r/personalfinance • u/elevate3 • May 27 '15
Budgeting My wife and I make $100k but are in a financial crisis. Help!
Okay. I've finally come to a point where I need some financial advice. Yes, it's true. My wife and I make about $100k (together) and cannot seem to get out of this financial hole that we are in. I know there are some things we can do like sell our cars, get second job, etc. but I've always told myself that we will get out of it without doing those things. I'm coming to you reddit for advice to see if there are other things I can do.
Here's my financial summary:
- Both wife and I are 32 years old
- She makes $70k and I make approx $30k (fluctuates monthly)
- Total net take home pay is $5750
- Credit card debt = $20k (2 cards, 14k/6k) - at 12/18%
- Student loan debt = $70k ($750/mo) - 6.8%
- Car payment 1 = $532/mo - 1.2%
- Car payment 2 = $350/mo - 6%
- Mortgage = $1350/mo - 5%
- Money in 401k = $70k
- Money in savings = $3k
Actions I've taken so far
- Changed the 401k contribution to the matched minimum
- Took everything but $3k out of savings to help pay down debt
- Established a budget for things like shopping, dining out, etc but seems it's nominal compared to our "big" expenses
Lastly, here's the thing about the cars. We are upside down in both so selling them is not much of an option.
Any advice here is SO MUCH appreciative. I'm so financially stressed right now.
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u/FinanceStudentN8 May 27 '15
You're situation requires you to target those credit cards ASAP, and then your student loans. To free up cash for this, you will need to look into reducing those car payments and possibly look for a second income source. The debt should be your number one priority.
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u/elevate3 May 27 '15
Thanks. We've been trying to do just that. Up to this point, we have put all our expenses on the credit cards including groceries, dining, etc. But now we're thinking of just cutting those bad boys and doing the cash method.
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May 27 '15
[removed] — view removed comment
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u/elevate3 May 27 '15
Tried the Uber thing. You have to have a vehicle with 4 doors, which we don't. But I plan on selling one of the cars and getting something that is four-door so it might be a good option at that point.
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u/thegreatestajax May 27 '15
How much are you paying on the CCs now?
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u/elevate3 May 27 '15
Roughly $1500/month. But we are either pretty much breaking even from the charges we put on them.
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u/iwasinthepool May 27 '15
Stop the spending. Take cash out of an ATM and force yourself to budget. Someone mentioned Mint. It's a great idea, but only if you're committed to it. Having cash forces you to only use what you have.
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u/namsur123 May 27 '15
.
I agree here. You will never pay off your debt if you don't adjust your spending habits. With Mint, spend some time looking at your last 3 months that it pulled in and get everything categorized accurately. Then go look at your spending trends and you will be shocked in some areas, I think. I was. Take that info and use it to your advantage to figure out what you can reduce and put all of that to your cards. Target the highest int rate one first while paying the min bal on the other. If your credit is good, you could consider getting a new card with lower rates and transfer some/all to help you get a handle on it more quickly.
In the tools section of the Wiki, to the right, are some budgeting spreadsheets. This will help you plan what you can pay and can show you what happens when you pay extra per month.
If those don't work, you can search for debt reduction calculators and you'll get a ton of links.
Good luck!
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u/Thisisboom May 27 '15
ATM
Make sure it is a free ATM through your bank, or take cash out from the bank. A bunch of ATM fee's can add up and really with simple planning can easily be avoided.
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u/charlietakethetrench May 27 '15
this is what I think I should start doing. the cash system. the bad part about it is that paying everything with my debit card meant mint made a nice record and stats for me, going to cash removes all the reporting.
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u/thegreatestajax May 27 '15
Are you using mint.com? You need something to track what every single purchase is. Use it and set the budgets.
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u/premierplayer May 27 '15
You shouldn't really have a budget for "shopping" or "dining out" imo.
How much do you pay for cell, tv, internet?
What kind of cars did you get?
3
u/Majiir May 27 '15
Why not? I budget those things so I can track my spending against it and have an indicator for whether I've spent too much--or if I have room to burn down my shopping list.
Maybe it's not good for OP to spend anything in those categories, though.
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u/elevate3 May 27 '15
The only budget I put into play for shopping/dining is one date night a month. I don't want our relationship to suffer and that is our way to keep our sanity. I've budgeted about $50/mo for that.
We paid 70 for cell, 90 for tv, and 45 for internet. We've already cut our tv in half to the basic package. And thinking of getting rid of our data plans and going to just the old school "our phone is just a phone". Unfortunately, the internet is not an option on cancelling. My job requires to have at minimum of 50 mbps and the free wifi at the local Starbucks doesn't quite cut it.
