Newbie here: Need Advice

[BamaClark]

Hello All, I’m a newbie here on the forums and I’m looking for some debt reduction advice. My situation is a little complex, but I’d like to put it out there and see what suggestions you all may have. Please bear with me. Debt has totally burned me down over the last 4 years and I have to fix it. It has ruled my life and I’m sick of it. I want to lay out each item one at a time:

A little about me: I’m a 32 yr old husband and father of 2 kids – ages 6 and 2. I have an awesome family and the best wife in the world who has stuck with me like glue through these tough times. We’re a very happy family, but being a slave to debt has taken its toll and it’s time to do something about it. I lose sleep, have become short-tempered, and generally can’t focus as well as before. We live in Alabama. My NET income after taxes, insurance, and 401k contributions is $37k. With overtime throughout the year, I net approximately $41k. My wife works part time and doesn’t make much at all, since she is with our 2 year old and also commutes the kids around to activities such as school, sports etc. In all, she only brings home about $500 per month.

Home Mortgage: In 2008 we bought a home and got in over our heads. Fortunately, we were able to sell the house a week ago so we eliminated the mortgage, but the delinquent payments, partial payments, threats of foreclosure etc took their toll on our credit. We made just enough from the sale that I only had to bring $1700 to closing (we had no equity). I was just happy to get out from under it. For the time being my father has been generous enough to let us stay with him for a few months, rent free, to get back on our feet. I firmly believe selling the house was the right thing to do, although now our credit is ruined so I’m afraid we won’t even be able to rent anywhere, much less buy another home. Our stay at my father’s home is only for 3-4 months, so we have to find something. Does anyone have any suggestions? Should I rent (if I can), or try to buy something more affordable (if I can)?

Car Payments: To complicate things even more, in 2010 I bought a used Honda Accord with 22k miles on it. In addition to the new car payment, we have another (existing) car payment which is for my wife’s car. Combined, I spend $600 on car payments per month. The Honda payment is the higher of the two car payments, and we owe $3,500 more on it, so I’m thinking of selling it, paying off the balance in cash, and buying a relatively old beater to commute back and forth to work. Ideally I’d like to pay cash for a used car – I can afford about $3,000 in cash for something. However, there is a dilemma; I drive 30 miles one way to work. Since I bought it, I’ve already put 40k miles on it. If I keep going at this rate, I’m going to be making payments on a broken down car. I don’t know if it would be wiser for me to keep the car, or sell it and buy an older car that may break down on me. My current monthly payment is $330/month. So should I stick with my current car, or buy something in full, do the maintenance, and hope it lasts a while?

Aside from these two main issues, we’ve already been able to eliminate all credit card debt. We’re cutting wherever we see an opportunity – Cell phones, no TV, etc..

Thanks very much for any and all feedback. I look forward to talking with you all here on boards.

[HappyMama]

Hi Welcome to the boards!

Congrats for taking a hold of your budget and situation. I firmly believe that once you decide to master your money and budget , things only get better from here. Kudos to you and your wife for seeing the writing on the wall and getting rid of the house. With houses dropping in price and value, start budgeting and save to buy one in cash if possible. Find a safe place to rent for now, unless you can get a house for such a deal you can't pass up and qualify for a loan.

As for the car ....I would keep it and pay it off. Put your 3,000 towards that rather then a beater, if you only owe 3, 500 on it. Maintain it , change the oil regularly, rotate tires, learn to fix and maintain things yourself. You will have a reliable car for commuting. I have older Mercedes, we use to commute a lot all have many miles on them. But praise the Lord they work and run well, though we have learned to research them, find good parts for a good price, and learned to work on them ourselves. Once it is paid off, you will have over 300.00 a month towards an emergency fund, paying off the other car, then saving a house . A roof over your head in a safe area is your first priority.

ETA: I am glad you have no other consumer debt . Great job! Do you happen to have a budget for everything else and a savings plan others might call it an emergency fund?

[BamaClark]

Hello and thanks for the feedback! I should have been more clear in my post. I actually still OWE $11,500 on my car. I’ve checked the Kelly Blue Book value and it’s right around $11,000 for my model. My idea is to sell it for the amount I owe on it, be without a car payment, and then buy a beater for $3,000 in cash. Since selling our house, we now have $900 per month in disposable income. But remember, I’m living rent free right now, but that will change in a couple of months when we have to find an apartment to rent. After rent and utilities are paid, I estimate not having much at all leftover for savings, which is why I’m considering selling the car and buying something in cash – It would free up $330 per month (I can’t afford to make early or higher payments). The dilemma I’m having is trying to determine if it would be a wise move to sell a good, reliable car (for $330/month), or buy a used one that may or may not need repair.

Much thanks!

