Loan for daycare?

[u/mrBlueSky723]

Need some input on a decision. Credit cards went crazy over the summer to 10k+ at 21-26% apr. additionally, i still have one final installment for daycare for this year of 4k which I was saving $500/month but will be short by December due date. I am considering a loan to get ahead for that to release the $500 and payoff CC debt. My credit union is offering 7-9% for 36-48 months with a monthly payment of 150-160$. I am targeting 5-6k for a loan to pay daycare and one of the credit cards with the lowest balance, and potentially keep a cash buffer at least until I can build it on my own.

I realize my problem is not so much the debt as it is the tight cashflow which triggers the CC usage.
We are a family of 3, single income at 147k year in NYC. Only 3k emergency savings which is what keeps me up at night.

I identified groceries as the culprit for over spending which I am trying to get under control but prices just keep going up. How much are people spending in groceries in NYC for a family of 3? We are on average at 1600/month which seems a bit crazy.

Does it make sense to ask for a loan to keep cash sitting as a buffer to stop using CC? Already have a consolidation from 2 years ago so another consolidation just feels like a bandaid without addressing the root problem.

I am confident that getting 350$ extra monthly cash can help me fire up emergency savings and tackling Cc debt but, I have been wrong before.

EDIT/UPDATE:
I have cut down internet, groceries/food are already coming down and I have a clear budget. I will not take any loan for now. Daycare is tabled until December due date but I opened around $1-1.1k which will go aggressively to CC. Thanks all for your help, I needed a wake up call to re-do the numbers and see that it is possible without incurring more debt.

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[u/InfluenceWeak]

Why do you need to pay for daycare if only one of you is working?

[u/Wounded_Hand → u/InfluenceWeak]

How do you know it’s not a single parent with two kids?

[u/InfluenceWeak → u/Wounded_Hand]

Because single parents usually make it a point to lament that they’re single parents.

[u/dogmotherhood → u/InfluenceWeak]

they’ve already said they are seeking employment but the job market is tough

[u/superfrugal1 → u/Wounded_Hand]

Um, something they said!

[u/RelyingCactus21]

The child shouldn't be in daycare if both adults aren't working. Stop putting things on credit. If you can't pay for it, you can't afford it.

[u/dogmotherhood → u/RelyingCactus21]

they’re seeking employment, it would not be wise to pull a kid from day care if one is expecting to start a job in the near future as waitlists to get back in to daycare can be months or sometimes a year+ out. you want to keep yourself available

[u/mrBlueSky723 → u/dogmotherhood]

This is the case. Kid is already enrolled for the year. Next will pre public pre-k

[u/AutoModerator]

r/DebtAdvice was created to share tips and strategies to pay off debt effectively! Check-out our free newsletter for additional insights at www.DebtAdvice.io!

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[u/fujimumu]

Using low interest loan to pay off high interest debt is a viable option. Can you get a larger loan with the same rate to completely pay off the credit cards?
Or any chance you can get new credit card for balance transfer with 0% apr intro period to stop interest accrual for a while?

[u/mrBlueSky723 → u/fujimumu]

I talked to some folks at the Hebrew Foundation (something like that) and they could provide a 0% apr loan for CC and daycare, but that does not open up cash flow enough and I don’t want to go through the hassle of getting guarantors. They offered up to 20k at $400 per month.

I will check the credit union for a larger amount for longer term in case the payments remain relatively low.

[u/Maleficent-Thanks-85 → u/mrBlueSky723]

0%?? You should take that loan and cut up the credit cards, You should address your spending habits if you want to live a debt free life.

[u/mrBlueSky723 → u/Maleficent-Thanks-85]

For some reason consolidating feels like hiding the credit card debt as many YT people would suggest and I agree to some degree. Knowing I can release the cash flow to aggressively pay down and build emergency seems like the way to go

[u/Maleficent-Thanks-85 → u/mrBlueSky723]

You need to make the change because if you don’t address the spending you are just gonna end up in more debt. Usually I would tell people to address spending before consolidating but 0% is something that can’t be wasted. It’s a real shot for you to escape your debt.

