$40,000 in debt, bankruptcy seems to be the best option right now

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Topic Author
geologist20
Posts: 34
Joined: Fri Mar 11, 2016 11:57 am

$40,000 in debt, bankruptcy seems to be the best option right now

Post by geologist20 » Sat Jan 05, 2019 12:34 pm

Hello,

I am a 32 year old male, wife and two kids under 4. I currently work for an environmental consulting company in Miami for the past 7.5 years. I currently live in Broward County (not as expensive as Miami, about 40 miles north). My wife has not worked since my second kid was born in late 2017, but is starting part time work this month. It just seems that debt keeps snowballing and there doesn't seem to be a way to pay it off. It's to the point where it's negatively affecting my family time.

The only strategy I can think of is to focus on only paying down one card (with the lowest balance), while using the other cards for the normal budget (thereby paying the minimum payment but effectively not paying the cards down at all).

Monthly budget
Net Income: $4,300.00 (including wife's project net income)
Bills
mortgage $1,871.00
association fee $135.00
car lease $355.00
Discover card $250.00
All other credit cards $463.00
car insurance $75.00
groceries/necesities $700.00
gas $170.00
dining/misc $0.00
life insurance $35.51
student loan deferment
ADT/Security $39.21
Wife's bills $365.00
Gym $0.00
Cable/Internet $80.00
FPL/electricity $140.00
Water $100.00
Savings $0.00

Total amount of bills $4,778.72
Remaining -$478.72


All accounts
Account Jan-19
HSA Investments 1536.11
Roth IRA 1370.89
City Furniture -684
Chase Slate -4804.91
Barclay Card -1845.77
Amex -996.18
Citi Double Cash -4083.12
Discover Credit Card -13662.36
Student Loans -4717.2
Schwab Brokerage 78.01
Discover Savings 19.08
Fidelity 401k 9037.36
Amaz CC -3044.41
HSA 733.86
Schwab Savings 0.08
Chase Freedom -4309.62
BankAmericard -5196.83
Net Worth -30569.01
Last edited by geologist20 on Sat Jan 05, 2019 1:58 pm, edited 2 times in total.

Big Dog
Posts: 1008
Joined: Mon Sep 07, 2015 4:12 pm

Re: $40,000 in debt, bankruptcy seems to be the best option right now

Post by Big Dog » Sat Jan 05, 2019 12:40 pm

Cut expenses first, bcos that's what a bk judge would make you do anyway.

Pay off the cc with the highest interest rate first.

Do you really need a security system?

Do you really need cable? (Perhaps an indoor antenna would work for a year or so.)

Are your water rates really that high? (We're in drought-stricken SoCal and may water bills runs $50-75 but I still have have grass.)

Does your 'mortgage' include property taxes?

User avatar
dm200
Posts: 19165
Joined: Mon Feb 26, 2007 2:21 pm
Location: Washington DC area

Re: $40,000 in debt, bankruptcy seems to be the best option right now

Post by dm200 » Sat Jan 05, 2019 12:47 pm

geologist20 wrote:
Sat Jan 05, 2019 12:34 pm
Hello,
I am a 32 year old male, wife and two kids under 4. I currently work in environmental consulting for the past 7.5 years in Miami. My wife has not worked since my second kid was born in late 2017, but is starting part time work this month. It just seems that debt keeps snowballing and there doesn't seem to be a way to pay it off. It's to the point where it's negatively affecting my family time.
The only strategy I can think of is to focus on only paying down one card (with the lowest balance), while using the other cards for the normal budget (thereby paying the minimum payment but effectively not paying the cards down at all).
Net Income: $4,300.00 (including wife's project net income)
Bills
mortgage $1,871.00
association fee $135.00
car lease $355.00
Discover card $250.00
All other credit cards $463.00
car insurance $75.00
groceries/necesities $700.00
gas $170.00
dining/misc $0.00
life insurance $35.51
student loan deferment
ADT/Security $39.21
Wife's bills $365.00
Gym $0.00
Cable/Internet $80.00
FPL/electricity $140.00
Water $100.00
Savings $0.00
Total amount of bills $4,778.72
Remaining -$478.72
Yes - come up with a plan (track every month) to pay down/off the credit cards over time. My opinion, therefore, is that over time you should be able to pay off $40,000.

Do you need:
1. ADT/security
2. can you, perhaps over time, reduce car lease payments

Do you have any equity in your home?

mw1739
Posts: 548
Joined: Mon Mar 21, 2011 5:44 pm

Re: $40,000 in debt, bankruptcy seems to be the best option right now

Post by mw1739 » Sat Jan 05, 2019 12:48 pm

What are “wife’s bills” totaling $365? Do you have any savings to fall back on or pay down the debt? Have you researched 0% credit card offers to lower the interest paid? If you’re carrying a balance on a card, stop additional spending on that card or each purchase accrues interest immediately. At minimum I would open a new card or just use cash for as many purchases as possible.

Topic Author
geologist20
Posts: 34
Joined: Fri Mar 11, 2016 11:57 am

Re: $40,000 in debt, bankruptcy seems to be the best option right now

Post by geologist20 » Sat Jan 05, 2019 12:50 pm

Cut expenses first, bcos that's what a bk judge would make you do anyway.

Pay off the cc with the highest interest rate first. I could to that and keep the other cards with an effective payment of $0

Do you really need a security system? I have two young kids and it gives peace of mind. The services is basic

Do you really need cable? (Perhaps an indoor antenna would work for a year or so.) Directv now (streaming service) is $45. Internet is ~$40. I could do fine without direct tv now, but my wife would have a different opinion.

Are your water rates really that high? (We're in drought-stricken SoCal and may water bills runs $50-75 but I still have have grass.) I suspect that a large part of it is the kids nightly bath (which I try to not do everyday) and the washing machine. I've recently started tracking how many loads are washed per week.

Does your 'mortgage' include property taxes? Yes

Groceries I think are higher than they should be, and it's there where I need to find a way to cut costs.

