Sudden Debt - best strategy to pay off? (30k total)

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chevy07
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Joined: Sun Feb 21, 2016 1:54 pm

Sudden Debt - best strategy to pay off? (30k total)

Post by chevy07 » Tue Jun 11, 2019 8:00 am

Hi everyone,

I've had a rough year. It started with an improper installation at the house that resulted in a $10700 water bill. And this past week, we had 3 dogs spayed and two ended up in the hospital due to complications (one ended up with pneumonia and esophagitis, the other with kidney failure). Obviously this is quite an emotional topic, especially with my girlfriend who raised these dogs from birth. We're still not sure if one dog is going to make it, but the dogs are home and we've racked up $18400 in vet fees.

Here is my financial break down:

Age 29
Income: 94K (Girlfriend: ~90K)

401k: $79700
Roth IRA: $32300
Taxable account: $37000
Savings: ~$8400 (in bonds with 4% interest
$150 in savings (used most of this for an engagement ring before this happened)
Checking: $3800
I also own a house with about $15000 in equity

Debt:
Waterbill: $9300 (0% APR credit card for 16 months) Side note: We're suing the company and should eventually receive $5000-$7500
Vet Bill: $18400

My girlfriend at this point has no liquidity to burn here due to her current debts (5K in credit cards, $700/mo car payment, student loans), but she is going to help out.

I don't have the details but here is the estimate of my girlfriend's finances

401k: $20000
Savings: $0
Checking: $100

Debts:
Credit cards: $5000
Car: $21000 ($700/mo)
Student loans: $18000

My current plan:
Use a balance transfer credit card (or two) to pay down this debt over the next year and a half. If I run into issues with credit limits and can start burning through the bonds (they reach their 30 year maturity 2020-2023). I'm also planning on reducing all mortgage payments to a minimum rather than paying off more as we have been. Also reducing HSA contributions.

I was hoping for any further advice on how to tackle this situation. My girlfriend keeps mentioning a 401k loan, but I don't think that's the best option. I think the plan I have is the best course so far, but I was hoping you guys may have some strategies that I haven't considered. Thanks!

bloom2708
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Re: Sudden Debt - best strategy to pay off? (30k total)

Post by bloom2708 » Tue Jun 11, 2019 8:17 am

Ouch. Expensive pets.

Sell enough taxable to pay the debts. If you have a tax bill (gains) next spring, sell some more taxable.

Taxable is the money you can spend. I'd pay off the credit card debt too. Taxable does no good with all that debt.

Start working on her debt. Good salaries, but you can't do everything. Good luck!
Last edited by bloom2708 on Tue Jun 11, 2019 8:30 am, edited 1 time in total.
"We are not here to agree with you; we are here to provoke thoughtfulness." Unknown Boglehead

wilked
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Re: Sudden Debt - best strategy to pay off? (30k total)

Post by wilked » Tue Jun 11, 2019 8:21 am

Water bill sounds unfortunate, and that you have a plan to recoup most of it. I would caution you to assume the worst on it as you plan though

From the very basic things you write on your girlfriend there are a few red flags for money management.
-$90K salary, assume ~ 6-7 years into career, and only $20K in retirement savings
-$5K CC debt with that salary
-$44K in debt and proposing to add more debt with a 401k loan?

I saw you have ideas of retirement in 20 years
viewtopic.php?f=1&t=257636&p=4091678#p4091678

Be sure you have alignment on financials before committing to marriage

To your specific question:
You have $29K in immediate debt (ignoring the girlfriend's $44K of debt), and you have $37K in taxable investments. From a previous thread I think you said this was recently invested, so gains (and taxes) will be minimal. Sell from this account and pay your debts, no need for hoop jumping with more debt (ie credit card transfers, etc etc).

It seems as you are treating yours and your girlfriends finances as one, and if so come up with a plan for her to eliminate that debt. With $180K household income that debt could be wiped out in less than a year.

