Author Topic: We need help & advice! Reducing spending, 0% CC balance xfers & stud loan refi  (Read 1680 times)

pinkfloyd4ever

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Sorry in advance for the long-winded post.
So my wife and I are finally getting our sh*t together and to start living a more frugal lifestyle. About damn time, as we’re 32, would like to buy a house and start a family. Background: I finally graduated from Engineering school 4 years ago and I’m now a mechanical engineer. I make about $65k (pre-tax/insurance/401k). My wife graduated 5 years before I did, with a Journalism degree. She’s never been a journalist, but she has been employed since she graduated. Her student loans are now $250 away from being fully paid off.

Two years ago, my wife cut her hours at her day job (where she was making $45k but was also very unhappy) to start a business with her friend. Without getting too specific, it’s a food business in a fairly high growth health food category. They’re making a lot of sales, are on Amazon and in the process of getting into the local Whole Foods stores. She works her ass off and I’m really proud of all the work she’s put into it and the progress made.  But she’s finding it’s really difficult to make much profit. We’ve agreed that she’ll give it another year before throwing in the towel. I would like to pick your Mustachian brains on the business, but that’s a topic for another thread.

Anyway, she’s now down to only 1 day per week at her old desk job, which will become 0 here in the next month when her coworker returns from maternity leave. Long story short our total household income has decreased in the past couple years, and will level off at the 65k I make, where it  will likely be for at least another year. If she folds on the business, we’ll have around 5k in debt from the business (an LLC) that I believe will become our personal responsibility.


We’ve recently transitioned most of our spending to the debit card and would like to stop buying anything with credit cards. At least until we are more confident in our buying habits and have better self-control. I’m looking for a simple tool to track our budget and spending that will provide maximum benefit with a minimum input of time and effort. We’ve tried YNAB (too confusing and too much work/mantainence), Mint (we put our accounts in there and categorize stuff, but then don’t pay enough attention to it). I found the PearBudget spreadsheet which I might try out. I just need to find a way to make myself look at it and spend some time updating things weekly.

That’s really our biggest problem. I’ve read all the MMM posts, understand the how and why of frugality, investing, and early retirement. But it’s the actual execution of it that’s so difficult for us. We’ve cancelled our Amazon Prime membership, and have been much more strict about buying things lately. But we could still do better. And we always go in cycles. Whenever we get down or something in life gets hard, we try to make ourselves feel better by buying stuff that we don’t need and that never really makes us feel any better. Then we get strict again for a while then slowly slip back into our old bad spending habits. What can we do to stop this cycle? I don’t want to say the odds are against us, but we were both raised in middle class families that made plenty of money to live confortably but our parents were still always short on cash because they always spent first, and thought about the bills and savings last. Which we easily tend to do if we’re not vigilant.
We’ve thought about switching to all cash for everything that’s not a monthly bill, but then it’s much more difficult to track what you’re spending your money on. Thoughts?

We have about $15k in credit card debt, spread among 3 cards, though we also have a couple cards that are now at 0 balance. About 10k of our CC debt is on a high-interest card (SWA Chase Visa), and we have enough available credit to, with a strategic few transfers, get it all transferred to other cards using 0% interest balance transfers. Is there any reason not to do this?

Alternatively, I talked to my Credit Union about a personal loan to consolidate it all. They suggested a car loan would carry a lower rate than a personal loan. We do not own a house, but we do fully own both our cars, a 2010 Honda Fit and a 2012 Prius. But why do this and pay interest when I can get it all onto 0 interest cards and chip away on it as fast as possible there?

One of the cards we have with 0 balance is a Chase Sapphire. You get good rewards with it, but we’ve stopped using it (cause we’d rather get SWA miles) and paid it off totally. You can’t transfer balances directly from one Chase-owned CC to another. So since the Sapphire has a $100 annual fee, I need to either
A)   Close it, or
B)   Transfer balances to it from our Citi and/or Discover card

Finally, I still have $32k in student loan debt. I’ve been paying the minimums since I graduated, so those balances have been dropping, albeit painfully slow. Started out with like $43k after I graduated. 12k of that is a Discover student loan at 3% interest. The rest are various federal loans at 4-8%. I’m thinking about consolidating the higher-interest federal loans with SoFi, Earnest, or the like.

