War on Debt

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Topic Author
technofox
Posts: 290
Joined: Tue May 22, 2007 8:25 pm

War on Debt

Post by technofox »

Hi everyone,

New thread, new start.

In a prior thread http://www.bogleheads.org/forum/viewtop ... 2&t=150136 I got one hell of a lashing from some and encouragements for others. To those that lash, it doesn't work on people like me. I am stubborn and combative. For those that are encouraging, you gave me the right kick to the but that I need to get my head cleared, either way I thank the both of you. The only ones I don't thank are the trolls, but of course some people need a free teddy bear to get attention from (http://www.jewelsforme.com/the_most_int ... _the_world *EDIT* Looks like the giveaway is over, sorry trolls. I will try to find you a new free teddy bear site, lol).

Anyway, all jokes aside and ball busting, I do have a serious issue to resolve. I am using this thread to focus on my redeclared war on debt, along with status updates on my financial health. I think this would help me stay focus on the is war path against the consumer debt that my wife and I are burdened with.

Currently i have $25,000 of consumer debt (all below 10% for those whom are wondering). I also have $200k in student loans, a car just recently leased, and my wife's car is half way paid off (not sure of the balance, but lets assume it is around $7k). We also have a mortgage at $1,580 (expected to go down again next spring as we recently had our taxes reassessed). Income is about $115k if you exclude my second job.

After all of our bills are paid (including payments to service debt and $100/month for savings) we have about $600 a month left. We also have a baby on the way and of course all of the expenses that go with that. My game plan is to get as much debt paid down, as quickly as possible before the baby comes into the picture. After that, it's financial crunch time until daycare or baby sitter costs disappear.

What we have going for us:
1. Wife gets raises every year like clock work.
2. I work a second job that nets another $5k, but it is not always a guarantee that I will have work.
3. Some of our bills have decreased (e.g. housing payment and energy, we run the thermostat around 64F to 68F all throughout winter).
4. Spending has been decreasing thanks to a slow down in our social life.
5. We both have pretty stable primary job incomes.

What is against us:
1. Umm... a lot of debt. There is history behind some of it, but it's not due to a frivolous lifestyle; however, that is not the point. Its the past and there is no point rehashing crap that can't be undone.
2. Spending priorities are different between wife and I.
3. Baby coming soon, which means looking for an affordable baby sitter and ways to cover baby related expenses.
4. Health insurance via my wife will take a bite out of that $600 used towards whatever. I can negate some of it using withholding allowances and cutting spending where I can, but that's it.

Here is our budget:
$1,580 mortgage (including taxes)
$1,500 student loans
$550 all combined personal debt
$150 energy bill (I budget $200 for this, but I use the extra cash towards paying down debt)
$193 for my car lease (yes I messed up, so lets just take it from there)
$290 for wife's car, she is going to get a cheaper vehicle in the near future
$120 cable
$20 gym membership
$120 car insurance (nothing changed with new car lease, actually the Jetta's insurance rate is cheaper than my old 09 Matrix)
$10 Netflix
$130 cellphones (more on this)
$30 garbage
$600 food, including Friday night pizza (we don't actually go through all $600, but sometimes we do hit close to it)
$520 for gas (wife travels a lot)
$10 Newspaper
$100 for savings

Net Income $6,520 a month.

Ok before ripping this apart, here is what I can cut without arguing with my wife:
1. My cellphone plan ends in a few months. I will be switching to prepaid, since the major carriers no longer subsidize cellphones. Net savings $18/month
2. Will cut internet speed down to the cheapest broadband. Net savings $20/month
3. Kill Amazon Prime. Net savings $80/year

Total is about $45/month increase give or take $5 due to taxes on the broadband.

Where there maybe some contention with wife:
1. Killing the DVR. Net savings $25/month
2. Killing the newspaper. Net savings $10/month

Total is about $35/month

Absolute sacred cows:
1. The house (both of us) $1,580/month
2. Cable (wife) $75/month
3. Wife's smartphone plan (for herself) - I know I can get us a better deal with equal coverage for $75, but she won't give up her provider :oops: $64/month
4. Netflix (both of us) $10/month

Expenses that could be cut after careful consideration:
1. Gym membership. Net savings $20/month

Other than that, traveling expenses will decrease due to the baby cramping the social life and food should decrease to $400 +/- $50 due to not eating out. I can't give out estimates until it happens, so stay tuned for that.

Other notes: wife will not consider using just Netflix/Hulu combo with over the air TV and broadband internet to save money on cable. I friend up about another $100/month due to the mortgage decreasing and reduced car payment thanks to my lease; wife and I agreed to use it to fire towards paying down debt.

*EDIT* Forgot to mention. Wife is interested in checking out the Dave Ramsey's method of budgeting and snowballing debt. She seems to like the premise. I will be working with her on creating a new baby budget, so this is an ample opportunity to work with her.
livesoft
Posts: 80590
Joined: Thu Mar 01, 2007 8:00 pm

Re: War on Debt

Post by livesoft »

I've read that gasoline is getting cheaper, but I don't really know since I haven't bought any in quite a while and still have about half a tank left. Is that amount for gasoline realistic?
Wiki This signature message sponsored by sscritic: Learn to fish.
User avatar
in_reality
Posts: 4529
Joined: Fri Jul 12, 2013 6:13 am

Re: War on Debt

Post by in_reality »

technofox wrote: Other notes: wife will not consider using just Netflix/Hulu combo with over the air TV and broadband internet to save money on cable
I think you'll find a baby makes you quite busy and both the time for cable and entertainment value of it will drop. Increasing may be her desire to save some money or have more money for her child. I predicted your cable bill is doomed. At some point I'd try "Are you really watching all that much cable these days? I'm just thinking of how we can save money for our baby ...". Don't try to drive though a brick wall though...
Last edited by in_reality on Thu Nov 06, 2014 9:06 pm, edited 1 time in total.
stan1
Posts: 11016
Joined: Mon Oct 08, 2007 4:35 pm

Re: War on Debt

Post by stan1 »

Are you and your wife looking for jobs that will get your pay bumped faster? With the baby your wife might want a job with less time in the car as well (also cutting back her $6K/year gas expenses)!
Topic Author
technofox
Posts: 290
Joined: Tue May 22, 2007 8:25 pm

Re: War on Debt

Post by technofox »

stan1 wrote:Are you and your wife looking for jobs that will get your pay bumped faster? With the baby your wife might want a job with less time in the car as well (also cutting back her $6K/year gas expenses)!
She is a teacher, so her travel is more for personal stuff, like going to the gym, seeing friends and family, etc. Most of her traveling expenses will decrease once the baby is born. I anticipate it dropping by $130 at most.