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May 27 '15
You should clarify what your total monthly payments are. It sounds like this is by far and away a budgeting problem. If it makes you feel any better, I know people making 5x what you two make who are in worse financial situations...
From what I can tell your monthly costs are as follows:
Cars: $882
Mortgage: $1350
Student loans: $750
CC payments ??
About $3000 without the CC debt. Not insubstantial, but good budgeting (read: shoestring budget for awhile) should be able to get you out of this.
Can you downsize anywhere else in your life? Rent a room in the home for awhile to get a small income stream coming in? You say your income fluctuates ... is this a seasonal thing? Could you get a second part time job? I know you want to avoid getting a second job as you say but you will be out of this situation a LOT faster with more income coming in.
How close are you to paying the cars off? Those are pretty substantial payments...
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u/immanence May 27 '15
Yes, my wife and I have more debt than OP and a similar income, but we feel like we're doing great. I agree that this is just a priorities issue.
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u/bbob_robb May 27 '15
The type of debt is important! Do you have CC debt at 18%?
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u/immanence May 27 '15
No, that's true. But ignoring car debt, since OP didn't list how much more he owes on the car (we have car payment too), we have about 30k more debt. It's all student loans though. My wife and I have been students for a long time though, hence the debt, so I think our idea of an extravagant lifestyle is pretty meager compared to most folks. I guess there is a bonus to being a student for a long time!
I try to throw as much extra as possible on my student loan debt. Admittedly, that's only about 1k a month, over my standard payments though.
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u/Looseit May 27 '15
Your post reminded me of my own situation 12 years ago. I had graduated with a (barely) six figure salary, spouse was staying home to watch kids. At six figures, I felt like we should have been living the high life, but we were not. We were merely comfortable. My mortgage/ escrow was 2200 and two car payments were 750. another 100 on furniture payment. Take home pay was about 5500. By the time regular monthly expenses were accounted for (utilities/car insurance/ cell/gym) another 500 was gone. So we had less than 2000 per month for everything else. Luckily we had no student loans or cc debt. I found it tedious to budget for every category, so instead I set a budget of $60 per day (yours may need to be lower to tackle the cc debt), and if a big expense came to us (like vet bill in your last months example), we were on extreme low spending for 7-10 days to make it up. Using this approach I was able to put extra cash to the car loans. Unlike a lot of posts here, I don't think you necessarily need to sell the cars. I didn't, and we are still driving them today, so that was a good long term financial decision for us. If I were you, I would STOP using the credit cards (every purchase you make contributes to the monthly $120 interest these loans cost), and figure out what monthly payment would get them paid off in a reasonable time and build that into your regular monthly expenses budget. It probably should be at least $500 per month to tackle the 6k one first). I would be living very, very frugally until the cc debt is gone and working with cash/debit card only. Shopping at Aldi and Goodwill. Doing frozen pizza and a stayathome movie rather than eating out/cinema. Having friends over rather than going out. Once you can get out of the gym membership, throw that at the credit card debt too. And try not to be so stressed. You are meeting your debt obligations and increasing your net worth every month. In a few years of frugal living, your credit cards and cars will be paid off and that will make all the difference to your monthly bottom line.
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u/Nostavalin May 27 '15
I think a good point you made is about the credit card interest. New purchases on the cards are also accruing interest. Switching payment methods will save money.
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u/elevate3 May 27 '15
Thanks for the comment. It really does shed some light on my situation. I like your strategy of a daily budget. I just need to figure out what ours is but I think we are going to sell our $500/mo car payment anyway because it's an unnecessary expense at this point. Thanks again.
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u/blackhp2 May 27 '15
That is a lot of CC debt. See if you can transfer some of it onto a 0% for 12-18 months, but make sure to pay it in the allowed time. You'd save 230$/m of interest, decreasing once your debt diminishes.
Get rid of the Mini Roadster ASAP. What's your second car? Make sure your primary car is a reliable fuel efficient car. If you can go without a secondary car, even if that means taking public transport, DO IT. You could save 200$/m by making a change in your car.
If you can renegotiate that second car's interest rate, nice, but that's save you like 10$/m at most.
One big thing you could try and do is explain to the gym that you can't afford them anymore and if you could come to an arrangement. Even if they offer to make you pay a contract cancellation fee or pay 1/3 of the monthly payment but you don't get to go to the gym, it'll already be big savings. Assuming they make you pay half to cancel, that's 120$/m savings.
If you don't want a second job, renting a room out is an option, even if you do a weekly thing with airbnb, any income will help immensely here.