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Toons
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Re: Sudden Debt - best strategy to pay off? (30k total)

Post by Toons » Tue Jun 11, 2019 9:15 am

Change spending behavior.
Stop using credit cards.
Use a budget,
Live beneath your means.
Make it tough on yourself.
Hard discipline.
Apply every hard earned penny and savings to eliminating the debt.
Knock It "Out".
No excuses
20k car loan? :confused

:sharebeer
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

MotoTrojan
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Re: Sudden Debt - best strategy to pay off? (30k total)

Post by MotoTrojan » Tue Jun 11, 2019 9:15 am

Just to add to the GF red flag theme... $700/month for what kind of car? Unless she hates interest and has a 2-3 year loan on a reasonable longterm vehicle this seems steep for someone who clearly doesn’t have the best financial mindset.

Not a relationship forum so I’ll stop there.

JoeRetire
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Re: Sudden Debt - best strategy to pay off? (30k total)

Post by JoeRetire » Tue Jun 11, 2019 9:24 am

chevy07 wrote:
Tue Jun 11, 2019 8:00 am
Debt:
Waterbill: $9300 (0% APR credit card for 16 months) Side note: We're suing the company and should eventually receive $5000-$7500
Vet Bill: $18400

My girlfriend at this point has no liquidity to burn here due to her current debts (5K in credit cards, $700/mo car payment, student loans), but she is going to help out.

Debts:
Credit cards: $5000
Car: $21000 ($700/mo)
Student loans: $18000

My current plan:
Use a balance transfer credit card (or two) to pay down this debt over the next year and a half. If I run into issues with credit limits and can start burning through the bonds (they reach their 30 year maturity 2020-2023). I'm also planning on reducing all mortgage payments to a minimum rather than paying off more as we have been. Also reducing HSA contributions.
- Sell the expensive car. Drive something far cheaper for now.
- Get a side job.
- Do not pay extra toward your mortgage.
- Do not take a loan from your 401k
- learn how quickly you need to pay back these debts. See if they offer payment plans.
- look to your other expenses to see what can be trimmed. Obvious choices to consider would be avoiding eating out and vacations.
- consider reducing your retirement plan contributions down to whatever is needed to get the most company match - if and only if that turns out to be absolutely necessary for a while

In general, this is why you want to have an emergency fund - to pay for these kinds of unexpected financial situations. Get that built up so this doesn't happen again.

Whenever you have pets, see if your employers offer pet insurance.

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Sandtrap
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Re: Sudden Debt - best strategy to pay off? (30k total)

Post by Sandtrap » Tue Jun 11, 2019 9:32 am

Toons wrote:
Tue Jun 11, 2019 9:15 am
Change spending behavior.
Stop using credit cards.
Use a budget,
Live beneath your means.
Make it tough on yourself.
Hard discipline.
Apply every hard earned penny and savings to eliminating the debt.
Knock It "Out".
No excuses
20k car loan? :confused

:sharebeer
+1
Everyone's already said things so well.

This problem can only be solved temporarily by shifting money around from here to there, paying off this and that.
Once doing so, there has to be a long term strategy and huge reorganization of priorities to prevent an even bigger financial 'black swan" from repeating over and over again in the future.

Consider this a "small" crisis that brings attention to what needs to be done for the long term to get back on solid footing.

This is a good thing in that way.
j :happy

Topic Author
chevy07
Posts: 12
Joined: Sun Feb 21, 2016 1:54 pm

Re: Sudden Debt - best strategy to pay off? (30k total)

Post by chevy07 » Tue Jun 11, 2019 9:34 am

wilked wrote:
Tue Jun 11, 2019 8:21 am
Water bill sounds unfortunate, and that you have a plan to recoup most of it. I would caution you to assume the worst on it as you plan though

From the very basic things you write on your girlfriend there are a few red flags for money management.
-$90K salary, assume ~ 6-7 years into career, and only $20K in retirement savings
-$5K CC debt with that salary
-$44K in debt and proposing to add more debt with a 401k loan?

I saw you have ideas of retirement in 20 years
viewtopic.php?f=1&t=257636&p=4091678#p4091678

Be sure you have alignment on financials before committing to marriage

To your specific question:
You have $29K in immediate debt (ignoring the girlfriend's $44K of debt), and you have $37K in taxable investments. From a previous thread I think you said this was recently invested, so gains (and taxes) will be minimal. Sell from this account and pay your debts, no need for hoop jumping with more debt (ie credit card transfers, etc etc).