As for myself. I have a very stable job and don't want to take the risk for a higher paying one. I do happen to have a unique set of qualifications of skills in a very high demand job market across the globe. I literally have been offered jobs every month, because my skills are in such high demand. The thing is, my wife is unwilling to leave where we live, because she is all about being close to family. I am unwilling to leave, because well I love my wife and the area where we live in.

Other than that, I have been working on trying to get promoted. Unfortunately working in a union shop, things run at a glacial pace. It's part of my love/hate relationship with unions.
Topic Author
technofox
Posts: 290
Joined: Tue May 22, 2007 8:25 pm

Re: War on Debt

Post by technofox »

in_reality wrote:
technofox wrote: Other notes: wife will not consider using just Netflix/Hulu combo with over the air TV and broadband internet to save money on cable
I think you'll find a baby makes you quite busy and both the time for cable and entertainment value of it will drop. Increasing may be her desire to save some money or have more money for her child. I predicted your cable bill is doomed. At some point I'd try "Are you really watching all that much cable these days? I'm just thinking of how we can save money for our baby ...". Don't try to drive though a brick wall though...

I hope you are right to be honest. I hate the idea of cable. I see it as an antiquated relic of the 20th century that should have been abandoned long ago. IP TV or streaming is the future, and will be in another 20 years or so. Cable is on life support at the moment, it is like Anakin Skywalker as Darth Vader, it's only the machines keeping them alive and still providing them with powerful influence, but in the long run they are going to lose. As broadband over cellphone towers take place (and other wireless technologies), cable will have to compete even more. The cheaper prices of Netflix, et al will totally kill off cable once and for all. The sucky part is that it will take 10 to 20 years.
Ron Ronnerson
Posts: 2790
Joined: Sat Oct 26, 2013 6:53 pm
Location: Bay Area

Re: War on Debt

Post by Ron Ronnerson »

I think you need to step back and take a look at the bigger picture. Your net income is $6.5k/month and your expenses are about $6k per month. In order to improve your situation and pay debt off more rapidly, you're looking at doing things that, taken together, will save you maybe $100/month (assuming the sacred cows your refer to are not up for questioning). So you're talking about less than 2% of your expenses. While the things you're considering are a good start, they're not really going to drastically change your situation. To do that, you need to do much more. Once the baby comes (we have a 5 month old at home, btw), you'll have new expenses on top of everything you've got going on right now.

I don't mean to discourage you. On the contrary, I think you should look at ways that you can increase the cash you have coming in and cut your expenses by far greater amounts than what you're considering. The side job, by the way, is definitely a good thing.

Here are a bunch of things I have done in recent years that may or may not be helpful/applicable to you:

1) Refinanced the mortgage. Rate went from 5.25% to 3.25% for 30 year fixed.
2) We never ran our a/c or heater (doable for us as we live in a newer home in Northern CA). We do plan to use the heater this winter now that we have a baby.
3) Cut home phone service.
4) Drive an old car (I've been driving the same Honda for the past 15 years).
5) Bought a fuel efficient car and car pool (my wife has a long commute so she drives a Corolla that gets 42 mpg on the highway and she car pools as well).
6) Had a family member who shared expenses live with us for 5 years.
7) Call the cable company and get on an annual contract each year through their retention department.
8) Sell things online (I've used craigslist and Amazon to do this).
9) Donate items for the tax deduction.
10) Use coupons like crazy on everything. I don't sit around clipping them from the paper. In modern times, you can save a lot by using electronic coupons.
11) Open up checking and savings accounts when there are cash bonuses for doing so. We've made about $1k from Chase Bank in the last couple of years by opening and closing accounts.
12) Used a flexible spending account for out-of-pocket health expenses.
13) Signed up (over time) for various credit cards to maximize cash back rewards. I put a little sticker on each card reminding me where to use it.
14) Shop online through bank and airline portals to earn extra cash back or miles.
15) Signed up to do focus groups and surveys.
16) Transferred brokerage balances for bonuses.
17) Switched to cheap prepaid cell phone plans.
18) Ate at restaurants like Subway where $6.50 can feed two people. Don't order drinks. Don't eat at places where they serve you.
19) Traveled using miles. Slept on people's floors.
20) Signed up for high interest savings accounts and jumped through the hoops to get the highest rates possible.
21) Got side gigs to increase income.
22) Don't replace technology that works sufficiently (the largest TV or the newest phone are not necessities).
23) Have a local gas station do car maintenance and repairs.
24) Spend time at parks, libraries, and coffee shops for free/inexpensive outings.
25) Walked, used dumbbells, and an exercise bike rather than go to a gym.

7 years ago, we had a negative net worth and our financial picture was bad. Things look far different for us today. We've enjoyed feeling less stress as our finances improved and that's motivated us to keep living simply and find creative ways to earn more and spend less. It's even become a sort of a fun game.