Topic Author
geologist20
Posts: 34
Joined: Fri Mar 11, 2016 11:57 am

Re: $40,000 in debt, bankruptcy seems to be the best option right now

Post by geologist20 » Sat Jan 05, 2019 12:54 pm

mw1739 wrote:
Sat Jan 05, 2019 12:48 pm
What are “wife’s bills” totaling $365? Do you have any savings to fall back on or pay down the debt? Have you researched 0% credit card offers to lower the interest paid? If you’re carrying a balance on a card, stop additional spending on that card or each purchase accrues interest immediately. At minimum I would open a new card or just use cash for as many purchases as possible.
My wifes bills are $70 cell phone and the remainder credit card.
I have no money in a regular savings account. I have a 401k (not currently eligible for a loan), roth IRA and health savings account.
I've don 0% credit card offers before, some of my current cards are still in that period. My credit is not really good enough right now to get another 0% card. The most recent I tried for only gave me a $500 credit limit.

Topic Author
geologist20
Posts: 34
Joined: Fri Mar 11, 2016 11:57 am

Re: $40,000 in debt, bankruptcy seems to be the best option right now

Post by geologist20 » Sat Jan 05, 2019 12:57 pm

dm200 wrote:
Sat Jan 05, 2019 12:47 pm
geologist20 wrote:
Sat Jan 05, 2019 12:34 pm
Hello,
I am a 32 year old male, wife and two kids under 4. I currently work in environmental consulting for the past 7.5 years in Miami. My wife has not worked since my second kid was born in late 2017, but is starting part time work this month. It just seems that debt keeps snowballing and there doesn't seem to be a way to pay it off. It's to the point where it's negatively affecting my family time.
The only strategy I can think of is to focus on only paying down one card (with the lowest balance), while using the other cards for the normal budget (thereby paying the minimum payment but effectively not paying the cards down at all).
Net Income: $4,300.00 (including wife's project net income)
Bills
mortgage $1,871.00
association fee $135.00
car lease $355.00
Discover card $250.00
All other credit cards $463.00
car insurance $75.00
groceries/necesities $700.00
gas $170.00
dining/misc $0.00
life insurance $35.51
student loan deferment
ADT/Security $39.21
Wife's bills $365.00
Gym $0.00
Cable/Internet $80.00
FPL/electricity $140.00
Water $100.00
Savings $0.00
Total amount of bills $4,778.72
Remaining -$478.72
Yes - come up with a plan (track every month) to pay down/off the credit cards over time. My opinion, therefore, is that over time you should be able to pay off $40,000.

Do you need:
1. ADT/security It gives peace of mind when we're not home a night. People's homes have been broken into in our neighborhood before. It's not an affluent neighborhood, but not a ghetto either.
2. can you, perhaps over time, reduce car lease payments I would have to look into it.

Do you have any equity in your home? No, it was purchased 3 months ago.

uberdoc
Posts: 94
Joined: Sat Jan 20, 2018 4:37 pm

Re: $40,000 in debt, bankruptcy seems to be the best option right now

Post by uberdoc » Sat Jan 05, 2019 12:58 pm

Use prepaid cellular carrier. Simple mobile is the one I use. Unlimited calls, texts and 3gb internet for $25 a month.

Topic Author
geologist20
Posts: 34
Joined: Fri Mar 11, 2016 11:57 am

Re: $40,000 in debt, bankruptcy seems to be the best option right now

Post by geologist20 » Sat Jan 05, 2019 1:04 pm

Saved for future reference.
I don't currently pay my cell phone, it's provided by my company.

Jack FFR1846
Posts: 8537
Joined: Tue Dec 31, 2013 7:05 am

Re: $40,000 in debt, bankruptcy seems to be the best option right now

Post by Jack FFR1846 » Sat Jan 05, 2019 1:04 pm

$70 for cell phone? Stop. Cricket is $40.

Cable TV should absolutely go away.

Car lease? When does the lease end? Your next car should be a $5000 2012 Ford Fusion 4 cylinder that you buy with a loan to own it. Your lease is stupid expensive.

Dump ADT and look into SimpliSafe. Monitoring is half what ADT is and if you're mainly worried about break ins at night when you're home, you don't even have to pay for monitoring. You own the system and don't have to be tied to a rip off monitoring system.

Your problem is that you don't know how to spend like you should for your income. I would even consider selling the house and renting an apartment. Your spending is out of control.

You should probably look into Dave Ramsey. Youtube videos, books. You're exactly his intended audience and his plan will work for you. Someone with plenty of income but without restrictions on spending.
Bogle: Smart Beta is stupid

arrieros81
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Joined: Thu Jul 21, 2016 1:31 pm

Re: $40,000 in debt, bankruptcy seems to be the best option right now

Post by arrieros81 » Sat Jan 05, 2019 1:07 pm

Your housing expenses are nearly 50% of your take home and that is just way too much.

I don’t see where you can cut back much, maybe your groceries/food bill a little.

Can you or your wife work more and increase income that way? It’s probably hard with young children at home.

Elbowman
Posts: 503
Joined: Tue Apr 03, 2012 2:25 pm

Re: $40,000 in debt, bankruptcy seems to be the best option right now

Post by Elbowman » Sat Jan 05, 2019 1:13 pm

I know this is a bigger change than you are looking for, but the elephant in the room is your housing cost relative to income. Right now you are at 2000/4300 = 46.5% of income towards housing.
https://smartasset.com/mortgage/how-much-should-i-spend-on-rent wrote:Why 30%? That’s the percentage that the government has used since 1981 to decide who qualified for public housing programs and initiatives. Households that spend more than 30% of their income on housing costs are said to be cost burdened. Those that spend 50% or more of their pay on housing costs are classified as severely cost-burdened households.
You are near the threshold for "severely cost-burdened households", and you see how challenging it is to balance a budget like that. Even without the credit card payments you are spending too much, as you need to save 15% of income to support yourself in retirement.

Life (financially speaking) is going to be very challenging unless you increase income or reduce housing costs.