It seems as you are treating yours and your girlfriends finances as one, and if so come up with a plan for her to eliminate that debt. With $180K household income that debt could be wiped out in less than a year.
To be fair,

She does have 300k+ stashed somewhere in an account that has a 4% ish interest rate, however I'm unfamiliar with that account. (This is some sort of retirement account with a former job that paid much much more but consumed her life)
Also it's a 2016 BMW that has two years left of payments left. She's been paying more than what is owed every month at $700, it's most likely around $640ish. But at this point, at least it's just reached the point of not being underwater.

I considered paying out of the taxable account, however it's just hard to think about using it because I've always considered it part of my retirement. But I may go this route.

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jriding
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Location: CO

Re: Sudden Debt - best strategy to pay off? (30k total)

Post by jriding » Tue Jun 11, 2019 9:44 am

It does not sound to me like she is as emotionally invested in this process as you are. This dynamic will strain your relationship in the long term. Sit down with her and make a plan together, sharing the financial and emotional costs as equally as possible. Establishing an equitable dynamic early in your relationship will pay dividends later. This is a great opportunity.

fru-gal
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Re: Sudden Debt - best strategy to pay off? (30k total)

Post by fru-gal » Tue Jun 11, 2019 9:46 am

If your girlfriend can get to her $300k account, if I were her I would pay the vet bills and you handle the water bill.

I can't imagine what happened to your dogs. Was the vet a flaming incompetent? I can imagine one instance of a problem, but two dogs during spay procedures?? I would ask around for vet recommendations. Local private animal shelters or rescue groups (not the ones run by towns or cities) generally know who the good vets are.

delamer
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Re: Sudden Debt - best strategy to pay off? (30k total)

Post by delamer » Tue Jun 11, 2019 10:13 am

Your girlfriend should dig into that $300K stash and/or take a loan against her 401(k) to cover at least half of the debt.

She shouldn’t get a pass because she bought an expensive car while she had student loan debt.

Her net worth is significantly higher than yours, and your incomes are virtually identical. Why would you take on the full responsibility for debt incurred for her pets?

If she got run over by a bus tomorrow, you’d still have the debt but I’d bet you wouldn’t get a dime from her estate because you aren’t married. You are getting the downside of mingling finances (her liabilities), but not the upside (access to her assets).

Dottie57
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Re: Sudden Debt - best strategy to pay off? (30k total)

Post by Dottie57 » Tue Jun 11, 2019 10:21 am

delamer wrote:
Tue Jun 11, 2019 10:13 am
Your girlfriend should dig into that $300K stash and/or take a loan against her 401(k) to cover at least half of the debt.

She shouldn’t get a pass because she bought an expensive car while she had student loan debt.

Her net worth is significantly higher than yours, and your incomes are virtually identical. Why would you take on the full responsibility for debt incurred for her pets?

If she got run over by a bus tomorrow, you’d still have the debt but I’d bet you wouldn’t get a dime from her estate because you aren’t married. You are getting the downside of mingling finances (her liabilities), but not the upside (access to her assets).
I don’t think we know who owns the house. Maybe just OP, maybe both.

Agree some money mgmt needs to happen and both should agree to lbym.

delamer
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Re: Sudden Debt - best strategy to pay off? (30k total)

Post by delamer » Tue Jun 11, 2019 10:24 am

Dottie57 wrote:
Tue Jun 11, 2019 10:21 am
delamer wrote:
Tue Jun 11, 2019 10:13 am
Your girlfriend should dig into that $300K stash and/or take a loan against her 401(k) to cover at least half of the debt.

She shouldn’t get a pass because she bought an expensive car while she had student loan debt.

Her net worth is significantly higher than yours, and your incomes are virtually identical. Why would you take on the full responsibility for debt incurred for her pets?

If she got run over by a bus tomorrow, you’d still have the debt but I’d bet you wouldn’t get a dime from her estate because you aren’t married. You are getting the downside of mingling finances (her liabilities), but not the upside (access to her assets).
I don’t think we know who owns the house. Maybe just OP, maybe both.

Agree some money mgmt needs to happen and both should agree to lbym.
Well, he said “I own a house” and was very clear in the post about the ownership of each asset/liability.

