This is my first time on the site and I love it!!

I need help---my husband and I have accumulated $11k in credit card debt on top of about $8k in student loans I am paying $250.00/month on and will be until June 2004. We recently had a beautiful baby girl and I am only working part-time to cut out any daycare costs. We own a home and just refinanced at 7.125% for 30 years. We also are at the end of a lease on our vehicle and need to buy a new vehicle and need 4wd because of the location of our house. I feel totally overwhelmed - we are able to meet all of our monthly bills, but I'm starting to feel like the cc debt will never be gone. Should we take out a personal loan or consolidate all of our debt. We both contribute to 401(k) and/or deferred comp. plans - should we stop those contributions - I am 27 and my husband is 30??


We really want to start a College Fund for our Daughter who is 7 months old - but realistically we know we need to get out of debt first!!

Any advice would be greatly appreciated!!

Well it's hard to say with the information given. The first thing you would have to do is figure out your familys income in a month and expenses (categorized (hrmm bad spelling)). Make cuts in areas when you can. If you have enough paid on your house to be eligible to borrow from that to pay your credit card that can be a great way to save money. There are many more possible suggestions, but without details it's hard to suggest anything.

Congratulations!

It's such a wonderful time in life when you're expanding a family, yet from my own experience I can empathize with yours feelings about not knowing what to tackle next financially.

One of the key pieces of information to evaluate what you should do is the interest rate on the credit card debt. For example if it's over 20% then it almost certainly makes sense to redirect 401k money. If it's under 10% then you should certainly contribute to a 401k at least to the point of getting any employer matching. (I'm not familiar with the various details of deferred compensation plans so I can't give advice on that issue.)

As another poster pointed out, anything you can do to trim expenses will give you a larger pool of extra money each money, though you still do need to figure out the best use to make of that money.

If you still have credit card debt when you go to purchase your vehicle you'll want to put the minimum down on the vehicle and put any extra money you have to your credit cards (if the CCs have a higher interest rate than the car loan which is mostly true).

How to fund college is a tough question. My son is in daycare so our plan is to divert his daycare costs to a college fund as his daycare costs decrease as he gets older. My advise would be to work on the credit cards and when that debt is gone put the money to a college fund.

Good luck,
Michael

ncleblanc, Congratulations on the birth of your daughter!! Your debt situation is not so bad. The first actions I would suggest:
1. don't stop your deferred comp contributions.
2. Don't take out a personal or consolidation loan
3. put $5/mo into a savings account for your daughter's college fund. You can increase the monthly contribution later, but the important thing is time, so start now even if it's really small. Later you will learn how to save even more.
4. Apply a snoball plan to your credit cards and other debts. (if you don't know what this is, let us know and someone can explain it or post links to previous posts)
5. If you must buy a vehicle, get it used.
6. Don't put any more new charges on your credit cards. Some people here freeze their cards in water or put them in a safe. I just put mine in a desk drawer; that seems to be far enough away from the wallet. If you need to buy a plane ticket or something where a credit card is helpful, go ahead and charge, but send your payment in the exact amount of the charge the same day!

the above are just some emergency tips for your immediate situation. Even more important is for you and your husband to become more educated about personal finance so that you can develop a plan for yourselves. It will take an investment of time, but once the plan is in place and your new habits are formed, the plan should pretty much run itself. I suggest you start by reading George Clason's book, The Richest Man in Babylon. It is cheap, easy to read, and will get you started building your foundation of financial wisdom.

Best of luck!!!
-Repo

The first step in my opinion is to take a deap breath and relax for a moment. You're not dead or dying. You can payoff the debt.

The second step is to enjoy your time with your daughter. Financial things come and go but family is for life.

