Author Topic: Reader Case Study-recently divorced, climbing out alone now  (Read 5269 times)

onlyuptome

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Reader Case Study-recently divorced, climbing out alone now
« on: January 23, 2015, 03:16:32 PM »
I just got out of a 12 year marriage, and was awarded about $20k of the debt.  But I also got most of the assets.  So I need some advice on how to utilize my assets to neutralize the debt so that I can plan for my own retirement ASAP.  A little about me:  I'm 40 years old with four kids aged 7-16.  I am a Registered Nurse in the midwest and earn roughly $55k/year gross.  I participate in a 403b plan at 4% to achieve the employer match. Heres a breakdown of my expenses.

Mortgage (tax and insurance incl)                       $950    remaining balance-$132000
Car loan                                                            $250   remaining balance-$6000
Personal loan to finish basement in house            $374    remaining balance-$3500
Credit card debt                                                 $200   remaining balance-$2500
Student loan debt                                              $125   remaining balance-$9000
Utilities (water, trash, electric, gas)                     $225
Internet                                                             $45
cell phone                                                         $160 (I got locked into this before I found MMM, not sure I can change it now)
kids school tuition                                              $125 (committed for the rest of this school year, may be eliminated for next year)
Car insurance                                                    $200 (I have a teen driver)
Food/Gas                                                          $750

Totals                                                              $3630 per month

My paychecks if I don't work over time are roughly $1700 every two weeks.  I get $800/mo child support, so approximately $4000/mo of income.  So I'm current on everything and I even have some to spare.  I am attacking all the debt like my hair is on fire.  If I change nothing, the personal loan will be paid off by October, and the Credit card shortly after that (both those pieces of debt have relatively low interest rates at under 6%, still not good I know, but compared to my ex who has credit debt at 25%, I feel better about it). 

My assets include the house with a freshly finished basement, which presumably has increased the overall value and gotten the house out from underwater and I don't have to sell or refinance it until the end of 2016 per the divorce agreement.  I also have a 403b through my employer which has about 23k and an HSA with a few thousand. 

So my question for advanced mustachians is this:  Would it be a good idea for me to borrow from my 403b in order to pay off the credit card and personal loan?  All interest paid on a 403b loan goes back in to my own 403b and I am still allowed to contribute while the loan is outstanding.  If I borrowed $6000 and paid it back over 10 months (the term left on the personal loan) then my paychecks would be $600 smaller, but that's what I'm paying toward those anyway.  This seems like a good plan to me, but I wondered if anyone notices a flaw that I don't at the moment.  There would be an added benefit of getting my ex off those debts as well, untangling us a little bit more. 

Edit to add more info:

I have been working overtime whenever I can, but I am reluctant to overdo this in the event that ex decides to have the child support (CS) re-evaluated and they determine I make too much money or something.  I have considered reducing what I contribute to the HSA ($130/pp currently) to increase my income until the debt is gone, but I get nervous about needing that money for actual healthcare costs.  The out of pocket max is $8000, and I'm considerably short if catastrophe happened.  I have been considering selling plasma as a source of extra income also.

The interest rate on the credit card is 6.25%, the loan rate is 5.99%.  I have two student loans, one at 4.75% and one at 5.75%.  My car loan is 2.25% and that is on a 2006 toyota sienna.  Since I don't really have any spare cash to buy another car outright at the moment, my plan there was to pay the van off and keep driving it until I do have cash, and then get a smaller more fuel efficient car.  And I have been hounding the teenager for months to get a job, but his motivation is low.  And his grades suck, so I feel like if he's going to spend time at something it should be homework, but yes, he needs a job.  As far as the CS going down in a few years goes, I agree, I need to plan for that now.  I really hope to be debt free by the time that happens, I would have way more extra income to offset that decrease.  But I also hope to be downsizing things as we move along, so that my expenses are lower too.

I had not considered the property tax going up.  Thanks for reminding me. 

PS, I also ride the bus to work several times a month to avoid driving more.  I get a free bus pass from my employer. I feel very badass when I do.  :)
« Last Edit: January 23, 2015, 04:26:13 PM by onlyuptome »

Future Lazy

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Re: Reader Case Study-recently divorced, climbing out alone now
« Reply #1 on: January 23, 2015, 03:35:57 PM »
Borrowing from yourself and paying it back means you're sacrificing 10 months of growth on the money you borrow, plus the growth of your regular contributions over that time. If you're looking to retire asap, I wouldn't recommend that. If you can continue to master your debt with the budget you have, that's a better course of action.