But hopefully, he’ll clarify.

wilked
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Re: Sudden Debt - best strategy to pay off? (30k total)

Post by wilked » Tue Jun 11, 2019 11:02 am

chevy07 wrote:
Tue Jun 11, 2019 9:34 am

I considered paying out of the taxable account, however it's just hard to think about using it because I've always considered it part of my retirement. But I may go this route.
Money is fungible. You can call pile A retirement, pile B for emergencies, and pile C for rent, but in the end it's just a pile (notwithstanding tax implications of course).

In this case with tax implications very low whether the money is in "checking" or "taxable", it's money you need to pay your debts.

Also, good points above about the girlfriend sharing this debt burden

bsnr
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Re: Sudden Debt - best strategy to pay off? (30k total)

Post by bsnr » Tue Jun 11, 2019 12:17 pm

chevy07 wrote:
Tue Jun 11, 2019 8:00 am
It started with an improper installation at the house that resulted in a $10700 water bill.
Sorry to hear about your dogs.What exactly led to a water bill that high?

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N1CKV
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Re: Sudden Debt - best strategy to pay off? (30k total)

Post by N1CKV » Tue Jun 11, 2019 12:25 pm

Does your water bill include sewerage? If so it is likely the sewerage part that is making it skyrocket based on water usage. You can contact the biller and explain this and have the bill adjusted. People also do this all the time when filling swimming pools, which the water is not going in to the sewerage system.

JoeRetire
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Re: Sudden Debt - best strategy to pay off? (30k total)

Post by JoeRetire » Tue Jun 11, 2019 1:22 pm

chevy07 wrote:
Tue Jun 11, 2019 9:34 am
She's been paying more than what is owed every month
Yeah, she should stop doing that while she has so much debt.

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BL
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Re: Sudden Debt - best strategy to pay off? (30k total)

Post by BL » Tue Jun 11, 2019 3:26 pm

fru-gal wrote:
Tue Jun 11, 2019 9:46 am
If your girlfriend can get to her $300k account, if I were her I would pay the vet bills and you handle the water bill.

I can't imagine what happened to your dogs. Was the vet a flaming incompetent? I can imagine one instance of a problem, but two dogs during spay procedures?? I would ask around for vet recommendations. Local private animal shelters or rescue groups (not the ones run by towns or cities) generally know who the good vets are.
+1
Otherwise sell the car and get a beater until debts are taken care of. What are the interest rates on all the debts?
Or both of you study a Dave Ramsey book and get out of debt quick and get on the same page before getting married. "Live below your means!"

mortfree
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Re: Sudden Debt - best strategy to pay off? (30k total)

Post by mortfree » Tue Jun 11, 2019 6:12 pm

I don’t think the girlfriend should be offering financial advice for your situation.

It will be a long life if you have to always be the financially responsible one; especially when she makes a really good salary, but doesn’t like to spend her money on regular, non-exciting expenses.

Divide the debt as I believe it is “owned”: you get the water bill: she gets the dog bills.

Any chance you can challenge the vet or ask for a cash option to consider it paid in full; esp if they were at fault

Sorry if any assumptions I made are wrong.

Good luck

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Nate79
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Re: Sudden Debt - best strategy to pay off? (30k total)

Post by Nate79 » Tue Jun 11, 2019 6:43 pm

Balance transfers are not the solution and in fact they probably do more harm than good because it makes you believe you actually accomplished something. First thing is to stop mixing finances with a girlfriend. Second thing is to get on a tight budget and pay off your debt as fast as possible. Your best bet is probably Dave Ramsey.

quantAndHold
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Re: Sudden Debt - best strategy to pay off? (30k total)

Post by quantAndHold » Tue Jun 11, 2019 7:13 pm

You will hate me for saying this, but how much is the engagement ring worth, and can it be returned? It appears that you spent your emergency fund on the ring?

Otherwise, sell the taxable, pay off your part of it.

GF should sell out what she needs to of the $300k retirement account to pay her part of it.

Then the two of you should have a heart to heart about saving, spending, and debt levels. Having as much debt as you have and no emergency fund is not sustainable. It gets you into situations like this.

Spay/neuter is usually really safe. What happened? Is there a way to recoup some costs there?

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