Author Topic: Reader Case Study - $231k in debt and need help!  (Read 47674 times)

MoonLiteNite

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Re: Reader Case Study - $231k in debt and need help!
« Reply #50 on: January 17, 2017, 04:05:01 AM »
To keep a simple reply.
Nice work on trying to make cuts, you can always do better though. Sell cars, downsize house, move closer to work, ect...

Next, you need to get those CC paid off ASAP.
The math way is to make min payments on all, execpt the highest %, and pay ONLY into that one. Any loans that you can "pause" and not paying anything, do that. If you can pause your student loans, personal loans, or even pause or lower min payments to some CC, do it! Just start paying the highest APR.
Then i saw others saying it, Dave Ramsey's way, by paying off small debts FIRST. If your problem is being motivated then maybe this method is for you. By the numbers it is stupid, but for some people just crossing off the debts every month can really help keep you going.

And mad props for NOT wanting to screw over your lenders!

« Last Edit: January 17, 2017, 04:15:36 AM by MoonLiteNite »

Bee21

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Re: Reader Case Study - $231k in debt and need help!
« Reply #51 on: January 17, 2017, 04:33:29 AM »
You can't do it alone. Take a deep breath and show this to your wife. Ask her to suggest solutions. It will be ugly, you will have to make some serious changes to sort this out. Sell the cars, sell the house. Simplify everything.

I am now really curious how did you end up in this pickle with that sort of income? You will need to tackle the behaviour problems which resulted in this. What did you buy?


MrsDinero

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Re: Reader Case Study - $231k in debt and need help!
« Reply #52 on: January 17, 2017, 05:22:42 AM »
How opposed do you expect your wife to be about getting your financial health in order?  Does she know you're on here seeking advice?
I do not think she is that opposed to getting our finances in order.  She is very concerned about our lack of saving for retirement and college for our kids.  I think I just need to show her how much in trouble we really are and that could help her get more on board.  She does not know I am on the Forum seeking advice yet.  I am fairly new to MMM and she is not aware of the blog at all.  I want to find a way to introduce her to all of it so she has a better idea of where I am coming from with all this.

Why get a van?
If my wife is ever willing to get rid of the Pilot, I am not sure I can persuade her to get a sedan.  The funny (or not so funny really) thing is we had an Altima that would be paid off in March, but traded it for the Pilot when baby #2 arrived.  You know because everyone with 2 kids just has to have a SUV.  Terrible decision!  That is one of my patterns it seems…my gut says terrible choice but I end up doing it anyway. 
You can convince her because these 2 points are related. With your current situation she can either have the fancy car or a future of financial security but she cannot have both.  She needs to decide which is more important.

Quote
60 miles each?  Why?  Do you and DW work in the same direction?
Yes, I hate the commute but would probably earn $25k less in our area.  We work around 15 mins from each other, but are on different work schedules.  However, this is something we should look into. 
Is is possible to convert the job into a telecommute job.  This would drop all commuting costs and could allow you to become a 1 car family.

Before deciding no you cannot do this, I would calculate the total cost of the commute, including the time you spend in the drivers seat. 

You still have a lot you can trim, gifts, entertainment, personal expenses, etc.

I'm a big fan of living on 1 person's income even (especially) if both spouses are working.  If I was starting at numbers like yours, I would set up a challenge for myself to get as close to paying all normal bills on 1 income, then use the other person's income to focus on debt. 


Unique User

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Re: Reader Case Study - $231k in debt and need help!
« Reply #53 on: January 17, 2017, 06:07:51 AM »


Have you heard of Dave Ramsey and The Total Money Makeover? I would suggest picking up the book and reading it.

Yes, in fact I got his book several years and listened to his show daily for a while.  One of our problems is we would get all pumped and ready to budget and attack the debt and just fall off the wagon a month or so later.  It is a bad pattern we have developed.  A big part of it is my fault…I say we are going to cut back on eating out and then a week later bring home take out or we go out.  My wife sees that and thinks well he isn’t committed so why should I stick to the Shopping budget this month and we are off to the races.  A vicious cycle we have to stop.

Learn to cook on Saturdays or Sundays.  We'll cook extra for each meal and/or prep things on the weekends so that during the week is easier.  I'm a big fan of reheating during the week, here is a good thread to look at.  http://forum.mrmoneymustache.com/share-your-badassity/made-entire-weeks-worth-of-meals-on-sunday/  I agree it is hard not to fall into the take out trap, but having a fridge/freezer/pantry well stocked with already prepped items or easy meals makes it much easier to not fall into that trap.  This forum has a ton of threads that can help you on that front. 

ltt

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Re: Reader Case Study - $231k in debt and need help!
« Reply #54 on: January 17, 2017, 06:53:26 AM »
We used to do the 60+ mile commutes when our kids were young--close to 2 decades ago.  I agree with previous poster; after a while it can be really draining; people are just so tired at the end of the day with long commutes.  We finally moved and bought a house close to where my husband's employer is located.  Now my husband has a very short 10-minute round-trip "commute" each day.  I do think it really helped us financially, as well as mentally, long-term.  Once you start paying down your credit and loans and start getting closer to financial independence, you might want to look at another job/position closer to home.  From the other posts, sounds like you can knock this debt down in about 5 years. 