Your debt snowball seems like it's pretty solid, and you have a monthly surplus, so you're not treading water or anything. Just have some patience and let the snowball work it's magic!

Re: Cell Phone... How many lines is this?
Through something like Republic Wireless, if you gave everyone (you + phone for all 4 kids) the $10/mo plan with data over wifi only, that would be about $50-$60/mo, saving you at least $1200 over the whole year, maybe more. To buy their most basic phone brand new, it would be $500 to furnish everyone with phones. Would it cost more than $1200 to escape your current contract? I'd seriously consider consulting I.P. Daley's superguide on this, it was a huge savings on our part (2 adults w/ data).

Ps. Messy divorce sucks, coming from a kid of a brutal divorce. IMO, take as few financial and emotional risks as possible. Best to you moving forward!

Indio

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Re: Reader Case Study-recently divorced, climbing out alone now
« Reply #2 on: January 23, 2015, 04:01:43 PM »
Sorry to hear about the divorce. I know how hard it is to go through that and be the primary parent while working. Can you take any overtime or call to increase your income?
I would look at other areas before borrowing from retirement accts.
What's the interest rate on the credit card, car and student loan? I'm guessing credit card is highest so I would target that first. Can your teenage driver get a job to cover the insurance?
If your child support goes down when your 16yo turns 18, you want to start planning for that now. If the car isn't fuel efficient or it still has a high trade in, you may want to get rid of it and sell it for a car that you wont have a loan. That would free up $250 you could put toward the other debts. I know everyone says they don't want to switch to a car that might now be as safe, or will require too much in repairs because it is older, but that may help you turn things around quickly.
Also, with finished basement will your property taxes go up? If so, figure that into your budget.
I would also try to negotiate the tuition and ask for a hardship discount or if they have any scholarships available. Tell them your circumstances have changed with the divorce and ask if they can help.
Good luck!

onlyuptome

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Re: Reader Case Study-recently divorced, climbing out alone now
« Reply #3 on: January 23, 2015, 04:23:31 PM »
Yeah it's been a rough year.  Thanks for the feedback so far.  The divorce has been relatively amicable so far.  We've always been pretty good at holding it together where our kids are concerned.  And I read recently on the blog that living well is the best revenge so that's my M.O. right now.  I'm out to prove that I'm just fine, and I will even thrive in my new circumstances. 

I have been working overtime whenever I can, but I am reluctant to overdo this in the event that ex decides to have the child support (CS) re-evaluated and they determine I make too much money or something.  I have considered reducing what I contribute to the HSA ($130/pp currently) to increase my income until the debt is gone, but I get nervous about needing that money for actual healthcare costs.  The out of pocket max is $8000, and I'm considerably short if catastrophe happened.  I have been considering selling plasma as a source of extra income also.

The interest rate on the credit card is 6.25%, the loan rate is the 5.99%.  I have two student loans, one at 4.75% and one at 5.75%.  My car loan is 2.25% and that is on a 2006 toyota sienna.  Since I don't really have any spare cash to buy another car outright at the moment, my plan there was to pay the van off and keep driving it until I do have cash, and then get a smaller more fuel efficient car.  And I have been hounding the teenager for months to get a job, but his motivation is low.  And his grades suck, so I feel like if he's going to spend time at something it should be homework, but yes, he needs a job.  As far as the CS going down in a few years goes, I agree, I need to plan for that now.  I really hope to be debt free by the time that happens, I would have way more extra income to offset that decrease.  But I also hope to be downsizing things as we move along, so that my expenses are lower too.

I had not considered the property tax going up.  Thanks for reminding me. 

I also am already getting  a ton of help from my kids schools.  The tuition obligation for the year (4 kids in private school) is $3000.  That represents about $18000 of assistance.  That was negotiated last summer when the divorce started. 
« Last Edit: January 23, 2015, 04:36:50 PM by onlyuptome »

caliq

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Re: Reader Case Study-recently divorced, climbing out alone now
« Reply #4 on: January 23, 2015, 04:31:28 PM »
And I have been hounding the teenager for months to get a job, but his motivation is low.  And his grades suck, so I feel like if he's going to spend time at something it should be homework, but yes, he needs a job. 

Stop paying for his insurance and take away his license so he can't drive uninsured -- tell him if he wants it back he has to pay the insurance?  At 16 surely he should realize there might be sacrifices required following such a major change in circumstances. 