Wish you all the best.
Ron
User avatar
GerryL
Posts: 3642
Joined: Fri Sep 20, 2013 11:40 pm

Re: War on Debt

Post by GerryL »

Here's a suggestion: come at it from a different direction. Instead of thinking about where you can shave a little, seriously analyze needs and wants. A certain percentage of your income is for needs/must-haves, another for savings, and the third slice is for wants. You will need to be brutally honest with yourselves and decide what your goals in life are and set your priorities to help you reach your goals.

Elizabeth Warren and her daughter wrote a book called "All Your Worth: The Ultimate Lifetime Money Plan" that promotes this non-budgeting technique. You can probably find the book at your local library (another great way to save.)

PS question: Why do you have cable AND Netflix (and Amazon Prime)?
User avatar
White Coat Investor
Posts: 15651
Joined: Fri Mar 02, 2007 9:11 pm
Location: Greatest Snow On Earth

Re: War on Debt

Post by White Coat Investor »

Ron Ronnerson wrote:I think you need to step back and take a look at the bigger picture. Your net income is $6.5k/month and your expenses are about $6k per month. In order to improve your situation and pay debt off more rapidly, you're looking at doing things that, taken together, will save you maybe $100/month (assuming the sacred cows your refer to are not up for questioning). So you're talking about less than 2% of your expenses. While the things you're considering are a good start, they're not really going to drastically change your situation. To do that, you need to do much more.
This was my thought while reading through. You have a big debt. You need a big shovel. Rather than ignoring that other job, I'd increase it. When you listen to those successful debt payer offers on Dave Ramsey, a common element is an increase in income during the time period over which they paid off their debt. Sometimes it's easier to boost income than cut spending. Sometimes it's easier to cut spending. Many times, a combination of those two plus selling any assets you may have will get you there soonest. $200K is a huge debt on $115K, but it's not nearly as bad on $200K!

Have you considered refinancing the student loan debt? This post may help:

http://whitecoatinvestor.com/new-option ... financing/

P.S. You talk about contention with your wife. I can guarantee you will not be successful until you're both on the same page.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
surfhb
Posts: 231
Joined: Thu Aug 15, 2013 6:13 pm

Re: War on Debt

Post by surfhb »

Youre going to need to find a way to live on one of your incomes and pay off debt with the other.

You're approaching a half million dollars in debt with a baby on the way!! You need to grasp this situation and either accept the status quo the rest of your life or seriously downsize. The house needs to go along with the rest of the wants for several years. If you rent and live on $60k a year you will have your issue done in no time.

Not only is it doable but people are accomplishing it all the time. You really have no choice unless you are ok with the ways things are now....which you're not.

Sorry bro
The Wizard
Posts: 13356
Joined: Tue Mar 23, 2010 1:45 pm
Location: Reading, MA

Re: War on Debt

Post by The Wizard »

There's good debt and bad debt. Good debt presently has an interest rate of around 3% or less and is for purposes of a home mortgage or purchase of an affordable car.
Bad debt is anything over 5-6%, particularly credit cards not paid in full each month.
Student loans can fall in either category; my kids' loans were 3.15% APR, but other people have loans over 6%.

Please list all of your debts individually, including
1) type of debt
2) principal amount
3) interest rate (APR)
4) required minimum monthly payment

A key metric for paying off debt, and avoiding toxic bad debt, is having a good Expense/Income ratio.
I think it's good if your basic, predictable expenses are no more than 80% of your net income after taxes.
So with your net income of $6520 a month, you want to keep your predictable expenses under $5200 a month.
This gives you $1300 a month to work with:
- pay extra amounts on high interest debt
- build up your emergency fund
- save more for the long term
- eventually even SPEND more on recreational pursuits

But the first step is to find ways to Live Beneath Your Means.
It's not clear that you are focused on doing that...
Attempted new signature...
Topic Author
technofox
Posts: 290
Joined: Tue May 22, 2007 8:25 pm

Re: War on Debt

Post by technofox »

All good advice here.

My second job nets $5k and generally is used to pay off debt. It's an off budget item, because there are no guarantees that I will have work each year.

Wife gets pay raises every year, since they use a step system in our school district. I get raises dependent upon promotions, which are hard to come by due to bureaucracy and the union's penchant to resist change. So I am stuck between a rock and a hard place, job security for lower pay or leave and risk getting replaced by someone in India or is younger in the for profit sector.

As for debts balances and interest:
1. Fed student loan, about $32k 3.5% Min payment $225
2. Private about $33k 8% Min payment $270
3. Her fed loans is about $60k (honestly don't know the interest, 4% would be a good rough average estimate)
4. Her private loans about $60k (8 to 9%) Min payments is $981
5. Mortgage $166k at 3.25% Min payment $1580
6. Car loan for wife $7k 6.25% min payment $291
7. Debt consolidation loan $11k at 6.75% Min payment $210
8. Credit card debt $6.6k at 8% Min payment $75
9. Personal line of credit $6k @ 9% Min payment $150

I know my wife would cut cable, if it meant keeping the house. We worked hard to get the thing and it's hard to get a house this inexpensive in our area. So selling it is off the table, unless we are in dire straights. We also have land we could sell if necessary.
Carl53
Posts: 2254
Joined: Sun Mar 07, 2010 8:26 pm

Re: War on Debt

Post by Carl53 »

technofox wrote:All good advice here.

As for debts balances and interest:
1. Fed student loan, about $32k 3.5% Min payment $225
2. Private about $33k 8% Min payment $270
3. Her fed loans is about $60k (honestly don't know the interest, 4% would be a good rough average estimate)
4. Her private loans about $60k (8 to 9%) Min payments is $981
5. Mortgage $166k at 3.25% Min payment $1580
6. Car loan for wife $7k 6.25% min payment $291
7. Debt consolidation loan $11k at 6.75% Min payment $210
8. Credit card debt $6.6k at 8% Min payment $75
9. Personal line of credit $6k @ 9% Min payment $150
Looks like you are good candidate for the debt snowball. You just need to find more income/reduced expenditures to make it start rolling.
Topic Author
technofox
Posts: 290
Joined: Tue May 22, 2007 8:25 pm

Re: War on Debt

Post by technofox »

As for selling stuff off. I am planning on doing that this weekend and every weekend that I can. I should be able to get a couple hundred dollars using a combination of eBay and Craigslist.