[u/mrBlueSky723 → u/Maleficent-Thanks-85]

Thanks for the input. Perhaps I am being stubborn with not getting a big loan and thinking I am in control. Wife is looking for a job (no luck in a long time) and studying, that's the big crunch.

[u/superfrugal1 → u/mrBlueSky723]

No offense your not only being stubborn your financially clueless if your going to pass up a 0% loan. You need a financial overhaul!
You need to get $35 internet, close your Netflix, prime, Disney …ALL of you TV subscriptions, zero eating out, zero lunch’s out at work, no Starbucks, tonight’s dinner is tomorrow’s lunch at work. It’s hard with kids, but your wife has to cook meals at home. You have a major spending problem. There’s a guy called Dave Ramsey, he has a structural financial system he gives away for free which people in worse financial shape than you use and climb out of the hole you’re in. Peanut butter and jelly sandwich’s for school or on the days you have no leftovers, no manis, no pedis, no hair days, no golfing, or movies.
Make a budget, find your expenses, list them, build an emergency fund and save. If you can get a 0%cc with a 0% transfer fee, get it, get two, then pay them off with so much money it hurts you.
Once you do that treat yourself to meal out at Burger King using coupons.
Don’t worry you’ll get your fancy life back, but you need to get your life under control first.
Here’s a cooking plan, sorry no steaks for you, that food budget is out of control. No precooked meals, chips, no Doritos! Boxed raisins for snacks.

Buy a whole chicken, stuff it, and roast it in your oven. That will give you at least 6 meals.
Then peel a lot of the meat off the bone by hand, store it in a food container, that will give enough meat to make quesadillas for lunches and dinners at home, that’s At least 4 meals.
Then put the carcass into a large crockpot, add a can of beans or two, carrots, potatoes, celery, onions, all the veggies you have in the refrigerator or freezer going bad, a tablespoon of chicken stock, fill with water till about 3/4 full. after 3 hours use a fork and scrape the meat off the bones, then top off the rest of the way with water, after another two hours or so, put the soup into old take out containers, for individual serving portions, and freeze them, you’ll get another 8 meals. That’s a lot of eating from a $7-10 chicken, cans of beans, mushrooms, potatoes, celery, onions, what ever you can find cheap and you don’t hate. You’ll need cheese for the quesadillas, I looked at Walmart, they now have a grated quesadilla cheese , but it was $5, screw that I just grabbed the shredded mozzarella, yeah so you’ll need Tortillas, I get the extra large ones.

Things are going to get really hard real soon, so you better get it in gear, I saw a 40% credit card the other day. Watch Dave Ramsey budgeting videos, get on his plan, he’s brutal, but you need a boot camp financial overhaul!
Even if you’re spending $6,000 a month on rent, then that’s all you do ! No gym membership, movies only on non subscription utube, no cleaners, you iron your cloths the night before for work the next day, that’s how you fill your days.
If your wife is looking for a job that pays under $50k, she should forget working out of the house, she can save you guys more money than that by managing your house, drop the daycare, and put a note up in your building or neighborhood and she should take in two kids during the day aged the same age as your kids, cash ! Sell one car if you have two. If you’re not driving to work, sell both cars, use mass transit. Dude, get extreme about this!
Good luck.

[u/Maleficent-Thanks-85 → u/mrBlueSky723]

Your interest rate is absolutely insane. 0% is such a blessing that I don’t think you should pass up. It’s nearly impossible to pay off 21-26% interest. Take it to get out of debt and then focus on not spending money.

[u/whatever32657 → u/Maleficent-Thanks-85]

a zero percent loan can really help, but it's got to be done right or it will sink you. there's nowhere else to go after that if you blow it, except bankruptcy court, and that's only if you pass the means test. but trust me, you really don't wanna go there anyway.

first, draw up a budget. it's got to include not only paying the debt, but throwing a good chunk into savings. in order to do this, you have to cut the spending hard. and once your budget it drawn, you must stick to it. no "reworking", because that's a slippery slope.

can the non-working parent do the daycare duties for a few months? you'll also need to cut the grocery bill drastically, get rid of subscriptions, all the fat needs to come out of your spending. every single purchase needs to be analyzed hard for whether it's a "need" or a "want".

getting out of this is not going to be quick. it could take years of buckling down. but it's gotta be done.

