Follow Up: Husband's Surprise Debts

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
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JAZZISCOOL
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Re: Follow Up: Husband's Surprise Debts

Post by JAZZISCOOL »

HomeStretch wrote: Tue Nov 26, 2019 2:27 pm Taxes are first priority. But if you have extra to pay above monthly CC minimum payments, I agree with paying on card with highest interest.

Not sure if your credit will support another card, but you might look for a card with zero interest for a period of time. There can be a balance transfer fee. Transfer $28k CC debt to such a card and you can put the entire $1,793 per month you are paying now towards principal for a 15 month payoff. You can check doctorofcredit.com for CC recommendations.

What about home insurance premiums? Are they being paid as part of mortgage payment?

Financial planner may have recommended life insurance until age 70, but do you need it for $367/mo? Did planner sell it to you (and is getting a commission)?
I agree with this post. The life insurance premium could then be applied to the higher priority IRS debt, CC's etc.

Here is another link from Mr. Money Mustache for 0% interest balance-transfer CC ideas:

https://www.cardratings.com/advisors/mr ... =636824#bt
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stanford73
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Re: Follow Up: Husband's Surprise Debts

Post by stanford73 »

JAZZISCOOL wrote: Tue Nov 26, 2019 5:42 pm
HomeStretch wrote: Tue Nov 26, 2019 2:27 pm Taxes are first priority. But if you have extra to pay above monthly CC minimum payments, I agree with paying on card with highest interest.

Not sure if your credit will support another card, but you might look for a card with zero interest for a period of time. There can be a balance transfer fee. Transfer $28k CC debt to such a card and you can put the entire $1,793 per month you are paying now towards principal for a 15 month payoff. You can check doctorofcredit.com for CC recommendations.

What about home insurance premiums? Are they being paid as part of mortgage payment?

Financial planner may have recommended life insurance until age 70, but do you need it for $367/mo? Did planner sell it to you (and is getting a commission)?
I agree with this post. The life insurance premium could then be applied to the higher priority IRS debt, CC's etc.

Here is another link from Mr. Money Mustache for 0% interest balance-transfer CC ideas:

https://www.cardratings.com/advisors/mr ... =636824#bt
Thank you! That makes sense. The financial planner did not sell us the term policy, but said if anything happened to DH, I'd be in trouble financially. That was just 4 years ago. Not sure what she was thinking? But, we followed directions.

I'll check out the 0% interest balance transfers. Appreciate the link!
sfmurph
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Re: Follow Up: Husband's Surprise Debts

Post by sfmurph »

If you're not including taxes as part of your monthly expenses, you're probably coming up short every month.

As someone mentioned earlier, your $200,000 loan was not paid down over 25 years. It's unlikely that you'll pay down $350,000 in debt in the next 5 years. You've spent the equity in your house on education and taxes and food and the rest. If you want to reduce financial stress in your retirement, it's time to change that. In the medium term, you're probably going to have to sell your house to get out from some of this debt. With your adult children in the area, you're not going to want to move far away, but you really need to calculate the cost of not downsizing soon enough. You likely should have downsized once the IRS wasn't getting paid, but look to what's next.

In the immediate term, get your current tax estimates into your monthly budget. You don't have a real sense of where you stand until you do.
In the short term, get a handle on all your debts: IRS, credit card, mortgage, HELOC, anything else? List the interest rates on all of them and identify ways to reduce those rates. Either pay them off, refinance, get a 0% balance transfer, etc. Be aware that the checks attached to credit cards often have 3-5% fees on top of the rate. Interest rates are low, and secured debt is cheaper than unsecured debt. Would a cash-out refi to eliminate the IRS and HELOC debt be worth it?
In the medium term, as I said, you'll probably have to sell your house and downsize. Your kids are in the area. Are there apartments or other complexes that are appealing? Start considering it.
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JAZZISCOOL
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Re: Follow Up: Husband's Surprise Debts

Post by JAZZISCOOL »

stanford73 wrote: Tue Nov 26, 2019 4:58 pm
JAZZISCOOL wrote: Tue Nov 26, 2019 2:20 pm
TallBoy29er wrote: Tue Nov 26, 2019 1:35 pm You are a Rock Star for how you are approaching this.

I only have a sec, but your cable/internet is ridiculous. We have Comcast (GA), and use them for internet only, for $65/month. If you want cable, you can use something like SlingTV, or YouTube, for between $25-$50 per month. There's an easy $100+ saved per month. You may need to buy a Roku type device if you do not have a smart tv, but those can be had for a $30 one time cost.

Your cell phone costs seem high as well. Why three lines? There may be phone leases in that cost. If that is the case, you should think of keeping your phones longer than the typical 2 years, and your costs should drop substantially.
I agree with this point. I also think your utilities are very high. Your house may be large but I have 3500 SF and pay ~$133/month for electricity/gas/water and sewer (Colorado also). It seems like you may be able to lower this, e.g. setting your thermostat lower in the winter, etc. If you use Xcel for utilities, they offer a budget billing option so your bills are averaged over the course of the year which may help with budgeting. I would estimate you could cut back on this by 50% or so. Glad you are making progress! :D
I thought the utilities were high, too. I need to check the actual bills. The water bill over the summer months was $600 per month, which was double what it was last year. Same amount of water usage. That budget billing sounds good.

Overall, do you think we can dig out of all these bills? Seems a bit overwhelming. And, in order of priority, is it IRS, CC, HELOC for payments/extra payments?
$600/month for water sounds really high for the summer! I know water prices have gone up in Colorado but that seems quite high (xeriscape lowers water needs :happy).

I think "where there is a will, there is a way" - to answer your question about digging out. It seems challenging but you sound motivated and have been making the initial steps to move in the right direction! If you can keep up your determination and stay on top of the inflows/outflows (in combination with all the other great suggestions from other BH members), that will help.
Barsoom
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Re: Follow Up: Husband's Surprise Debts

Post by Barsoom »

stanford73 wrote: Sun Nov 24, 2019 4:42 pm And, a few of you have mentioned using an accounting system to track our finances. Can you please point me in the right direction on which ones to consider?
My credit union has a built-in tool called FinanceWorks that's on my credit union's online banking site. It links directly into my accounts, lets me set up categories that it will automatically match in new transactions, does simple budget/tracking, some goal/forecasting, and can link to external financial institutions like credit cards and investment firms.

Maybe your bank has something similar built into its online banking service?

-B
clip651
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Re: Follow Up: Husband's Surprise Debts

Post by clip651 »

stanford73 wrote: Tue Nov 26, 2019 5:16 pm
clip651 wrote: Tue Nov 26, 2019 4:46 pm
stanford73 wrote: Tue Nov 26, 2019 1:25 pm
I thought I'd include the budget we went over yesterday to get your input. We need to reduce our food/entertainment costs and our internet/cell phone costs seem high. You'll notice there is no budget line for estimated IRS taxes. No quarterly taxes have been paid in 2019. Thanks, in advance, for looking this over.

Income His
Nov. $4,445
Dec. $10, 653
Jan. $9,923
Feb. 17,692

Income Hers
Nov-Dec 5,000 + SS
No CC debt

Expenses

IRS (5% interest; bal $44, 672k) $575 (autopay)
Mortgage PITI(3.8%; bal $309k) $3,570 (autopay)
Citi CC (bal $8,833; 18.49%) $200.00
Cap One CC (bal $2,231; 24.40%) $86.00
Chase CC (bal $10,402; 16.50%) $255.00
US Bank cc (bal $6,140; 13%) $165.00
HELOC (bal $81,216; 4%) $377,00 (autopay)
Auto insurance (2 vehicles; PIF) $135.00 (autopay)
Dues (homeowner's assoc) $53.00
Sprint (3 lines) $200.00
Comcast (internet, cable) $247.00
Utilities (gas, water, elect) $500.00
Food/Entertainment $1,000
Term Life Ins. ($600k) $367.00 (autopay)

Expenses (Dec.) 7,730
Net (Dec) 2,923

Expenses (Jan) 7,730
Net (Jan) 2,192

Expenses (feb) 7,700
Net (feb) 9,992
You have done a great job gathering information and getting started! Congratulations! Thank you for updating us. You can now begin to plan your path forward with real information to work with.