We also have $12k in savings that we’d like to keep as an emergency fund / hopefully future partial down payment on a house. Should we move some or most of it to a CD or money market? It’s a big enough amount to make me antsy about letting it sit there without any growth.

Finally, we do have some investments, all in the form of 401(k)s or rollover IRAs from previous jobs’ 401Ks.  I put the minimum in that each paycheck to get the employer contribution. I put in 4% of my salary, and they put in 1%. Definitely not great compared to other employer 401(k) plans I’ve seen and been a part of, but still I think an automatic 25% return is worth deferring some debt payment for.

We’ve also both had a bunch of odd digestive health problems pop up in the past couple years that we’ve been dealing with. A lot (most?) of the test and treatments have not been covered by our wonderful mandatory health insurance, even though we pay $5,150 per year for health insurance for the 2 of us. Several hundred dollars for another test or cocktail of supplements and medications every few months does not help the savings or debt paydown rate. But we really want to get our health back 100% before starting a family.

What should we do with the CC balance, student loans, and bugeting?
What other thoughts, comments, or advice do you have for us?
Thanks for sticking with me if you're still reading

justajane

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See what others say, but if it were me, I would take a large chunk  of that 12K you have in savings and put it towards those credit cards. Highest interest first, or wipe one out altogether and close the account.

It sucks, but if you're struggling to break your addiction to spending and carrying a credit card balance, I think all-cash is the best choice for you. Yes, it's harder to track your spending, but clearly it's not impossible. And the first step towards better financial health is to not carry credit card debt. Set a goal. Have you and your wife go all-cash for, say, one month. 

pinkfloyd4ever

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Thanks justajane. We will give all-cash a try and pay down some of our debt with the savings.

anyone else have any thoughts?

patchyfacialhair

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I've never used it, but some folks like the Every Dollar app that Dave Ramsey's team put out. Basically assigning your paychecks to bills before the month begins "giving every dollar a job" or something like that.

At least you're taking baby steps at this point. It's easy to get "savings envy" from being involved in this forum, but do try to stay rooted in reality. You'll find that as the months progress, things get better and better and before you know it you'll be well on your way to early retirement.

secondcor521

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You're at least $52K in debt on a $65K salary.  You have a pretty big debt problem if you ask me.  It'll probably take you 18 months to 2 years to clean up your financial life and that's assuming you attack it with full on intensity.

You need to focus on the basics and prioritize.  Lots of folks here will denigrate Dave Ramsey and I don't agree with everything he says, but his seven baby steps will serve you well mainly by focusing on one step at a time rather than many things at once (which is what you've been doing and look where you've ended up).

Step 0:  Vicious LBYM.  This probably means cutting up your credit cards (yes, including the SWA one) and stop using them.  It means canceling the Chase Sapphire with the $100 annual fee - you're not at the point where you're ready for that.  It means realizing that spending doesn't make you feel better (does your wife realize this too, or just you?).  It probably also means getting a (possibly partially or completely new) circle of friends who accept you for being frugal rather than encouraging you to spend money on stuff that you don't value.  It probably means you and your wife both should be working full time if not time-and-a-half and having garage/yard/tag sales on the weekends.

Step 1:  $500 emergency fund.  You have $12K.  Check.  This means $11,500 should go to step 2 tomorrow.

Step 2:  List your debts, smallest to largest.  Don't worry about interest rates, length of the loan, or sorting by category.
 Just list them all, smallest to largest.  (List the school loans individually, not as a lump sum.)  Pay minimums on all of them except for the smallest, which you attack with all your LBYM extra money.  When that's gone, snowball that to the next debt.