I also have a cash nuke that will obliterate $2k of debt, while giving us also a $1k emergency fund.
Topic Author
technofox
Posts: 290
Joined: Tue May 22, 2007 8:25 pm

Re: War on Debt

Post by technofox »

Carl53 wrote:
technofox wrote:All good advice here.

As for debts balances and interest:
1. Fed student loan, about $32k 3.5% Min payment $225
2. Private about $33k 8% Min payment $270
3. Her fed loans is about $60k (honestly don't know the interest, 4% would be a good rough average estimate)
4. Her private loans about $60k (8 to 9%) Min payments is $981
5. Mortgage $166k at 3.25% Min payment $1580
6. Car loan for wife $7k 6.25% min payment $291
7. Debt consolidation loan $11k at 6.75% Min payment $210
8. Credit card debt $6.6k at 8% Min payment $75
9. Personal line of credit $6k @ 9% Min payment $150
Looks like you are good candidate for the debt snowball. You just need to find more income/reduced expenditures to make it start rolling.

Wife is completely on board for that, which is why she has some interest in Dace Ramsey's money management plan. I will be working with her to implement, I just hope she doesn't get ticked off about having to cut certain things.
User avatar
alec
Posts: 3106
Joined: Fri Mar 02, 2007 2:15 pm

Re: War on Debt

Post by alec »

On thing my brother did was he showed his wife how many years it would take to pay off their student loans at current payments. That shocked them both into drastic action.
"It is difficult to get a man to understand something, when his salary depends upon his not understanding it!" - Upton Sinclair
Crow Hunter
Posts: 1022
Joined: Wed Jun 27, 2012 12:05 pm

Re: War on Debt

Post by Crow Hunter »

Some ideas from my own life:

-I don't know if this is even possible anymore but 10 or so years ago I consolidated my wife's student loans with a single provider. At the time Key Bank was offering a deal if you consolidated with them. The deal was a .25% reduction in interest rates for direct debit and a .5% reduction in principal as long as you made X number of payments and never missed a payment.

Maybe you can investigate doing consolidation loans on your wife's student loans and maybe get a lower interest rate and maybe a principal reduction. (You will have to pay taxes on it)

-You could also investigate what actually buying a season pass on whatever shows your wife really wants to watch on some type of streaming service (we use Xbox Live). It will usually be around $30 or so for the season and you can watch them over and over again and it will be WAY cheaper than $75/month that you are paying for cable and you won't need a DVR to record them because you can chose to watch them whenever you want. We used to do this before Supernatural went stupid, now we just wait until it comes out on Netflix Instant.

-With your wife being a teacher, have her investigate doing home tutoring, teaching summer classes or taking on some extra duties at school that might net her more pay. Cheer coach, sports coach, ball game chaperone, something like that. She should also investigate getting a higher degree. I don't know about the NY system but the MS system, where my inlaws work, getting a Masters will net you more pay. (It will also take up enough of her time that she won't want to be going everywhere spending money or watching cable TV. :wink: )

Those are things that I have either done or seen demonstrated in my life for cost savings.

Hope this helps.
Juniper
Posts: 44
Joined: Mon May 06, 2013 2:07 pm

Re: War on Debt

Post by Juniper »

technofox wrote:As for selling stuff off. I am planning on doing that this weekend and every weekend that I can. I should be able to get a couple hundred dollars using a combination of eBay and Craigslist.

I also have a cash nuke that will obliterate $2k of debt, while giving us also a $1k emergency fund.
What's a cash nuke and where do they come from?
Pax et Bonum! - Juniper
Juniper
Posts: 44
Joined: Mon May 06, 2013 2:07 pm

Re: War on Debt

Post by Juniper »

technofox wrote: As for debts balances and interest:
1. Fed student loan, about $32k 3.5% Min payment $225
2. Private about $33k 8% Min payment $270
3. Her fed loans is about $60k (honestly don't know the interest, 4% would be a good rough average estimate)
4. Her private loans about $60k (8 to 9%) Min payments is $981
.
You don't list a payment for #3. Is $981 the minimum combined for #3 and #4?
Pax et Bonum! - Juniper
Serie1926
Posts: 154
Joined: Sat Oct 20, 2012 9:00 am

Re: War on Debt

Post by Serie1926 »

I'm somewhat of a simple man and speak from first hand experience. Get a hold of a local church or group in your area and sign up for Financial Peace University.
Anon1234
Posts: 787
Joined: Sat Feb 26, 2011 10:32 pm

Re: War on Debt

Post by Anon1234 »

My observation from reading your post and followups: You have a good attitude and are going the right way. You will be successful. Best of luck.
stan1
Posts: 11016
Joined: Mon Oct 08, 2007 4:35 pm

Re: War on Debt

Post by stan1 »

You probably won't like what I'm going to suggest below and will give a dozen reasons why you can't do it, but given the high rate student loans you need to do something extreme if you want to get this situation taken care of before your kids are in college. You have physician-level student loans but are working in jobs that pay 1/4 to 1/10th of what physicians earn. Yet you've essentially ruled out earning more income because you want low risk union jobs. So what's left?

Rent the house out (at breakeven or better) and moving in with family for 5 years. That would give you another $1500*12*5=$90K to put towards debt payoff.
niceguy7376
Posts: 2973
Joined: Wed Jul 10, 2013 2:59 pm
Location: Metro ATL

Re: War on Debt

Post by niceguy7376 »

As a teacher, what subjects does she teach at school? I hope it is not Math!!!