Nate79
Posts: 4054
Joined: Thu Aug 11, 2016 6:24 pm
Location: Delaware

Re: $40,000 in debt, bankruptcy seems to be the best option right now

Post by Nate79 » Sat Jan 05, 2019 1:15 pm

Looks like you need to move to a house you can afford, rent, while working a second job. Depending on where you are in the car lease you may consider selling it and getting a beater (you would lose it anyways in bankrupcy and at the rate you are going you may lose it anyways). Bankrupcy is not your solution. And you sent even paying on your student loans yet which aren't bankruptable.

Please tell me you don't have anything coming out of your check like gimmick insurance products or 401k? You don't get a tax refund right?

I highly suggest you start listening to Dave Ramsey. Asap.

Topic Author
geologist20
Posts: 34
Joined: Fri Mar 11, 2016 11:57 am

Re: $40,000 in debt, bankruptcy seems to be the best option right now

Post by geologist20 » Sat Jan 05, 2019 1:19 pm

Jack FFR1846 wrote:
Sat Jan 05, 2019 1:04 pm
$70 for cell phone? Stop. Cricket is $40. I'll look into it for my wife. My cell phone is paid by my employer.

Cable TV should absolutely go away. I agree. I'll discuss with my wife.

Car lease? When does the lease end? Your next car should be a $5000 2012 Ford Fusion 4 cylinder that you buy with a loan to own it. Your lease is stupid expensive. Car lease ends in about a little less than 2 years. The lease is a nissan rogue since it easily fits two car seats. My personal car that I use for work commute is a 2007 chevy cobalt with 160,000 miles.

Dump ADT and look into SimpliSafe. Monitoring is half what ADT is and if you're mainly worried about break ins at night when you're home, you don't even have to pay for monitoring. You own the system and don't have to be tied to a rip off monitoring system. noted.

Your problem is that you don't know how to spend like you should for your income. I would even consider selling the house and renting an apartment. Your spending is out of control. My parents generously gifted the money for the home, which we've been living in for 3 months. I plan to pay them back in the future. Part of the home purchase also included paying off a $12,000 personal loan and $5,000 credit card.

You should probably look into Dave Ramsey. Youtube videos, books. You're exactly his intended audience and his plan will work for you. Someone with plenty of income but without restrictions on spending.

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Devil's Advocate
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Re: $40,000 in debt, bankruptcy seems to be the best option right now

Post by Devil's Advocate » Sat Jan 05, 2019 1:23 pm

Your track record with debt is not good. When your parents gifted you the downpayment money and paying off your debt was not truly a gift...giving a drunk a drink as Dave would say.

Unfortunately you can't afford this house. Until you unwind this purchase everything else is like p*ssing into the wind.

Good luck.

DA

dknightd
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Re: $40,000 in debt, bankruptcy seems to be the best option right now

Post by dknightd » Sat Jan 05, 2019 1:25 pm

I would not file for bankruptcy. Cut back and pay off your dept. Don't take on as much debt in the future. Live and learn.

Topic Author
geologist20
Posts: 34
Joined: Fri Mar 11, 2016 11:57 am

Re: $40,000 in debt, bankruptcy seems to be the best option right now

Post by geologist20 » Sat Jan 05, 2019 1:26 pm

arrieros81 wrote:
Sat Jan 05, 2019 1:07 pm
Your housing expenses are nearly 50% of your take home and that is just way too much.

I don’t see where you can cut back much, maybe your groceries/food bill a little.

Can you or your wife work more and increase income that way? It’s probably hard with young children at home.
Wife is starting work this month, which would include some weekends (where I would watch the kids) and some weekdays (her mom would watch them). I sometimes do surveys at home after the kids to go sleep, but it's not really a good use of time when I'll be better off using that time to build technical skills I would apply to my job or freelance in the future.

gclancer
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Re: $40,000 in debt, bankruptcy seems to be the best option right now

Post by gclancer » Sat Jan 05, 2019 1:27 pm

geologist20 wrote:
Sat Jan 05, 2019 12:50 pm
Do you really need a security system? I have two young kids and it gives peace of mind. The services is basic


Get SimpliSafe. Upfront cost for the system, but skip the monitoring (someone breaking in will run when they hear the alarm). ROI is only a couple of months.

Topic Author
geologist20
Posts: 34
Joined: Fri Mar 11, 2016 11:57 am

Re: $40,000 in debt, bankruptcy seems to be the best option right now

Post by geologist20 » Sat Jan 05, 2019 1:29 pm

Nate79 wrote:
Sat Jan 05, 2019 1:15 pm
Looks like you need to move to a house you can afford, rent, while working a second job. Depending on where you are in the car lease you may consider selling it and getting a beater (you would lose it anyways in bankrupcy and at the rate you are going you may lose it anyways). Bankrupcy is not your solution. And you sent even paying on your student loans yet which aren't bankruptable.

Please tell me you don't have anything coming out of your check like gimmick insurance products or 401k? You don't get a tax refund right?

I highly suggest you start listening to Dave Ramsey. Asap.
I have 401k and health savings account contributions coming out of my check. I recently lowered my 401k contributions from 5% to 1%, which should add ~$200 per month.

Miriam2
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Re: $40,000 in debt, bankruptcy seems to be the best option right now

Post by Miriam2 » Sat Jan 05, 2019 1:33 pm

I think the problem is that you live in an extremely high cost of living area on an average income. Your income may be fine for some areas of the country, but not Miami.

Perhaps think about this -
-- What are you using the credit cards for now that you cannot pay for from your income? That may give you some ideas for budget reform.
-- Track every dollar (or penny :shock: ) for several months and honestly look at that spreadsheet - where is every dollar going? You may be surprised where the leaks are.
-- If this debt is causing you serious anxiety and family stress, paying off the smallest balance credit card first (rather than the highest interest %) will probably give you a much needed emotional boost to keep your ship afloat :happy

blinx77
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Re: $40,000 in debt, bankruptcy seems to be the best option right now

Post by blinx77 » Sat Jan 05, 2019 1:37 pm

I'm going to go against the grain and say you should stick with the house if you can. I doubt you will do THAT much better in Miami and there will be transaction costs to moving. Presumably some of those mortgage payments are to principal and so your loan is amortizing and there is some forced savings there. I don't think you should have bought the house, but I would first try to right the ship where you are and then move if it doesn't work.