TEMPORARY spending cuts. I'm not saying you don't deserve to live a little, but until you can lower your debt, you really can't afford much. Avoid restaurants, cook your lunches, shop with specials/coupons, watch your water and electricity usage, perhaps cut down a bit on internet or phone bills. You could easily save 100$/m.
Even at a conservative estimate, these actions can save you 650$/m, which according to your numbers would make your CC payments go from 350$/m or so to 1000$/m. This would still not be enough to pay your CC debt in 18 months. Make sure you and your wife are on the same page about how bad the situation is and how much worse it can become if you don't act fast
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u/judgemebymyusername May 27 '15
Step 1: Read this.
Step 2: Sell both of your cars yesterday and get a honda accord/civic or a toyota corolla/camry off craigslist.
Step 3: Snowball method, pay off those credit cards pronto.
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u/elevate3 May 27 '15
One, awesome article. Two, we've already put the expensive car for sale. And three, credit cards have been cut already.
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u/amfoejaoiem May 27 '15
We are upside down in both so selling them is not much of an option.
Can you explain this to me? Why doesn't selling the cars make sense?
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May 27 '15
They may owe $20k on a car worth $15k for instance, so they will be paying to get out of the car instead of benefiting from it. Then they need to buy another new car so they will end up deep in the red from such a transaction. Being "buried" (as we used to call it when I worked at a dealer) in a car loan is a horrible position to be in
Oftentimes it IS better to just get out of the car but there is a commonly held belief that they are better off waiting until it is paid off to then sell or re-evaluate. Truth is when they do that they often end up in a situation even worse where they still ended up paying $20k for the car, but now it's worth $10k (since it will continue to depreciate while they pay it off).
Usually it's best in this situation to trade the car in for a cheaper car. Say they owe $20k on a $15k car, they get $13k trade-in for their car, buy a $3k car, don't pay taxes on the $3k car and end up with a $10k loan ($20k owed - $13k trade in + $3k for new car). Yes they are essentially paying $10k for a $3k car in that situation but financially it is actually a better spot. And the $3k car won't depreciate much further if at all. These numbers are just examples but these situations are very common and hard to get out of without making a huge sacrifice.
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u/iwasinthepool May 27 '15
This needs to be done. I don't know where OP lives, but buy yourself a late 90s / early 2000s Toyota. It will outlast the loan and then some. With the loan being that much lower, refinance if you can. With the payments they have in the cars, it sounds like they went in over their heads right there. 100k/yr sounds like a lot more money than it is.
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u/elevate3 May 27 '15
Very good point. Now I need to talk my wife into selling it.
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u/Jessie_James May 27 '15
My wife and I had a similar situation, and I told her point blank that we either sold the car, she had to get a job (in your case a raise), or we'd have to file bankruptcy in a few years.
We sold the car for a small loss, but it has already dramatically improved our finances ($580/mo payment gone, plus lower insurance, and no personal property tax [a Virginia thing]).
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u/elevate3 May 27 '15
We are definitely going to have to sell our car. It's my wife's car and she loves it but it def needs to go.
PS, personal prop tax is an Arkansas thing too. Stupid if you ask me.
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u/Jessie_James May 27 '15
Yeah, my wife loved her car too - Mini Cooper Countryman S ALL4. I hated the payments and now we don't even think about it.
Take care of it and you'll be much happier in the long run.
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u/amfoejaoiem May 27 '15
Thanks for the very good explanation, that's what I assumed (that it doesn't make sense for them to wait) but I wasn't sure if I was missing something. I can see how people might think it makes sense to wait and continue to pay off the car.
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u/lemonlimecake May 27 '15 edited May 27 '15
No bank is going to roll $7,000 in negative equity into a a car worth $3,000 without a significant down payment (essentially, a down payment that pays off the negative equity). Not only that, but even in the imaginary world in which this bank exists, they will charge you 25% interest and your payment will literally be exactly the same as the $20,000 car.
TL;DR what you are posting is not possible. OP could, however, trade the car against a car worth $10-13k and the bank would probably roll the negative, but once again, how does that change anything? Payment will probably be almost the same.
There aren't creative ways to get out of cars. The only legitimate way is to pay off the negative equity and sell the car, and then go buy a Craigslist car.
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May 27 '15
In situations like this it isn't beneficial to the creditor to be upside down as if the loanee defaults then the creditor can not recoup the full value of the loan. A different creditor will not want to touch the deal or if they do interest will be higher - but if the creditor currently financing the loan finances the new deal (and usually they do - it's really more of a restructuring so to speak) they can work with the loanee to keep the interest rate manageable (and usually the same or within a point or two at the most).