As for the post on the fast food, typical meal cost to pick up fast food for the four of you is costing around $25.  The thing about fast food is that you can pretty much make the same "fast food" meal at home for half the cost.  Buy a small fryer; they don't cost very much.  You can make french fries, onion rings, whatever it is you like in the fryer.  You will need to change the oil in it regularly, but it's very handy when neither of you has the energy to cook a meal after a long commute.  Try out some of the different frozen chicken sandwiches, nuggets, etc., and see which ones you like.  Some of the frozen pizzas are fairly decent also at a fraction of the cost of what you would pay at a pizza place.  Just try them out and see which ones you like.  That way when you do find one you like, stock up on them, so you will have them for those nights neither of you feels like cooking.  Remember, baby steps.  You will eventually find ways to simplify meal prep.  Do some prepping of meats on the weekends.  Make up some soups which can be frozen.  One of the easiest types of soups to do is the "dump" soups.  If you don't want to make from scratch or simply are hindered by lack of time, simply buy several varieties of canned chili, chicken noodle soup, etc.  You can then take the cans of the chili, let's say, and dump them together, heat, and you have an easy meal.  Have a salad with it.  Leftovers go to work with you for a meal or freeze.  As you start prepping more meals at home, I do believe you will eventually switch over to homemade foods.  It will take some time to get there, but you will be on your way.  There are lots of ways to do this.


Laura33

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Re: Reader Case Study - $231k in debt and need help!
« Reply #55 on: January 17, 2017, 07:07:01 AM »
Your wife is opposed to selling your excessive McMansion?  (And yes, 2900 sqft is definitely excessive, even if you weren't drowning in debt.)

Sorry, but tough shit for her. You have both made choices that mean you can't afford that house.  Full stop.  Is she opposed to not flying to Europe 4 times a year and staying at the Ritz?  You don't get to be opposed to not doing things you can't afford.  I'd ask her to look at the budget and tell you where the money will come from if not the house.  If she can't do it (and she can't), then the house goes.  You say it's a median cost/size for your area.  That's a ridiculous rationalization.  If everyone else was heating their home by burning $100 bills, it would still be stupid for you to do it.  And downgrading to "only" burning $20s wouldn't make your actions less stupid, even though they looks slightly less asinine compared to your neighbors.

. . . .

Also, depending on the timing and terms, you could be in for an even bigger mess when that ARM starts adjusting, making all this even worse.

. . . .

This.  It's the "and" problem again - you work hard at your job and make a good income and think that means you deserve a nice house with a nice yard and two nice vehicles and manicures and [insert next want here].  But it's really an "or" -- no one can really afford everything they want, because if you try, you will find there is always something newer/better/fancier that you just have to have.  You are paying 35% interest to maintain a charade.

For me, it's the car thing - I truly cannot fathom four figures of monthly car payments - even when we were DINKs making your income, we never paid more than $300/month over a three-year term.  But YMMV - if your DW realyreallyreally loooooves having a Pilot, then something else has to go.  Like the house.

Actually, that was the discussion for a few years ago.  When you have as much debt as you do now, at those interest rates, you can't afford any of it.  You've been propping up your lifestyle for so long with high-interest debt that you really need to rethink everything - you may have to go back to living like students for a couple of years to get back on track.  Nothing can be sacred.

Also, I would assume that you only have until your mortgage re-sets to get this figured out and paid off.  I am assuming that you took the 5/1 ARM because you needed that to make the payments affordable (again, tipoff that you can't afford it).  I have trouble thinking that any regular lender is going to be willing to refinance that into a 30-year with your current debt loads, at least at any kind of normal/reasonable interest rate.  So what's your plan for when your mortgage jumps because all you can get is a subprime loan?  OTOH, if you get that debt paid back ASAP, not only will you qualify more easily for a loan, but your credit score will rise and you will get better terms.  So do you want the lose-lose or the win-win?
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Suit

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Re: Reader Case Study - $231k in debt and need help!
« Reply #56 on: January 17, 2017, 07:35:46 AM »
One thing that I wanted to point out is something that you said earlier OP, that you and your wife would be on board but then you would get take out or eat out and your wife would follow suit and not cut back. YOU are the leader! So lead. I suggest leading with expenses that are related to yourself and the household like organizing meal prepping for the week by looking at grocery store flyers for deals, doing the grocery shopping and cooking or packing freezer bags for crock pot meals and not eating out, etc. Show her that the money that you are saving the family is going to debt then it sounds like your wife will follow with fewer nail/hair appointments, shopping, etc.

dashh

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Re: Reader Case Study - $231k in debt and need help!
« Reply #57 on: January 17, 2017, 05:22:31 PM »
One thing that I wanted to point out is something that you said earlier OP, that you and your wife would be on board but then you would get take out or eat out and your wife would follow suit and not cut back. YOU are the leader! So lead. I suggest leading with expenses that are related to yourself and the household like organizing meal prepping for the week by looking at grocery store flyers for deals, doing the grocery shopping and cooking or packing freezer bags for crock pot meals and not eating out, etc. Show her that the money that you are saving the family is going to debt then it sounds like your wife will follow with fewer nail/hair appointments, shopping, etc.

This is a great suggestion and much appreciated.  I have to take the lead on this and I know she will respond and commit as well.  In fact, she will probably be as good if not better at it than I am once she sees I am finally serious about it. 

swick

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Re: Reader Case Study - $231k in debt and need help!
« Reply #58 on: January 17, 2017, 05:57:01 PM »
One thing that I wanted to point out is something that you said earlier OP, that you and your wife would be on board but then you would get take out or eat out and your wife would follow suit and not cut back. YOU are the leader! So lead. I suggest leading with expenses that are related to yourself and the household like organizing meal prepping for the week by looking at grocery store flyers for deals, doing the grocery shopping and cooking or packing freezer bags for crock pot meals and not eating out, etc. Show her that the money that you are saving the family is going to debt then it sounds like your wife will follow with fewer nail/hair appointments, shopping, etc.

This is a great suggestion and much appreciated.  I have to take the lead on this and I know she will respond and commit as well.  In fact, she will probably be as good if not better at it than I am once she sees I am finally serious about it.

