Time to get serious

[ClosetDebtor]

OK. My DH and I have a lot of debt. A lot. We have been "working" toward paying it off for about 10 years, but somehow the balances keep growing. We got married, then bought a house, then did stuff to the house. We are carrying about $94,000 in debt - some CC, some cars, some HELOC. We also have a $290K mortgage. About 20K of our 30K in CC debt is due to DH's business - stuff he is on the books to get reimbursed for but there hasn't been cash flow to do it yet. We also have 2 car loans - one for $5500 and the other for $16850. The big one is out $40,000 HELOC. We did use some of it for home improvements, but we also used some to pay off a high interest CC a few years ago.

It is very frustrating b/c we make good salaries and live modestly. However, where we live is pretty expensive and we have 2 kids, so spend a good amount on child care. I took a 10% pay cut at my job earlier this year and DH had to give up a small part time job he had so our extra CC payment money went away and we're just paying minimums these days. On that much debt, minimums aren't going to get us anywhere.

I was looking things over this afternoon and am thinking that I could cash in about 24K in investments (not tax-deferred) which would pay off 2 CCs and the smaller car loan. That would allow us to really start snowballing money. We could also temporarily stop our investments (totalling about $350 after tax, plus if I stop my 401(k) contribution, an additional $500 or so) and ideally get everything paid off in 2-3 years. If DH ever gets his 20K reimbursed, then even sooner.

We are about 40 years old and do have some retirement savings which we wouldn't touch. I have about 100K between and IRA and my 401k and DH has probably 50K. I also have about 40K in my company's ESOP, but who knows what will happen to that money.

Oh, I should also mention that a big portion of the $24K in investments that I am thinking of selling is a variable universal life policy. That's a little touchy b/c my dad sold it to me, but the more I listen to DR on the radio, the more I am convinced that a 20 year term policy is the way to go. My youngest kid will be 23(!) by then, so we should be set.

Should I do it? Like my username implies, we keep these financial matters private so I can't really ask any family or friends for advice.

[Debbie-cat]

I don't like to give people advice on their own finances but I want to wish you good luck and hopefully you will find alot of advice from great people here on FV who have been through what you are going through now.

[Greebo]

Hi, CD, I'm Greebo, and I was you not long ago.

I had (and still have) a good income, and I had no financial discipline either. I had 150k in house debt, 15k in a 2nd mortgage which had been used for debt consolidation, and then I had another 30k in credit card debt, and I had car debt. I'd refi'd, and refi'd, and borrowed to get out of debt (debt consolidation, in other words) and never got anywhere either.

So I just want you to know - if I sound ... blunt? Harsh? Critical? I'm yelling at me for how STUPID I used to be - not you. However, if you find that I say something that may not be kind, but strikes a nerve, well - it might be worth thinking about.

OK. My DH and I have a lot of debt. A lot. We have been "working" toward paying it off for about 10 years, but somehow the balances keep growing.

Yeah, "somehow" mine grew too. Wow, how'd that happen, huh?

About 20K of our 30K in CC debt is due to DH's business - stuff he is on the books to get reimbursed for but there hasn't been cash flow to do it yet.

When will there be? You say it's "DH's business" - as in, he's the owner? So is it really a business or is it a hobby? What does he do?

The big one is out $40,000 HELOC. We did use some of it for home improvements, but we also used some to pay off a high interest CC a few years ago.

Did you keep the CC's? Do they have a balance again? BTDT, wanna borrow my T-Shirt? I bought several..

It is very frustrating b/c we make good salaries and live modestly.

I've learned the hard way that living modestly means NOT GOING INTO DEBT. You can't live *modestly* and also live *beyond your means*. The second you spend more than you earn for "stuff", you've moved out of "modest" living. (Barring actual emergencies.)

However, where we live is pretty expensive and we have 2 kids, so spend a good amount on child care. I took a 10% pay cut at my job earlier this year and DH had to give up a small part time job he had so our extra CC payment money went away and we're just paying minimums these days. On that much debt, minimums aren't going to get us anywhere.