A couple of things stand out to me:

1) you say you've paid no estimated taxes yet for 2019. Do you have an estimate for what those taxes will be? Have you looked at last year's tax return and compared it with this year's income, etc? Others can better advise you on the nitty gritty details, but you'll want to get going on making a payment for 2019 taxes ASAP.

2) are there any liquid savings outside of retirement accounts currently?

3) The interest rates on credit cards are of course quite high. The one with the highest rate (Cap One CC, 24.4%) has the smallest balance ($2231). If there is any extra money around (after figuring out the tax issue), I would throw it at that one and try to eliminate that balance first. Then that monthly payment can be redirected to future taxes or another credit card, depending on where you are at. You can also keep an eye out for any balance transfer offers (preferably with the cards you already have, not with a new one) which might help you consolidate and save interest. Check the fine print and the timelines on the offers, though, and be sure you'd be saving and not setting yourself up for higher interest once the promotion period ends.

The way you've listed income, expenses, and net is confusing to me. (I can't tell how much you two made so far this year, for instance, or whether you both worked al through the year this year.) Are you saying you have an extra $2000 or so a month to work with? In that case, you can work on figuring out taxes and credit card payments to maximize use of that money. But somehow I don't think that's what you're saying here. (Do you mean you are short 2000-3000 a month, and haven't paid taxes yet??)

Again, congrats on excellent progress! Keep chipping away at understanding the present (and the past as needed) and planning for the future.

best wishes,
cj
Thanks, cj, for the kind words and encouragement.
To answer your questions:
1) I don't yet have an estimate. I've asked my husband for our tax returns for the last two years and his YTD salary. Income is lower this year, and last year, he paid 2018 taxes in full. The IRS debt that remains is from bits and pieces of balances owed since 2011. So, he has been chipping away, but unfortunately, the biggest chunk of those payments was made with the HELOC funds.
2) The only liquid savings are in my emergency fund of about $3k.
3) Zero balance transfers are a great idea.

And, no, we are not short at the end of the month (came as a big relief to me). The "net" amount listed in the numbers above is what we have leftover at the end of the month after expenses, BUT without taxes calculated in.
Thanks for clarifying.

If he has been chipping away at the previous IRS debt with the HELOC, he hasn't actually been chipping away at the IRS debt at all. Just been changing it to a different type of debt. It's very important to stay current with the IRS payments, so that part is good. But don't fool yourselves that the IRS debt has been chipped away it if it's only been moved to a different lender.

Sounds like getting a handle on 2019 taxes (and then 2020) should be one of the next things on your list. You don't want to pay unnecessary penalties with your taxes, and going forward, you'll want to figure out how to be on top of them each year so that at filing time you're getting a small refund or owe a small manageable amount, and there are no big surprises.

So, if you are have a net leftover of $2000-3000 a month, and you don't have any liquid savings beyond a tiny emergency fund, where has that net extra money been going? The debts have been growing from what you've posted earlier, not shrinking, so I don't think more than minimum payments have been happening. I am not criticizing, just trying to help you figure out where the money has been going and will be going.

I suspect there are more spending and expense categories that you haven't discovered yet, as your list is pretty short. These may be things that just aren't obvious because they aren't a regular recurring expense. Stuff like Christmas and birthday gifts, travel, clothing, medical (premiums, copays, prescriptions, etc), furniture, any money spent on or given to kids, dog food and veterinary bills, hobbies, electronics, home and car repairs, gas for two cars, cash spending (look at all previous cash withdrawals from bank accounts the past year and try to guestimate where that cash may have been spent), etc. Some of those categories are probably a portion of your existing debts, but unless you are cutting all of these (and any other categories) out of your life altogether, you'll need to plan on how to pay them in the future.

If you don't have savings and aren't going to keep adding more charges to credit cards, you'll need to cash flow all of the things not on your list, and anything that would have previously gone on a credit card. And if you want to reduce debt, you'll also need to hunt for ways to increase your loan payments to pay things off faster. For instance, those minimum payments on credit cards will keep those credit card debts going for a LONG LONG time. I think credit card statements these days will actually tell you how long it will take to pay off a balance if you only pay the minimum, and how much total you will pay over that time compared to the current balance. Take a peek at each statement and look for that, but sit down first.

Again, wishing you the best and cheering for you! All of this is offered as things to think about along the way as you try to get control of your future and path forward. I hope at least some of it is helpful. (All the places I'm saying "you" mean you as a couple, since you and your husband are tackling this together.)

cj
MMMM
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Re: Follow Up: Husband's Surprise Debts

Post by MMMM »

Okay, I added things up because I think it's hard to see the whole picture from all the different places things are listed.

Debt - $463k
Mortgage - $309k, 3.8%
IRS - $45k, 5%
HELOC - $81k, 4%
Credit Cards - $28k

Liquid Assets - $489k
401k - $394k
403b - $55k (annuity)
Roth IRA - $40k

House value - $950k

SS Income at 70 - $4500/month
Her consulting income - $5000/month (after taxes?)
His consulting income - ??? (what is his net, after expenses and taxes?)

You will also owe pretty substantial taxes for 2019, plus penalties and interest for not paying quarterlies.

Honestly, the new debt that has come to light is not a huge deal in and of itself. You can pay it off by delaying retirement one extra year with your current income The much bigger problem is that you have not been living within your means this whole time. You're not clear on your income or your expenditures (which I don't blame you for, as you thought your husband was handling this, but obviously it must be addressed now).

So focus there, and on figuring out the 2019 tax situation. I think after nailing down your real expenses, it will become much more clear how to solve the problem. You have more options available to you than I think you realize - you have a valuable house, are still tied to the labor market, and have decent SS income headed your way. I think you'll be okay, you just have to figure out what to do next.
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Chip Munk
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Re: Follow Up: Husband's Surprise Debts

Post by Chip Munk »

stanford73 wrote: Tue Nov 26, 2019 5:49 pm The financial planner did not sell us the term policy, but said if anything happened to DH, I'd be in trouble financially. That was just 4 years ago. Not sure what she was thinking? But, we followed directions.
Like you and your DH, my DH has the higher PIA so he will wait until age 70 to claim Social Security to maximize his benefit and my survivor benefit if he predeceases me. I will claim at my FRA. But there is no guarantee that the spouse with the higher PIA will make it to age 70 and secure that maximum benefit. I've wondered if my DH should have a term policy that would replace the part of the survivor benefit that would be lost if this should happen to us. It could amount to more than $300,000 over my expected lifetime.

As someone who worries about this in my own case, I can see a benefit to keeping the term policy. How old is your DH? I'm just wondering how close he is to maximizing his benefit and your survivor benefit.
fru-gal
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Re: Follow Up: Husband's Surprise Debts

Post by fru-gal »

stanford73 wrote: Tue Nov 26, 2019 4:58 pm
I thought the utilities were high, too. I need to check the actual bills. The water bill over the summer months was $600 per month, which was double what it was last year. Same amount of water usage. That budget billing sounds good.
My water bill is $50 a quarter... How is it possible to spend $600 a month on water. Is there a leak in the system?

Update: take a look at how water is billed. If you are in an arid area of the country, much higher charges may kick in if you use over a certain amount.
Freetime76
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Re: Follow Up: Husband's Surprise Debts

Post by Freetime76 »

stanford73 wrote: Tue Nov 26, 2019 1:25 pm ...
I thought I'd include the budget we went over yesterday to get your input. We need to reduce our food/entertainment costs and our internet/cell phone costs seem high. You'll notice there is no budget line for estimated IRS taxes. No quarterly taxes have been paid in 2019. Thanks, in advance, for looking this over.