With a 120K student loans and being a teacher(lower share of 116K salary of you two), does she have any idea if she is able to bring a NET Income after her loan payments, her car & gas usage(as per you, not work related but personal driving) and her cable and other Wants?? Forget about contributing to utilities or food, just her expenses and loan payments should wipe out her income.
Maybe just showing her those on an excel sheet should open her mindset.
Last edited by niceguy7376 on Fri Nov 07, 2014 9:28 am, edited 1 time in total.
User avatar
3CT_Paddler
Posts: 3447
Joined: Wed Feb 04, 2009 5:28 pm
Location: Marietta, GA

Re: War on Debt

Post by 3CT_Paddler »

As others have mentioned, Dave Ramsey is a great resource in your situation. I would say if you are expecting a baby have you accounted for either: 1) the loss of one income if your spouse decides to stay home (your spouse's feeling on the matter may change with time), or 2) the cost of daycare once your baby arrives?

Your budget looks tight as it is, and we find that there are always unexpected or seasonal expenses like travel with family, birthday gifts or Christmas. Even if they are not big items, they add up and erode any margin that you have.

With a baby on the way, I would actually use it as an opportunity to increase emergency fund/liquidity because once the baby comes it may be more difficult if something unexpected happens.

Reality is you have lived above your means, and it may require a couple sacred cows to be sacrificed (house, cable, car) in order to get enough margin to put a dent in the debt.
User avatar
just frank
Posts: 1455
Joined: Sun Nov 02, 2014 4:13 pm
Location: Philly Metro

Re: War on Debt

Post by just frank »

I think you need to think more about baby expenses and less about tweaking the cable bill.

Did you tell us your wife's maternity leave policy? Paid leave duration? What if the wife wants to take some more unpaid leave to be with the baby and you have to be 'teh heavy' and tell her she can't because of 'your' debt repayment plan?? Could be an impending rock and hard place.

Remember: I think 98% of new moms will love the baby more than the husband...don't put yourself in the middle....she needs your support.

I wouldn't sweat the mortgage (good rate, I assume 30 year term, otherwise refinance to 30 yr or longer term).

I think you need more income if you want to retire the other debt faster. Any way to increase responsibility or hours at your primary job? Promotion path? 'Management', etc?

Other than that...look for a (grant, not loan) bailout from parents to knock out the higher interest, shorter term debt to help net worth and cash flow. Some parents would be an no-go on this, others might be happy to help.

If your parents/in laws have any money to spare, they will remember how hard it was when they had kids...and will be eager to help out with the grandkids. Even if not cash to you, think college funds, 529s, let them buy you cribs and other gear, etc.

This is not a time in your life to be 'proud'.
crake
Posts: 275
Joined: Thu Mar 14, 2013 2:12 pm

Re: War on Debt

Post by crake »

Technofox, one of the biggest issues with your budget is it does not account for unexpected expenses. Contrary to what it sounds like, unexpected expenses should be expected.

You own a house. You should budget at least 2% of the value of the house for maintenance and repairs. If you don't account for this you will be forced to take out more consumer debt and blaming life for kicking you in the nuts again. A 1k emergency fund is not enough.

As others have said you are focusing on saving minuscule amounts of money when your debt is humongous. Saving 15 dollars on your cell phone bill is meaningless. You need to be looking at areas where you can save hundreds.

520 dollars a month on gas is insane. At 3.00 dollar a gallon gasoline in a 30 MPG car that is 5200 miles per month. For reference, that is approximately the distance between New York and Los Angeles....and back. Where the heck are you possibly driving to rack up that many miles? No wonder your cars need that much maintenance. You are putting enough miles on to circumnavigate the globe every 5 months.

600 dollars a month on groceries is insane. My wife and I buy whatever we please at the grocery store every week and only spend about 400 dollars a month. If we needed to we could easily get that down to 200 dollars a month by cutting out high costs foods.

If you cut those two items in half which should be relatively easy that is 560 dollars of saving right there. Cut the gym membership, get rid of the DVR, cut cell phone bill in half, cut newspaper. That will get you about another 140 dollars to bring the total to 700 dollars. This is without touching the sacred cows. That 700 dollars was just waste/frivolous spending.

Don't pay down debt with the extra savings. Build up an emergency fund. You need to have at least 10k in an emergency fund, probably more. After you have an emergency fund than think about paying off debt. If you don't have an emergency fund you will be back to credit cards when the first expected unexpected expense comes up.

Good luck, you can turn this around but you just need to except that there is a problem and be willing to make some changes.
Anon1234
Posts: 787
Joined: Sat Feb 26, 2011 10:32 pm

Re: War on Debt

Post by Anon1234 »

stan1 wrote: Rent the house out (at breakeven or better) and moving in with family for 5 years. That would give you another $1500*12*5=$90K to put towards debt payoff.
I love this idea for so many reasons. FYI, rent below breakeven is OK. Every dollar of rent is extra income that can pay off debt. Also FYI, $90K is $100K with avoided interest.

Why I love this:
- you will kill the 8% debts with the extra payments, and probably the car will be paid of based on regular payments. Life will be so much easier.
- you will have a built in babysitter that will make your marriage better.
- your child will have a great relationship with grandparents (takes a community to raise a child...)
- kids age 5 and below do not even think about where they live, or who they live with. No worries there.
- Get this done before kid in school - no restrictions about school districts or destroying kids social network.
- you will get experience as a landlord. Maybe you grow that side business.
- When kid is 5 YO you may decide to move to different/better school. You will have the financial freedom to do it.
- Kids love moving at that age, they think a new house is really cool.

Now you just need a generous and tolerant relative.
WHL
Posts: 789
Joined: Mon Dec 10, 2012 2:22 pm

Re: War on Debt

Post by WHL »

Same advise as the previous thread:

Sell house. Use proceeds to pay down debt.