This is super encouraging. Check out this threadhttp://forum.mrmoneymustache.com/ask-a-mustachian/how-to-convert-your-so-to-mmm-in-50-awesome-steps/, it is pure gold.


dashh

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Re: Reader Case Study - $231k in debt and need help!
« Reply #59 on: January 17, 2017, 05:57:24 PM »
The interest on the IRS debt is 4%, so you can list it in order around where the car payments are.

Are there any penalties in there? Do any of them qualify for First Time Penalty Abatement? All you need to be a first timer is a clean three year penalty history.

So for example, if your debt included a penalty from 2015 and a penalty from 2014, but you hadn't occurred any penalties (not including estimated tax penalties - you can have those) in 2013, 2012 or 2011, you'd qualify to get 2014's penalty removed. All you have to do is write and ask them for it.

Yes, there are penalties included in that $17k.  I will definitely look into the abatement as I was unaware of that option.  Thank you!

dashh

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Re: Reader Case Study - $231k in debt and need help!
« Reply #60 on: January 17, 2017, 06:10:42 PM »
How far are you into the 5/1 ARM?  That's a fairly concerning liability to me, especially considering the rate.  Do you know if you qualify for a 30 year fixed on that amount?

The description of buckling down followed by relapsing to your previous spending habits is why I think stabilizing your budget is imperative before you tackle the debt.  When is the last time you used the credit cards?  Your "current" budget before the revisions still has you spending more than you earn by $700/month, and the revised budget has you spending every dollar you earn on debt minimums and living expenses.

The ARM resets in 2019.  I am pretty sure we cannot qualify for a 30-year fixed at this point given my credit and DTI. 

I would be totally fine selling the house and renting to help speed up the debt elimination, but I would need to get the wife on board.

Laura33

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Re: Reader Case Study - $231k in debt and need help!
« Reply #61 on: January 17, 2017, 06:24:16 PM »
How far are you into the 5/1 ARM?  That's a fairly concerning liability to me, especially considering the rate.  Do you know if you qualify for a 30 year fixed on that amount?

The description of buckling down followed by relapsing to your previous spending habits is why I think stabilizing your budget is imperative before you tackle the debt.  When is the last time you used the credit cards?  Your "current" budget before the revisions still has you spending more than you earn by $700/month, and the revised budget has you spending every dollar you earn on debt minimums and living expenses.

The ARM resets in 2019.  I am pretty sure we cannot qualify for a 30-year fixed at this point given my credit and DTI. 

I would be totally fine selling the house and renting to help speed up the debt elimination, but I would need to get the wife on board.

This is good information!  Now you know how long your window is to clear out that pile of CC debt!
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horsepoor

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Re: Reader Case Study - $231k in debt and need help!
« Reply #62 on: January 17, 2017, 06:37:52 PM »
One thing that I wanted to point out is something that you said earlier OP, that you and your wife would be on board but then you would get take out or eat out and your wife would follow suit and not cut back. YOU are the leader! So lead. I suggest leading with expenses that are related to yourself and the household like organizing meal prepping for the week by looking at grocery store flyers for deals, doing the grocery shopping and cooking or packing freezer bags for crock pot meals and not eating out, etc. Show her that the money that you are saving the family is going to debt then it sounds like your wife will follow with fewer nail/hair appointments, shopping, etc.

This is a great suggestion and much appreciated.  I have to take the lead on this and I know she will respond and commit as well.  In fact, she will probably be as good if not better at it than I am once she sees I am finally serious about it.

This is another reason I think you need to sell your truck.  Get a decent used car and after a couple months see how she feels about getting rid of the Pilot.  Maybe try to carpool in the replacement car in the meantime and see how much it helps the gas bill.

GetSmart

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Re: Reader Case Study - $231k in debt and need help!
« Reply #63 on: January 17, 2017, 07:17:34 PM »
Quote
Loan #3   $882
CC #9   $1,000
Auto #2   $1,172
CC #2 $2279

You might consider taking $5300 from your current cash and wiping out these 4 debts.  These four equal $922 in monthly payments to snowball forward and would give you a jumpstart. 

Then you might arrange the rest in order of highest interest to lowest.  In the meantime call each card and ask for a rate reduction.  If your wife can qualify for a 0% balance transfer you should try to push the higher balance and higher rate cards to this.  The trick is to apply for several at once so as not to ding the credit rating - Discover is fairly reasonable.

It seems you could easily slash $1000 from your monthly budget by doing the things you already suggested and a few others (food, nails, no eating out, entertainment, gifts and utilities can all be cut by a fair amount - I know it seems hardcore, but that's the way I am!)  And if you slash $1078 - you now have an extra $2k to throw at the debt each month. 

To simplify things: your wife's paycheck covers the mortgage and newly slashed budget for a total of $1986 mort + $2380 expenses = $4366 - 4611 (wife's pay) leaves $245 to replenish the emergency fund.

Your entire paycheck of $5262 goes to the debt.  That would show that you're taking responsibility for it.

Also - give yourself a time limit - maybe 1 year - to be extremely frugal - by the time the year is up you
may just be so used to it that you keep going and find more ways to save. I'm sure you'll get through this - you seem to have the right mindset for it now.

dashh

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Re: Reader Case Study - $231k in debt and need help!
« Reply #64 on: January 17, 2017, 07:32:41 PM »
Quote
Loan #3   $882
CC #9   $1,000
Auto #2   $1,172
CC #2 $2279

You might consider taking $5300 from your current cash and wiping out these 4 debts.  These four equal $922 in monthly payments to snowball forward and would give you a jumpstart. 