True. When does DH start his second job? And what do you earn, and what does daycare cost?

I was looking things over this afternoon and am thinking that I could cash in about 24K in investments (not tax-deferred) which would pay off 2 CCs and the smaller car loan.

Good start. We sold off some of ceashel's stock and paid down her car substantially.

That would allow us to really start snowballing money. We could also temporarily stop our investments (totalling about $350 after tax, plus if I stop my 401(k) contribution, an additional $500 or so) and ideally get everything paid off in 2-3 years. If DH ever gets his 20K reimbursed, then even sooner.

Ok brutal truth moment - brace yourself:

THERE IS NO POINT IN YOU "INVESTING" IN YOUR FUTURE RIGHT NOW BECAUSE YOU ARE, RIGHT NOW, THROWING AWAY YOUR FUTURE WITH DEBT!!!

Sorry - wanted to make sure you heard that. Whatever money you are putting away to retire on right now, you're losing TWICE that OR MORE on high interest credit cards. RIght now, any investing you're doing is to make you feel good. That feeling is a lie. The real impact on your finances is DEVASTATING. You are costing yourself SO MUCH on CC interest losses it isn't funny. $30,000 in CC debt- if that's at 15% that means you are spending $4,500 a YEAR on credit card interest alone.

What percent of your income is $4,500 dollars?

We are about 40 years old and do have some retirement savings which we wouldn't touch. I have about 100K between and IRA and my 401k and DH has probably 50K. I also have about 40K in my company's ESOP, but who knows what will happen to that money.

Don't touch it. Just stop wasting time on it for now until you get rid of the debt.

the more I listen to DR on the radio, the more I am convinced that a 20 year term policy is the way to go.

Trust me - I've done the math - he's right. Term policy and sound financial management is the way to go. I'm 40, like you. We started the DR plan about a year ago. I have a 20 year term life policy that'll give ceashels 10 years of my income if something happens to me, and we have a plan that in 10-15 years, we'll have enough passive income coming in that we won't need insurance anymore, cause if something happens, the income will continue anyway.

If your DH is serious in his business, and its not just a hobby, then with some financial discipline there's no reason you can't be on the same path.

So...

I'm going to say this so there is absolutely no question in your mind regarding my feelings on this next question...

Should I do it?

YES!

Like my username implies, we keep these financial matters private so I can't really ask any family or friends for advice.

That's ok - they're probably just as broke anyway.

Here's something I've learned lately - poor people (oh I'm gonna get such grief for using THAT term on FV...) don't talk about money. Not really. They complain about it, they want more of it, they got all kinds of OPINIONS on it, but they don't really *talk* about it. They don't talk about what they're doing, or how they're doing, and they don't look for wisdom about it. It's crude to talk about money. It's impolite. It's crass. It's embarassing. Whatever. Poor people dont *understand* money - and thats why they can't keep it.

What I've learned as well - RICH people - they talk about money. They talk about it - a LOT! They understand it. They nurture it. Hell, they make the RULES about it.

The GREAT thing about the country we live in is that the rules they wrote? They made it so ANYONE *can* be rich. Really - ANYONE. Anyone can be financially free so they don't have to worry about money. All you have to do is two things:
1) LEARN about money
2) APPLY that knowledge

#1 is easy. Really, really easy. You know - you listen to DR.
#2 is hard. It's #2 that you lack, and it's #2 that I lacked.

We'll help you with #1, with pleasure. We'll encourage you with #2 - but YOU and DH have to actually do #2.

So - should you?

Oh yes. Most definitely.

[ClosetDebtor]

Debbie - thanks.

Greebo - thanks for your long and very helpful reply. To answer a few of your question - DH's business is his job. He's a consultant and has 2 partners. THe business was formed several years ago but about 1.5 years ago DH made the leap to doing it full time. We have never missed a paycheck (although a few were late) but one client in particular asks him to do a lot of travel, and then some accounting mixup happened and he hasn't been able to get reimbursed. He stayed on at 20% in his previous job until they replaced him, which happened earlier this year - about the same time my company issued the pay cut.