[HappyMama]

Hello and thanks for the feedback! I should have been more clear in my post. I actually still OWE $11,500 on my car. I’ve checked the Kelly Blue Book value and it’s right around $11,000 for my model. My idea is to sell it for the amount I owe on it, be without a car payment, and then buy a beater for $3,000 in cash. Since selling our house, we now have $900 per month in disposable income. But remember, I’m living rent free right now, but that will change in a couple of months when we have to find an apartment to rent. After rent and utilities are paid, I estimate not having much at all leftover for savings, which is why I’m considering selling the car and buying something in cash – It would free up $330 per month (I can’t afford to make early or higher payments). The dilemma I’m having is trying to determine if it would be a wise move to sell a good, reliable car (for $330/month), or buy a used one that may or may not need repair.

Much thanks!

Yes sorry you have no choice, sell the car. Free up the 330.00 per month and buy a good used car. My friend just bought a 1995 Mercedes for 2,500 with 90,000 miles , ,impeccable, maintained , garage serviced with records. That car should easily go over 200,00 miles. Good luck to you. Research , find a good cheap car and maintain it. Hopefully you can get near what you owe on it, that has been a problem for many right now. List it and see what happens. Unfortunately to get out from underneath the monthly payments and start saving the 330.00 again you might have to sell for less then you owe and bring money to pay off again like the house. Can you and your wife share a car now? Then save up to buy with cash.

You will need to start looking for a safe place to rent, and start saving first and last months rent. With the 900.00 you have a month now is that what you are saving to buy a used car or are you saving that for first and last months rent, and an emergency fund?

[cwaltz]

You said you net about $3000 a month and wife nets $500. You pay $600 for cars(less insurance and maintenance so the cost is likely wayyyyy more for both cars. You are absolutely right that these are draining you dry. ) You said you freed up $900 getting out from under the house. That's a little under half your income accounted for per your post. You mention that you have no credit card debt and that you are working on cutting utilities(cell phone) and entertainment(cable). I guess my question is where is the other half of your income going?

[BamaClark]

You said you net about $3000 a month and wife nets $500. You pay $600 for cars(less insurance and maintenance so the cost is likely wayyyyy more for both cars. You are absolutely right that these are draining you dry. ) You said you freed up $900 getting out from under the house. That's a little under half your income accounted for per your post. You mention that you have no credit card debt and that you are working on cutting utilities(cell phone) and entertainment(cable). I guess my question is where is the other half of your income going?

I also had/have recurring monthly expenses:

Daycare = $400/month
Car insurance + maintenance = $300/month (averaged based on what I spend per year on normal maintenance)
Gas = $400/month (I drive long commutes and my wife is always commuting kids to activies)
Miscellaneous (Sports fees for my son, school fees, charitable donations, entertainment, etc.) = $150
Pet = $25/month (shots, vet bills, supplies)
Groceries = $500/month (including diapers, toiletries, dog food)
Cell phones = $180/month (looking to downgrade to stupid phones)

After we sold the house and I put all this out in a spreadsheet, it was sobering to see how much trouble we were/are really in. The above BARELY pays the monthly bills, leaves nothing in savings, and DOES NOT account for home repairs, pest services, lawn sparying, and any other bills associated with the house that we were paying at the time. Since the house sold, we are saving the $900 monthly payments + pest, yardcare, home repairs. So it's no wonder we couldn't keep up with the monthly payments. Now, we do have a surplus (small) each month of about $900/month - which is good, but still not enough to pay rent, utilities, and have anything left for savings.

[HappyMama]

I also had/have recurring monthly expenses:

Daycare = $400/month
Car insurance + maintenance = $300/month (averaged based on what I spend per year on normal maintenance)
Gas = $400/month (I drive long commutes and my wife is always commuting kids to activies)
Miscellaneous (Sports fees for my son, school fees, charitable donations, entertainment, etc.) = $150
Pet = $25/month (shots, vet bills, supplies)
Groceries = $500/month (including diapers, toiletries, dog food)
Cell phones = $180/month (looking to downgrade to stupid phones)

After we sold the house and I put all this out in a spreadsheet, it was sobering to see how much trouble we were/are really in. The above BARELY pays the monthly bills, leaves nothing in savings, and DOES NOT account for home repairs, pest services, lawn sparying, and any other bills associated with the house that we were paying at the time. Since the house sold, we are saving the $900 monthly payments + pest, yardcare, home repairs. So it's no wonder we couldn't keep up with the monthly payments. Now, we do have a surplus (small) each month of about $900/month - which is good, but still not enough to pay rent, utilities, and have anything left for savings.

With your situation , take this with a grain of salt and take what advice is good for you , your wife and family. But at this point it might be better for you both to honestly look at what her job brings in and how much you are paying out a month for her to work. If she stayed home, you might be able to sacrifice, share one car, sell the other, save on day care, save on gas, whatever her other expenses are to work. You could maybe cut down a little on the food budget. There are many money saving tips for food, menus and budgets on here that might appeal to you both. Do this with the idea it is temporary after a period and you have so much saved up, or your other child is in school then she can go back. Just a thought. Sometimes with some jobs, and figuring some people are actually paying to work. Not sure if this is the case but with so many expenses that could be cut ( ie daycare, some gas , and food budgeting) might be worth a real hard look.