Then you might arrange the rest in order of highest interest to lowest.  In the meantime call each card and ask for a rate reduction.  If your wife can qualify for a 0% balance transfer you should try to push the higher balance and higher rate cards to this.  The trick is to apply for several at once so as not to ding the credit rating - Discover is fairly reasonable.

It seems you could easily slash $1000 from your monthly budget by doing the things you already suggested and a few others (food, nails, no eating out, entertainment, gifts and utilities can all be cut by a fair amount - I know it seems hardcore, but that's the way I am!)  And if you slash $1078 - you now have an extra $2k to throw at the debt each month. 

To simplify things: your wife's paycheck covers the mortgage and newly slashed budget for a total of $1986 mort + $2380 expenses = $4366 - 4611 (wife's pay) leaves $245 to replenish the emergency fund.

Your entire paycheck of $5262 goes to the debt.  That would show that you're taking responsibility for it.

Also - give yourself a time limit - maybe 1 year - to be extremely frugal - by the time the year is up you
may just be so used to it that you keep going and find more ways to save. I'm sure you'll get through this - you seem to have the right mindset for it now.

Thanks for this - it is very helpful.  My mindset has changed as I am just fed up with the debt and living the way we have been living.  MMM came at the right time for me.  The debt has been weighing heavily on me for years and it is time to finally fix this. 


dashh

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Re: Reader Case Study - $231k in debt and need help!
« Reply #65 on: January 17, 2017, 07:44:15 PM »
So I have been thinking about our housing situation today.  As I have said, I am willing to sell the house and downsize.  My wife will need some persuading on this.

But assuming we can come to a consensus, would it be better to try to purchase a smaller home or just rent?  I took a look around and rents are going to be higher than buying.  If we could buy we could save ~$1k a month on our current mortgage.  If we rented a townhome we would save around $600/mo. 

I am just trying to come up with my options.  If we bought our credit union only offers 5/1 ARMs and 15 year fixed (which would not help our cashflow) so we would have to do another 5/1 ARM.  Of course this is assuming we can even qualify.  I know buying when we could not really afford it has been part of problem in the past but in this case I am just trying to maximize monthly cash flow to get out of debt faster.

Maybe the best route is to just rent, get out of debt and then actually save up a down payment for a smaller house in the future?  Just trying to brainstorm a little...

GetSmart

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Re: Reader Case Study - $231k in debt and need help!
« Reply #66 on: January 17, 2017, 07:51:34 PM »
https://www.vertex42.com/Calculators/debt-reduction-calculator.html

Hi - I just saw this calculator over on the Beatles page and thought I'd pass it on. 

I'd be surprised if you qualified for a mortgage at this level of debt.  But everything is worth a shot - might be easier to get rid of the cars first :)

dashh

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Re: Reader Case Study - $231k in debt and need help!
« Reply #67 on: January 17, 2017, 07:59:06 PM »
https://www.vertex42.com/Calculators/debt-reduction-calculator.html

Hi - I just saw this calculator over on the Beatles page and thought I'd pass it on. 

I'd be surprised if you qualified for a mortgage at this level of debt.  But everything is worth a shot - might be easier to get rid of the cars first :)

Thanks for the calculator - I actually have used it in the past to see how fast I could get out of debt.  Unfortunately we never followed through with it. 

Yeah forgot about the debt to income and agreed on the cars.


shanghaiMMM

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Re: Reader Case Study - $231k in debt and need help!
« Reply #68 on: January 17, 2017, 08:02:44 PM »
Quote
60 miles each?  Why?  Do you and DW work in the same direction?
Yes, I hate the commute but would probably earn $25k less in our area.  We work around 15 mins from each other, but are on different work schedules.  However, this is something we should look into. 

How different are we talking here? It is completely unfeasible, or merely a slight pain in the arse?

For example, do you work 7am-3pm and she works 9am-5pm? Because if it is something like this, your need to figure out a way to car pool immediately, IMHO.

Both of you join a gym and work out before or after work to kill the 2 hour difference. Get a coffee and read a book. Go for a long walk. Something, anything. 1 car and 1 commute would kill so many of your problems.


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rpr

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Re: Reader Case Study - $231k in debt and need help!
« Reply #69 on: January 17, 2017, 08:05:12 PM »
The only limitation of the free downloadable version of that  calculator is that it is limited to 10 accounts. There is a paid version that goes unto 20 accounts but I have no experience with it. 

scantee

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Re: Reader Case Study - $231k in debt and need help!
« Reply #70 on: January 17, 2017, 08:08:16 PM »
Rent. In a situation like yours, with a large amount of debt spread out over many different loans, anything you can do to simplify your financial situation is a move in the right direction. On its face renting might seem more expensive, but that is likely because you are not accounting for home maintenance or the opportunity cost of spending your limited free time working on the house.

Renting has so many other benefits too: you can move closer to your jobs and cut down on commuting costs, you'll likely be less tempted to fall into the cycle of continuous and unnecessary home decorating and improvement, and you can use the move to purge or sell things you don't need. My guess is that while renting seems scary right now (maybe due to a loss of status?), once you go through with it you'll feel an amazing sense of relief. It will be one (really big) less thing to worry about and will leave you with more mental energy to focus on addressing your other financial concerns.

JLee

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Re: Reader Case Study - $231k in debt and need help!
« Reply #71 on: January 17, 2017, 08:14:30 PM »
Quote
60 miles each?  Why?  Do you and DW work in the same direction?
Yes, I hate the commute but would probably earn $25k less in our area.  We work around 15 mins from each other, but are on different work schedules.  However, this is something we should look into. 

How different are we talking here? It is completely unfeasible, or merely a slight pain in the arse?