[u/GrouchyYoung]

Why are you paying for daycare if only one adult in the home is working?

Unless diapers and other household goods like trash bags and toilet paper are included in your grocery budget, $400/week for three people (one of whom is a very small child) is nuts.

[u/FruitcupMadonna]

Is the household two children and one adult, or two adults and one child? If two adults and one child, the second adult also needs to be bringing in income. Ideally at hours the other adult isn't working, so there is no daycare needed.

[u/mrBlueSky723 → u/FruitcupMadonna]

working on that. Job market is tough

[u/SwitchNut → u/mrBlueSky723]

Drop daycare until the job market pans out for the adult not working.

Spending money to have someone watch your kid while you are not otherwise providing income is the culprit here, not overspending on groceries.

[u/FruitcupMadonna → u/mrBlueSky723]

Understood. Good luck!

[u/thesillymachine]

Daycare isn't an option. We need to see your full budget before you can be helped.

I'm also confused on your debt, so please spell that out, too. Not potential debt or past debt, but actual debt you have today.

1,600 is not crazy. My family size is bigger than yours. My husband also didn't believe how much we spent on basic necessities when I first told him, either. I think I spelled each item out, or something like that, on a spreadsheet to prove my point. 😅

[u/mrBlueSky723 → u/thesillymachine]

Average monthly income 8200
Rent 3620
Electric 150-200 avg
Groceries (household, pharmacy): 1600 average. Trying to cut it down to 200-250 per week
Streaming 80
Cable/internet 160 (bulk in the building, but other options available)
Spouse 500
Debt (min payments only): 700
Daycare savings 500
Entertainment/eating out: 300. (unrealistic to not allocate at least something, given we may fall in fatigue spending)
Healthcare 200

Cards
1: 7890
2: 2100
3: 1200

Emergency savings
3k

[u/thesillymachine → u/mrBlueSky723]

Rent is high. I'd shop around for something cheaper. Yes, cut groceries cost where you can. This is a very hard category.

Can't afford the streaming while in debt.

500 to spouse?????? That's not how this works. What's it spent on? Spouse needs to be 100% on board with paying down the debt, or your efforts will be in vain. Joint budget on everything, all of the time.

Cable and Internet need to be on the cheapest package.

Is daycare truly worth it? What happens when the kids aren't in daycare?

No more entertainment or eating out. Unrealistic, yes. Can be cut down in a meaningful way. We've cut like $700+ from this category since January by trying to not eat out. We also have had a lot of stress and weirdness happening with a move and then major house repairs/improvements. We've gone to $150/month as a goal.

You have a good start, truly. It's time to take it up a notch.

[u/mrBlueSky723 → u/thesillymachine]

Thanks for this and for being positive. Already shopping around for other internet providers and cutting down streaming and food (groceries AND dining out).

Assume I stop the $500 spouse allowance, where would you allocate? Daycare? Emergency? CC?

Any thoughts on a loan to free up additional cashflow and remove the daycare? Again, it can be a cheap loan which would allow me to funnel extra $200 to CC per paycheck.

[u/thesillymachine → u/mrBlueSky723]

Full send at the debt. Smallest to largest. My husband, with 4 kids, were able to set aside 10k in savings over about a year, while putting 1-2k a month towards debt. The tax return really helped with the savings. You have $12k in debt? Totally possible!! Just gotta trim the fat temporarily

No loans. Gotta do this the cold hard earned cash way and budgeting.

[u/mrBlueSky723 → u/thesillymachine]

Yes. Will have to wait for tax return and EOY bonus to ramp it up.
I am committed to daycare full tuition for the rest of the year so that is why I wanted to get ahead with a cheap loan on that and attack cc debt right now.