We actually have not been using CCs much in the past few years except for the business expenses, so we are basically living within our means but the recent pay cuts have made it hard to make any progress. We did not charge up the one we paid off again. I think we have the right habits now, just have to get out of the hole.

I currently earn about 96K, DH's salary is 110K. I cover health and dental insurance for our family plus contribute to my 401k (for now) so my take-home is about 2200 every other week. We spend about 2K a month on child care between daycare, after-school and babysitters.

Neither of us can really get a second job unless it is something we can do from home because of DH's travel schedule. Plus we are totally maxed out timewise as it is with work and kids and housework and commuting.

I also had to buy a car last Oct which was not in the plan. My last car totally died and I commute 130 miles a day so I couldn't just buy a $1000 car. I'd have to get a new one every month. I didn't get what I wanted though, and got a nice conservative used Accord.

[joyofsix]

Just some thoughts.
1) Stop the retirement/401K and use that to pay debt. Only do it if you'll REALLY pay debt with that money and not fritter it away.

2) I disagree about the car. And, you could buy 30 $1000 cars for the price of a new one and the insurance is sure less.

3) Any chance of moving to a less expensive area? Maybe not right this minute but when the housing market bumps back up?

Just some thoughts. I'm not an expert just another normal person plugging away.

[ClosetDebtor]

Thanks joyofsix. I think that we really will use that 401k money for debt. I will make a point of it, because it really goes against my grain to stop the contributions.

You know, maybe you are right about the car (although I didn't spend 30K on it), but for my sanity I felt like I really needed a reliable car. I was intending to drive my last car for a few more years, but I was always so stressed about it breaking down. My DH travels a lot for work so if I got stranded on the way home from work (65 miles each way) it would be really tough to get my kids picked up. Thankfully I do have DH's family in the area, which is a big reason why we live here. My SIL and BIL have helped me out a number of times.

[Greebo]

but one client in particular asks him to do a lot of travel, and then some accounting mixup happened and he hasn't been able to get reimbursed.

So how long has this been going on?

We actually have not been using CCs much in the past few years except for the business expenses, so we are basically living within our means but the recent pay cuts have made it hard to make any progress.

Ok - so when I read your numbers, do you know what I figured your household income had to be in order to be so deeply cash strapped?

About 80-90k.

I currently earn about 96K, DH's salary is 110K.

You make twice what we do. You have 90k in debt. 40k heloc. 30k in credit cards. That leaves 20k in car debt.

You have a 350k house - ok - not a stretch for you, that should put you at about...$2,300 a month mortgage?

You're bringing home total what, about $9,700 a month, right? That's between the two of you? Your 2,200 per pay plus his 110 after taxes...it's gotta be close to 10k a month.

Your house isn't too bad - and for your income level neither are your debts.

So ...

Where is it in your finances that you're bleeding so profusely? Cause nearly 10k a month - your house, your cars, your credit cards and your heloc, even with the kids - you ought to have THOUSANDS left over each month for food, utilites, clothing and getting out of debt.

Do you have a budget?

[mateosbaby]

OK. My DH and I have a lot of debt. A lot. We have been "working" toward paying it off for about 10 years, but somehow the balances keep growing. We got married, then bought a house, then did stuff to the house. We are carrying about $94,000 in debt - some CC, some cars, some HELOC. We also have a $290K mortgage. About 20K of our 30K in CC debt is due to DH's business - stuff he is on the books to get reimbursed for but there hasn't been cash flow to do it yet. We also have 2 car loans - one for $5500 and the other for $16850. The big one is out $40,000 HELOC. We did use some of it for home improvements, but we also used some to pay off a high interest CC a few years ago.

It is very frustrating b/c we make good salaries and live modestly. However, where we live is pretty expensive and we have 2 kids, so spend a good amount on child care. I took a 10% pay cut at my job earlier this year and DH had to give up a small part time job he had so our extra CC payment money went away and we're just paying minimums these days. On that much debt, minimums aren't going to get us anywhere.