For example, do you work 7am-3pm and she works 9am-5pm? Because if it is something like this, your need to figure out a way to car pool immediately, IMHO.

Both of you join a gym and work out before or after work to kill the 2 hour difference. Get a coffee and read a book. Go for a long walk. Something, anything. 1 car and 1 commute would kill so many of your problems.
*Bring a coffee. The last thing they need right now is a $120/mo coffee habit!

dashh

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Re: Reader Case Study - $231k in debt and need help!
« Reply #72 on: January 17, 2017, 08:20:16 PM »
Quote
60 miles each?  Why?  Do you and DW work in the same direction?
Yes, I hate the commute but would probably earn $25k less in our area.  We work around 15 mins from each other, but are on different work schedules.  However, this is something we should look into. 

How different are we talking here? It is completely unfeasible, or merely a slight pain in the arse?

For example, do you work 7am-3pm and she works 9am-5pm? Because if it is something like this, your need to figure out a way to car pool immediately, IMHO.

Both of you join a gym and work out before or after work to kill the 2 hour difference. Get a coffee and read a book. Go for a long walk. Something, anything. 1 car and 1 commute would kill so many of your problems.
*Bring a coffee. The last thing they need right now is a $120/mo coffee habit!

Luckily I do not drink coffee...soda is a problem though...

SwordGuy

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Re: Reader Case Study - $231k in debt and need help!
« Reply #73 on: January 17, 2017, 08:29:43 PM »
So, something that would be helpful for you and your wife:

Make a list of what you personally are going to do to get your family out of this mess.  Make it measureable and tied back to your new budget.

If your wife is on board with anything, include that too.

Write it down.

Format it so you can check off what you've done in each action point in each week for the next 3 or 4 months (whatever will fit on the page).

Put it someplace you and your wife will see it every day.

Post it here for additional accountability.

Mark off each category you successfully achieve at the end of each and every week.

If you fail one category, you have to mark it as a failure that very day.  It needs to be in a bold color so it stands out.

Keep plugging at it.   Hopefully, the advice from the links on how to get your spouse on board will bear fruit and you'll add additional categories that she's going to do.



Poundwise

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Re: Reader Case Study - $231k in debt and need help!
« Reply #74 on: January 17, 2017, 09:09:58 PM »
It looks to me like you've put together a sensible plan for downsizing your life... of course the hard part is sticking with it.  However, SwordGuy made a good suggestion for keeping on track, and you can also join some of the Gauntlet challenges, start a journal, etc. as many here do. 

It's good that you would consider a move to a smaller place closer to work, which could add so many hours to your lives. I would guess that one of your wife's objections might be that your oldest child would have to change schools and friends, correct?  That's what I would worry about. On the other hand, with so much more time every day (up to 4 hours more of parent time a day! depending on how close you move) your children will thrive. 

lemanfan

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Re: Reader Case Study - $231k in debt and need help!
« Reply #75 on: January 17, 2017, 11:13:15 PM »
Luckily I do not drink coffee...soda is a problem though...

Cost is not the only reason to cut down on sugary drinks.  ;)

obstinate

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Re: Reader Case Study - $231k in debt and need help!
« Reply #76 on: January 18, 2017, 12:10:46 AM »
Personally, I would definitely take the time to consult a bankruptcy attorney and at least get a sense of the upsides and the downsides.

But before doing that, I would fix the spending issue that got you into this situation. Your net pay is plenty to cover your expenses without the ~200k of deadweight. But you got that debt somehow, and if your system has not changed, you'll be back in the same hole after a few years.

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Re: Reader Case Study - $231k in debt and need help!
« Reply #77 on: January 18, 2017, 04:41:48 AM »
Beyond all the steps, you need to find a way to motivate your family to stick to the plan.  Was it Your Money or Your Life that encouraged a big wall chart, where you color in your debts getting paid off and your net worth increasing?  Something big and in your face, but positive. 

Also set a goal for finding money each month.  Can you find $200 a month?  Think selling household items, picking up odd jobs (babysitting?), carpooling...  That would put your time to productive use, and also bring in a cushion so that your goals are attained even in months where you encounter hurdles. 

Finally, make a list of no nonsense meals to eat on days that you are just done.  Post it somewhere visible and make sure you have those ingredients on hand at all times.  (Ideally the menu would be foods that don't go bad fast.) Like with eggs, potatoes, and bread (keep a loaf in the freezer), you could have a breakfast meal, egg salad sandwiches, baked potatoes....  Make it as simple as picking up take out. 

Good luck to you.   

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Iplawyer

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Re: Reader Case Study - $231k in debt and need help!
« Reply #78 on: January 18, 2017, 05:25:31 AM »
First off, I'm stunned & confused . . . is this MMM or Yahoo Spendypants Fake Finance?   How can anyone even mention bankruptcy when OP is splurging on cable, lawn care, housecleaning, hair/nails??? 

 Whatever happened to "financial freedom via badassity" of cutting spending, getting rid of car loans, side hustles and the like? 

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I agree. Bankruptcy for consumer debt basically teaches the lesson "it's ok to fuck up financially and just walk away leaving everyone else to clean up the mess".

Pay your debts and learn lessons that will stop you from doing it again.
It has also been restructured so it is almost impossible to walk away without paying a lot of this. 

Laura33

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Re: Reader Case Study - $231k in debt and need help!
« Reply #79 on: January 18, 2017, 06:51:47 AM »
Beyond all the steps, you need to find a way to motivate your family to stick to the plan.  Was it Your Money or Your Life that encouraged a big wall chart, where you color in your debts getting paid off and your net worth increasing?  Something big and in your face, but positive. 