As someone who was pretty recently an unmotivated teenager, I'm pretty confident that he won't spend time on studying, regardless of his work situation, unless you're prepared to do some serious life restructuring that he'd probably be really resistant to.  I don't think anyone could have convinced me to study at 16 without putting me under lock and key, and even then I might have just gone to sleep out of spite!



Indio

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Re: Reader Case Study-recently divorced, climbing out alone now
« Reply #5 on: January 23, 2015, 04:38:12 PM »
I have a 2004 Sienna and that thing is a huge gas sucker. Ive been thinking about getting a more fuel efficient car, despite the low fuel prices now. KBB says mine is worth about $11k so yours is definitely more than that. Selling while gas prices are low is the best time to get rid of it.
 OT is never guaranteed so it would be unusual for a court to base a CS decision on that but check with your lawyer.
Divorce is never easy on kids, especially the older ones that are more aware of what is going on. If the grades were higher before the divorce, you may want to consider counseling.
How much equity do you have in the house? A heloc might have a cheaper interest rate but you need to figure out the payoff timelines to see if it makes sense. It might also give you piece of mind to have it in case you need to cover emergencies.

john c

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Re: Reader Case Study-recently divorced, climbing out alone now
« Reply #6 on: January 23, 2015, 04:42:51 PM »
Having an unmotivated teenager is tough, but cut the kid some slack.  His parents just divorced, and he could easily be suffering from depression or similar, in addition to natural chuckle-headed-ness.  It may not be in the cards for the OP, but have you considered getting some counseling for your kids?


onlyuptome

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Re: Reader Case Study-recently divorced, climbing out alone now
« Reply #7 on: January 23, 2015, 04:49:02 PM »
When we were valuing our assets for the divorce the sienna was valued around 6K.  It's a very basic model so I am pretty even as far as debt to value goes.   

I would guess that with the basement done now there is maybe 15-20K of equity.  Housing has been recovering slowly here over the last few years.


And my teenagers grades have never been good unfortunately, I can't really say that they're any worse now.  And he actually seems to be handling the divorce fairly well from what I can tell.  No other rebellious behaviors have started up. I have considered counseling for them.  But with my HSA plan I pay out of pocket for all that, and to multiply that by 4 is scary.  I am fortunate that the school my kids attend is very small, so they get lots of attention from their teachers and I talk with all of their teachers regularly about how they are doing (with the exception of the high schooler I guess).  The high schooler is involved in church youth groups and spends time on a monthly basis with the youth pastor and I know they have had conversations about how he is doing with the divorce.  So I'm being as vigilant as I can be watching for signs that they aren't coping well with the support we already have in place.  And if it looks like they would benefit from more professional help, we will definitely pursue it.
« Last Edit: January 23, 2015, 04:50:49 PM by onlyuptome »

Indio

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Re: Reader Case Study-recently divorced, climbing out alone now
« Reply #8 on: January 23, 2015, 04:59:28 PM »
It sounds as if you have a good handle on things. Congrats! I know it isn't easy, but remember that it does get easier as everyone adjusts to the new reality.
I regularly sit down with my kids and ask them to brainstorm ways to save or earn more. When they feel part of the process, they are motivated to turn off lights, not waste food, take shorter showers, wear clothes more than 1 day until they are really dirty, etc.

Catbert

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Re: Reader Case Study-recently divorced, climbing out alone now
« Reply #9 on: January 23, 2015, 05:01:46 PM »
A few random thoughts...

I would not borrow from your 403b to pay off any of the loans.  The interest rates on your debt are all pretty low and it's not worth the risk (e.g., penalties if you leave your job and can't immediately pay back).

With the exception of your car loan your loans are all within a pretty narrow range of interest rates (4.75 - 6.25%).  I would work on the smallest balance first to give yourself some breathing room.  What's your credit like?  If you get those 0% interest transfer offers think about taking one.  Just transfer what you know you can pay off during the teaser period.  Be aware of the initial cost of the transfer - it may not pay to do it.

Definitely take your children out of private school.  The only except is maybe the 16 y.o.  - if he really wants to stay do want you can to make that happen .  Maybe that would motivate him to get a job for the summer.

How's the housing market in your area.  Think about re-fing now if you want to stay for the long haul.  If your ex gets 1/2 of the profit from the sale, by re-fing now    he won't get the benefit of your payments for the next year or the appreciation in overall value.

mm1970

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Re: Reader Case Study-recently divorced, climbing out alone now
« Reply #10 on: January 23, 2015, 05:08:12 PM »
And I have been hounding the teenager for months to get a job, but his motivation is low.  And his grades suck, so I feel like if he's going to spend time at something it should be homework, but yes, he needs a job. 