Income His
Nov. $4,445
Dec. $10, 653
Jan. $9,923
Feb. 17,692


Income Hers
Nov-Dec 5,000 + SS
No CC debt

Expenses

IRS (5% interest; bal $44, 672k) $575 (autopay)
Mortgage PITI(3.8%; bal $309k) $3,570 (autopay)
Citi CC (bal $8,833; 18.49%) $200.00
Cap One CC (bal $2,231; 24.40%) $86.00
Chase CC (bal $10,402; 16.50%) $255.00
US Bank cc (bal $6,140; 13%) $165.00
HELOC (bal $81,216; 4%) $377,00 (autopay)
Auto insurance (2 vehicles; PIF) $135.00 (autopay)
Dues (homeowner's assoc) $53.00
Sprint (3 lines) $200.00
Comcast (internet, cable) $247.00
Utilities (gas, water, elect) $500.00
Food/Entertainment $1,000
Term Life Ins. ($600k) $367.00 (autopay)

Expenses (Dec.) 7,730
Net (Dec) 2,923

Expenses (Jan) 7,730
Net (Jan) 2,192

Expenses (feb) 7,700
Net (feb) 9,992
? Did we all just blow past this, and instead pounce on the bills? :?:

I’m seeing a possible **shortfall** IF taxes were being paid for 2019... which could be the root of the whole mess, possibly? :!:

Or did I miss something obvious?

ETA: “possible”
Katietsu
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Re: Follow Up: Husband's Surprise Debts

Post by Katietsu »

Freetime76 wrote: Tue Nov 26, 2019 10:24 pm
stanford73 wrote: Tue Nov 26, 2019 1:25 pm ...
I thought I'd include the budget we went over yesterday to get your input. We need to reduce our food/entertainment costs and our internet/cell phone costs seem high. You'll notice there is no budget line for estimated IRS taxes. No quarterly taxes have been paid in 2019. Thanks, in advance, for looking this over.

Income His
Nov. $4,445
Dec. $10, 653
Jan. $9,923
Feb. 17,692


Income Hers
Nov-Dec 5,000 + SS
No CC debt

Expenses

IRS (5% interest; bal $44, 672k) $575 (autopay)
Mortgage PITI(3.8%; bal $309k) $3,570 (autopay)
Citi CC (bal $8,833; 18.49%) $200.00
Cap One CC (bal $2,231; 24.40%) $86.00
Chase CC (bal $10,402; 16.50%) $255.00
US Bank cc (bal $6,140; 13%) $165.00
HELOC (bal $81,216; 4%) $377,00 (autopay)
Auto insurance (2 vehicles; PIF) $135.00 (autopay)
Dues (homeowner's assoc) $53.00
Sprint (3 lines) $200.00
Comcast (internet, cable) $247.00
Utilities (gas, water, elect) $500.00
Food/Entertainment $1,000
Term Life Ins. ($600k) $367.00 (autopay)

Expenses (Dec.) 7,730
Net (Dec) 2,923

Expenses (Jan) 7,730
Net (Jan) 2,192

Expenses (feb) 7,700
Net (feb) 9,992
? Did we all just blow past this, and instead pounce on the bills? :?:

I’m seeing a possible **shortfall** IF taxes were being paid for 2019... which could be the root of the whole mess, possibly? :!:

Or did I miss something obvious?

ETA: “possible”
I agree. I have thought from the beginning of this thread that this was predominantly a simple case of living above your means. Unfortunately, this is quite common.

OP:
I am glad you are slowly getting a grasp on your financial situation. As you keep working through this, you will find that you need to cut your expenses. Hopefully, at the same time, you will be able to create additional income in 2020.

You have been living this way for a long time. So change will be hard. Maybe read some of the budget threads on BHs where you will see that $600 water bills and $250 cable bills should not be accepted as a necessity. I think you should try watching a Rachel Cruze YouTube video or listening to a Dave Ramsey podcast for inspiration.

Do not get frustrated and quit when you realize that your current income does not support your current lifestyle. You are in better shape than many Americans. But most Americans do not have your standard of living. You can find some savings just by being smart. But you will very likely need to make sacrifices that you are not used to making. Give your kids the gift of stabilizing your financial situation this year instead of spending money on them. Good luck.
mjb
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Re: Follow Up: Husband's Surprise Debts

Post by mjb »

I understand lifestyle creep happens and it is really easy to fall into. However, your expenses (including tax) roughly match someone with a 300k/yr income while you are on a 150-200k/year income.

From a pure math perspective, the best solution would be to sell your house, pay off your debts, and downsize. Then aggressively save. I know this is hard as it is your longtime home with great memories, but some hard choices now can make your retirement attainable.
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WWJBDo
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Location: California

Re: Follow Up: Husband's Surprise Debts

Post by WWJBDo »

OP, great work.

Sorry if you have already discussed it, but why not take out more on the HELOC to pay off the credit cards, and replace the double digit CC debt with a 4% HELOC? Other than that, another possibility is to go with the home off deduction and also talk to your accountant about writing off other expenses you may not have considered.
"It is difficult to get a man to understand something when his salary depends upon his not understanding it." Upton Sinclair
Saving$
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Re: Follow Up: Husband's Surprise Debts

Post by Saving$ »

stanford73 wrote: Tue Nov 26, 2019 1:25 pm ... we agreed to the following: (1) weekly meetings; (2) no cc use; (3) I will take over the finances; (4) all decisions (personal & business) on expenditures made jointly; (5) both continue working FT as consultants; (6) keep the house until 70 & reevaluate, as necessary (income, etc.). I am still gathering all the bank statements and other docs, but I have PWs to all of DH's bank accounts now & we've both been registered on Credit Karma for awhile. Although I haven't yet verified the numbers, DH says he tapped HELOC & apparently also $6k of the 401K :annoyed to cover taxes and shortfalls in income over 6 years.

I thought I'd include the budget we went over yesterday to get your input. We need to reduce our food/entertainment costs and our internet/cell phone costs seem high. You'll notice there is no budget line for estimated IRS taxes. No quarterly taxes have been paid in 2019. Thanks, in advance, for looking this over.

Income His
Nov. $4,445
Dec. $10, 653
Jan. $9,923
Feb. 17,692

Income Hers
Nov-Dec 5,000 + SS
No CC debt

Expenses

IRS (5% interest; bal $44, 672k) $575 (autopay)
Mortgage PITI(3.8%; bal $309k) $3,570 (autopay)
Citi CC (bal $8,833; 18.49%) $200.00
Cap One CC (bal $2,231; 24.40%) $86.00
Chase CC (bal $10,402; 16.50%) $255.00
US Bank cc (bal $6,140; 13%) $165.00
HELOC (bal $81,216; 4%) $377,00 (autopay)
Auto insurance (2 vehicles; PIF) $135.00 (autopay)
Dues (homeowner's assoc) $53.00
Sprint (3 lines) $200.00
Comcast (internet, cable) $247.00
Utilities (gas, water, elect) $500.00
Food/Entertainment $1,000
Term Life Ins. ($600k) $367.00 (autopay)

Expenses (Dec.) 7,730
Net (Dec) 2,923

Expenses (Jan) 7,730
Net (Jan) 2,192

Expenses (feb) 7,700
Net (feb) 9,992
I seem to be the only one who does not understand the above. It is November, yet you are posting November through February income to the dollar... Is this November 2019 to Feb 2020 income? or November 2018 to Feb 2019?

If this is projected, how can a variable income be projected down to the dollar?
If this is 2018-2019, what about the balance of 2019 income?

Also, the post starts out indicating
- his income for November is $4,445 and yours is $5000 + SS = 9,445. After $7,730 expenses, that leaves $1,715 + SS
- his income for December is projected to be $10,643 and yours is $5000 +SS = $15,643. After $7,730 expenses, that leaves $7,913 +SS
In other comments, indicated her SS = $945/m, his SS = $500/m and she has a $320/m annuity. That is another $1,765/m

Since all your minimum payments except the 2019 taxes are included the the expenses section, there above numbers indicate there is enough to make payments on 2019 taxes...

Also OP indicated husbands income 3 years ago was $240k. Is there anything he can do to make a big push to reach that again in 2020? If so, coupled with the anticipated 2020 increase in SS income from $1445/m to $5k/m, and a year of living frugally, you might be able to knock out all except the mortgage by this time next year...
HomeStretch
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Re: Follow Up: Husband's Surprise Debts

Post by HomeStretch »

fru-gal wrote: Tue Nov 26, 2019 9:58 pm
stanford73 wrote: Tue Nov 26, 2019 4:58 pm
I thought the utilities were high, too. I need to check the actual bills. The water bill over the summer months was $600 per month, which was double what it was last year. Same amount of water usage. That budget billing sounds good.
My water bill is $50 a quarter... How is it possible to spend $600 a month on water. Is there a leak in the system?