Also set a goal for finding money each month.  Can you find $200 a month?  Think selling household items, picking up odd jobs (babysitting?), carpooling...  That would put your time to productive use, and also bring in a cushion so that your goals are attained even in months where you encounter hurdles. 

Finally, make a list of no nonsense meals to eat on days that you are just done.  Post it somewhere visible and make sure you have those ingredients on hand at all times.  (Ideally the menu would be foods that don't go bad fast.) Like with eggs, potatoes, and bread (keep a loaf in the freezer), you could have a breakfast meal, egg salad sandwiches, baked potatoes....  Make it as simple as picking up take out. 

Good luck to you.   

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This is the most powerful argument for downsizing the house and the cars.  If you realize you both have problems with impulse spending/treats, you need to keep your fixed costs as low as possible so getting takeout or a trip to the mall doesn't derail you entirely. 

Sell.  Rent -- that 5/1 ARM doesn't even begin to cover the true cost of owning (you are paying an artificially low rate for a few years and hoping you can refinance to something reasonable at the end of it), and you can't afford the risk of rising interest rates/higher payments until you have your entire house in order.  Look at the rental as paying your dues to "earn" that nicer house that you guys want.  Put that debt payoff calendar on the fridge, look at it every day, celebrate (cheaply!) every time you cross off another line.

I also think you guys need to live a much more minimal lifestyle for a few years for psychological reasons.  Your debt suggests that you significantly overestimate the kind of lifestyle your salaries can actually afford.  Going bare-bones for a couple of years will help you re-set those expectations.  Then, once you are back to even, you will see the house and the cars as privileges, not entitlements, and will be in a better mindset to choose which of those luxuries are worth the amount of work you need to put in to pay for them.
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Re: Reader Case Study - $231k in debt and need help!
« Reply #80 on: January 18, 2017, 08:56:36 AM »
I'll just add a ray of hope to this duscussion.  OBviously there's a huge mountain to overcome, and one member's debt-payoff calculations have you paying this off for about 4 years until you are "debt free."

But (ray of hope time) - your family's has an enormous income and you are still relatively young. Make large-scale changes in 2017, stick to them, and you could actually be completely FI and retired in 10 years.  If I remember correctly you'll be in your early 50s then and your kids will still be in middle-school.

It could be a long-term goal to shoot for, and the ultimate "carrot." Might seem impossible now but the math says this could be very doable if you make changes this year and stick to your new lifestyle.
"Do not confuse complexity with superiority"

honeybbq

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Re: Reader Case Study - $231k in debt and need help!
« Reply #81 on: January 18, 2017, 09:22:46 AM »
Welcome. Sounds like you've got a lot on your shoulders and have some tough decisions to make.

However, I'm looking at your list and I see an unhealthy relationship with shopping, credit cards, spending, etc. We can fix the numbers for you, but you are going to need to fix whatever hole you were filling with all that... STUFF. A 40% loan must be a check-into-cash place or something, which indicates to me there is a HUGE money management and want/need unbalance. It is ok to be committed here and say you are sick of the debt, but I think you need to do some self reflection here. What DID you spend all that money on? How DID you not notice how far you were going into debt? What circumstances led you to these private loans? I think you need to do some serious soul searching - if one of you is spending this money or both. I'm guessing there is a HUGE emotional problem there than needs to be fixed.

Sometimes it's more than being just about the numbers. Good luck.

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Re: Reader Case Study - $231k in debt and need help!
« Reply #82 on: January 18, 2017, 09:34:59 AM »
Hey dashh,

Just wanted to let you know I am positioned on the bleachers cheering you on.

You can do this.

Novik

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Re: Reader Case Study - $231k in debt and need help!
« Reply #83 on: January 18, 2017, 09:53:06 AM »
dashh - congrats on recognizing the problem and wanting to do something about it. Because holy shit your consumer debt is absurd, with correspondingly mind-boggling minimum payments.

Three key steps in my mind, that relate to mindset/motivation rather than car/house/lifestyle changes:

1. Print a debt list publicly in the order you will crush them (I'd vote for a mix of snowball/avalanche where you snowball everything above 20% interest, and when those are gone snowball everything above 10% interest, then the rest)

2. Consider going to cash only spending. Use an envelope system, or a jar system. If actual cash isn't workable, change your work deposits so variable monthly spending goes one chequing account, and everything else (mortgage, debt, fixed payments - only true fixed payments where the amount never changes!) gets deposited elsewhere and paid from there. DO NOT CHANGE the amounts going to each account even if you decrease debt minimums or fixed payments. This forces you to snowball properly.  Anything you don't spend from the variable account (which I suspect will be minimal), needs to be added to debt payments or your emergency fund/savings for an inevitable larger expense like a car repair, NOT rolled over to future months and spent.

3. Track expenses every few days, every week at minimum. You need to stay on top of where your money is going on a constant basis. Having only what you control in one account might help drive home the limits you are really under and make you stick to them. You can't be borrowing from savings if you run out of grocery money because you went out to eat - so you need to know where you stand. Save treats and more discretionary spending for the end of the month.

You can do this, put it will take sacrifice, commitment, and strategy (0% credit cards, refinancing some loans, side hustles etc).
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Re: Reader Case Study - $231k in debt and need help!
« Reply #84 on: January 18, 2017, 09:58:32 AM »
Wow.

Like others have suggested, meeting with a bankruptcy lawyer may be helpful. There is no downside. At a minimum you will learn something and have more options. The risk of default is built into these loans. There is no morality involved. There are laws and regulations that govern this area and they were created for people in your situation. Basically the courts will look at your debt, assets and income and decide how much you should pay. A good lawyer will be able to give you an accurate picture, and you can then decide if the negative consequences are worth it.