I was looking things over this afternoon and am thinking that I could cash in about 24K in investments (not tax-deferred) which would pay off 2 CCs and the smaller car loan. That would allow us to really start snowballing money. We could also temporarily stop our investments (totalling about $350 after tax, plus if I stop my 401(k) contribution, an additional $500 or so) and ideally get everything paid off in 2-3 years. If DH ever gets his 20K reimbursed, then even sooner.

We are about 40 years old and do have some retirement savings which we wouldn't touch. I have about 100K between and IRA and my 401k and DH has probably 50K. I also have about 40K in my company's ESOP, but who knows what will happen to that money.

Oh, I should also mention that a big portion of the $24K in investments that I am thinking of selling is a variable universal life policy. That's a little touchy b/c my dad sold it to me, but the more I listen to DR on the radio, the more I am convinced that a 20 year term policy is the way to go. My youngest kid will be 23(!) by then, so we should be set.

Should I do it? Like my username implies, we keep these financial matters private so I can't really ask any family or friends for advice.

OK, be forewarned: this may sound harsh, but hopefully it will give you something to think about.

My dh makes around $70k/yr, plus a side business that he's giving up. I am a SAHM to 4 kids, ages 6 & under. We live in a tiny (and I mean TINY) house that we literally have been unable to sell. We have about $104,000 left on our mortgage, from $115,000. See my siggie for the rest of our debts.

I have the perfect solution to your problem. Sell your house, move closer to your job in a much smaller house (you only have 2 kids, so why such a huge house? We have 4 kids, no basement or storage of which to speak of, and we somehow make do), sell anything you don't NEED (not want, need - with very few exceptions for heirlooms and childhood memories). Right there, that knocks out your mortgage payment at all. When you sell yours, you'll have (hopefully) plenty of money to outright buy a small home in the near suburbs. Or at least get awfully close to buying outright. Now that you're closer to your job, you can sell that car that isn't worth what you're paying for it and get that cheap clunker. Stop going out without the kids, no babysitter needed, or trade babysitting with another couple. Better yet, though, just don't go out to eat, or do take-out once a month as a treat.

By doing this, I estimate you'll be out of debt in 1 1/2-2 yrs. Greebo, math-whiz (or anyone with better math skills than me), is my estimation anywhere close?

Again, I'm sorry if this sounds harsh, but living "modestly" is a relative term. To someone making only $40,000, I'M living richly. Imagine what I and they are thinking about you. Just something to mull over.

On a happy note, I'm really glad you found Dave Ramsey! Good luck on your journey to become debt-free!

[ClosetDebtor]

Where is it in your finances that you're bleeding so profusely? Cause nearly 10k a month - your house, your cars, your credit cards and your heloc, even with the kids - you ought to have THOUSANDS left over each month for food, utilities, clothing and getting out of debt.

Yeah, I know. I'd think so too if it weren't me. Our debt payments are about 1700. We spend about 600/month for food, which I think is pretty reasonable for our area. I don't have to to coupon clip or go to a lot of different stores. We eat locally and seasonally. We don't eat out. Things just add up. $455 for life insurance (working on reducing that), $350 for investments (going to stop those), another $250 for a family obligation, $100 for a housecleaning service (OK, luxury, but keeps me sane), turnpike tolls, $4-500 for gas, $150 for vet bills (out cat has kidney disease) and a pesky category called "misc" which catches all the other stuff that is irregular and runs about $800-$1000 a month. Stuff like an ER copay when my son got hurt, $158 for tree service we need, gifts, stuff we buy at Target or BJs (soap, TP, etc.). ETA that child care runs about $2K as well. It varies month to month depending on how much we need to use a babysitter in addition to our usual daycare/came/after school programs.

Do you have a budget?

Yes, we use mvelopes software. Most categories I have a good handle on, but that misc one is a challenge. Lots of stuff ends up in there.

A little off topic but am trying to find a new job closer to home - that will help with my time and the car-related bills. Kind of tough in this economy though and I'm in a kind of specialized field. Actually, I am thinking hard about a career switch to being a high school teacher, but because of the economics I have had to put that on hold. I'd have to take some time off to get certified, plus the pay cut that would come with the job.