Update: take a look at how water is billed. If you are in an arid area of the country, much higher charges may kick in if you use over a certain amount.
OP, are you running a landscape irrigation system during summer months?
Last edited by HomeStretch on Wed Nov 27, 2019 1:06 am, edited 1 time in total.
EnjoyIt
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Re: Follow Up: Husband's Surprise Debts

Post by EnjoyIt »

Congrats on the hard work thus far. I think you need to realize that you two are in a debt emergency. In this situation you don’t have the room for luxuries like cable TV, premium cell service, term life insurance, fancy $1k/month groceries. Your food / entertainment bill needs to get down to about $300/month. You need to stop watering your lawn, and term life in your position is a wast of almost $4k/yr.

If you can’t move all that credit card debt to 0% cards then you need to take out more from the HELOC and pay them off immediately. 4% is much better than 16-22%

If you want to live in this house, I think you two are in for a rough ride of scrimping and saving for a few years to dig yourself out of this mess. I would consider making a year by year spreadsheet to see what your finances will look like over the next 3-5 years and see how doable all this is.

I wish you luck.
A time to EVALUATE your jitters: | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418
Topic Author
stanford73
Posts: 136
Joined: Tue Sep 11, 2018 1:05 am

Re: Follow Up: Husband's Surprise Debts

Post by stanford73 »

Saving$ wrote: Wed Nov 27, 2019 12:17 am
stanford73 wrote: Tue Nov 26, 2019 1:25 pm ... we agreed to the following: (1) weekly meetings; (2) no cc use; (3) I will take over the finances; (4) all decisions (personal & business) on expenditures made jointly; (5) both continue working FT as consultants; (6) keep the house until 70 & reevaluate, as necessary (income, etc.). I am still gathering all the bank statements and other docs, but I have PWs to all of DH's bank accounts now & we've both been registered on Credit Karma for awhile. Although I haven't yet verified the numbers, DH says he tapped HELOC & apparently also $6k of the 401K :annoyed to cover taxes and shortfalls in income over 6 years.

I thought I'd include the budget we went over yesterday to get your input. We need to reduce our food/entertainment costs and our internet/cell phone costs seem high. You'll notice there is no budget line for estimated IRS taxes. No quarterly taxes have been paid in 2019. Thanks, in advance, for looking this over.

Income His
Nov. $4,445
Dec. $10, 653
Jan. $9,923
Feb. 17,692

Income Hers
Nov-Dec 5,000 + SS
No CC debt

Expenses

IRS (5% interest; bal $44, 672k) $575 (autopay)
Mortgage PITI(3.8%; bal $309k) $3,570 (autopay)
Citi CC (bal $8,833; 18.49%) $200.00
Cap One CC (bal $2,231; 24.40%) $86.00
Chase CC (bal $10,402; 16.50%) $255.00
US Bank cc (bal $6,140; 13%) $165.00
HELOC (bal $81,216; 4%) $377,00 (autopay)
Auto insurance (2 vehicles; PIF) $135.00 (autopay)
Dues (homeowner's assoc) $53.00
Sprint (3 lines) $200.00
Comcast (internet, cable) $247.00
Utilities (gas, water, elect) $500.00
Food/Entertainment $1,000
Term Life Ins. ($600k) $367.00 (autopay)

Expenses (Dec.) 7,730
Net (Dec) 2,923

Expenses (Jan) 7,730
Net (Jan) 2,192

Expenses (feb) 7,700
Net (feb) 9,992
I seem to be the only one who does not understand the above. It is November, yet you are posting November through February income to the dollar... Is this November 2019 to Feb 2020 income? or November 2018 to Feb 2019?

If this is projected, how can a variable income be projected down to the dollar?
If this is 2018-2019, what about the balance of 2019 income?

Also, the post starts out indicating
- his income for November is $4,445 and yours is $5000 + SS = 9,445. After $7,730 expenses, that leaves $1,715 + SS
- his income for December is projected to be $10,643 and yours is $5000 +SS = $15,643. After $7,730 expenses, that leaves $7,913 +SS
In other comments, indicated her SS = $945/m, his SS = $500/m and she has a $320/m annuity. That is another $1,765/m

Since all your minimum payments except the 2019 taxes are included the the expenses section, there above numbers indicate there is enough to make payments on 2019 taxes...

Also OP indicated husbands income 3 years ago was $240k. Is there anything he can do to make a big push to reach that again in 2020? If so, coupled with the anticipated 2020 increase in SS income from $1445/m to $5k/m, and a year of living frugally, you might be able to knock out all except the mortgage by this time next year...

The income for DH is November 2019 through Feb 2020. Deals are closed months prior to the commissions being paid. So, projections are typically 2-3 months out. Deals closed in Aug/Sept may not be paid until Nov. or Dec. That's why the amounts are so specific. My income is a total of $5k for Nov & Dec.

SS income is not increasing in 2020.

Husband's income varies considerably and he made $240k in just one month and not the entire year.

I like to think we can payoff all the debt living frugally, without having to sell the house to get there.So much for me to learn and figure out.
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stanford73
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Re: Follow Up: Husband's Surprise Debts

Post by stanford73 »

HomeStretch wrote: Wed Nov 27, 2019 12:29 am
fru-gal wrote: Tue Nov 26, 2019 9:58 pm
stanford73 wrote: Tue Nov 26, 2019 4:58 pm
I thought the utilities were high, too. I need to check the actual bills. The water bill over the summer months was $600 per month, which was double what it was last year. Same amount of water usage. That budget billing sounds good.
My water bill is $50 a quarter... How is it possible to spend $600 a month on water. Is there a leak in the system?

Update: take a look at how water is billed. If you are in an arid area of the country, much higher charges may kick in if you use over a certain amount.
OP, are you running a landscape irrigation system during summer months?
Yes, we have an in ground sprinkler system. I thought we had a leak, but the usage amount this summer was about the same as past years. I'm going to call and find out why it doubled in one year.
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Tamarind
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Re: Follow Up: Husband's Surprise Debts

Post by Tamarind »

OP you've gotten some really smart advice upthread. Just to summarize in brief.

First priority - minimum payment on existing debt - don't go into default.
Second priority - paying estimated taxes for 2019 - stop digging your hole.
Third priority - paying extra on the credit cards - start with the highest rate.

If you are determined to keep the house your lifestyle is still going to change in a way that will be visible to friends and family. It's time to start making lifestyle cuts: ie turn off the sprinklers, stop eating out, no entertainment that costs money, no subscriptions, no charity.

I think you can get your non-debt expenses down to $1-2k per month, which will let you pay off all the debt in a couple of years if you stop adding to it right now.
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RickBoglehead
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Re: Follow Up: Husband's Surprise Debts

Post by RickBoglehead »

stanford73 wrote: Wed Nov 27, 2019 1:44 am

Yes, we have an in ground sprinkler system. I thought we had a leak, but the usage amount this summer was about the same as past years. I'm going to call and find out why it doubled in one year.
The unit cost is easy to see on the bill, just compare them. If the water utility allows it, get an allowance for sprinklers on your sewer usage.
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Re: Follow Up: Husband's Surprise Debts

Post by Herekittykitty »

stanford73 wrote: Tue Nov 26, 2019 1:25 pm.............


Food/Entertainment $1,000...........


Term Life Ins. ($600k) $367.00 (autopay)
1. A lot of people lump food and entertainment together when starting to budget, and a lot put restaurants in the food category. But food and entertainment aren't the same thing and in my opinion restaurants are entertainment or a separate category. When you can - separate out food (ex: purchased in a grocery store or similar and fixed, and eaten at home) from entertainment. Either include restaurants or other eating out or fast food food under the entertainment category or separate it entirely. This will be instructive and help with making budget decisions.

2. I agree with some that $367 is a lot of money. On the other hand - especially given the uncertainty of your financial situation and maybe even once it is clear and under control - I would keep the life insurance.
I don't know anything.
Freetime76
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Re: Follow Up: Husband's Surprise Debts

Post by Freetime76 »

Tamarind wrote: Wed Nov 27, 2019 6:21 am OP you've gotten some really smart advice upthread. Just to summarize in brief.