If you don't go down the bankruptcy route you need to do something about those high interest loans. I would start by calling and just asking for a lower rate. I'm sure there are a billion articles written no how to best do this and what tactics you should use. You could save thousands in interest payments that can be used to pay down the loans much faster.

Increasing you income and ruthlessly cutting expenses will help as well, as others have detailed above. Good luck. Let us now if you have success in getting those interest rates lowered.
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SimpleCycle

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Re: Reader Case Study - $231k in debt and need help!
« Reply #85 on: January 18, 2017, 10:07:30 AM »
If you are going to get serious about snowballing the debt, I agree that you should call every lender and try to get reduced interest rates.  I would also probably put your student loans into forbearance to knock out the high interest portion of the debt faster.

I trust you are committed to paying off this debt, and that you really want to change, but so far you have ignored everyone who has brought up really facing how you got here.  It's so important to getting out and staying out of debt.

dashh

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Re: Reader Case Study - $231k in debt and need help!
« Reply #86 on: January 18, 2017, 10:37:17 AM »
Hey dashh,

Just wanted to let you know I am positioned on the bleachers cheering you on.

You can do this.

Thank you so much.

dashh

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Re: Reader Case Study - $231k in debt and need help!
« Reply #87 on: January 18, 2017, 10:43:14 AM »
If you are going to get serious about snowballing the debt, I agree that you should call every lender and try to get reduced interest rates.  I would also probably put your student loans into forbearance to knock out the high interest portion of the debt faster.

I trust you are committed to paying off this debt, and that you really want to change, but so far you have ignored everyone who has brought up really facing how you got here.  It's so important to getting out and staying out of debt.

I have done a lot of reflecting on how we got here the past week and I am working on a post to give more background/context for everyone.  It is a mixture of lots of small financial mistakes (no budgeting and just buying what we wanted, vacations, cars etc.) and a few very large ones (being house poor starting ten years ago, my real estate flipping side hustle, being laid off a few years ago). 

It also has emotional issues as well as several have pointed out so more to come... 
« Last Edit: January 18, 2017, 10:49:42 AM by dashh »

nereo

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Re: Reader Case Study - $231k in debt and need help!
« Reply #88 on: January 18, 2017, 11:13:01 AM »
Hey dashh,

Just wanted to let you know I am positioned on the bleachers cheering you on.

You can do this.
I'm there too.  Maybe later we can get the wave going...
"Do not confuse complexity with superiority"

MountainFlower

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Re: Reader Case Study - $231k in debt and need help!
« Reply #89 on: January 18, 2017, 01:23:35 PM »
Your credit union gave you a mortgage, so perhaps they will give you a consolidation loan for those insanely high loans that you have.  If you have a good history of paying your mortgage, they might consider it.  It is really worth a try.  Our credit union did this for us when we ended up with high credit card debts at the end of building our current home. 

I'm also cheering you on. 
« Last Edit: January 18, 2017, 02:25:48 PM by MountainFlower »

cats

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Re: Reader Case Study - $231k in debt and need help!
« Reply #90 on: January 18, 2017, 01:47:32 PM »
I would definitely encourage you to try to fix the commute situation.  It seems like MANY of your expenses may have something to do with the commute.  The obvious one is your gas/auto expenses.  But I am guessing you would also be much less prone to getting takeout if you weren't spending ~2 hours a day in your car (I'm assuming it's about that much if you are commuting 60 miles).  DW might also not feel the need for retail therapy so much if she were more rested and not spending 2 hours of her day commuting.  Perhaps you could cut back on some of the childcare expenses (you mentioned early care costs at the Y).  You have more time to do your own lawn care, housecleaning, and cooking.

If you add up all the expenses that are attributable to "not enough time", in addition to the gas and auto costs attributable to your commute, the annual cost may be similar to what an extra $25k of income looks like, post-taxes.  And there is no way that commute is not taking a toll on your physical and mental health.  I have a shorter commute than you do and it is still the least enjoyable and most stressful part of my day.  I am a huge proponent of minimizing commute time.

Is it feasible to live somewhere near your/DW's job? Or for one/both of you to get some options to work from home, even just 1-2 days/week?  I understand being attached to a particular area, but I question how much time you really have to benefit from the local community when you are spending so much time driving to another location.

Gondolin

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Re: Reader Case Study - $231k in debt and need help!
« Reply #91 on: January 18, 2017, 02:53:37 PM »
Quote
a means test & what options might be available.

I can't think of a state where you would qualify for Chapter 7 with $10K monthly income. But, I'm not an expert.
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GrandioseMustachio

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Re: Reader Case Study - $231k in debt and need help!
« Reply #92 on: January 18, 2017, 03:15:52 PM »
Dear dashh,

On the bright side: congrats, your DW and yourself make a very decent living. You can do this!

A few points:
-1481$/month in interest on your consumer loans.
-Housing costs (Interest+tax+insurance+maintenance) are likely north of 1700$/month.
-Transportation costs (depreciation, insurance, gas, maintenance): more or less 10000$/year per vehicle. 1700$/month

4900$/month on housing, transportation and interest payments. That's half your income. The rest of your spending is only 2600$/month. Not quite mustachian, but not terrible, especially considering that this includes childcare. (remember, MMM spends roughly 2000$/month, with one less child and no childcare)

So, solutions:
-Interest (1481$) options:
   1) Call them up and ask for payment plans with no interest
   2) Consumer proposal
   You can probably save 1000$ per month.

-Housing (1700$). Seriously, you do not need 725 sqft per person. Options:
  1) Rent out as much space as you can (rooms to tenants, Airbnb, parking, storage). How much could you get?
  2) Sell the house. Downsize. How low can that number (interest+insurance+tax+maintenance or rent) get in your area?
  3) If you move, can you move close to work? Would that be an added cost? If your spouse or yourself can lose the car (biking badassity), you win.
  You can probably save between 400 and 700$ per month.