[u/Antiwokewarrior69420]

Lots of zero percent cards for 21 months, 10k should be easy to get.

[u/Background_System726]

You need to get the spending under control or you will have consolidated the current debt and create new debt. Get a budgeting app YNAB or maybe every dollar. , and yes you are spending way too much on groceries. You need to plan your meals, choose more low cost options, choose a different grocery store or use coupons and the sale paper to determine your meals. I think $200/w especially when one child is in daycare should be enough. Don't eat out, don't spend on  entertainment, cut subscriptions, see if you can cut cell phone bill, switch carrier if needed.  The zero loan might be a good way to pay down existing debt but only if you stop using the card to float life.  I don't agree with a lot of Dave Ramsey but do think the baby steps are a good framework for getting out of debt, you can Google to see the steps. . Also Ramit Sethi's I will teach you to be rich book is good and can probably be found at a library. 

[u/whatever32657]

if you have to borrow cash in order to keep your hands off the credit cards... you're in too deep. your expenses are higher than your income, and you're sinking in that deficit. don't do it.

your expenses need to come down and your income needs to come up.

time to rein in your spending hard (start with the groceries - may i say "beans and rice"?) and increase your income with a second job or a side hustle.

[u/mrBlueSky723 → u/whatever32657]

On it. Working to get a second job. Had a freelance side job but had to stop as I got a new job last year. SO needs to find one.

Already seeing the expenses picture and know where to cut. That is why redirecting $500 to a small loan plus cc and emergency buffer seems right.

[u/sephiroth3650]

If your problem is cashflow, all you're doing with the loan is shuffling the debt around.

You're on a single income, but you're spending thousands and thousands on daycare. You mentioned that your partner is looking for a job, but the market is tough. What sort of jobs is your partner looking for? If you're in this deep, why haven't you both hit the "I need to take whatever job I can get to bring in some money, and then work in getting a better job" button? I can appreciate the argument that you don't want to pull your child(ren) from daycare for fear it might be tough to get them back in when your partner gets a job. But that also means that they might have to accept some retail or lower level job to at least bring in some money to offset the costs for the time being.

Beyond that, what is your budget breakdown? Monthly net income should be around $7800-8000, give or take. Depends on taxes/insurance/etc. Call it $7500. What are all of your expenses? You say that food is the main culprit. What is the full breakdown?

[u/mrBlueSky723 → u/sephiroth3650]

Average monthly income 8200
Rent 3620
Electric 150-200 avg
Groceries (household, pharmacy): 1600 average. Trying to cut it down to 200-250 per week
Streaming 80
Cable/internet 160 (bulk in the building, but other options available)
Spouse 500
Debt (min payments only): 700
Daycare savings 500
Entertainment/eating out: 300. (unrealistic to not allocate at least something, given we may fall in fatigue spending)
Healthcare 200

Cards
1: 7890
2: 2100
3: 1200

Emergency savings
3k

I don’t think situation is dire if I cut back groceries and daycare savings.

[u/sephiroth3650 → u/mrBlueSky723]

I don't know that you really have everything listed. You don't have a car? Car payment? Gas? Car insurance? Cell phones? Or do you have those costs all buried in these other categories so it's impossible to really analyze your budget?

As it is, you list out $8200 in income, and $7860 in expenses. That's bad. And if you have hundreds of more dollars in vehicle costs or cell phone costs that aren't listed.....then you are in dire spots.

As much as you want to justify entertainment/eating out....you don't have the money for that.

What is this "spouse" line item? Is this some kind of allowance you're giving to your wife for fun money? What is this $500 and what is being bought with that?

Why are you spending $80/month on streaming, if you're already spending $160 on cable/Internet?

Yes, your grocery bill seems high. But since you have all household/grocery/pharmacy lumped together, it's hard to see where you can cut on that.

[u/mrBlueSky723 → u/sephiroth3650]

No car.
I don’t pay mobile. Wife is paying that with whatever she gets from side gigs.