Main problem is your income is low for a family of four in a big city. But you are addressing that with your wife's new work.

Cut the cable and security system immediately. Many people making multiples of what you make do without those. Knock down the cellhpone to a prepaid plan. There you are down probably $200 a month. With your wife's new work, hopefully you are back to eeking out a slight positive savings. Then, work on the car lease. $325 a month is too much. You can buy a reliable old car for $5,000, seriously, if you do some research. My wife bought a car for $9,000 and we drove it for more than 10 years.

If you are teetering on breakeven, you should be able to scrape something together to get in the black. For example, if you just worked as an Uber driver every Friday night from 8pm - 2am you could probably make $15 an hour -- there's another $350 a month. I mention this rather than doing surveys because Uber does not tax your brain so you can rest the analytical part of your brain while making money and also you probably aren't doing anything productive on Saturday nights anyways.

Once you get through this tough period, kids will get bigger and you can work more. Your mortgage will be more principal and less interest over time. You will hopefully get raises while your mortgage will remain fixed. You can get through this and get out the other side!
Last edited by blinx77 on Sat Jan 05, 2019 1:59 pm, edited 2 times in total.

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leeks
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Location: new york

Re: $40,000 in debt, bankruptcy seems to be the best option right now

Post by leeks » Sat Jan 05, 2019 1:40 pm

As mentioned, you need to either generate more income or reduce housing costs for your lifestyle to be financially sustainable. Dave Ramsey approach could be useful, but without addressing income/housing problem, it will be tough to get ahead.

Meanwhile, can you talk with a local credit union? Some have free credit counseling and some can offer a personal loan to consolidate credit card debt at lower interest rates. But you would have to stop charging anything new to the cards otherwise the problem will get worse.

I would be actively looking for a new higher paying job.

Consider moving or getting a roommate or airbnb incone from one bedroom some weekends (I know that sounds undesirable with little kids, but some figure out a way to make it work).

I know that being home with two little kids is tough and busy enough (I am home with 2 and 4 year olds). But perhaps there is a possibility for some babysitting income (watch a third child in your home, at least part time). Or maybe watching a few older kids on school closing days or a date night kind of thing (get 2-4 kids dropped off at your house Saturday evenings from 5-9 for pizza and movies while parents go out, charge $30-40 per kid). Or even one of you getting a restaurant job or babysit at another family's home a couple nights per week - something at a time that doesn't require child care for your own kids. An extra $150 a week however you can manage it would change the direction of your finances until you can address the larger issue of housing cost vs primary income.

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dm200
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Re: $40,000 in debt, bankruptcy seems to be the best option right now

Post by dm200 » Sat Jan 05, 2019 1:41 pm

What I find very puzzling is how the OP could qualify for this mortgage without wife being employed AND with such challenging other debts.

Nate79
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Re: $40,000 in debt, bankruptcy seems to be the best option right now

Post by Nate79 » Sat Jan 05, 2019 1:44 pm

geologist20 wrote:
Sat Jan 05, 2019 1:29 pm
Nate79 wrote:
Sat Jan 05, 2019 1:15 pm
Looks like you need to move to a house you can afford, rent, while working a second job. Depending on where you are in the car lease you may consider selling it and getting a beater (you would lose it anyways in bankrupcy and at the rate you are going you may lose it anyways). Bankrupcy is not your solution. And you sent even paying on your student loans yet which aren't bankruptable.

Please tell me you don't have anything coming out of your check like gimmick insurance products or 401k? You don't get a tax refund right?

I highly suggest you start listening to Dave Ramsey. Asap.
I have 401k and health savings account contributions coming out of my check. I recently lowered my 401k contributions from 5% to 1%, which should add ~$200 per month.
You should stop all investing and make sure you are not getting a tax refund. You can't even pay your student loans, you have a lease and a house you can't afford, no emergency fund, yet are trying to invest.

blinx77
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Re: $40,000 in debt, bankruptcy seems to be the best option right now

Post by blinx77 » Sat Jan 05, 2019 1:45 pm

BTW, if you want savings tips, Mr. Money Mustache forum is probably better than here. Bogleheads is better for investing and tax strategies and there are more people who are happier working for longer to amass a lot of money to retire at a typical age comfortably. People on the Mr. Money Mustache forum focus more on paring down expenses and quitting work sooner. So they are the gurus of how to stretch a dollar.

k3vb0t
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Re: $40,000 in debt, bankruptcy seems to be the best option right now

Post by k3vb0t » Sat Jan 05, 2019 1:51 pm

Agree with everyone else here.

You bought a home 3 months ago - way too much home that you can't afford - and now you want to file for bankruptcy?

Come on.

Things to cut immediately or as soon as you can:
  • ADT - I understand the peace of mind, but until you control your spending that's $40 you can't afford. It also puts an 8% dent in your "overage" each month. Granted you may have a contract with an early termination fee, so you'd have to balance that. But as soon as you can get out, you should. And I wouldn't buy a SimpliSafe until you have your spending under control.
  • DirecTV streaming - your wife would have a different opinion of cutting this? Does she have a different opinion about ruining your credit and potentially losing a lot of things by filing bankruptcy? That's $45 you can't afford right now. Also, another 9% dent into your overage each month.
  • $700 for groceries may or may not be too much - does it include diapers, toiletries, other non-grocery items? But you have to cut where you can. Hopefully your kids like rice and beans. Hopefully you like rice and beans.
  • Your car lease is insane. What are you leasing, a Mercedes CLA? It has to go as soon as possible. (It represents 75% of your monthly overage!) Granted, you would need a vehicle but as someone else said buy a low cost beater. Would the dealer take the lease back and put you into a significantly lower cost lease vehicle (thinking if you were in something like a Honda Pilot they could take it back and put you into a Civic for 50% of the cost)?
  • Cut the 401k to 0% - bad in the long term, incredibly needed right now while you fix this. Of course if you never fix your issues you won't be able to turn it back on and now you have a long term problem
You're in trouble right now -- and your student loans are in deferment. If you don't fix this now it will get worse in the future.