[ClosetDebtor]

mateosbaby, thanks for your honesty and input. I think where you live the cost of living must be a lot lower. Our house is 1400 square feet - maybe bigger than yours but not what I would call huge. It's also 60 years old. And the area where I work is a little cheaper, but it is a really crappy area where I don't want to live and I also do not want to stay at my job, so we'd have to move again. Also, we don't hire babysitters to go out, it is so I can go to work. I have to leave the house at 6:30am but my kids can't get dropped off until 7am (daycare) and 8am (school). Usually DH does drop off but if he is traveling I need a sitter.

I know it sounds crazy to have this debt and feel cash strapped with our incomes, but we really don't live a lavish lifestyle at all. Our house is old and small, we all wear cheap or second-hand clothes (or stuff we've had forever), we don't eat out. I do have a cleaning lady which is a luxury, but it is a small fraction of our income and b/c of my schedule, it really helps a lot.

Also, I know that we are living well and are very fortunate to have good salaries (we went to school for a long time), and that this whole situation probably sounds ridiculous to most people. I'm mostly just looking for some advice about if it is a good idea to sell these investments, but I certainly appreciate everyone's point of view and advice.

[ladykemma2]

begin by cutting expenses to the bare bones. cut housekeeper, cable, phones, anything that is not a need. Pay these in order of priority: food, roof, utilities, transportation to and from work.

no setting foot into a restaurant unless you work there. pack your lunch, drinks and snacks. no one gets clothes this year (within reason).

stop retirement contributions until you are out of debt.

reduce electricity phantom load by unplugging everything in the house - ask yourself why is the blender plugged in? why is the sewing machine plugged in? put electronics on power strips, available from walgreens or CVS. When i did the phantom load thing, my electricity bill dropped by 100 a month immediately.

The next thing I did was to raise the AC to 78ish (houston texas). You mentioned turnpikes so I assume you are in the northeast, so lower heat by so many degrees. put on a sweater. this helped a lot. remember this is temporary.


stop the bleeding, keep a record of everything you have spent money on, to see where it can be cut.

plan meals, shop with a calculator, a set budget, and a list. keep a running total so you know how much you have spent. leave the kids at home with hubby while you shop. to avoid feeling of deprivation i allow myself two treats. you can ask the kids, et. al. what treat they want.

emergency fund. Dave ramsey says 1000; i think it should be more. Cut up the credit cards. As you pay them off, cancel them.

pay the debts smallest to largest. celebrate and honor the passing of each one. Listen to dave radio archives on the internet. the radio show is better than the tv show. And, because you have cancelled cable, you can't watch dave on the tv anyway, right? i listen while doing household chores.

dave would say, "you have a big shovel"; any way you can dig yourselves out in one year?

there are so many frugal tips on this website. stay and learn.

edited to add: do alternative certification. and if you are a high school science teacher, you will work a 12 hour day.

[Greebo]

FYI $455 for life insurance - if that isn't for a total of $3M in term life, you're getting screwed. It's also too much insurance if it's $3M. With your combined incomes, you need a $1M policy on each of you. For mine, on the 20 year term policy we took out last year, our monthly allocation is $135, and that's on the high side because I am overweight.

As for your "Misc" category - well that sounds more like a "this is where we undermine the purpose of our budget" category, just like mine used to do.

we really don't live a lavish lifestyle

I'm not saying you are - but understand, there are people here with more kids than you who live on a fourth of what you make, or less. You may not be living the "millionaire lifestyle" that so many people in our income ranges do (meaning those of us who are in the low 6 figures), but I'm absolutely, 100% positive you could cut your expenses substantially.

Heck - you could sell the house, downgrade, and one of you (don't care which) could quit your jobs, stay home with the kids, and give up the TWENTY FOUR THOUSAND a year daycare expense, and you'ld still be making twice or more what probably more than half of the FVers make.

I'm not saying you should do it - I'm just saying you've got absolutely no excuse for the kind of debt you have (just like we didn't). Honestly, your hole isn't all that big, and even if one of you quit working, you'd still have a really huge shovel in the eyes of most people here.