First priority - minimum payment on existing debt - don't go into default.
Second priority - paying estimated taxes for 2019 - stop digging your hole.
Third priority - paying extra on the credit cards - start with the highest rate.

If you are determined to keep the house your lifestyle is still going to change in a way that will be visible to friends and family. It's time to start making lifestyle cuts: ie turn off the sprinklers, stop eating out, no entertainment that costs money, no subscriptions, no charity.

I think you can get your non-debt expenses down to $1-2k per month, which will let you pay off all the debt in a couple of years if you stop adding to it right now.
To add to this tactical approach, suggest:
A. Figure out where you and DH are - currently in progress. Good on you! (Accounts, debts, expenses, taxes, incomes...) This is no small amount of work for both of you.
B. Decide where you want to be in the future - Paid debts? Retired? Semi-retired? Living on $X per year of retirement income, coming from what? What? You both get to discuss and decide. Which is light years better than many I know, where is just sort of happens... :?

—> This gives you the distance between point A and point B. It will tell you both if/when reducing his income is feasible, if/how much of current lifestyle is sustainable etc etc.

A lot of the great advice I’m reading here is already seeing the distance between where you are now and where you want to be as requiring some (not insignificant) course adjustments. Hope all sorts out for the best for you both!
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Re: Follow Up: Husband's Surprise Debts

Post by Freetime76 »

Herekittykitty wrote: Wed Nov 27, 2019 7:39 am
stanford73 wrote: Tue Nov 26, 2019 1:25 pm.............


Food/Entertainment $1,000...........


Term Life Ins. ($600k) $367.00 (autopay)
1. A lot of people lump food and entertainment together when starting to budget, and a lot put restaurants in the food category. But food and entertainment aren't the same thing and in my opinion restaurants are entertainment or a separate category. When you can - separate out food (ex: purchased in a grocery store or similar and fixed, and eaten at home) from entertainment. Either include restaurants or other eating out or fast food food under the entertainment category or separate it entirely. This will be instructive and help with making budget decisions.

2. I agree with some that $367 is a lot of money. On the other hand - especially given the uncertainty of your financial situation and maybe even once it is clear and under control - I would keep the life insurance.
+1. I’d keep the term for now - current lifestyle is not possible on your income. Restaurants are a (large) discretionary expense vs, we made sandwiches at home because humans have to eat. :happy
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Tamarind
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Re: Follow Up: Husband's Surprise Debts

Post by Tamarind »

Here's a question for the thread - at what point should OP and DH consider adding money to solo 401ks to reduce tax liability?

I would consider it after 2019 estimated taxes and credit cards are completely paid (i.e not until next year), because it would further reduce tax liability AND cash on hand that can be spent.

My thinking is that their 22% marginal rate is higher than the IRS payment plan or HELOC... But is my math right? Or is it just a bridge too far given the current challenge of correctly calculating and paying estimated taxes on time?
Startingover2019
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Re: Follow Up: Husband's Surprise Debts

Post by Startingover2019 »

I am going to jump in on the camp of “get rid of that house”.

Seriously, why would an elderly couple, trying to get out of debt before retirement need a 3000 sq ft house? Can you not see how maintaining that house is eating away at your money, i.e taxes on a $900K property the sprinkler system not including electric, and gas on a large house? These maintenance items could be cut by half if you downsize.
Can you purchase a 2000 or less sq foot house for less than 350k where you live and use some of the money from the sale of your house to pay down all your debt and put the rest away?
Please get unstuck from this house. It’s an unnecessary expense.
Last edited by Startingover2019 on Wed Nov 27, 2019 9:49 am, edited 1 time in total.
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Re: Follow Up: Husband's Surprise Debts

Post by fru-gal »

stanford73 wrote: Wed Nov 27, 2019 1:44 am
HomeStretch wrote: Wed Nov 27, 2019 12:29 am
fru-gal wrote: Tue Nov 26, 2019 9:58 pm
stanford73 wrote: Tue Nov 26, 2019 4:58 pm
I thought the utilities were high, too. I need to check the actual bills. The water bill over the summer months was $600 per month, which was double what it was last year. Same amount of water usage. That budget billing sounds good.
My water bill is $50 a quarter... How is it possible to spend $600 a month on water. Is there a leak in the system?

Update: take a look at how water is billed. If you are in an arid area of the country, much higher charges may kick in if you use over a certain amount.
OP, are you running a landscape irrigation system during summer months?
Yes, we have an in ground sprinkler system. I thought we had a leak, but the usage amount this summer was about the same as past years. I'm going to call and find out why it doubled in one year.
Consider some xeriscaping.
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Re: Follow Up: Husband's Surprise Debts

Post by BarbBrooklyn »

Looking ahead to age 70, when SS will be 4500 combined, will you be able to afford the house then?

If one of you is unable to work for some reason, the house becomes unaffordable in an emergency situation. Selling, packing, moving with an ill spouse is no picnic (and I mean for either one of you).

I would so much rather sell this house and buy another home in a planful manner than have to have a fire sale.
BarbBrooklyn | "The enemy of a good plan is the dream of a perfect plan."
HomeStretch
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Re: Follow Up: Husband's Surprise Debts

Post by HomeStretch »

+1. Take some time to figure out your situation and reduce expenses and debt. But (sooner rather than later) consider selling the house and down-sizing to bring your baseline expenses down. It’s the biggest money drag in your financial picture.
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Re: Follow Up: Husband's Surprise Debts

Post by Miakis »

I rarely advise my clients to prioritize paying back taxes to the IRS over other debt. The IRS has fairly reasonable payment terms and interest rates. If you agree to pay over 72 months, they will approve a payment plan. If you're over $50,000 they also want assurances that you will pay estimated taxes in the future, but they will still approve the payment plan if you haven't.

If you can pay 2019 taxes by April 15, it will help you avoid late payment penalties, which do increase the interest rate substantially. But for the older tax debt, just leave it on installment agreement - you've already suffered the late payment penalties and the IRS interest rate is only around 4%. Keep your 2020 taxes current as a priority over older taxes. If you can't pay both 2019 and 2020, then pay 2020 and put 2019 on the installment agreement.

Your interest rate on the HELOC and Credit Cards are likely higher than the interest rate the IRS is giving you on your tax debt. The IRS will remain friendly as long as you work at staying current with estimated tax payments in the future.
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stanford73
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Re: Follow Up: Husband's Surprise Debts

Post by stanford73 »

Miakis wrote: Wed Nov 27, 2019 9:15 am I rarely advise my clients to prioritize paying back taxes to the IRS over other debt. The IRS has fairly reasonable payment terms and interest rates. If you agree to pay over 72 months, they will approve a payment plan. If you're over $50,000 they also want assurances that you will pay estimated taxes in the future, but they will still approve the payment plan if you haven't.

If you can pay 2019 taxes by April 15, it will help you avoid late payment penalties, which do increase the interest rate substantially. But for the older tax debt, just leave it on installment agreement - you've already suffered the late payment penalties and the IRS interest rate is only around 4%. Keep your 2020 taxes current as a priority over older taxes. If you can't pay both 2019 and 2020, then pay 2020 and put 2019 on the installment agreement.

Your interest rate on the HELOC and Credit Cards are likely higher than the interest rate the IRS is giving you on your tax debt. The IRS will remain friendly as long as you work at staying current with estimated tax payments in the future.
THANK YOU! This is very helpful and what I needed to hear to figure out next steps/strategy. Based on quick projections for increased income/reducing expenses (DH just landed a $30k deal), looks like we'll be able to cash flow payment of 2019 taxes and keep current on 2020.
Last edited by stanford73 on Wed Nov 27, 2019 11:31 am, edited 1 time in total.
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Re: Follow Up: Husband's Surprise Debts

Post by stanford73 »

HomeStretch wrote: Wed Nov 27, 2019 9:08 am +1. Take some time to figure out your situation and reduce expenses and debt. But (sooner rather than later) consider selling the house and down-sizing to bring your baseline expenses down. It’s the biggest money drag in your financial picture.
I realize the house is a big drain, but we are determined to stay put for two years, until 70. (Of course, we'll reevaluate as things change.) In the meantime, reducing overhead and making more money will solve a few problems. Thanks to the good advice I've gotten here, I'm wiser about the finances, even though my learning curve is steep. I had no idea how deep a hole DH was digging, but he appears to be on board with making these changes . I remain hopeful.
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Re: Follow Up: Husband's Surprise Debts

Post by EnjoyIt »

I love seeing your quick progress in moving forwards. If you take a look at your 2018 tax return that you state was done by a CPA, there should be a page about estimated taxes that should be due in 2019 to keep you in the safe harbor range so you avoid underpayment and penalties. If you are able to pay that by the due date (I believe Jan 15th 2020) you may be able to avoid penalties for not paying 1st, 2nd, and 3rd quarter taxes.