Also, I can see the long-term vision of upping your skills for future jobs. But right now you need cash money. Do as many extra surveys at night as you possibly can.

You don't mention the balances on your credit cards either which is a curious thing to leave out. It'd be useful to know the balance, interest rate, and minimum payment.

Your water bill might be a little high, but I've got 2 young kids, we do a lot of laundry and not a daily bath, and we're running $75-80/month. Depends on your market rate, too.

Topic Author
geologist20
Posts: 34
Joined: Fri Mar 11, 2016 11:57 am

Re: $40,000 in debt, bankruptcy seems to be the best option right now

Post by geologist20 » Sat Jan 05, 2019 1:52 pm

Miriam2 wrote:
Sat Jan 05, 2019 1:33 pm
I think the problem is that you live in an extremely high cost of living area on an average income. Your income may be fine for some areas of the country, but not Miami.

Perhaps think about this -
-- What are you using the credit cards for now that you cannot pay for from your income? That may give you some ideas for budget reform.
-- Track every dollar (or penny :shock: ) for several months and honestly look at that spreadsheet - where is every dollar going? You may be surprised where the leaks are.
-- If this debt is causing you serious anxiety and family stress, paying off the smallest balance credit card first (rather than the highest interest %) will probably give you a much needed emotional boost to keep your ship afloat :happy
My budget is being tracked in ynab. The credit cards were used when we ran out of money to buy food or other necesities. I have a $93 per month card with ~$700 left that I plan on pay off soon using proceeds from my roth IRA. Paying off lower balance cards first will free up money for the others.

Topic Author
geologist20
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Re: $40,000 in debt, bankruptcy seems to be the best option right now

Post by geologist20 » Sat Jan 05, 2019 1:59 pm

k3vb0t wrote:
Sat Jan 05, 2019 1:51 pm
Agree with everyone else here.

You bought a home 3 months ago - way too much home that you can't afford - and now you want to file for bankruptcy?

Come on.

Things to cut immediately or as soon as you can:
  • ADT - I understand the peace of mind, but until you control your spending that's $40 you can't afford. It also puts an 8% dent in your "overage" each month. Granted you may have a contract with an early termination fee, so you'd have to balance that. But as soon as you can get out, you should. And I wouldn't buy a SimpliSafe until you have your spending under control.
  • DirecTV streaming - your wife would have a different opinion of cutting this? Does she have a different opinion about ruining your credit and potentially losing a lot of things by filing bankruptcy? That's $45 you can't afford right now. Also, another 9% dent into your overage each month.
  • $700 for groceries may or may not be too much - does it include diapers, toiletries, other non-grocery items? But you have to cut where you can. Hopefully your kids like rice and beans. Hopefully you like rice and beans.
  • Your car lease is insane. What are you leasing, a Mercedes CLA? It has to go as soon as possible. (It represents 75% of your monthly overage!) Granted, you would need a vehicle but as someone else said buy a low cost beater. Would the dealer take the lease back and put you into a significantly lower cost lease vehicle (thinking if you were in something like a Honda Pilot they could take it back and put you into a Civic for 50% of the cost)?
  • Cut the 401k to 0% - bad in the long term, incredibly needed right now while you fix this. Of course if you never fix your issues you won't be able to turn it back on and now you have a long term problem
You're in trouble right now -- and your student loans are in deferment. If you don't fix this now it will get worse in the future.

Also, I can see the long-term vision of upping your skills for future jobs. But right now you need cash money. Do as many extra surveys at night as you possibly can.

You don't mention the balances on your credit cards either which is a curious thing to leave out. It'd be useful to know the balance, interest rate, and minimum payment.

Your water bill might be a little high, but I've got 2 young kids, we do a lot of laundry and not a daily bath, and we're running $75-80/month. Depends on your market rate, too.
Added all accounts to the original post and below.

Account Jan-19
HSA Investments 1536.11
Roth IRA 1370.89
City Furniture -684
Chase Slate -4804.91
Barclay Card -1845.77
Amex -996.18
Citi Double Cash -4083.12
Discover Credit Card -13662.36
Student Loans -4717.2
Schwab Brokerage 78.01
Discover Savings 19.08
Fidelity 401k 9037.36
Amaz CC -3044.41
HSA 733.86
Schwab Savings 0.08
Chase Freedom -4309.62
BankAmericard -5196.83
Net Worth -30569.01

brokenrecord
Posts: 39
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Re: $40,000 in debt, bankruptcy seems to be the best option right now

Post by brokenrecord » Sat Jan 05, 2019 2:04 pm

Radical Persoanl Finance may have a course that helps you. There’s one that helps consumers get out of credit card debt by accessing 0% interest cards, etc and having a plan. Cost is ~$30. I haven’t taken it personally, but I trust every bit of content that he puts out. Google Radical Personal Finance and look for it on his website. Could be a good move for you and your family.

k3vb0t
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Re: $40,000 in debt, bankruptcy seems to be the best option right now

Post by k3vb0t » Sat Jan 05, 2019 2:05 pm

geologist20 wrote:
Sat Jan 05, 2019 1:59 pm
Added all accounts to the original post and below.

Account Jan-19
HSA Investments 1536.11
Roth IRA 1370.89
City Furniture -684
Chase Slate -4804.91
Barclay Card -1845.77
Amex -996.18
Citi Double Cash -4083.12
Discover Credit Card -13662.36
Student Loans -4717.2
Schwab Brokerage 78.01
Discover Savings 19.08
Fidelity 401k 9037.36
Amaz CC -3044.41
HSA 733.86
Schwab Savings 0.08
Chase Freedom -4309.62
BankAmericard -5196.83
Net Worth -30569.01
Also add the interest rate and current minimum payment.