...Well, you can Google them and find the rest, or get his Total Money Makeover book from the library and read it.  The point is that if you do things in order and one at a time, you will gain traction and begin to see progress, and that will create additional motivation to do even more.  You start with skipping a Starbucks to put $5 more on a $500 student loan debt, and by the end you're throwing a $10,000 bonus at your mortgage and not even blinking.  BTDT, got the t-shirt.

Other opinions:

Your wife should figure out what she's making per hour on the business.  It is likely less than minimum wage and with more stress.  If so, she should quit and go get an easy minimum wage job (working at a bookstore or something).  Stress might be causing abdominal issues, too.

I second trying EveryDollar.  It should be about the right level of simple for your current situation.  It's also free.  I wouldn't do all cash - checks and debit cards are fine, IMHO.  But you and your wife should set a budget ahead of time and agree on it together, and then hold each other accountable to the budget - if it's not in there, it doesn't get spent.  If you and your wife can't get on the same page with a budget, then you may want to get some help.

If you want to shift stuff around to a zero percent interest card, that's probably OK as long as you don't fool yourself into thinking you're doing much to solve the problem and as long as you've got a carefully thought through plan for what happens if you get to the end of the zero percent time period and can't refinance the debt.  Your main focus should be vicious LBYM and attacking the balances (step 2 above).

Consolidating loans, either onto a car loan or into fewer student loans, is also not doing much unless the interest rate is dropping quite a bit on quite a bit of loan amount.  Figure out how much interest you're saving after taking into account any loan origination fees and your time.  Then go back to vicious LBYM and attacking the balances (step 2 above).

Do not move the cash to a money market or CD.  At today's rates, you'd be earning maybe 3% taxable, at the same time you're paying 8% and maybe more on your other debts.  You're paying 5% a year to have the illusion that you have a house down payment.  You don't, sorry.  Clean up your debts first, then save up an emergency fund, then save up a downpayment, then buy a house.  If you try to get a house sooner, you're just juggling more balls and you're already juggling enough as it is and not getting ahead.

Besides trying to reduce stress (which I think will help a lot), do the basics for your health that you can do on your own:  drink plenty of water, eat some yogurt, go on a 30 minute walk every day, make sure you're eating healthy food, make sure your relationship is nurtured.

Good luck!

pinkfloyd4ever

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Wow thanks for all that secondcor.

Hah Big cattle, no hat. I like it. I just listened to the audio book of The Millionaire Next Door.

One question: what does LBYM stand for?

Cool I have Total Money Makeover in my list of audiobooks in the que on Hoopla. I’ll start listening to it next. Btw, For those who aren’t familiar with it, Hoopla is an app that lets you watch/read/stream audiobooks/ebooks/movies/music for free through the Public library. The selection of content available on the app isn’t the greatest but it’s free and there is some decent content on there.
« Last Edit: September 01, 2018, 07:54:39 AM by pinkfloyd4ever »

feelingroovy

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Just wanted to second what secondcor said.

LBYM is Live Below Your Means.

talltexan

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A lot of people on this forum criticize Dave Ramsey, but I think your situation is the one that he is basically perfect for.

The criticisms you find here have more to do with: using smart debt (student debt or mortgage debt), paying off the mortgage on your home rapidly instead of utilizing the tax-subsidies of retirement investing, and not relapsing into consumerism once you're wealthy.

pinkfloyd4ever

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I started listening to Total Money Makeover... oh my god. I don’t think i can handle it. The way the narrator talks drives me totally insane. I need to find a different version that’s narrated by someone else.

I’m not sure if it’s actually Dave Ramsey reading it. But if so I hope i can separate the message from the nails-on- the chalkboard irritation that his speaking style causes me
« Last Edit: September 01, 2018, 10:03:57 AM by pinkfloyd4ever »

Finances_With_Purpose

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It sucks, but if you're struggling to break your addiction to spending and carrying a credit card balance, I think all-cash is the best choice for you. Yes, it's harder to track your spending, but clearly it's not impossible. And the first step towards better financial health is to not carry credit card debt. Set a goal. Have you and your wife go all-cash for, say, one month.