Cut almost all discretionary spending. You don't need netflix and date nights. You do need cable internet and TV. Stop eating out. Start shopping smartly.

Negotiate with your debtors for lower interest rates.

etc., etc., etc.
pinecone
Posts: 67
Joined: Fri Nov 07, 2014 9:19 am

Re: War on Debt

Post by pinecone »

technofox wrote:All good advice here.

My second job nets $5k and generally is used to pay off debt. It's an off budget item, because there are no guarantees that I will have work each year.

Wife gets pay raises every year, since they use a step system in our school district. I get raises dependent upon promotions, which are hard to come by due to bureaucracy and the union's penchant to resist change. So I am stuck between a rock and a hard place, job security for lower pay or leave and risk getting replaced by someone in India or is younger in the for profit sector.

As for debts balances and interest:
1. Fed student loan, about $32k 3.5% Min payment $225
2. Private about $33k 8% Min payment $270
3. Her fed loans is about $60k (honestly don't know the interest, 4% would be a good rough average estimate)
4. Her private loans about $60k (8 to 9%) Min payments is $981
5. Mortgage $166k at 3.25% Min payment $1580
6. Car loan for wife $7k 6.25% min payment $291
7. Debt consolidation loan $11k at 6.75% Min payment $210
8. Credit card debt $6.6k at 8% Min payment $75
9. Personal line of credit $6k @ 9% Min payment $150

I know my wife would cut cable, if it meant keeping the house. We worked hard to get the thing and it's hard to get a house this inexpensive in our area. So selling it is off the table, unless we are in dire straights. We also have land we could sell if necessary.
:confused You're almost at the - (negative) $400,000 mark. What IS "dire straights" to you? You listed only the minimum payments for each of the loans above - is that what you're paying? If so, do you realize that by only paying the minimum, you're paying mostly for finance charges and very little on the actual balance? That balance will keep on growing too, and the longer you drag it out, the more you'll pay in interest. Try this calculator: https://www.navyfederal.org/calcs/debtpayoff2.php and plug in the numbers on those loans. On "4. Her private loans about $60k (8 to 9%) Min payments is $981" - Paying just the minimum, it will take 30+ YEARS and cost @ $100,000 :shock: The calculator's not perfect, but it does illustrate how misleading the concept of minimum payments is and how a "reasonable" loan can almost double.

As long as you've got the cable, you and your wife should watch the show "Till Debt Do Us Part". It was on CNBC http://www.cnbc.com/id/33421145 and may still be, or you could try YouTube. The couples are all in similar situations (usually where one spouse wants to save and the other spend, they argue, etc.) and Gail Vaz-Oxlade gets them on the right track and working together. She has a lot of great ideas to get couples on the same page financially. Her website http://www.gailvazoxlade.com/ is also a great resource. Gail is tough but has a good sense of humor. I think it could really help get your wife on board. Kudos for coming on this board and asking for advice. Good luck to you both and the new baby!
Drew777
Posts: 616
Joined: Tue Apr 29, 2014 3:53 pm

Re: War on Debt

Post by Drew777 »

My wife used to be the same way in many ways. I think I might have a couple realistic ideas that you could actually implement. Maybe not, but just something to think about.

1. Cable - $120 is a lot for cable alone. We switched from cable to Direc TV and our bill is down to about $45 a month with DVR, On Demand, HD channels, etc. Of course we're on the 1 year promotional rates, but our rates will still be much lower than cable after they increase. I would recommend shopping around for cheaper cable/satellite even without sacrificing quality. Most companies will give you a new customer discount for a year. Even calling your own cable company and threatening to leave for another provider will typically get them to cut your rate.

2. Cell phone - Has your wife given a legitimate reason for not wanting to give up her cell phone provider? Is it just fear that a new provider won't be the same quality? I would press for a real answer, not just "I don't want to".

3. Food - Separate your grocery and restaurant spending. Based on the amount your spending on food I'm guessing you eat out a lot. Without seeing a specific breakdown I would guess you could save a couple hundred by cutting down eating out to once a week.

4. Travel - Why does the decrease in travel have to wait on the baby since it isn't related to work? I question whether or not travel will actually decrease then as well. My wife used to have the same issue wanting to visit family every weekend 90 miles away. Eventually we compromised and every month we set a limited number of times we will visit family. Some months it may be just one weekend, some months it may be two or three depending on what is going on. But if we do not plan on going home a specific weekend at the beginning of the month (or any other travel) then we do not go unless we both agree.

5. Moving - I wouldn't tell you to sell the house and get an apartment, but I would argue you are setting yourself up for failure by severely limiting your earning potential in your current location. In any healthy marriage your spouse comes first even above parents, siblings, etc. If she isn't willing to move to improve both of your lives (and your childs) then that is something that needs to be addressed ASAP.

6. Why are you differentiating between "consumer debt" and student loans, car loans, etc. The student loans are absolutely killing you. I would recommend starting with the highest interest rate as opposed to the lowest balance or focusing on "consumer" debt. It is all equally bad.
The Wizard
Posts: 13356
Joined: Tue Mar 23, 2010 1:45 pm
Location: Reading, MA

Re: War on Debt

Post by The Wizard »

Which debts to attack first, beyond minimum payments?
I think I would vote to eliminate the small <$10k debts first, since that frees up more cash flow sooner.

And why is that car loan so high, 6.25%?
Can you refi it to way less at your credit union???
Attempted new signature...
nelson1015
Posts: 130
Joined: Mon Aug 11, 2014 3:21 pm

Re: War on Debt

Post by nelson1015 »

The Wizard wrote:Which debts to attack first, beyond minimum payments?
I think I would vote to eliminate the small <$10k debts first, since that frees up more cash flow sooner.