Also, have you had a chance to run projections for what things will look like in 2 years? Let us assume that next year you are able to get rid of the $28k CC debt and in 2021 you are able to eliminate the IRS debt. Do you both plan on retiring? When retired can you still afford living in that home and paying the mortgage, HELOC, taxes, insurance, and utilities on just SS and your current assets?
A time to EVALUATE your jitters: | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418
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stanford73
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Re: Follow Up: Husband's Surprise Debts

Post by stanford73 »

Tamarind wrote: Wed Nov 27, 2019 6:21 am OP you've gotten some really smart advice upthread. Just to summarize in brief.

First priority - minimum payment on existing debt - don't go into default.
Second priority - paying estimated taxes for 2019 - stop digging your hole.
Third priority - paying extra on the credit cards - start with the highest rate.

If you are determined to keep the house your lifestyle is still going to change in a way that will be visible to friends and family. It's time to start making lifestyle cuts: ie turn off the sprinklers, stop eating out, no entertainment that costs money, no subscriptions, no charity.

I think you can get your non-debt expenses down to $1-2k per month, which will let you pay off all the debt in a couple of years if you stop adding to it right now.
Appreciate this approach and it feels doable. We've been through a much tougher financial situation than this one when DH was out of work--no income--for three years. We made it through with sheer determination.

Your comment about the solo 401k being an option to reduce our taxes sounds pretty great. We do nothing (except allowable deductions) to reduce our tax burden, which is significant. We consulted a financial planner four years ago to get this kind of advice--how to reduce our taxes, plan for retirement--but her focus was on "managing" our retirement funds.
Last edited by stanford73 on Wed Nov 27, 2019 12:27 pm, edited 1 time in total.
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alpenglow
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Re: Follow Up: Husband's Surprise Debts

Post by alpenglow »

ohai wrote: Sun Nov 24, 2019 5:59 pm OP, some people don't like finance aggregation programs like Mint, but I find this to be really useful in sorting through all your miscellaneous spending categories. It could just be that husband spent the money on normal expenses, and that those expenses were just higher than you had in your mind.
I've used Mint for years and have found it to be very useful as a free service. I only use it to track credit card accounts and not investments.
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Re: Follow Up: Husband's Surprise Debts

Post by JAZZISCOOL »

alpenglow wrote: Wed Nov 27, 2019 12:01 pm
ohai wrote: Sun Nov 24, 2019 5:59 pm OP, some people don't like finance aggregation programs like Mint, but I find this to be really useful in sorting through all your miscellaneous spending categories. It could just be that husband spent the money on normal expenses, and that those expenses were just higher than you had in your mind.
I've used Mint for years and have found it to be very useful as a free service. I only use it to track credit card accounts and not investments.
I haven't used Mint personally but am curious about it and also if other BH's are ever concerned with the data collection practices of many websites (i.e. privacy issues)? Maybe there is a way to address this with your login. :happy
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stanford73
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Re: Follow Up: Husband's Surprise Debts

Post by stanford73 »

EnjoyIt wrote: Wed Nov 27, 2019 11:35 am I love seeing your quick progress in moving forwards. If you take a look at your 2018 tax return that you state was done by a CPA, there should be a page about estimated taxes that should be due in 2019 to keep you in the safe harbor range so you avoid underpayment and penalties. If you are able to pay that by the due date (I believe Jan 15th 2020) you may be able to avoid penalties for not paying 1st, 2nd, and 3rd quarter taxes.

Also, have you had a chance to run projections for what things will look like in 2 years? Let us assume that next year you are able to get rid of the $28k CC debt and in 2021 you are able to eliminate the IRS debt. Do you both plan on retiring? When retired can you still afford living in that home and paying the mortgage, HELOC, taxes, insurance, and utilities on just SS and your current assets?
Good to know where to look & might be reason enough to have a CPA do the taxes each year! The CPA didn't prepare the 2018 taxes, just looked them over and made changes, because of DH's business filings. (Wound up owing more $$) DH needs to consult with her again on a state tax issue that will reduce what we owed, so might ask her what the estimated taxes will be...

We haven't run projections at all. We are in baby step mode as I learn what I don't know. But, to answer your question about our retirement plans, DH always wanted to work well into his 70's (health permitting) since he enjoys what he's doing. Once we are nearing total dependency on SS/investments, there is no way we'd stay in this house. (DH feels differently--he never wants to leave this house, which is unrealistic, unless his inheritance is far more substantial.) I've always talked about downsizing at 70, so that either one of us can manage without the other spouse.
Last edited by stanford73 on Wed Nov 27, 2019 12:28 pm, edited 1 time in total.
getthatmarshmallow
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Re: Follow Up: Husband's Surprise Debts

Post by getthatmarshmallow »

stanford73 wrote: Wed Nov 27, 2019 11:25 am
HomeStretch wrote: Wed Nov 27, 2019 9:08 am +1. Take some time to figure out your situation and reduce expenses and debt. But (sooner rather than later) consider selling the house and down-sizing to bring your baseline expenses down. It’s the biggest money drag in your financial picture.
I realize the house is a big drain, but we are determined to stay put for two years, until 70. (Of course, we'll reevaluate as things change.) In the meantime, reducing overhead and making more money will solve a few problems. Thanks to the good advice I've gotten here, I'm wiser about the finances, even though my learning curve is steep. I had no idea how deep a hole DH was digging, but he appears to be on board with making these changes . I remain hopeful.
I agree with those who suggest downsizing, and urge you to consider moving sooner. If you're planning to move in two years anyway -- this isn't your planned forever home -- you might as well look around now while he has a strong income. A downturn in the next couple years could leave you with a house you can't afford and debts you can't repay.

I think you're a rockstar for how you're handling this, and it seems to me that a smaller house reduces your tax burden, your water bill, and your mortgage in one fell swoop.
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stanford73
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Re: Follow Up: Husband's Surprise Debts

Post by stanford73 »

getthatmarshmallow wrote: Wed Nov 27, 2019 12:28 pm
stanford73 wrote: Wed Nov 27, 2019 11:25 am
HomeStretch wrote: Wed Nov 27, 2019 9:08 am +1. Take some time to figure out your situation and reduce expenses and debt. But (sooner rather than later) consider selling the house and down-sizing to bring your baseline expenses down. It’s the biggest money drag in your financial picture.
I realize the house is a big drain, but we are determined to stay put for two years, until 70. (Of course, we'll reevaluate as things change.) In the meantime, reducing overhead and making more money will solve a few problems. Thanks to the good advice I've gotten here, I'm wiser about the finances, even though my learning curve is steep. I had no idea how deep a hole DH was digging, but he appears to be on board with making these changes . I remain hopeful.
I agree with those who suggest downsizing, and urge you to consider moving sooner. If you're planning to move in two years anyway -- this isn't your planned forever home -- you might as well look around now while he has a strong income. A downturn in the next couple years could leave you with a house you can't afford and debts you can't repay.

I think you're a rockstar for how you're handling this, and it seems to me that a smaller house reduces your tax burden, your water bill, and your mortgage in one fell swoop.
I hear what you're saying and see the solid advice. Consider that DH's inspiration for working hard and increasing income (& perhaps digging financial holes) is this house. I also love our home for a host of good/emotional reasons, but I could envision another place to live. DH never wants to move and believes his inheritance will pay off the mortgage.
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stanford73
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Re: Follow Up: Husband's Surprise Debts

Post by stanford73 »

Barsoom wrote: Tue Nov 26, 2019 6:54 pm
stanford73 wrote: Sun Nov 24, 2019 4:42 pm And, a few of you have mentioned using an accounting system to track our finances. Can you please point me in the right direction on which ones to consider?
My credit union has a built-in tool called FinanceWorks that's on my credit union's online banking site. It links directly into my accounts, lets me set up categories that it will automatically match in new transactions, does simple budget/tracking, some goal/forecasting, and can link to external financial institutions like credit cards and investment firms.