This. 

I recommend you keep a decent emergency fund - say $5k-10k - but beyond that, apply everything to debt. 

I agree to have your wife evaluate her hourly wage.  If it's too low, drop that job and get a job that will at least pay her more. 

Third, it may help you to slow your life down.  Digestive issues can often be stress-caused (doesn't mean yours are, of course - I'm not a doc), and you may find it easier to not go on spending binges if you chill out and lower your stress level.  Get rid of extra activities and obligations. 

You can get a savings account at Ally or other places that'll pay some interest on your emergency fund. 

Spending is your #1 issue, so tackle that first and hardest.  The rest will come along eventually.  Find ways to manage your spending.  Live on cash.  Cut up the credit cards. 

Pay more on your highest-interest debt (or do your very smallest debt first) until it's paid, then move down the list.  I recommend putting all your debts on one spreadsheet (like this one) so you can see and track them.  Use it as motivation.  See how much interest per month you're knocking off, or per day even. 

If you need motivation, take the Dave Ramsey course - they likely offer it in your area.  It's good on exactly these types of things. 

As for debts, you may be able to lower your rate a little by converting your credit card debt into a car loan or refinancing your student loans (possibly).  But it's more important to get the spending problem handled. 

Stop the bleeding, then figure out how to improve the rest.  It will be different and it will be difficult - you will be delaying gratification finally - but it's the only path towards a house. 

Right now, you're spending (10? 15?)% per year on every dollar you spend (where the % is the % on the highest-rate debt you have).  You could have used that dollar on your debt instead. 

Until you're out of debt, put the house plans on hold.  Get your spending figured out, your debts will go down, and then you'll be in a place to evaluate saving for a down payment. 

It sounds like you see the problem, and listing your debts may help you evaluate where you stand take full stock of the problem. 

As with all big issues, tackle one item at a time.  For now, that item is spending.  Once it's tackled, then circle around to consolidating debts or whatever else. 

englishteacheralex

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Yeah, this case study is textbook Dave Ramsey. I second the advice to sign up for the Financial Peace University class. I helped facilitate the class  twice, even though I disagree with his advice for the upper levels of personal finance management. It's been 10 years since I took the class myself, and it made a big difference for me.

getwiththeprogrammer

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I'm surprised everyone is so down on the business. Maybe I'm just naive, I don't have any experience running a business, but it sounds pretty impressive to me. As someone sorely tempted by $5 coconut water I know there is money to be made at whole foods.

It's obviously a big risk, and a bit of a run before you walk situation given you don't have your personal finances in order. But if it's possible to tighten up the way the business is run, much like you are attempting in your personal life, there's likely more upside there than in a minimum wage job, not to mention life satisfaction. Of course realistically I have nothing to base that claim on, and it's hard to honestly evaluate a labor of love. But I wouldn't immediately drop it just because it isn't producing much, if any, cash right now.

Personally, I'd get involved. If I believed in it and saw potential, I'd help out any way I could on nights and weekends. If not, I'd try to convince her to get out now rather than drag it on for another year.

Laura33

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When the theory is easy but the implementation is hard it usually means there are a lot of “shoulds” involved - a lot of unstated expectations about what you “deserve,” about what kind of lifestyle you “should” have because you work hard, etc.  You just are trying to accomolish too many things at once, and you can’t afford all of that at once - you need to slow your roll.

The business:  this may be a great growth opportunity, or it may be a hobby; we don’t have the information to tell.  But the reality is that it is costing you a significant salary - your wife is basically working for free right now.  If growing the business is a top priority, then you need to still be living like a student to fund it.

The student loans:  you guys made a very common choice to mortgage your future to pay for your education.  This may well have been a good choice, if those loans enabled you to earn more money long term.  But the problem is that you have to pay for that choice before you inflate your lifestyle to that new salary, or add on new priorities (like, say, quitting the job those loans got you to start a business).

A house:  really?  In a word:  no.  You need to pay off your past consumption choices before you take on another one.