And why is that car loan so high, 6.25%?
Can you refi it to way less at your credit union???
+1 ...I would attack small debts to increase cash flow. Their cash flow is tight and with a baby on the way it would be good to have more wiggle room.
Stonebr
Posts: 1472
Joined: Wed Jan 21, 2009 11:19 am
Location: Maine

Re: War on Debt

Post by Stonebr »

As Crake says, $520 a month for gasoline is insane. :shock:

There's your savings. You guys are grounded.
"have more than thou showest, | speak less than thou knowest" -- The Fool in King Lear
mw1739
Posts: 936
Joined: Mon Mar 21, 2011 5:44 pm

Re: War on Debt

Post by mw1739 »

I might have missed it somewhere in all the posts, but what is your gross income? I only saw mention of your net income. If you're making retirement contributions it might be worth it to suspend those for maybe a year until you clean up some of the smaller debts and improve your cashflow.

Also, do you get a tax refund every year? If so, adjust your withholding so you're not giving the government a free loan while you're paying extra interest on the debt.
User avatar
dbCooperAir
Posts: 1107
Joined: Tue Jan 07, 2014 10:13 pm

Re: War on Debt

Post by dbCooperAir »

Lots of good information above.

Only thing I'm going to echo, you are off to a good start but you need to think bigger, DITCH/CHANGE THE CARS as a start. If you feel you need to carry collision you have to much car.

Someone noted moving in with family, tough with a baby on the way, how about a room mate or two, have a basement you can rent out?

If you can get your wife onboard with debt snowball that would be most wonderful, it may not be the best mathematically but its not the worse plan either.
Neither a wise man nor a brave man lies down on the tracks of history to wait for the train of the future to run over him. | -Dwight D. Eisenhower-
campos202
Posts: 30
Joined: Thu Sep 01, 2011 8:48 pm

Re: War on Debt

Post by campos202 »

technofox wrote:We also have land we could sell if necessary.
How much is the land worth ballpark? Personally, unless you have some specific use for it I would sell it to get rid of this debt.
Juniper
Posts: 44
Joined: Mon May 06, 2013 2:07 pm

Re: War on Debt

Post by Juniper »

Technofox,
I'd make this site your best friend:
http://www.whatsthecost.com/snowball.aspx

At your current total debt repayment of $2050/month listed above, you're looking at 151 months to pay off all the non-mortgage debt.
Increasing payments by $500/month brings you down to 110 months.
$750 extra per month brings you down to 97 months.

Anytime you get a windfall, throw a lump sum against the debt and rerun the calculations. Show the numbers to your wife. This can be your road map and I'd think it could be very motivating.

I'd usually say doing the highest interest first method is better for the debt snowball, but in your case, without too much of a spread between the rates, I'd do them lowest to highest balance. Eliminating the payments of the smaller debts will give you some flexibility to go avoid going back into debt in emergencies. To that end, I'd also consider an earlier poster's suggestion to put off the debt snowball a couple of months until you can get to a more reasonable emergency fund level. As Dave Ramsey says, Murphy will move into your bedroom otherwise.
Pax et Bonum! - Juniper
CPABOB
Posts: 17
Joined: Fri Oct 10, 2014 10:01 am

Re: War on Debt

Post by CPABOB »

If we assume $381,600 of debt with a wacc of 4.88%, the discounted payback on an annual debt payment of $48,240 (includes the $100 savings) would come to 10.23 years. Ending Amazon Prime is like throwing pennies in a lake, hoping to fill it in.
Carl53
Posts: 2254
Joined: Sun Mar 07, 2010 8:26 pm

Re: War on Debt

Post by Carl53 »

campos202 wrote:
technofox wrote:We also have land we could sell if necessary.
How much is the land worth ballpark? Personally, unless you have some specific use for it I would sell it to get rid of this debt.

Selling the land not only frees up cash to pay off debt, it eliminates associated taxes.
Lynette
Posts: 2248
Joined: Sun Jul 27, 2014 9:47 am

Re: War on Debt

Post by Lynette »

.....
Last edited by Lynette on Wed Dec 06, 2017 9:27 am, edited 1 time in total.
User avatar
JupiterJones
Posts: 3428
Joined: Tue Aug 24, 2010 3:25 pm
Location: Nashville, TN

Re: War on Debt

Post by JupiterJones »

technofox wrote:What is against us:
1. Umm... a lot of debt. There is history behind some of it, but it's not due to a frivolous lifestyle; however, that is not the point. Its the past and there is no point rehashing crap that can't be undone.
Agreed. But there is value in analyzing what you could've done better in the past, as a guide going forward.

3. Baby coming soon, which means looking for an affordable baby sitter and ways to cover baby related expenses.
Here's something to chew on: I would advise paying minimums on all debts right now. Any extra money you would be throwing at your snowball should be set aside in a savings or money market account.

Once the baby arrives and everyone is happy and healthy, you will then take that savings and chunk it at your various debts.

But, in the unlikely event of health complications/problems for either mother or child, you will have a nice, big emergency fund to help out.


Wife is interested in checking out the Dave Ramsey's method of budgeting and snowballing debt. She seems to like the premise. I will be working with her on creating a new baby budget, so this is an ample opportunity to work with her.
Yes, do this! You and your wife's situation is exactly what Dave Ramsey is perfect for (with the usual caveat that you should ignore investing advice). Go to Financial Peace University if possible. Start downloading his podcasts and listening to them during commutes.

The "sock away a stockpile of money until the baby arrives trick" I mentioned above is directly from the Dave Ramsey playbook, by the way.

Good luck!
"All of this has happened before, and all of this will happen again."
MGBGTV8
Posts: 150
Joined: Fri Jan 11, 2013 12:40 pm

Re: War on Debt

Post by MGBGTV8 »

Owning land usually entails costs. Does the carrying cost of the land show up in your budget?

Lowering Interest costs-
-If you own that parcel of land outright, mortgaging it to payoff the higher rate loans may be a better idea than selling it.
-Refinancing your mortgage if you have equity to pull out may help you lower your interest costs as well. That will be another thread's discussion should you pursue that route.