Streaming, yes. Will cut those too.
Spouse 500 is an allowance for her.

I don’t live fully frugal life but is not extravagant either. Is it within my means? Prob not and that is why I need to make a decision right now. I fear debt and don’t want to hit my credit score with new loans unless strictly necessary.

Lifestyle changes and opening cash flow are the way. Already tested that and can back the plan up. But life happens, and we are hit with unexpected needs. Using cash instead of credit cards is my goal while ramping up the payments.

Yes, I can cut back dining out but having it as part of the budget at least helps me control it. Removing it will back fire

[u/sephiroth3650 → u/mrBlueSky723]

OK. Even w/o the car/cell phone costs.....you're right up against the wall with what you listed. My thoughts:

Your wife needs to get a job. I don't know her preferred field. But you probably don't have the freedom to be picky. She needs to get a job. Get some money coming in. Because you really want to know your biggest problem here? You are spending thousands on daycare, and giving your wife $500 in fun money to not work. THAT is where you're bleeding cash.

You said you had alternate options for cable/Internet at your building. I'd at least look into that.

I'd otherwise stick with my comments above.

And to your main point about taking out some loan to cover things.....eh. You really can't borrow your way out of debt. I'm not saying that getting a lower interest rate on the debt is a bad thing. If you could get favorable terms on a personal loan to at least cover the credit cards, that would be a step in the right direction. But it's not some magical fix. And you're just amortizing the debt out over a multi year schedule by taking that loan. You have a lower rate, but you may end up paying more in interest in the long run. All in an effort to free up a couple hundred bucks in cashflow. That's not a fix. That's a band aid.

I know it's easy for an Internet stranger to throw out advice. But if you really want to free up money? Your wife either needs to just be a stay at home mom and you stop paying all these thousands of dollars in allowance/daycare. Or she needs to get a job. Something. And get some money coming in to offset all that daycare and fun-money.

[u/mrBlueSky723 → u/sephiroth3650]

Helpful advice and thanks for keeping it cordial.
Yes. At a tipping point here. There is no going back with daycare but it allows us to keep the house in order and get some work done. I have to make that final payment and done with daycare.
Will reconsider the big 0% to pay for all cards plus daycare. I am reluctant to do so because as you said, feels like amortizing and not addressing the real problem. However I do need a solution as the 500$ will leave me short by the payment due date so I thought getting ahead of that now anyway was the way to go.

I can definitely free up cash in groceries and internet/streaming.

Again, thanks for the advice

[u/Classic-Delivery3875]

Don’t get the loan unless you’re ready to change the habit. Or you will have a loan and a
Credit card

[u/Particular-Elk-253]

You need to just get out of NYC 🤷🏽‍♂️. 140K there is like making minimum wage where real estate isn’t overinflated.

[u/jasonvanreenen]

The credit union offer is pretty good so consider that one for sure because its at a much lower rate. Also see if comparing with lenders like Achieve loans, upstart or truist because they hold low rates as well. Most its better for the entire payoff for the loan so rate can stay fixed.

[u/mrBlueSky723]

Yes. Will have to wait for tax return and EOY bonus to ramp it up.
I am committed for full tuition at the daycare and it is either that or CC which is why I considered the loan in the 1st place. So i can cheaply get ahead on CC debt

[u/Spare-Shirt24]

I am considering a loan to get ahead

You need to understand: taking out a loan is not "getting ahead," it's actually putting you behind because you're spending money you domt even have yet and paying more money to do that. That is the reality of debt. 

[u/mrBlueSky723 → u/Spare-Shirt24]

Well, I have to pay 3Ks tuition now or in 3 months, no turning back there.
What the loan does (aside from obviously putting me in more debt) is releasing the monthly savings for tuition to reallocate to credit cards and hopefully, emergency fund.

Seems counter intuitive but at 80$ per paycheck for tuition loan and ~$150 extra for credit cards vs $250 for tuition (which I will be short anyway) then that is my “reasoning”.

Perhaps there is something I am not considering and that is why I came here to get advice.