Hope that wasn't too harsh - if you can't tell, Dave Ramsey is one of my role models. (Although he and I would argue over *some* forms of debt... )

[ladykemma2]

"I currently earn about 96K, DH's salary is 110K. I cover health and dental insurance for our family plus contribute to my 401k (for now) so my take-home is about 2200 every other week. We spend about 2K a month on child care between daycare, after-school and babysitters. "

ok, you work real hard to bring home 4400 a month less 2000 day care? you are running yourself ragged and paying daycare and housekeeper for 2000 net gain? and the car destruction, gasoline, and expenses on top of that. there are a lot of women on this site who chose to get off the gerbil wheel. how much is this job costing you?

can his job provide the health and dental insurance?

how old are the kids?

how can you do this saner?

[kita]

Hi, I'm Kita and I live in NJ which is where it sounds like you live.
Is Greebo confused about the amount of childcare? Because I think if you really are spending 48 thousand a year on childcare it might be easier if one of you quit work and stayed home with the kids.
I would be looking at finding one form of childcare though. It seems like having a babysitter AND Daycare would just be too crazy for me, timewise and it might be cheaper to just have a babysitter.
You know, someone is going to ask you to lay out the entire budget so I'' just ask now...
THe expenses you listed are about $7000 a month, even with a thousand of misc. Of course you didn't list utilities or , crap, the mortgage. Well that brings it to more than $9000. Hmmm
How many children do you have? And what percentage of meals do they eat at home. Depending on that, I DO think you can get the grocery bill down some. Unless you have teenage boys it should be possible. (And if you have teenagers, I would say ask them to babysit their little brother or sister)
Transportation..Can you use the train or bus? If you have an "Arrive at work and stay there" job, it seems possible. Or maybe some form of carpooling. If you could even cut that by one-third it would be great.
You have family who can pick up your child, so maybe they can babysit ...if it is cheaper. That could also help them with some extra money.

[ClosetDebtor]

Oh no, not 48K in daycare. more like 24K, and that's a max. I have 2 kids - one is going into first grade and the other is 3, in preschool. His daycare costs $1300/month and my DD's after school program costs around $400, depending on how many early release days there are in a month. We only use the babysitter when my DH is out of town, otherwise he takes them in the morning. He travels ~2 weeks a month, for 2-3 days each trip on average and the sitter costs about $50/day. It is expensive, but she is very responsible and it is worth it to me since she's driving them around. I could never afford to pay her for all day, plus she has another job and goes to school so she couldn't do it anyway. Also, I think it is important for my DS to be in a group environment at his age so even if I did stay home, we would still want to send him to at least a part-day preschool. Family helps out a good deal when we need them (SIL watched DD for the bulk of about 3 weeks this summer) but she has 3 kids of her own and isn't interested in taking on two more. My other SIL is in the same situation.

Kids eat 100% of meals at home, except when they are at school when they pack something. Or if we eat at a friend's house. We do not buy any prepackaged stuff for them. They take thrilling lunches like homemade hummus on homemade whole wheat bread, homemade yogurt with a drizzle of honey, green pepper strips and an apple.

Transportation - I wish I could take public transportation. I have tried to figure it out. Because of where I live and where my work is though, it just doesn't work. The best route I could figure would take 3 hours to get there, and even still I'd be 7 or 8 miles from my office and an hour late. My company is very picky about people being there a set number of hours and even so have made it very difficult for me to do any work at home. And noone I work with lives anywhere remotely close to me, so carpooling is not an option.

edited to add: do alternative certification. and if you are a high school science teacher, you will work a 12 hour day.

Are you a high school science teacher? If so, I would love to learn more about what it is like. I have talked to a few friends who are HS teachers (not career switchers though) and even they are unclear on what the options are for certification. Our state's website has a lot of outdated programs listed that aren't available anymore. I am planning to call a local college and talk to them - they seem to have a program for career-switchers. I am wondering if since I have a PhD I can skip some steps.