You're saying you've used credit to buy food and necessities when you're already spending $700 on groceries/potentially non-grocery items?

Are you and your wife on the same financial page? Do you want to pay this off? Many people have overcome -30k net worth. But you have to want to do it. Literal rice, beans, and ramen for a year. Or two. Or three. That mixed with generating extra income will right the ship.

Any other thoughts on your ADT, DirecTV, lease, and 401k?

Edit: Also, since you've got $684 to what looks like a furniture company, do you have furniture you can sell? I'd sell anything not nailed down personally.

Miriam2
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Re: $40,000 in debt, bankruptcy seems to be the best option right now

Post by Miriam2 » Sat Jan 05, 2019 2:20 pm

geologist20 wrote: My budget is being tracked in ynab.
Good 8-)
geologist20 wrote:I have a $93 per month card with ~$700 left that I plan on pay off soon using proceeds from my roth IRA. Paying off lower balance cards first will free up money for the others.
What is this "using proceeds from my Roth IRA"?

Do you mean - withdrawing money from your Roth IRA to pay off a credit card? My answer is NO.
If it means - using money you would normally have used to contribute to a Roth and using that money instead to pay off credit cards - my answer is YES, OK for a while.

Keep that Roth going. It will compound up over time. And when your financial situation improves you will be so grateful that you didn't raid it.

However, I acknowledge that many Bogleheads do use their Roth as an outlying emergency fund, and in this case, you have a financial debt emergency. So I do understand that using the Roth for this purpose may be the best use of that money at this point in your life - especially if it helps reduce the stomach churning stress of big debt/no way out.

BusterMcTaco
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Re: $40,000 in debt, bankruptcy seems to be the best option right now

Post by BusterMcTaco » Sat Jan 05, 2019 2:21 pm

Selling the house would probably be impractical, but can you rent it out and move into a smaller place? You can make a 2 bedroom 1 bath apartment work. I suggest you embrace the mindset of someone poor, because unfortunately, you are poor due to this house.

If you declare bankruptcy my guess is the bank takes your house anyway. Unless there are laws protecting you in Florida.

You did get a 30 year mortgage, right? This isn't a 15 year mortgage that you could refinance to 30?

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5th_Dimension
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Re: $40,000 in debt, bankruptcy seems to be the best option right now

Post by 5th_Dimension » Sat Jan 05, 2019 2:29 pm

Just a word of encouragement. At 42 I was $44,000 in debt mostly with high interest rate credit cards. It took my girlfriend and I four years to get the debt paid off. The first two years were really tough because it seemed we were making almost no progress at all. Then we really started to see results.

You can do it, good luck.
"My idea of rich is ordering the most expensive thing at Denny's"

magicj
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Re: $40,000 in debt, bankruptcy seems to be the best option right now

Post by magicj » Sat Jan 05, 2019 2:59 pm

I’m going to offer up some encouragement as well. Didn’t have nearly the debt but went through a very tough financial period. You understand your situation, but does your wife?
Dave Ramsey - Total Money Makeover. You and your wife read it, make a plan and follow it. It’s not going to happen overnight, but when your kids get a little older it’s going to feel great knowing you are debt free and can teach them about money. Baby steps...
You can do it.

Collinkp
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Location: Michigan

Re: $40,000 in debt, bankruptcy seems to be the best option right now

Post by Collinkp » Sat Jan 05, 2019 3:01 pm

5th_Dimension wrote:
Sat Jan 05, 2019 2:29 pm
Just a word of encouragement. At 42 I was $44,000 in debt mostly with high interest rate credit cards. It took my girlfriend and I four years to get the debt paid off. The first two years were really tough because it seemed we were making almost no progress at all. Then we really started to see results.

You can do it, good luck.
OP, just want to add on to 5th's post. I read this post with the same ideas and fixes as everyone else. What I realized, reading it and your replies, is that I am cheering for you. You got the financial ideas you needed to hear. Now we want you to act on them. We all want to read your future posts about how difficult it was but that you persevered. We are rooting for you and want you to succeed. If you truly want to succeed... then you will.

Edit...I see magic had the same idea

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leeks
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Location: new york

Re: $40,000 in debt, bankruptcy seems to be the best option right now

Post by leeks » Sat Jan 05, 2019 3:36 pm

Yes, I hope the tone here doesn't come off as too negative. The situation requires urgent change, but you can do this! And you can come back later and inspire others on this message board once you have stories about how you turned things around.

If you can't stomach Dave Ramsey's style (although up until you get to investing, his approach is spot on for the current situation), another author I really like is Michelle Singletary.

I'd recommend starting with her 21-Day Financial Fast:
https://www.amazon.com/21-Day-Financial ... 310338336/

runner540
Posts: 848
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Re: $40,000 in debt, bankruptcy seems to be the best option right now

Post by runner540 » Sat Jan 05, 2019 3:53 pm

dm200 wrote:
Sat Jan 05, 2019 1:41 pm
What I find very puzzling is how the OP could qualify for this mortgage without wife being employed AND with such challenging other debts.
Debt to Income of 50% is acceptable with Fannie and Freddie now...https://www.nerdwallet.com/blog/mortgag ... -mortgage/

OP, you and your wife need Dave Ramsey's plan, voice in your head all the time - watch the Youtube, listen to the radio/podcasts, read the website, call into the show. Good luck.

worthit
Posts: 69
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Re: $40,000 in debt, bankruptcy seems to be the best option right now

Post by worthit » Sat Jan 05, 2019 4:05 pm

Another word of encouragement here. Even though it appears and sounds daunting, I think you can overcome this without filing for bankruptcy. The reason I say this is because all of us at some point had to make changes and sacrifices to get here. Look at all the positive things going on in your life that makes this doable.....you have a job, your wife is taking up a part time job, you are still young and have come here looking for suggestions to get out of this situation (in other words, you are aware of the challenges but still willing to make changes). So IMHO, I think you can rescue yourself out of this, but then it will require fiscal discipline and a lot of sacrifice albeit only for a few years. Then all this will be behind you and you can pass along the inspiration forward.