I would definitely cut the cell phone bills.

[krbshappy71]

Just some thoughts I wanted to throw out there:

Move closer to work which cuts down on gas, commute, the fears of breaking down in a beater.

Sell the cars buy a beater and see if you can share it. $400 a month for daycare but she only brings home $500? Not the best trade off if you ask me considering that $100 she does bring home seems to go to gas and maint. For a car in the end.

Your kids are six and two, how many activities are we talking here? Take a long hard look at those, see if can cut back. Look at the entertainment section of your budget. Many people put tv, eating out, movies, concerts, Internet bill, all in separate categories but in the end they are all entertainment, see where you can slash.

[BamaClark]

With your situation , take this with a grain of salt and take what advice is good for you , your wife and family. But at this point it might be better for you both to honestly look at what her job brings in and how much you are paying out a month for her to work. If she stayed home, you might be able to sacrifice, share one car, sell the other, save on day care, save on gas, whatever her other expenses are to work. You could maybe cut down a little on the food budget. There are many money saving tips for food, menus and budgets on here that might appeal to you both. Do this with the idea it is temporary after a period and you have so much saved up, or your other child is in school then she can go back. Just a thought. Sometimes with some jobs, and figuring some people are actually paying to work. Not sure if this is the case but with so many expenses that could be cut ( ie daycare, some gas , and food budgeting) might be worth a real hard look.

I would definitely cut the cell phone bills.

Having my wife quit work is something we have considered. She could save on the daycare and gas, and spend her time couponing. The bad thing about our situation is that when the kids are sick and have to miss school/daycare, she's the one who has to take off and stay home with them. The $500/month value I presented may be *slightly* under-estimated, but after factoring in missed work for sick kids, and weeks where her part time work is very low, I'd say $500 is about right.

[BamaClark]

Just some thoughts I wanted to throw out there:

Move closer to work which cuts down on gas, commute, the fears of breaking down in a beater.

Sell the cars buy a beater and see if you can share it. $400 a month for daycare but she only brings home $500? Not the best trade off if you ask me considering that $100 she does bring home seems to go to gas and maint. For a car in the end.

Your kids are six and two, how many activities are we talking here? Take a long hard look at those, see if can cut back. Look at the entertainment section of your budget. Many people put tv, eating out, movies, concerts, Internet bill, all in separate categories but in the end they are all entertainment, see where you can slash.

We have thought about moving closer to my work, however, we live out in the county where the cost of living is much less than in the city. Eventually I would like to move closer, but I think with our financial situation, staying where we are is best. To move there with our current income would mean having to live in one of the more rundown communities, and putting our son in a school system that is just not that good, to be quite honest.

Thanks for the feedback!

[HappyMama]

Having my wife quit work is something we have considered. She could save on the daycare and gas, and spend her time couponing. The bad thing about our situation is that when the kids are sick and have to miss school/daycare, she's the one who has to take off and stay home with them. The $500/month value I presented may be *slightly* under-estimated, but after factoring in missed work for sick kids, and weeks where her part time work is very low, I'd say $500 is about right.

Sounds like it might help you in the long run, especially because you could share one care at least until you can get some good money saved up.

[HappyMama]

Sounds like it might help you in the long run, especially because you could share one care at least until you can get some good money saved up.

Goodness in a rush today sorry meant share one car.

[HappyMama]

We have thought about moving closer to my work, however, we live out in the county where the cost of living is much less than in the city. Eventually I would like to move closer, but I think with our financial situation, staying where we are is best. To move there with our current income would mean having to live in one of the more rundown communities, and putting our son in a school system that is just not that good, to be quite honest.

Thanks for the feedback!

No don't trade safety and a good place to live for a more expensive possible nightmare situation. You are a good dad and husband for being willing to commute.Keep your chin up , things will get better. The hardest part is the first step and you have done that.

[Beejay]

Not a lot to add to previous advice except:

Driving a total of 60 miles daily to work would put a strain on any car, let alone a beater. You risk it breaking down often, and not being a reliable way to get to work, thereby possibly jeopardizing your job. If at all possible, I would keep the Honda. Also, as far as renting a place, landlords are VERY flexible with people with credit problems these days. My daughter, who was in a debt management program and with a credit score of under 600 was able to rent an apartment in a very nice area and within the boundaries of a great school system. The manager told her that if they didn't try to work with people with credit problems (but with a steady income) half their units would be empty. You might start calling around to places where you may want to rent and see what their policies are. You would then know what to prepare yourself for. Good Luck !!

[Debbie-cat]

You are getting and will continue to get great advice on this forum. I just wanted to say welcome. Stick around. You will be amazed at what you learn on this site. I would advise to get your wife on board with this site as well. Sit down together and go through ALL the threads. With the both of you on board, you will be amazed at what you both accomplish!