Stop paying for his insurance and take away his license so he can't drive uninsured -- tell him if he wants it back he has to pay the insurance?  At 16 surely he should realize there might be sacrifices required following such a major change in circumstances. 

As someone who was pretty recently an unmotivated teenager, I'm pretty confident that he won't spend time on studying, regardless of his work situation, unless you're prepared to do some serious life restructuring that he'd probably be really resistant to.  I don't think anyone could have convinced me to study at 16 without putting me under lock and key, and even then I might have just gone to sleep out of spite!
This is what I would say.  Take your kid off the insurance and the car and don't let them drive.

When I was 16 my parents were divorced and my mom and I had no money (and no child support).  She had me on the insurance BUT I was a straight A student and I got a job as soon as I could.

You cannot afford to have your 16 yo drive.

Definitely check out IPDaley's cell phone info, I bet you can save money here.

MayDay

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Re: Reader Case Study-recently divorced, climbing out alone now
« Reply #11 on: January 23, 2015, 05:10:01 PM »
All things considered, you aren't in a horrible position.

I agree to work some OT, but don't go crazy.  You obviously need time to do home and parenting related tasks.  Do you have time when the kids are with your ex that you can do stuff like do some bulk cooking, go to garage and thrift stores, etc, to help keep costs down?  One thing I don't see shown in your budget is kids clothes, shoes, and activities.  Maybe this is something your x covers.  Or is it included in groceries/gas?

If your kids are with your x some of the time (half the time?) your food costs might be too high.  If that budget includes feeding them all the time, it is reasonable.

I don't think your school fees are unreasonable at all, but that is definitely something where if you can't negotiate the same deal again for next year, they need to go into public school.

How much are you driving?  Are there car trips that you can cut?  Can you walk or ride bikes to some places? 

I agree with the PP's who suggested that if your son wants to drive AT ALL, he must get a job.  Of course, if you are depending on him to drive the younger kids around, your hands are tied. 

onlyuptome

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Re: Reader Case Study-recently divorced, climbing out alone now
« Reply #12 on: January 23, 2015, 05:14:14 PM »


Definitely take your children out of private school.  The only except is maybe the 16 y.o.  - if he really wants to stay do want you can to make that happen .  Maybe that would motivate him to get a job for the summer.

How's the housing market in your area.  Think about re-fing now if you want to stay for the long haul.  If your ex gets 1/2 of the profit from the sale, by re-fing now    he won't get the benefit of your payments for the next year or the appreciation in overall value.

After this school year he only has one year left.  I can't make him change schools for his senior year.  The district I live in is not the worst, but it's not great either.  I would be fine with them in public school until about 6th grade, which my second oldest will be next year.  So by the time I have to sell or refi, my oldest will be graduated and it will be a great time to move to a better school district.  I do not have to share any profit from the sale of the house.  Any profit or loss is totally mine. 

The crummy part about selling vs staying is that I know this house now.  It's got a new roof, new basement, new kitchen, I like my neighbors, it's easy biking distance to grocery stores, parks, bike trails, hardware stores, public transit in easy reach if I want to use that and there's even a hospital within walking distance that I could work at if I wanted to change jobs to save money that way.  It's a pretty great location, aside from the schools.  And their father will have opinions about their school beyond 6th grade too, as he should.  But he moved kind of far away, in that it is not feasible to bike the distance,  and so if we switched to his district then all my convenient location features at this house will go away when I have to drive them to school far away all the time. 

onlyuptome

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Re: Reader Case Study-recently divorced, climbing out alone now
« Reply #13 on: January 23, 2015, 05:22:18 PM »
All things considered, you aren't in a horrible position.

I agree to work some OT, but don't go crazy.  You obviously need time to do home and parenting related tasks.  Do you have time when the kids are with your ex that you can do stuff like do some bulk cooking, go to garage and thrift stores, etc, to help keep costs down?  One thing I don't see shown in your budget is kids clothes, shoes, and activities.  Maybe this is something your x covers.  Or is it included in groceries/gas?

If your kids are with your x some of the time (half the time?) your food costs might be too high.  If that budget includes feeding them all the time, it is reasonable.

I don't think your school fees are unreasonable at all, but that is definitely something where if you can't negotiate the same deal again for next year, they need to go into public school.

How much are you driving?  Are there car trips that you can cut?  Can you walk or ride bikes to some places? 