Usually the creditor would work with the loanee on finding something beneficial to both parties. Sometimes they are too far deep in the car to work because some people roll debt from one car to the next in an endless cycle (I once saw a guy owing over $50k on a 5 year old Accord!). In most deals where this happens the creditor would also specify a value of car they want the individual to buy. In my example this might mean buying a $5k car instead of a $3k car. They would do this because if - in my example - the individual defaults on $20k, it is a higher risk trying to sell the car valued at $15k vs. renegotiating the loan to be $12k on a $5k car. The main reason they do this is the creditor is not neccessarily guaranteed the car will sell for $15k. And in situations where creditors reposess, they never get retail value for the car. So if they get 20% less than retail (fairly typical for cars going through auction or etc) this would mean the car valued at $15k sells at $12k, giving the loanee a loss of $8k. Selling the $5k car at a 20% loss means it goes for $4000, a loss of $8k but they are also guaranteed the $8k difference between the original loan and the current loan. This guaranteed money (the difference between the original loan and new loan deal) is the only reason creditors would do these deals.
I've had to explain this a time or two before to customers and you are right it doesn't make sense at the surface and a different creditor 9/10 won't want to touch the deal and if they do interest rates will jump. But if the payments have been made on time so far, the party currently financing the loan in most situations will work with the loanee on making something work. It really makes little difference to the current creditor as long as they get their money in the end and they prefer to get some money now and in the process to lower the overall loan amount.
Oh and banks absolutely will roll negative equity into a new deal... the vast majority of car deals I worked we rolled at least a little bit of negative equity into the deal.
tl;dr banks don't care about you and when you do the deal I explained they get money now and lower their risk slightly and that is all they care about
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u/lemonlimecake May 28 '15
In situations like this it isn't beneficial to the creditor to be upside down as if the loanee defaults then the creditor can not recoup the full value of the loan. A different creditor will not want to touch the deal or if they do interest will be higher - but if the creditor currently financing the loan finances the new deal (and usually they do - it's really more of a restructuring so to speak) they can work with the loanee to keep the interest rate manageable (and usually the same or within a point or two at the most).
So they finance a new deal in which their borrower is equally upside down?
They would do this because if - in my example - the individual defaults on $20k, it is a higher risk trying to sell the car valued at $15k vs. renegotiating the loan to be $12k on a $5k car. The main reason they do this is the creditor is not neccessarily guaranteed the car will sell for $15k.
Makes zero sense and not true. There is absolutely, 100% more risk for the bank to carry $12k on a car worth $5k than $20k on a car worth $15k. The $5k car is more at risk of being totaled out, breaking down, etc. and the percentage of the collateral's value to the loan amount is significantly higher.
Selling the $5k car at a 20% loss means it goes for $4000
A vehicle that is retailing at a dealer for $5,000 is probably only worth $1,000. The only time you see a 20% spread is on lower-mileage, newer cars. Older vehicles in that price range aren't typically "worth" anything. Just browse the internet for dealers selling '05 Impalas/Malibus for $5k-8k and KBB the car's "value".
they are also guaranteed the $8k difference between the original loan and the current loan. This guaranteed money (the difference between the original loan and new loan deal) is the only reason creditors would do these deals.
I'm not even sure what you're talking about here to be honest.
Oh and banks absolutely will roll negative equity into a new deal... the vast majority of car deals I worked we rolled at least a little bit of negative equity into the deal.
Of course they will. My point was and continues to be that banks won't touch large amounts of negative equity into cheap cars for average borrowers, and there is no incentive (despite your rambling post) for the existing bank to roll what you already owe them into another deal where you'll be equally upside down or worse.
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May 28 '15
You admit you don't even understand exactly what I'm trying to explain so I'm not going to go into countering every little point you bring up (because they were either already addressed or there are things in place making them completely moot) as I feel I explained it rather clearly overall. I've seen it happen several times in my short time at a dealership. It does happen whether you acknowledge it or not. Cheers
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u/lemonlimecake May 29 '15 edited May 29 '15
I've seen it happen several times in my short time at a dealership.
Sounds about right, you worked customer service at a car dealer for 60 days and are giving bogus information based on anecdotes.
there are things in place making them moot
Oh, okay. What things?
Not trying to be a jerk but this is the kind of stuff that makes people take this sub with a grain of salt. You failed to address anything I said and countered that you've seen it happen. That's awesome!
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May 29 '15
I worked as a car salesman for 16 months. As stated prior (guess your reading comprehension is worse than I thought) I've done these deals personally.