By the way, as another poster mentioned, I noticed that your water bill is on the higher side. One suggestion, if I may, with regards to washing. Look for off peak times to wash and dry clothes. We started doing this and our water and electricity bill went down nearly 50%. This means only during the weekends or between 11-5 or after 9 pm for us during the weekdays. We have even managed to cook between those times to save energy - of course sometimes we cannot avoid cooking during peak hours. But the electricity and water bill has come down a lot.

Dottie57
Posts: 5234
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Re: $40,000 in debt, bankruptcy seems to be the best option right now

Post by Dottie57 » Sat Jan 05, 2019 4:08 pm

OP,

Your post says your student loan debt is in deferment. How much is this?

As others have said you need to cut expenses to the bone. Work on credit cards. Then start paying on student loans.

There is no pain free way to get rid of the debt.

As for bankruptcy, I think you need to have debt greater than your income. A bankruptcy court will put you on a money diet. It will be better to do it yourself instead of having it imposed on you by a court.
Last edited by Dottie57 on Sat Jan 05, 2019 4:09 pm, edited 1 time in total.

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jharkin
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Location: Boston suburbs

Re: $40,000 in debt, bankruptcy seems to be the best option right now

Post by jharkin » Sat Jan 05, 2019 4:09 pm

Without reading every reply in detail the #1 thing you have to realize that is the credit cards are not your problem. they are just a symptom - Your true problem is that you are living a mid 6 figure lifestyle with a 5 figure income.

You HAVE to break the over spending cycle. Bankruptcy would just be a band aid. I dont usually like Dave Ramsey but you are a perfect candidate for his system of budgeting and debt snowball.

#1 - The house. Sell it and rent. Yes I know that's drastic but you pay more mortgage than I do and have 1/3 the income.
#2 - Car lease. Tooo much in your situation. See if you can break the lease and either buy a used beater with cash or lease something like a Honda Civic/Fit, Kia, Hyundai or similar small car which will only run < $150/mo.
#3 - Be very honest with yourself and figure out what you can eliminate from groceries/necessities. Shop wholesale clubs and buy generic.
#4 - Dump the security system. You probably dont have much worth stealing anyway. If you do start selling things on Craigslist to raise cash.
#5 wifes bills - What are these? If its not a basic necessity (food/shelter/clothing) stop spending it.
#6 Drop the cable and get a digital antenna for the TV. Get on the cheapest internet plan you can. stream YouTube for entertainment.
#7 Why is your water bill so high???? Ours is less than 1/2 of that and we dont make any effort to conserve. If you have sprinklers turn them off tomorrow - you cant afford it.


Do all of that and start paying the cards off one by one in order of highest interest rate to lowest. Once you have eliminated them all get that student loan out of deferment and start making payments. Then start contributing more to retirement. Only after all that consider giving yourself a break on spending. Yes this is scary and I am sure that making those drastic changes will make you feel miserable at first, but trust me ... in a couple of years the feeling of being in control of your finances (rather than vice versa) will be liberating and bring you more happiness than all that consumer spending ever did.
geologist20 wrote:
Sat Jan 05, 2019 12:34 pm

Monthly budget
Net Income: $4,300.00 (including wife's project net income)
Bills
mortgage $1,871.00
association fee $135.00
car lease $355.00
Discover card $250.00
All other credit cards $463.00
car insurance $75.00
groceries/necesities $700.00
gas $170.00
dining/misc $0.00
life insurance $35.51
student loan deferment
ADT/Security $39.21
Wife's bills $365.00
Gym $0.00
Cable/Internet $80.00
FPL/electricity $140.00
Water $100.00
Savings $0.00

Total amount of bills $4,778.72
Remaining -$478.72
Last edited by jharkin on Sat Jan 05, 2019 4:19 pm, edited 3 times in total.

onourway
Posts: 1584
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Re: $40,000 in debt, bankruptcy seems to be the best option right now

Post by onourway » Sat Jan 05, 2019 4:11 pm

How much in rent were you paying previously?

Whose idea was this to buy the house? Was it driven by your wife and her parents who gifted the money? If so it sounds like there is major work to be done on that side in coming to terms with your actual financial situation. I think that if you intend to try to keep the house your wife is going to need to go back to work, full-time. This will likely require incurring some significant child-care costs for the times when you, your wife, and your in-laws can’t watch the kids, but you need the income. You can’t own a home when you are this much in debt with no savings. What happens when the house requires a major repair to the tune of $5-10k. This is not unusual, and you need to get ahead of the game to be prepared for it.

The little things are not a big enough on their own to save you, but trimming them back will help put your family in the correct state of mind. This is an emergency, and things like alarm systems, cable tv, and leased cars are luxuries you get when you are on solid footing.

It certainly sounds like you are in the right state of mind to right the ship, but I’m not so sure of your wife or her family from what you’ve said so far. Getting everyone on the same page is job #1.

Grt2bOutdoors
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Location: New York

Re: $40,000 in debt, bankruptcy seems to be the best option right now

Post by Grt2bOutdoors » Sat Jan 05, 2019 4:20 pm

Call up the credit card companies and see if you can get a reduction on the interest rates charged and/or a credit card consolidation at a lower rate. This is not a cure for the debt outstanding but it might give you a bit of breathing room with less of your money going to interest.

You might be a candidate for Financial Peace University or at the least pick up a copy of Dave Ramsey's Total Money Makeover at the library. Your wife needs to get on board with this too. A sinking ship will keep sinking if one is bailing water while the other continues to take on more water.
That car lease or as Dave calls it "a fleece" is killing your monthly budget, those credit cards - same thing. If you could eventually get rid of the card balances, cut all of the cards except one, and get rid of the car lease, you will find at least another $1,000 a month that you can save for other purposes.