-Transportation (1700$/month). Options:
  1) Get two economical used cars. Right away. That would save you 500-700$ per month.
  2) (see housing above) Move close to work. Get rid of a car. Save an additional 600$.
  Potential savings: up to 1300$/month

In total, you could save 2400$/month or so. 28800$/year. Or, using the MMM multiplier, 415200$ over ten years.

But it gets even better. If you keep your income (and expenses) steady and simply pay debt and then invest, you'll have more or less 600k$ in your portfolio in ten years, with no debt! You can seriously do this.

PS: Flipping houses: can you offer your services and experience, but without taking extra financial risk? That would be ideal.

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Re: Reader Case Study - $231k in debt and need help!
« Reply #93 on: January 18, 2017, 03:59:45 PM »
I would recommend something simple like this to help too.  I have this posted in a spot in my house I walk by 15 times a day at least.  It is a visual of bright colors of my debt.  I can't tune it out, and it is nice when people come over since they don't know it is financial.  In my case the white is what is left on my mortgage, but you can do anything.  The key is to have it in your view, in the front of your mind, every day.

wenchsenior

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Re: Reader Case Study - $231k in debt and need help!
« Reply #94 on: January 18, 2017, 04:13:20 PM »
I would recommend something simple like this to help too.  I have this posted in a spot in my house I walk by 15 times a day at least.  It is a visual of bright colors of my debt.  I can't tune it out, and it is nice when people come over since they don't know it is financial.  In my case the white is what is left on my mortgage, but you can do anything.  The key is to have it in your view, in the front of your mind, every day.

That is a fantastic idea!

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Re: Reader Case Study - $231k in debt and need help!
« Reply #95 on: January 18, 2017, 05:07:15 PM »
This may not be a popular idea, but if you are not going to sell the Frontier, I would suggest if at all possible, going to your credit union and getting another loan on it in order to destroy the super dee duper high interest credit card and avant debt.

My credit union gave me 90% LTV on a 4 year old car at 1.99% for a 60 month term. If yours gave you 60 months at 6%, that would be a $250 / month payment on $13K with which you could destroy your 4 highest interest loans completely and come out $190 / month ahead in cash flow (those CC's and avant have $450 / month min payments).

using the difference between a 30% loan and 6% amortizing 5 year loan as a rough calculation, this would save about $10K in interest costs over the next 5 years, and it would save you more because your reinvestment of the saved cash flow will be done at a higher rate (by putting it into other high cost debt).

There are obviously bigger issues here, but I'm not sure it makes sense to sit on an unlevered car when you have 35% interest rate debts. Credit unions are generally the best place to get car loans.

There are many downsides to this though  in that it encumbers an important asset (the one that gets you to work) and is not a long term solution; don't want you to have to deal with the repo man and blame it on me.

« Last Edit: January 18, 2017, 05:26:20 PM by mrspendy »

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Re: Reader Case Study - $231k in debt and need help!
« Reply #96 on: January 18, 2017, 05:16:40 PM »
I would recommend something simple like this to help too.  I have this posted in a spot in my house I walk by 15 times a day at least.  It is a visual of bright colors of my debt.  I can't tune it out, and it is nice when people come over since they don't know it is financial.  In my case the white is what is left on my mortgage, but you can do anything.  The key is to have it in your view, in the front of your mind, every day.

That is pretty neat.  I like it.  You can use that method for lots of things, I may try it myself

dashh

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Re: Reader Case Study - $231k in debt and need help!
« Reply #97 on: January 18, 2017, 09:38:14 PM »
It looks to me like you've put together a sensible plan for downsizing your life... of course the hard part is sticking with it.  However, SwordGuy made a good suggestion for keeping on track, and you can also join some of the Gauntlet challenges, start a journal, etc. as many here do. 

It's good that you would consider a move to a smaller place closer to work, which could add so many hours to your lives. I would guess that one of your wife's objections might be that your oldest child would have to change schools and friends, correct?  That's what I would worry about. On the other hand, with so much more time every day (up to 4 hours more of parent time a day! depending on how close you move) your children will thrive.

Yes, her biggest objection will probably be the change in schools and neighborhood/neighbors.  We also go to a local church but driving there once a week would sure beat our current commutes 5 days a week. 

I do not think we have ever realized the full impact of our commutes on us physically, mentally and financially.  I really didn't think of it that much until I found the MMM blog.  It is starting to change my perspective for sure.   

dashh

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Re: Reader Case Study - $231k in debt and need help!
« Reply #98 on: January 18, 2017, 09:49:54 PM »
I would recommend something simple like this to help too.  I have this posted in a spot in my house I walk by 15 times a day at least.  It is a visual of bright colors of my debt.  I can't tune it out, and it is nice when people come over since they don't know it is financial.  In my case the white is what is left on my mortgage, but you can do anything.  The key is to have it in your view, in the front of your mind, every day.

Great idea - thank you!

snogirl

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Re: Reader Case Study - $231k in debt and need help!
« Reply #99 on: January 19, 2017, 09:56:48 PM »
Honestly my head hurt reading this. Sorry. Four years ago I was 50k in debt and dug my way out by-
1. Stopped Spending!
2. Tracking every single cent I spent.
3. Cutting ALL fat. No cable, no internet, no haircuts, no eating out, no gym, no vacations, no gift giving, no Netflix nothing nada none
4. Sold all and everything possible and put money towards debt.
5. Kept a journal.
It worked. Started in April 2014 and was out of debt Jun 2016. Yours being 4x mine plus another income start trimming that fat.

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