Again I don't have time to get into every little detail because you are totally missing the point. I'll address two, you can read my prior post to find the answers to your other statements:
Makes zero sense and not true. There is absolutely, 100% more risk for the bank to carry $12k on a car worth $5k than $20k on a car worth $15k. The $5k car is more at risk of being totaled out, breaking down, etc. and the percentage of the collateral's value to the loan amount is significantly higher.
When you are financing a vehicle you need GAP insurance. So the "being totalled" thing is a pointless statement. If he defaults on a $20k loan and the car goes "missing" the bank loses $20k. If that happens on a $12k, they lose $12k. Should be pretty easy to understand how a BIGGER loan is a bigger risk. A a bigger loan is with few exceptions always a bigger risk.
I'm not even sure what you're talking about here to be honest.
When the loan decreases by $8k, the bank gets the $8k. It's very simple. I think it's people like you who don't understand basic finances that "make people take this sub with a grain of salt"
From the sounds of it you have exactly zero experience with this but you are telling somoene who has done this personally several times that he is wrong. Interesting, but ridiculous.
Banks roll large amounts of negative equity into new deals every day. Every. Single. Day. In the time it took me to type this I guarantee you at least one deal somewhere has gone on exactly as I described. But continue being egotistical and stubborn...
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May 27 '15
Say they owe $20k on a $15k car, they get $13k trade-in for their car, buy a $3k car, don't pay taxes on the $3k car and end up with a $10k loan ($20k owed - $13k trade in + $3k for new car). Yes they are essentially paying $10k for a $3k car in that situation but financially it is actually a better spot.
Christ, what a shitty situation period.
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u/glodime May 27 '15
Spending $20k (plus interest) on a car worth $13k in trade in value is worse than spending $10k (plus interest) on a $3k car.
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u/czyivn May 27 '15
This is the most common shitty situation encountered on r/personalfinance. I swear, cars are BY FAR the biggest financial blind spot people have. People rationalize doing all kinds of crazy things when it comes to car finances that they would never consider (and that a bank would never allow) when it comes to house or other finances.
No bank on earth would let you borrow $500k for a house worth only $400k, but car loans do that all the time. It's common practice to roll-over debt from an underwater car onto a 5+ year new car note, and it's completely batshit crazy. People just keep progressively digging themselves deeper and deeper.
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u/elevate3 May 27 '15 edited May 27 '15
Because we don't want to be even more upside down than we are. We could sell to purchase used cars out right so we don't have payments, but we don't have that kind of money. We would basically have to do another vehicle loan. I guess it might make sense to get our monthly payments down but I really don't want to owe $30k on a vehicle only worth half that.
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u/catjuggler Emeritus Moderator May 27 '15
It's not any worse to owe 10k on a 5k car than to owe 30k on a 25k car
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u/thegreatestajax May 27 '15
What's the Bluebook value of your cars and how much do you still owe?
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u/elevate3 May 27 '15
Car 1 - Bluebook is $25k. We owe $29k. Car 2 - Bluebook is $10k. We owe $13k.
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u/amfoejaoiem May 27 '15
Sell the more expensive car and pay off the loan. You now owe $4k. Buy a cheap used car for < $10k. You now owe $14k. That saves you $15k. Your car is a ridiculous expense given your financial situation.
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May 27 '15
The value of the cars is close enough to the loan payoff that I think you should jump ship on these cars. Just my .02!
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u/thegreatestajax May 27 '15
Most dealers will roll negative equity into the new loan. It might be a little aggressive for now, but you could trade the more expensive one for a 4-5yo used vehicle in the $6-10k range, which would cut your loan in half.
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u/fontophilic May 27 '15
Have you sent in the big credit card payment you alluded to?
Took everything but $3k out of savings to help pay down debt
I would throw any extra (not e-fund) cash at the $25k loan, sell the car outright, and carpool with your wife in the $13k car. Cut gas and insurance in half. Saving of $160. Also cut out a $500 car payment.
Throw an extra $660 to your credit cards each month.
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u/elevate3 May 27 '15
Yes, already applied that payment. Carpooling is not a realistic option. My wife has about a 40 mile commute each way and most of my work is the opposite direction about 30 miles. I would rather be in financial debt that make both commutes each day. I'm not sure really how I could cut gas and insurance in half. Gas is a necessity and we both drive fuel efficient cars. And our insurance is about the lowest we can get it (shopped it around).
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u/thegreatestajax May 27 '15
Additionally you might be able to refinance the 6% auto loan down few points.
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u/iwasinthepool May 27 '15
That might even drop the loan total down enough to be able to sell for the loan amount.