I agree with the PP's who suggested that if your son wants to drive AT ALL, he must get a job.  Of course, if you are depending on him to drive the younger kids around, your hands are tied.

Their clothing is covered by me, their extracurrculars are split by us 50/50.  They are into soccer, which is fairly cheap and not year round.  They are only allowed to do one extra at a time, so that I don't have to juggle 12 activities between four kids. 

The teen driver is not required to drive the others around, although he does occasionally and it is a huge help. It is also a huge help that he can sometimes get himself places, like when he has something going on past when the others go to bed.  Especially now that I am the only other adult in the house, if I had to pack everyone up to pick the teen up at 10pm it would ruin everyone's day the next day.  And I guess I have felt like it would be unfair to tell him he needs to be home by 8 just because the other kids have to go to bed. 

But I bet if I did tell him that his job hunting would pick right up. 

GizmoTX

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Re: Reader Case Study-recently divorced, climbing out alone now
« Reply #14 on: January 23, 2015, 05:37:50 PM »
Personally, I'd insist on better grades for driving privileges, even if it means he'll miss some activities. Push for a summer job rather than during the school year. What are your teen's plans after HS?

onlyuptome

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Re: Reader Case Study-recently divorced, climbing out alone now
« Reply #15 on: January 23, 2015, 06:34:29 PM »
Personally, I'd insist on better grades for driving privileges, even if it means he'll miss some activities. Push for a summer job rather than during the school year. What are your teen's plans after HS?

He really doesn't have any.  He really thinks he can get rich by making you tube videos.  I think we've mocked him enough over the years that he knows he should have a back up plan, and he kind of thinks the local community college would be a good option.  But aside from that, he has no clear direction about what he's actually going to do when he leaves high school.

Future Lazy

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Re: Reader Case Study-recently divorced, climbing out alone now
« Reply #16 on: January 23, 2015, 07:12:21 PM »
Personally, I'd insist on better grades for driving privileges, even if it means he'll miss some activities. Push for a summer job rather than during the school year. What are your teen's plans after HS?

He really doesn't have any.  He really thinks he can get rich by making you tube videos.  I think we've mocked him enough over the years that he knows he should have a back up plan, and he kind of thinks the local community college would be a good option.  But aside from that, he has no clear direction about what he's actually going to do when he leaves high school.


I agree with GizmoTX. Money might be tight, but you're not starving or anything. I would insist on B+ grades to have the privilege to drive. I would also talk to him a lot about the actual cost of driving the car around.. Maybe instead of making him pay for insurance, simply make him pay the IRS cents per mile ($0.51?) for all personal car usage. ;)

Re Youtube Star - A major in marketing and a minor in film studies would go along way toward this! Or maybe an AA in New Media Journalism? Maybe rather than mock the idea, come up with ways to incentiveize college based on his interest. If he goes to college and really works toward being an internet celeb, great! If he goes to college and ends up picking a different (more practical?) path after 1-2 years of hard college level work, also great! As long as he's moving forward of his own accord, you won't have anything to worry about.

GizmoTX

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Re: Reader Case Study-recently divorced, climbing out alone now
« Reply #17 on: January 23, 2015, 07:14:50 PM »
Does the community college have any film programs or other trades he could try out?
Is he planning on living with you after HS?
This could be rough, & it sets the expectations for your other children as well.

onlyuptome

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Re: Reader Case Study-recently divorced, climbing out alone now
« Reply #18 on: January 23, 2015, 07:30:27 PM »
The community college does have lots of trade programs.  I know that he really wants to move out after HS, but he also doesn't have a realistic grasp on what that will actually cost him.  However, I have started talking to him about some of the principles discussed at MMM and the theory sounds good to him. But he's stuck on the materialism.  Right now he sees a job as a means to 'stuff' rather than to FI.  But at some point, economic reality will teach him lessons better than I can and he may just need to learn some things the hard way.  Which pains me as his mother, but I can't force him to do what I think is right for too much longer. 


GizmoTX

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Re: Reader Case Study-recently divorced, climbing out alone now
« Reply #19 on: January 23, 2015, 08:05:12 PM »
You might have him price out what he thinks it will cost him to be on his own after HS. Then show him what is reality. This is always a real eye opener for teens & should motivate the summer job. If he then decides that the House of Mom is a better choice, you should be prepared with what he will pay you if he's not pulling his weight in classes. You're not trying to keep him at home, but to incentivize him to make real progress with a trade or job instead of freeloading. Who will pay for CC courses?