offer an opinion on that.  Have you considered diverting the church's share to your own debts, at least until the high interest CCs are knocked out? I know that is a very personal "expense" for a lot of people.  My wife and I went through a lean time and had a lot of guilt about lowering our giving at church.  We talked with our pastor and he made us feel even more guilty for putting our long-term financial health in danger for a relatively small/short-term gain for the group!  He pointed out that we had years of giving (of one kind or another) ahead of us and needed to take care of our own business first... it was "our duty to protect the church's future cash flows."  :)   Anyway, just a thought.  No need to respond if it's a private decision/purpose and you don't want to discuss.   Best of luck with everything. 

[Eric]

It blows my mind that one can accumulate $300K+ in student loan debt and only get a job making ~$32K. (I'm assuming the $2k/mo above is net)  That's crazy.  I know, increases will come, and that's good, because you'll need them.  Even on an Income Based Repayment plan, you're going to have to pay, what, $250K of that $320K, considering that $170K is private?

If there was ever a hair on fire debt emergency, I think you have one.

Your church gets $400/mo.  That's a king's ransom for you right now.  Can you volunteer $400 worth of time instead?

$320 in gas!?!!?  RIDE YOUR BIKES!!  This is a crazy sum to spend on gas.  Are you both super far from your jobs?  If so, move.  Your commutes and driving are eating up your budget.  I'm assuming that's for 2 cars?  Sell one.  And pay off that CC debt.

Is your rent really cheap?  It could be if you live in any semi-populated area in CA.  If so, nice job!  But if it's too far from your jobs, you could actually save money by paying more to be closer.  Do the math.  Consider moving into a place with friends, or maybe even in with your parents or relatives.  Yes, that's a drastic measure, but you need to take drastic action.

I hope this guy is a good cook, has a wonderful sense of humor, is gorgeous, and really makes your toes curl in bed. 

[Metta]

I assume that MFT is Marriage and Family Therapist certification, is that correct? It looks like the government has a loan forgiveness program for your husband's specialty if he is willing to work where the need is great. This has always seemed like a good thing to me since one not only gets a financial benefit, but is helping people who truly need it.

Here is a quote:
"Provides up to $170,000 total per professional ($60,000 total in the first two years, $35,000 in the third year and $35,000 in the fourth year)."

He will still get paid the "prevailing wage" so it seems like a money-positive proposal.

Here is the pdf describing the program:
http://www.oshpd.ca.gov/HPEF/Text_pdf_files/WET/HPSA_BenefitsSynopsis.pdf

I do not know whether you had already considered this but if you hadn't, it seems like a good thing to do.

[freshmeat]

Thank you all for the welcome and ideas! We're open for anything at this point. He is indeed a Marriage Family Therapist and is working approximately 45 minutes away. Her job is the next town over so the commute is less than 2 miles. We're throwing as much on the CC fire as possible. We had never looked too deep into PSLF but can see it being unrealistic in the long run. Since some of his loans were unsubsidised, the interest-turned-principal was just gas on the fire. Thanks for the link! Church is for sure a personal subject but we're going over scenarios. Gas/food seem to be trimmable. What are good targets? Also how much would her co-signing help his APR/hurt her credit/does it matter?

[Cheddar Stacker]

Welcome to the forum and good luck with your situation.

If you can reduce rent it would help since it's your biggest expense. However, coming in a close second place is $400/month (10% of income and nearly 20% of expenses) to your church. I want to be gentle here but I really can't, it's simply financially irresponsible for you to even consider that level of giving right now. This "expense" is by far the simplest way to improve your situation.

If you took away his enormous SL debts (which you can't obviously, and BTW that's the highest I've ever seen) then the picture doesn't look too bad and I'd say that level of giving is fine if it makes you happy.

If that is net pay, you have $1,850/month to pay down debt. If that is gross pay, maybe closer to $1,100. If you eliminate your $400 church expense and reduce a few others you can pay off those CC's in 3-5 months. I would attack those first, then pay as much as possible toward all high interest and/or private SL's until you get into a more reasonable place.

[Cheddar Stacker]

Sorry to harp on this but I had another thought today on tithing; admittedly I'm no expert in this area so please ignore me if you want, I'm just musing here. Is there anything preventing you from calculating your giving based on a percentage of your net worth? I guess what I mean is that since you have no real means (net worth) to give, then should you really be giving?