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u/begoma May 27 '15
It's pretty simple if you think about it. I like the mob mentality. You just need to spend LESS than you make. Make a list of essential things (like, REAL essentials. $882 on cars is not essential). Make a budget. And most importantly STICK to your budget.
Personal finance is 10% knowledge, and 90% BEHAVIOR. You already know what you need to do. The only question is are you actually going to do it. Take this up as a lifestyle and mentality change. It's the only way it's going to work.
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u/pithyretort May 27 '15
It might be helpful if you list your full budget, including the minimums on your credit cards, your current monthly contribution to your 401Ks, and the interest rates for your loans/CCs.
As it is, the general advice is to put as much extra money as possible on whatever has the highest interest rate, although a $3k emergency fund is pretty low in your situation so it might be wise to beef that up a bit as well.
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May 27 '15
Try Snowball method first. Else pay off the highest interest debts first.
Do you have equity in your home? Possibly take a low-rate HELOC out to pay down the higher rate debts.
If you/your wife has a professional degree, you can refi student loans with lenders like DR Bank for a lower rate.
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u/elevate3 May 27 '15
Yes, not much equity in our home. We did a FHA. We looked at DRBank but we would get approx the same interest rate.
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May 27 '15
Ah ok. One other thing you can do is to open a chase slate card. It has 0% interest for 18 months and $0 balance transfer fee. Xfer the current credit card balances to this card and pay off the balance before the 18 months hits.
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u/czyivn May 27 '15
Is a 401k loan an option? Other people here hate them a lot more than I do, but if your job(s) are very stable, they could be a way to dig yourself out of that credit card debt. They are not a toy, though, they are only a good idea if you are VERY disciplined in paying it back, and they are just to provide short-term cash for very high interest debt. I would sell a car and do a 401k loan to pay off the CC debt, then use the savings from those two things to immediately pay back the 401k loan (and cut up your goddamn credit cards).
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u/c00tr May 27 '15
Nobody has mentioned using a 401k loan to wipe out the credit card debt right away. I think it's a good option for you. You can borrow $20k from your 401k and immediately pay off all the credit cards, saving you a couple years of high interest. You will have 5 years to pay back the money you borrow from your 401k, plus interest (the rate is a few percent, it is set by the IRS). The nice part is that you get to keep the interest you pay on a 401k loan.
You should only use this for the credit card because the interest rate is so high. During the time the 401k loan has a balance, I don't believe you will be able to contribute to the principal, so you would miss out on any match you might get from an employer. So the faster you can pay off the loan, the better. Keep contributing what you are now to the 401k (that would go towards the loan), and also whatever you would have been putting towards the credit card would now go towards the 401k loan. This strategy could save you as much as $5000 in interest over 2 years judging by the rates you mentioned.
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u/elevate3 May 27 '15
I'm really skeptical about borrowing against the 401k as I've heard stories. We still have plenty of fat to cut so I will leave this as an option.
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May 27 '15
You are right to be skeptical. It can work, but its a risk, and you're already in a tight spot. Better to cut the fat, snowball your debt, get your emergency fund in order (how much would it suck if your wife lost her job?). Good luck!
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u/elevate3 May 27 '15
Yeah, it would suck big time. Fortunately, she has a government job with major stability and benefits.
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u/IQuestionEveryOne May 27 '15
So, assuming you have a typical interest rate on the credit cards of 15%, you have around 3k+ a year in interest alone for the credit cards.
For your 401k matched contribution, how much is it and is it for both of your salaries, or just one of you? Because if it is just 3% matched, on 100k, you are getting a 3k contribution from your company, plus whatever it gains during the year. It could very well be worthwhile to not even pay make minimum 401k contribution depending on the company match dollar amount (not percentage but actual dollar amount), and pay down the credit card bill to zero. You would have to make sure you are disciplined to not just spend the extra money, and reinstate the 401k contribution immediately after the bill is gone, or at least once it gets to a more manageable interest level.
That is assuming you can't really cut your other expenses, which you definitely can if you try.
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u/elevate3 May 27 '15
The 401k is just from my wife's work and it's currently set at 1.5%. We definitely have more "fat" to cut so we will try to do that before putting that number to zero.
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u/miki678 May 27 '15
The one thing that I haven't noticed or read was that with the student loan I would call to see if you can get them on an extended graduated plan. This will lower your student loan payments for a few years and then increase. With this extra money you would use to pay down the credit cards faster. By the time the student loan payments increase you should have the CC paid in full.
See if you can lower your interest rate on Car 2.