Student loans are usually a long-term debt (or at least 10 years to pay it off).

It doesn't look like you have an emergency fund? Unless you are thinking the Roth is the e-fund?
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

eldinerocheapo
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Re: $40,000 in debt, bankruptcy seems to be the best option right now

Post by eldinerocheapo » Sat Jan 05, 2019 4:34 pm

Unless you're permanently tied to S Fla, I'd sell out and leave, which is exactly what we did 30 years ago. Moved there after college and worked FT during the week and p/t nights and weekends and never seemed to get ahead. Relocated to Tampa Bay where the cost of living was much lower, and have been here ever since. With your debt burden, major lifestyle changes are in order.

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DanMahowny
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Re: $40,000 in debt, bankruptcy seems to be the best option right now

Post by DanMahowny » Sat Jan 05, 2019 4:38 pm

Bankruptcy isn't the answer here.

You are trying to plug a hole in a boat with more water.

Sorry man.
Funding secured

autopeep
Posts: 199
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Re: $40,000 in debt, bankruptcy seems to be the best option right now

Post by autopeep » Sat Jan 05, 2019 4:57 pm

I think everyone here is sympathetic to your situation. That said you seem somewhat reluctant to make the necessary changes. Security services, gym memberships, car leases, cable packages. These are all elective expensives you are choosing to take on. You either need to spend less or make more. Again, I am sorry you are going through this.

Tdubs
Posts: 296
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Re: $40,000 in debt, bankruptcy seems to be the best option right now

Post by Tdubs » Sat Jan 05, 2019 5:04 pm

Everyone has zeroed in on the obvious places to cut--ADT, TV. Follow their advice.

Groceries-$700 for a family isn't bad, but where do you shop? If it is a standard grocery store, you need to find Aldi's, Dollar Store, and Walmart. Shop no where else. Stop buying beef and name brands--rice, beans, potatoes, pasta, chicken, hams, cheap frozen fish. Get down into the weeds. What brand of toothpaste do you use? If you say Crest, you really need to go through your purchases with a fine-tooth comb. A large tube should cost you less than a buck. Ask the same kind of question for every item you buy.

YNAB costs money. Why not Mint (free)? Any other subscriptions you can dump?

Long-term, never lease a car, take out a loan other than a mortgage. Cut up all the cards except one. Sorry for the negativity, but the fact that you are trying to solve your credit card problems with other credit cards is scary.

caffeperfavore
Posts: 137
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Re: $40,000 in debt, bankruptcy seems to be the best option right now

Post by caffeperfavore » Sat Jan 05, 2019 5:07 pm

blinx77 wrote:
Sat Jan 05, 2019 1:45 pm
BTW, if you want savings tips, Mr. Money Mustache forum is probably better than here. Bogleheads is better for investing and tax strategies and there are more people who are happier working for longer to amass a lot of money to retire at a typical age comfortably. People on the Mr. Money Mustache forum focus more on paring down expenses and quitting work sooner. So they are the gurus of how to stretch a dollar.
I second this. You need a paradigm shift. Immerse yourself in that world for a bit for ideas and encouragement.

My wife and I were over $100k in the red at one point (student loans and credit cards). Things sucked for some time while we hunkered down, cut spending, and paid off the debts. Paying off the debts and tracking became like a game. Once the debts are gone all that money goes into savings and starts to snowball. A decade later we're closing in on seven figures and it's all just a hazy bad memory.

JGoneRiding
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Re: $40,000 in debt, bankruptcy seems to be the best option right now

Post by JGoneRiding » Sat Jan 05, 2019 5:10 pm

Seriously, why did you think you could afford the house when it puts a fairly basic budget $478 a month in the hole?

You need Dave Ramsey, it's your only hope and you need some serious gazelle focus. You MUST get your wife on board. Anything that isn't tied down needs to be sold or given back to its lean holder (are you leasing furniture???) You should check out "buy nothing" boards for your area, you should sell on Craigslist, you might consider food banks in your area.

Rus In Urbe
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Re: $40,000 in debt, bankruptcy seems to be the best option right now

Post by Rus In Urbe » Sat Jan 05, 2019 5:25 pm

Just a word of encouragement. At 42 I was $44,000 in debt mostly with high interest rate credit cards. It took my girlfriend and I four years to get the debt paid off. The first two years were really tough because it seemed we were making almost no progress at all. Then we really started to see results.

You can do it, good luck.
+1 I've never been in debt, but I've got family members who have been through this-----I APPLAUD YOUR COURAGE to face this head on, and to post your situation on this forum.

You are in a very difficult and dangerous situation, as you are just beginning to realize. It calls for immediate action, huge changes in you AND YOUR WIFE's thinking about your spending and saving. There are excellent suggestions on this board----Dave Ramsey and Mr. Money Mustache would both be good sources that will educate and inspire you to change your outlook and habits. Share these messages with your wife and bring her fully into the picture. You must share the financial burdens equally, in planning and in execution. Getting out of this will absolutely require a team effort---both of you pulling in the same direction to get yourselves out of this hole and onto firm ground. It may be a strain at first, but if you persevere together, it can only make your whole family stronger-----and more financially secure.

GOOD LUCK TO YOU ! Others have done this, and you can too.
I'd like to live as a poor man with lots of money. ~Pablo Picasso

deltaneutral83
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Re: $40,000 in debt, bankruptcy seems to be the best option right now

Post by deltaneutral83 » Sat Jan 05, 2019 5:29 pm

Credit cards have not done you well, and they don't for 80% of people, so you are not alone. You need to get rid of them and stick to a budget and get rid of the luxuries, you simply cannot afford them. The cable and security system in your situation is simply irrational. Sell and rent for 24 months plus a new budget plus plugging the consumer debt hole will do you a world of good. housing costs really don't need to exceed 30% of your take home all things equal. You can feel the housing hands around your throat and that's normal at 45% of take home.

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