Maybe your bank has something similar built into its online banking service?

-B
Thank you. I just checked and my bank does have an online financial management tool that tracks up to date account spending, budget/goals. DH has accounts at other financial institutions, so I won't be able to aggregate his side of things. I really don't want to pay for an online tracking tool like YNAB and it doesn't appear so easy. I'd like to have one place to track everything.
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Re: Follow Up: Husband's Surprise Debts

Post by clip651 »

stanford73 wrote: Wed Nov 27, 2019 12:34 pm
getthatmarshmallow wrote: Wed Nov 27, 2019 12:28 pm
stanford73 wrote: Wed Nov 27, 2019 11:25 am
HomeStretch wrote: Wed Nov 27, 2019 9:08 am +1. Take some time to figure out your situation and reduce expenses and debt. But (sooner rather than later) consider selling the house and down-sizing to bring your baseline expenses down. It’s the biggest money drag in your financial picture.
I realize the house is a big drain, but we are determined to stay put for two years, until 70. (Of course, we'll reevaluate as things change.) In the meantime, reducing overhead and making more money will solve a few problems. Thanks to the good advice I've gotten here, I'm wiser about the finances, even though my learning curve is steep. I had no idea how deep a hole DH was digging, but he appears to be on board with making these changes . I remain hopeful.
I agree with those who suggest downsizing, and urge you to consider moving sooner. If you're planning to move in two years anyway -- this isn't your planned forever home -- you might as well look around now while he has a strong income. A downturn in the next couple years could leave you with a house you can't afford and debts you can't repay.

I think you're a rockstar for how you're handling this, and it seems to me that a smaller house reduces your tax burden, your water bill, and your mortgage in one fell swoop.
I hear what you're saying and see the solid advice. Consider that DH's inspiration for working hard and increasing income (& perhaps digging financial holes) is this house. I also love our home for a host of good/emotional reasons, but I could envision another place to live. DH never wants to move and believes his inheritance will pay off the mortgage.
I hear you ... but you also need to consider that him wanting to work well into his 70s (mentioned in an earlier post) isn't the same as being able to. There is unfortunately no guarantee of his (or anyone else's) future health and employability.

You have done a ton to get up to speed so far. There is much more work to do, both in terms of getting a handle on things, and on actually paying down debts and whatnot, which will take time. I understand your reluctance to consider downsizing now, and your husband's reluctance to consider downsizing at all. But just at least keep it on the back burner as a possibility. If you can both buckle down and reverse this ship quickly (make more money, pay off a bunch of debt, control expenses, etc), that's great. If it doesn't go that smoothly (maybe health or income don't go as well as hoped for one or both of you, for example), you'll need to revisit. And may wish you'd done it sooner while you can. Up to you two in the end. Just advice to continue to keep the option in mind.
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FlyAF
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Re: Follow Up: Husband's Surprise Debts

Post by FlyAF »

stanford73 wrote: Wed Nov 27, 2019 12:34 pm
getthatmarshmallow wrote: Wed Nov 27, 2019 12:28 pm
stanford73 wrote: Wed Nov 27, 2019 11:25 am
HomeStretch wrote: Wed Nov 27, 2019 9:08 am +1. Take some time to figure out your situation and reduce expenses and debt. But (sooner rather than later) consider selling the house and down-sizing to bring your baseline expenses down. It’s the biggest money drag in your financial picture.
I realize the house is a big drain, but we are determined to stay put for two years, until 70. (Of course, we'll reevaluate as things change.) In the meantime, reducing overhead and making more money will solve a few problems. Thanks to the good advice I've gotten here, I'm wiser about the finances, even though my learning curve is steep. I had no idea how deep a hole DH was digging, but he appears to be on board with making these changes . I remain hopeful.
I agree with those who suggest downsizing, and urge you to consider moving sooner. If you're planning to move in two years anyway -- this isn't your planned forever home -- you might as well look around now while he has a strong income. A downturn in the next couple years could leave you with a house you can't afford and debts you can't repay.

I think you're a rockstar for how you're handling this, and it seems to me that a smaller house reduces your tax burden, your water bill, and your mortgage in one fell swoop.
I hear what you're saying and see the solid advice. Consider that DH's inspiration for working hard and increasing income (& perhaps digging financial holes) is this house. I also love our home for a host of good/emotional reasons, but I could envision another place to live. DH never wants to move and believes his inheritance will pay off the mortgage.
If I've read the threads correctly, you haven't paid a cent towards the house and in fact, have increased the amount owed on the house over all of these years thanks to appreciation. Now your husband wants to rely on an inheritance to pay for it at the spry age of late 60's? This is very very bad planning that is not likely to work out. I agree with others, you need to downsize, like a decade ago.
clip651
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Re: Follow Up: Husband's Surprise Debts

Post by clip651 »

{edited to remove quotes, as I quoted the wrong posts. I think there was a post earlier that suggested moving the credit card debt over to the HELOC to lower interest rates, and that was what I was trying to reply to}

Careful with the HELOC! At least go slowly and do some research before doing this. While moving debt from credit cards to the HELOC could consolidate things and reduce your interest, there is another side to it. Credit cards are unsecured debt. The HELOC is secured by your beloved house. If you can't keep up with credit card payments, the consequences are much different than getting behind on a HELOC and mortgage.

The BEST option is to pay off those credit cards quickly without ever moving the debt to the HELOC. Start with the highest interest rate credit cards first (after addressing the 2019, 2020, and ongoing tax issue, and keeping up with other debts).

Moving the some or all of the credit card debt to a lower interest rate on a different credit card (balance transfer if available) is a way to save interest without adding to the HELOC and is why I suggested that earlier.

best wishes,
cj
Last edited by clip651 on Wed Nov 27, 2019 12:59 pm, edited 1 time in total.
clip651
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Re: Follow Up: Husband's Surprise Debts

Post by clip651 »

stanford73 wrote: Wed Nov 27, 2019 11:40 am
Tamarind wrote: Wed Nov 27, 2019 6:21 am OP you've gotten some really smart advice upthread. Just to summarize in brief.

First priority - minimum payment on existing debt - don't go into default.
Second priority - paying estimated taxes for 2019 - stop digging your hole.
Third priority - paying extra on the credit cards - start with the highest rate.

If you are determined to keep the house your lifestyle is still going to change in a way that will be visible to friends and family. It's time to start making lifestyle cuts: ie turn off the sprinklers, stop eating out, no entertainment that costs money, no subscriptions, no charity.

I think you can get your non-debt expenses down to $1-2k per month, which will let you pay off all the debt in a couple of years if you stop adding to it right now.
Appreciate this approach and it feels doable. We've been through a much tougher financial situation than this one when DH was out of work--no income--for three years. We made it through with sheer determination.
Please realize you didn't get through the no income period through sheer determination. You got through it by going into more and more debt. It may have been tough emotionally, so yes, you did get through it. But it hurt you both financially and may have started the cycle of borrowing more and more against the appreciating asset of the house as a way to get through (or maybe that started earlier).

Again, I'm not trying to be harsh. I'm trying to be helpful and trying to help you see what has been happening so you can see your way forward clearly.

Also, please go back and read through this whole thread again when you have a chance. You may have missed some posts that happened while you were replying to other posts, or some information and suggestions may look different to you now that you have more information than when you started the thread.