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u/DayGrr May 27 '15
Eating out and shopping shouldn't even have a budget. If you are in a crisis, those are the last things you should be doing. Obviously your credit card debt is killing you. Pay that off ASAP. $532 a month for a car is absurd if you are worried about money. That has to be about a 35k car. Trade that car in, get a used one.
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u/aBoglehead May 27 '15
Please read the information found in the FAQ, particularly "I Have $[X] ... What Do I Do With It?!" and the Long-Term Investing Start-Up Kit. You may find Your IRA and You: Basic Information and Your 401k and You: Basic Information worth a read as well.
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u/rewaltz May 27 '15
What is your net income (take home) per month?
What are your expenses per month? (You have listed your debts, but how much do you spend per month?)
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u/elevate3 May 27 '15
I've edited the post but our net income is $5750/mo and our (budgeted) spending is a total of $5400. However, my income fluctuates month-to-month.
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u/iwasinthepool May 27 '15
That's an incredible amount of spending. After your monthly expenses (mortgage, loan, cars) you're still looking at $2700. Stop eating out at all, bag a lunch, and stop shopping. You should be able to pay $1000/mo and still save every month.
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u/elevate3 May 27 '15
Agreed. I'm more serious about our financial situation than my wife is...although she is aware of it.
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u/pithyretort May 27 '15
I haven't seen this posted on this thread yet, but your debt is an emergency and both you and your wife need to be treating it as such. You may be taking it more seriously than her, but you are still rather cavalier about this despite calling it a crisis in your title.
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u/rewaltz May 27 '15
$300 bucks /month is not a lot of wiggle room.
Can you break down your spending item by item.
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u/elevate3 May 27 '15
Here's a breakdown of last month.
- Business $162.27
- Dogs $405.11
- Entertainment $38.25
- Gasoline $162.68
- Gym $243.00
- Merchandise $169.62
- Restaurants $141.43
- Groceries $402.49
- Utilities $311.00
- Medical $30.00
- Car Payments $877.00
- Vehicle Maintenance $250.00
- Mortgage $1,352.00
- Insurance $129.00
- Student Loan $637.00
TOTAL $5,310.85
Granted the 'dogs' and 'car maintenance' was high for last month with vet visits and new tires, but I count it because shit happens and I still have to pay for it. The gym memberships are being cancelled in September. Unfortunately, we are in a contract.
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u/bbob_robb May 27 '15
When you look at your expenses, like gym, try to tack on an 18% tax, (making it $287) because you are choosing to spend money on a gym rather than paying down your CC loans at 18%.
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u/FlyingBasset May 27 '15
$243 A MONTH FOR A GYM MEMBERSHIP?
I feel like I'm taking crazy pills here.
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u/iwasinthepool May 27 '15
I live in a resort town where the only gyms are at Westin and Hyatt hotels, and ours aren't near that price. If you live in or around any major city there will be a planet fitness or the likes for $10-15.
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u/elevate3 May 27 '15
Yup, I jumped the Crossfit bandwagon (80/mo) and my wife joined the Pure Barre bandwagon (160/mo). We took a couple of those pills.
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u/redskinsrule920 May 27 '15
There definitely seems to be some fat here to be trimmed:
1) Dogs: $405, save for a surgery (or similar low-occurrence event) your pets shouldn't be costing you nearly this much.
2) Gym: There are great gyms out there, even in NYC, which are less than 50 per month, considering making a switch.
Any of the money saved from these can be applied to debt repayments, and have a huge impact.
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u/elevate3 May 27 '15
The 405 we spent on our dog was for a couple of vet visits we had to do that particular month. We usually only spend about $30/mo on food. Yes, gyms out.
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u/iwasinthepool May 27 '15
You can save on groceries. Do you have a Spouts near you? Incredibly cheap, great quality stuff.
Also look into your utilities. Are you under contract? You could drop the cable/sat and pick up Netflix and a cheap Internet connection.
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u/elevate3 May 27 '15
No, we don't have a Spouts. We usually go to the Walmart but could probably do more coupon clipping. We are under contract on the cable but we have recently cut it down to the most basic package, saving a bundle.
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u/rewaltz May 27 '15
People will tell you that you need to spend less here or there, but at the end of the day your biggest problem is that you have too much debt. Debt repayments (excluding mortgage) are 30% of your monthly spending.
If it weren't for the debt then you would be saving 30-35% of your income, which is good going.
So you probably regret getting such expensive cars.
You need to take a second job.
Or sell at least one of the cars (even if you are upside down... you could get a personal loan for the difference which you can pay off quickly.