But that is all water under the bridge.  So how do you dig out?  Some suggestions:

1.  Keep a minimal emergency fund and throw everything else at the highest-interest CC - that is bleeding you dry.  Cancel any card with a fee.  Absolutely take advantage of any 0% balance transfer offers, IF it’s also zero fee.  Whatever you do, do not take out a secured loan to pay them off - you spent that money on crap, and now you are going to put your paid-for cars at risk?  What would happen if you got laid off - could you even get by on one car if yours got repossessed?  Do not risk more than you can afford to lose, just to get out of your hole a little quicker.  Honestly, if paying them off hurts a little more, that is a good thing:  sometimes people need to feel the pain of digging out of debt to really “get it.”  Work on getting it done efficiently, instead of “I gotta get these payments down ASAP so I can free up room in the budget to buy more crap.”

2.  Go to all-cash - literally put your credit cards in a block of ice in the freezer.  You aren’t “trying” to cut spending - you ARE cutting spending, because you don’t have a choice.  The problem with cards - even debit cards - is that the spending is invisible, so you just don’t “feel” it as the money trickles away.  Why do you think that Dave & Busters and those kind of places have all gone to cards?  This is especially important when you are trying to get your spending under control: you need to feel it when you spend.  And sometimes you need that kind of artificial poverty to spur creativity - what do you do when it’s 4 days to payday and you’re out of milk and bread (or whatever)?  Having to make those kinds of choices will help you learn to make smarter choices - e.g., menu planning so you can minimize food waste, focusing your entertainment on things that are meaningful instead of “it’s Thursday and I don’t want to cook,” or whatever.

3.  Refinance the student loans if you can get a better rate.  Throw the savings at the high-interest CC debt.  If you do manage to transfer your CC debt to a 0% card, make sure to pay that off before the 0% rate expires.

4.  Recognize that you are going to be in hunker-down mode for another year, until either your wife’s business starts to turn a profit or you shut it down.  Accept it.  This is a short-term sacrifice that you guys have made to take the risk on her new businesss.  Target getting your CCs paid off by that same date.  Continue contributing to the 401(k) to the match.  Then live on the rest.

5.  A year from now, you will likely have more clarity.  You should be CC-debt free.  You will have a more sustainable spending level based on your cash.  And you will have a decision whether the business is a go or not.  That is the time to plan your future life.  If you want FIRE to be an option, you need to max out the 401(k)/HSA ASAP.  How do you choose to balance FIRE against the desire for a house, and/or the desire to have a fancier lifestyle now?  Do you want kids?  If so, how many and when?  Start having those conversations now so your goals and priorities are aligned and you are ready to hit the ground running.

Good luck!


CrustyBadger

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I know start ups can be slow to make a profit, but don't people usually work at least a part time salary job until they are earning something from the business?   It's crazy busy working a job and a half, but it's what people need to do until their business is up and running.  Is there any way your wife can go back to part time at her old job for another year, until your credit card debt is gone?  Or pick up more work a different way?   Or could you pick up some extra work to pay down that debt?  To pay off your credit card debt in a year you'll want to paying $1200+ a month.  To do that on your current will be really hard.  You need more income.

To really reduce spending I recommend switching to a weekly cash only system for variable expenses like food, entertainment, clothing and grooming, and gifts.  I was very motivated by watching the Canadian TV show, "Till Debt Do Us Part" on Amazon Prime (of course I see you have cancelled your Prime membership so that doesn't do you any good now.)  The host interviews couples who are in debt and sets up a spending plan for them that helps them get spending under control.  She uses a weekly cash system and the couples invariably say that was the best part of the program.

If you are sending $1200/month towards CC debt (or student loans) it becomes REALLY EASY to track your cash spending.  Because you aren't spending anything, because you have nothing to spend.  It kind of doesn't matter what you are spending money on anymore.  If you only have $30 a month for entertainment and gifts, and you spend it on something, you know that's all you spent because you have no more cash for "entertainment".