If you are truly committed to giving, make it a long term goal to ALWAYS give 2-5% of your total positive net worth per year. You are $300K+ underwater right now and you need every dollar you can get to dig out of that hole. Once you're out, give much more aggressively.

Right now you are giving $4,800/year. At $100K NW x 5% you would be giving $5K/year. At $500K NW x 3% you would be giving $15K/year. Getting yourself into a great NW position would allow you to tithe a much higher amount over your lifetime, while also taking care of your own financial needs. I believe you and your church are missing out long-term by choosing the route you are currently on. As the flight attendants say, put your own oxygen mask on first, then help the others around you with theirs.

[Nudelkopf]

Or, if you feel you do need to tithe the full 10%.. Can you "save" it up, and pay it back later when you have the ability? Kind of like, "owing" the church - but they get it when you're able to pay it. Similar to Cheddar Stacker's idea.

[MDM]

An internet search on  biblical basis for tithing  returned some interesting links.  Here are a few:
http://www.acts17-11.com/dialogs_tithe.html
http://www.biblegateway.com/passage/?search=Deuteronomy+14:22-29
http://www.gci.org/law/tithing

There may be other analyses that support a more literal tithing practice - these are just some of the first links checked.  One can draw one's own conclusions.

[eman resu]

Gas/food seem to be trimmable. What are good targets? Also how much would her co-signing help his APR/hurt her credit/does it matter?

I don't know Cali food costs, so no opinion there. If you have 2 cars, eliminating one should be a serious consideration with only a 2 mile commute. Is it bike-able? Pub transit? 

Salvaging credit scores for later should not be a priority.  For what circumstance beyond the +$325K debt emergency you are currently in are you looking to save your "credit capital"? 

[ThatsMyOtter]

I agree that the tithing should be suspended or at least reduced significantly until the student loans are gone. You might want to consider letting someone who's involved in managing the church's finances know that you're reducing your tithing. That way they can plan for less money coming in and they won't worry that the sudden drop in giving is a sign that you're thinking about leaving the church or experiencing prolonged unemployment/serious illness/etc.

[Yonco]

400$ A MONTH FOR CHURCH!  Ive been working 10 years, 120 months of work x 400 a month = $48000 saved torwards my FI.  You could cut out 20% of your expenses by not paying that.  No wonder my parents never pushed me to go to church, they just taught me to be frugal!  Im sure god would understand understand if you told him you were paying 27% in interest. Your groceries/utilities are already low, so gas/church would be the places to start a cutback imo -Jon

[prosaic]

I say this as someone who has served on the board of our church, and who has handled pledge campaigns and spent long hours whittling church budgets:

**you're not serving anyone, least of all your community members, by tithing that much when you're in so much debt**

My church specifically asks people **to take major debts and expenses into account** when determining what kind of contribution they can make. Don't go by a strict 10% of gross or net. EVER.

We have church families who look like they can give on paper, but who spend tens of thousands a year supporting sick parents or kids. Paying back loans. Handling two kids in college at the same time. Struggling with 5 figures a year in medical debt.

It's painful to imagine not tithing 10%, I know, but you really aren't supposed to give if you can't give *freely*. And you guys just can't.

[Breaker]

Hi,

I think that you will be alright if you take steps now.  Reduce outgo, several have suggested ways to do this.  It seems obvious to me that you must stop the tithe until you have taken care of yourself.

Is there any reason that both you and your husband can't work a second job?  Not particularly pleasant but at least until you have paid off all of the credit cards and the 4 smaller student loans.l

Good luck to you. 
Jan

[Thegoblinchief]

Lots of great advice.

+1 to the stop tithing.

Sell your car. Walk or bike to work.

Do ALL errands by bike. $320 for gas is insane. Is your DH driving an efficient vehicle? 90s Civics are great and should be a dime a dozen in CA.

Grocery and consumption spending can come down.

Do both of you a favor and don't have children until your financials are better off. You can make it work if it happens, but I'd never willingly plan it after having been through pregnancies with extreme financial stress.

Regarding consolidation, remember that private loans are much easier to discharge in bankruptcy if it comes to that.