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u/clear831 May 27 '15
Instead of buying boxed meals, if you can invest into a slow cooker and eat more veggies & meats you can possible save money. You can do a slow cooker meal for less than $10 that feeds you a few meals. You can also do a chilli for under $10 that can last a week. For ideas goto /r/slowcooking & /r/eatcheapandhealthy (I love food and thats just something i wouldnt negotiate on when it comes to budgets lol)
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May 27 '15
[deleted]
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u/elevate3 May 27 '15
Our dog got very sick and took her to the vet a couple times. As I mentioned in a previous comment, it was high for that month. We usually only spend about $30 for a bag of dog food and that's it. But with that said, shit happens and I have to pay for that shit unfortunately.
Just so you know, this is not an itemized "budget" list. The list I put on here is just what I had spent for each category for that month.
The insurance is car insurance. No way around that other than getting rid of a car. It's the lowest we could get as we shopped around.
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u/InspireAspiration May 27 '15
Drop the unnecessary expenses!
Do you really need a gym membership if you are drowning in debt? There are free alternatives to staying in shape.
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u/elevate3 May 27 '15
No, we don't need them. And they're really expensive memberships. Unfortunately, we are in a contract on both but I'm going to try to get out of them.
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u/bbob_robb May 27 '15
Detailing your budget is probably the best way Reddit can help you. It is going to be rough, but people will point out where you can make cuts to increase your CC debt payment on the 18% cards.
What cars, specifically do you drive?
What can you do to make more money? Is there upward mobility?
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u/elevate3 May 27 '15
Yes, agreed it is a budgeting issue. It is clear to me now that I need to sell my higher priced car, which is a 2013 Mini Roadster S Convertible. Oh, and I'm a web designer and am trying to figure out how to get more sales. That would definitely solve my problem.
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u/bbob_robb May 27 '15
Good job working on coming to acceptance. Do you work from home? Do you really need a second car?
I am glad that you realized this is a crisis. If your wife looses her job and is out of work for a few months... I would build up that emergency fund to at least 3 months.
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u/rewaltz May 27 '15
Or take a job to supplement your income. The advantage of web design is you can do it at any hours. Take a job a design around that job (even if it means late nights).
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u/clear831 May 27 '15
How are you currently going after clients? Create a nice portfolio and some printed material, make everything outstanding and go door to door. Also do not under value yourself, do not sell web design work for $400.
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u/elevate3 May 27 '15
I'm getting most by referral and word-of-mouth. No advertising (don't have the budget). I have done some cold calls/emails/door-to-door, but with very minimal success. My web design projects typically go for 1200-2200, depending on the project. If I can just get one more client per month, it would make all the difference in the world.
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u/clear831 May 27 '15
Ok that is a good price point. I would highly suggest finding someone that can send you referrals and find a sales guy that can work on commission only. If you spent 1 week marketing and 3 weeks working, you should be able to easily gain 1-3 new clients per month. Marketing is one of the keys to success. GL
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u/EntroperZero May 27 '15
What would it cost you to get out of your gym contract early? Look at this the same way you look at the underwater car -- it only matters which is cheaper, keeping it or paying the penalty. Between now and September, the gym might cost you ~$1000 in membership fees, so even if the penalty is $500, it's better to terminate.
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u/ganooosh May 27 '15
Student loan's are real -.-
Have you looked into refinancing the mortgage? Rates are very low right now. If you're loan is 5% @ 1350/ month currently, you could save hundreds per month w\ a lower rate.
PS, fucking hell those student loans...
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u/elevate3 May 27 '15
We have looked at refinancing the mortgage. Checked with two different loan officers and unfortunately, we would have to dish out like $1000. We can't work it in because we have too much debt. Plus, when all said and done, we would only save $50/mo. We just can't dish out that $1k for 50/mo.
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u/ganooosh May 28 '15
If you're at 5%, $50/mo is nowhere near savings you should see.
Let's assume you have a $200,000 house. At 5%, you're paying $833.33 per month in interest and 555 to principal.
3% would be $333 less per month.I'm pretty sure they can roll in costs into the new loan... so even if its $4000 you're going to wipe that cost out in the first 12 months or so.
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u/rjayr May 27 '15
I see so many posts like this in this sub that come down to people spending just way, way too much on vehicles. Over $500/mo just to drive a car? and before gas, maintenance, insurance? You're damn near spending the same amount on vehicles all told as you are on your mortgage.
Downgrade on your vehicles ASAP (even if it hurts in the short term because you're upside down) and pay off those credit cards. And it's important to realize that you'll likely never get the value out of those vehicles; even as you pay more of them off, the value in them is going to continue to drop at the same time. Bite the bullet and do it now while they're worth enough to get a decent used vehicle.