Again, good for you for tackling this head on. (And thank you for continuing to update us!) You are doing a great job of digging in and starting to figure things out.

cj
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RickBoglehead
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Re: Follow Up: Husband's Surprise Debts

Post by RickBoglehead »

Quicken would be perfect for collecting from all accounts and tracking transactions.
Avid user of forums on variety of interests-financial, home brewing, F-150, PHEV, home repair, etc. Enjoy learning & passing on knowledge. It's PRINCIPAL, not PRINCIPLE. I ADVISE you to seek ADVICE.
getthatmarshmallow
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Re: Follow Up: Husband's Surprise Debts

Post by getthatmarshmallow »

stanford73 wrote: Wed Nov 27, 2019 12:34 pm
getthatmarshmallow wrote: Wed Nov 27, 2019 12:28 pm
stanford73 wrote: Wed Nov 27, 2019 11:25 am
HomeStretch wrote: Wed Nov 27, 2019 9:08 am +1. Take some time to figure out your situation and reduce expenses and debt. But (sooner rather than later) consider selling the house and down-sizing to bring your baseline expenses down. It’s the biggest money drag in your financial picture.
I realize the house is a big drain, but we are determined to stay put for two years, until 70. (Of course, we'll reevaluate as things change.) In the meantime, reducing overhead and making more money will solve a few problems. Thanks to the good advice I've gotten here, I'm wiser about the finances, even though my learning curve is steep. I had no idea how deep a hole DH was digging, but he appears to be on board with making these changes . I remain hopeful.
I agree with those who suggest downsizing, and urge you to consider moving sooner. If you're planning to move in two years anyway -- this isn't your planned forever home -- you might as well look around now while he has a strong income. A downturn in the next couple years could leave you with a house you can't afford and debts you can't repay.

I think you're a rockstar for how you're handling this, and it seems to me that a smaller house reduces your tax burden, your water bill, and your mortgage in one fell swoop.
I hear what you're saying and see the solid advice. Consider that DH's inspiration for working hard and increasing income (& perhaps digging financial holes) is this house. I also love our home for a host of good/emotional reasons, but I could envision another place to live. DH never wants to move and believes his inheritance will pay off the mortgage.
I have never had the good fortune to count on an inheritance, so perhaps this advice is misplaced, but relying on the inheritance to pay it off strikes me as dicey at best. What happens if it doesn't come through, or doesn't come through at the right time? If the house is causing him to dig financial holes, that seems like more reason to think about downsizing. I believe you that he wants to work and plans to do so well into his 70s, but as you no doubt know, retirement for the self-employed is not always a freely made choice.
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stanford73
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Re: Follow Up: Husband's Surprise Debts

Post by stanford73 »

clip651 wrote: Wed Nov 27, 2019 12:49 pm {edited to remove quotes, as I quoted the wrong posts. I think there was a post earlier that suggested moving the credit card debt over to the HELOC to lower interest rates, and that was what I was trying to reply to}

Careful with the HELOC! At least go slowly and do some research before doing this. While moving debt from credit cards to the HELOC could consolidate things and reduce your interest, there is another side to it. Credit cards are unsecured debt. The HELOC is secured by your beloved house. If you can't keep up with credit card payments, the consequences are much different than getting behind on a HELOC and mortgage.

The BEST option is to pay off those credit cards quickly without ever moving the debt to the HELOC. Start with the highest interest rate credit cards first (after addressing the 2019, 2020, and ongoing tax issue, and keeping up with other debts).

Moving the some or all of the credit card debt to a lower interest rate on a different credit card (balance transfer if available) is a way to save interest without adding to the HELOC and is why I suggested that earlier.

best wishes,
cj
THANK YOU! I was wondering about the HELOC advice expressed up thread. Made sense in one regard--moving from high interest to low interest--but, felt risky securing debt against house. I believe we can handle the CC debt with a combination of cash flow & balance transfer.
Last edited by stanford73 on Wed Nov 27, 2019 1:45 pm, edited 1 time in total.
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stanford73
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Re: Follow Up: Husband's Surprise Debts

Post by stanford73 »

RickBoglehead wrote: Wed Nov 27, 2019 12:57 pm Quicken would be perfect for collecting from all accounts and tracking transactions.
Thank you--I'll check it out.
EnjoyIt
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Re: Follow Up: Husband's Surprise Debts

Post by EnjoyIt »

stanford73 wrote: Wed Nov 27, 2019 12:25 pm
EnjoyIt wrote: Wed Nov 27, 2019 11:35 am I love seeing your quick progress in moving forwards. If you take a look at your 2018 tax return that you state was done by a CPA, there should be a page about estimated taxes that should be due in 2019 to keep you in the safe harbor range so you avoid underpayment and penalties. If you are able to pay that by the due date (I believe Jan 15th 2020) you may be able to avoid penalties for not paying 1st, 2nd, and 3rd quarter taxes.

Also, have you had a chance to run projections for what things will look like in 2 years? Let us assume that next year you are able to get rid of the $28k CC debt and in 2021 you are able to eliminate the IRS debt. Do you both plan on retiring? When retired can you still afford living in that home and paying the mortgage, HELOC, taxes, insurance, and utilities on just SS and your current assets?
Good to know where to look & might be reason enough to have a CPA do the taxes each year! The CPA didn't prepare the 2018 taxes, just looked them over and made changes, because of DH's business filings. (Wound up owing more $$) DH needs to consult with her again on a state tax issue that will reduce what we owed, so might ask her what the estimated taxes will be...

We haven't run projections at all. We are in baby step mode as I learn what I don't know. But, to answer your question about our retirement plans, DH always wanted to work well into his 70's (health permitting) since he enjoys what he's doing. Once we are nearing total dependency on SS/investments, there is no way we'd stay in this house. (DH feels differently--he never wants to leave this house, which is unrealistic, unless his inheritance is far more substantial.) I've always talked about downsizing at 70, so that either one of us can manage without the other spouse.
Software like Turbo Tax will spit out a 1040-ES statement which will tell you similar information.

Also, as others have posted, if this is not a forever home, I see no reason in suffering and keeping it now. Just think about it over the next few months as you follow your plan. Expecting an inheritance is not pragmatic financial planning. Anything can happen to that money including but not limited to expensive end of life care, dementia induced wasteful spending, and coercion induced theft.
A time to EVALUATE your jitters: | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418
sfmurph
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Re: Follow Up: Husband's Surprise Debts

Post by sfmurph »

stanford73 wrote: Wed Nov 27, 2019 12:44 pm
Barsoom wrote: Tue Nov 26, 2019 6:54 pm
stanford73 wrote: Sun Nov 24, 2019 4:42 pm And, a few of you have mentioned using an accounting system to track our finances. Can you please point me in the right direction on which ones to consider?
My credit union has a built-in tool called FinanceWorks that's on my credit union's online banking site. It links directly into my accounts, lets me set up categories that it will automatically match in new transactions, does simple budget/tracking, some goal/forecasting, and can link to external financial institutions like credit cards and investment firms.

Maybe your bank has something similar built into its online banking service?

-B
Thank you. I just checked and my bank does have an online financial management tool that tracks up to date account spending, budget/goals. DH has accounts at other financial institutions, so I won't be able to aggregate his side of things. I really don't want to pay for an online tracking tool like YNAB and it doesn't appear so easy. I'd like to have one place to track everything.
Consider consolidating these to a smaller number of places. Maybe a local bank or credit union, plus a discount broker like Fidelity, e*trade or Charles Schwab. Having accounts kind of spread around makes it harder to keep track of what's going on (as you have recently discovered).
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alpenglow
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Re: Follow Up: Husband's Surprise Debts

Post by alpenglow »

JAZZISCOOL wrote: Wed Nov 27, 2019 12:11 pm
alpenglow wrote: Wed Nov 27, 2019 12:01 pm
ohai wrote: Sun Nov 24, 2019 5:59 pm OP, some people don't like finance aggregation programs like Mint, but I find this to be really useful in sorting through all your miscellaneous spending categories. It could just be that husband spent the money on normal expenses, and that those expenses were just higher than you had in your mind.
I've used Mint for years and have found it to be very useful as a free service. I only use it to track credit card accounts and not investments.
I haven't used Mint personally but am curious about it and also if other BH's are ever concerned with the data collection practices of many websites (i.e. privacy issues)? Maybe there is a way to address this with your login. :happy
I see OP doesn't want to spend money on YNAB so Mint's price is right. Like I said, I don't give Mint my investment info, but I'm fine with them pulling my credit card transactions. I'm pretty boring and I'm not too concerned about privacy. Yes, they do make money with targeted credit card offers, but that doesn't bother me.

Overall, I find it easy to use for tracking expenses by category. It is flexible and you can set up custom categories as well as add cash transactions. At this point I think I've got seven or so years in there so the trends are interesting.

I also enjoy seeing my personal inflation rate go down!
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