Debt cancellation
Check to see if some of the federal student loans may be cancelled by programs for your wife (teaching in certain subjects or locations) or for you depending on what you do. Those never go away, even in bankruptcy, so keep that in mind in prioritizing debt.

Cutting the $10 newspaper isn't going to get you to the promised land. At some point, you will exhaust the cost cutting and need to focus on income. You may have to roll the dice on a higher paying job, even if you view it as temporary. Seniority in your current job may be a big factor in getting the promotion you are working for, so leaving may not help you climb the income ladder.
surfhb
Posts: 231
Joined: Thu Aug 15, 2013 6:13 pm

Re: War on Debt

Post by surfhb »

You ARE in dire straights my friend !!
User avatar
AnimalCrackers
Posts: 436
Joined: Mon Mar 19, 2007 1:37 pm
Location: Northern Front Range, Colorado

Re: War on Debt

Post by AnimalCrackers »

"Everybody has a plan until they get punched in the face." -- philosopher Mike Tyson
MoonOrb
Posts: 1318
Joined: Thu Jan 24, 2013 6:58 pm

Re: War on Debt

Post by MoonOrb »

Regarding the cable and cell phone one approach you might be able to take is just to try out life without them for, say 3 months, and see how it goes. We did this when we got rid of cable, basically. I thought, what the hell, I'll cancel it and if I still want it again in a few months I'll sign up for it again. That was several years ago and I haven't wanted it since.

But if you allow yourself the option of changing your mind, it might make the difference between being stuck with a cable bill forever and being free from debt sooner. It could also be the case that after 3 months you'll know that in fact you really really do get value out of cable/expensive cell plan, and that information will be worth knowing, too. But you'll also have 3 more months of paying off high interest debt.
Easy Rhino
Posts: 3276
Joined: Sun Aug 05, 2007 11:13 am
Location: San Diego

Re: War on Debt

Post by Easy Rhino »

if the gas expenses are that high from visiting family, then maybe you aren't really that close to family at all. you could look for higher paying jobs that are actually closer.

Minor things:

- trade cars if your is substantially more fuel efficient
- sell her car and buy a cheaper more efficient one

but man,you've listed all the monthly bill, but you've got a house and a baby coming. From experience, it's going to be the unexpected bills that are going to clobber you. (I've got a 2 year old daughter and a 1 year old house).
bloom2708
Posts: 9099
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: War on Debt

Post by bloom2708 »

My cousin continues to be in a situation like yours. His house payment is more ($1,900/month) and his student loans are only around $80k.

I tried to help him by going over the numbers with him. I told him that selling the house and renting for around $1,000/month was the option to help him out of the hole the fastest. He said "We can't sell the house. It is the American Dream to own a house. My wife won't part with the house."

If being broke and swallowed in debt is the "American Dream", I want no part of it. He continues to bumble along. Minimum payments. Pay day loans. Credit card transfers. A house of cards. I feel bad because he feels he has no out. Stuck in perpetuity with a 30 year "American Dream".

Looking for $50 here and $30 there isn't going to fix anything. A big giant mind shift and some serious steps are needed or the debt will be a long term boat anchor.
"We are here to provoke thoughtfulness, not agree with you." Unknown Boglehead
PennySaved
Posts: 115
Joined: Tue Mar 06, 2012 6:05 pm

Re: War on Debt

Post by PennySaved »

I will second and third other posters' remarks about cutting cable and not missing it. When I went through an expense overall a few years back, I was paying $60 a month for the package. I looked into cutting it back to the cheapest, most limited basic available, which was $20 a month. I agonized over doing that, but I told myself I would try it, and if I was missing it too much, I could add back the service. I also signed up for Netflix at the same time for $8 a month as a consolation-because movies is really want I like to watch. After the switch, I still had plenty to watch and did not miss what I now did not have. Then after a year of that, I went a step further and bought an over the air TV antenna and cut cable altogether. This works well in the DC urban area where I am because there are lots of free channels. I even have three free movie channels that show decent older movies. Again, I feel I have plenty to watch. Maybe you could try this philosophy with your wife- let's do it for now and give it a try and we can switch back later when we are financially better off. Plus with a baby, you will probably find you are too busy to spend a lot of time watching TV.
mohawkstrip
Posts: 6
Joined: Sat Jul 05, 2014 5:36 pm

Re: War on Debt

Post by mohawkstrip »

This thread struck a nerve. In 2010 I was barely making ends meet with a $20k car loan, huge cable/phone bills, and making the bottom of my salary range. For awhile I stopped going to starbucks, but then realized doing that took the joy out of my day and wasn't worth the $20/week in savings. I did some calculations and realized if I continued on that path, I'd have nothing by time I was 40.

Being a single guy, I had complete autonomy to drastically rearrange my life. Here's what I did:

-Downgraded to a studio close to work (saved $200/month)
-Didn't get cable at my new place (saved $50/month)
-Sold my car and went carfree (luckily I worked in an urban area and was able to bike/take bus - eliminated $20k in debt with another $200/monthly savings between gas and insurance)
-Took on new projects at work and eventually changed jobs (bumped up my salary by $15k/year)

4 years later, I still don't have nearly the assets many people do on this forum, but I am light years ahead of where I was and never want to go back to "just making ends meet". Downgrading my lifestyle also doesn't seem like a downgrade anymore. It seems natural. I don't miss the car payments, big apartment, or cable. I do plan on getting a car again, but this time I can pay cash.
gogleheads.orb
Posts: 176
Joined: Fri Oct 18, 2013 12:34 pm

Re: War on Debt

Post by gogleheads.orb »

You can make a do it yourself dvr with a pc and a cable card tuner. That is what I do. It is not a huge $ savings, but it is something and it is a cheap way to have a huge capacity dvr.
Post Reply