I agree with other Fools that the first thing to do is build a budget. I like to start with my gross income (even if it is estimated for monthly commissions, etc.). Then I subtract the bills I must pay like debt payments, taxes, utility bills, and so forth. Then I subtract monthly items for food, clothing, diapers, etc. Then I evaluate what is left to determine if it meet miscellaneous needs like presents for birthdays and holidays. In my case I like to take my wife on a real date at least once a month (she deserves at least one break). Then you can decide if can cut back anywhere to pay more on your debt.

As to your retirement funds, I hate to see anyone stop contributing. One question is if your employer matches the contribution. If you stop contributing and put that money (net of federal, FICA and State taxes) against the debt, how long before the debt is gone? If it is only 1 or 2 year, you may be able to start contributing again without hurting your retirement too much. Then you could use the part of the debt payments to start a college fund.

Good luck and hang in there.

CJ

We also are at the end of a lease on our vehicle and need to buy a new vehicle and need 4wd because of the location of our house.

4wd or All wheel drive. Alot of cars come with all wheel drive options now. Also check used cars. I have an old Subaru with front wheel 4 wheel drive and have only had a couple of occasions where I actually needed the 4 wheel drive. Usually the front wheel drive was just fine. My MIL lives off a dirt road which gets very muddy. Even then the front wheel drive does fine.

This is my first time on the site and I love it!!

I need help---my husband and I have accumulated $11k in credit card debt on top of about $8k in student loans I am paying $250.00/month on and will be until June 2004. We recently had a beautiful baby girl and I am only working part-time to cut out any daycare costs. We own a home and just refinanced at 7.125% for 30 years. We also are at the end of a lease on our vehicle and need to buy a new vehicle and need 4wd because of the location of our house. I feel totally overwhelmed - we are able to meet all of our monthly bills, but I'm starting to feel like the cc debt will never be gone. Should we take out a personal loan or consolidate all of our debt. We both contribute to 401(k) and/or deferred comp. plans - should we stop those contributions - I am 27 and my husband is 30??

We really want to start a College Fund for our Daughter who is 7 months old - but realistically we know we need to get out of debt first!!

Taking these in order:
I'm assuming the $250/month until June 2004 is just the student loan payment. You're probably paying about the same monthly on your credit cards.

OK, here are my suggestions:
(1) Put the credit cards away. Get a plastic bowl, fill with water, put cards in, and stick it in the freezer. If you are worried about emergencies, take a card with no balance out with you (leave the others in the freezer) and put it in your shoe. This will do two things. First, it will make you assess if it's truly an emergency. Second, it will likely remind you with each step how much of a pain credit cards can be. :-)

(2) Get some money into a savings account, maybe $500-$1000. This is a small emergency fund. If something that's a true emergency (medical trauma, loss of transportation) occurs, this is where you go first. If the car breaks down, use this to get it fixed, not as a down payment on a new car. Scrounge any penny you can; empty your change into a jar each day, take your lunch to work, park in a cheaper lot or use public transportation, anything to free up money.

(3) If you haven't already, set up a budget. I wrote up a description of how I do it (http://boards.fool.com/Message.asp?mid=15000513), but use something that enforces spending discipline best for you. You need to make sure that you include your minimum debt payments and extra money (as much as you can) for debt reduction.

(4) Use the debt reduction money to start knocking down the credit card debt. If you have multiple cards, I'd recommend going after the lowest balance card first (that is, if the $11k is split up $2k, $4k, $5k, go after the $2k card first). When that is paid off, take the debt reduction money plus the minimum on the first card and go after the next one. Keep going until all of the cards are paid off. If you get offers for low rate balance transfers, take advantage of them, but cancel the old cards. If you get raises, increase your debt reduction fund first.

(5) Regarding the car: first, what's the buyout to purchase the current car? You mentioned buying a new car and a requirement for 4WD due to your location. Can you find a used 4WD vehicle? It doesn't sound like you need an expensive car payment right now, so these are options to explore.

(6) For now, you need to get these other pieces resolved before you start saving for college. Your daughter will probably prefer that her parents are in solid financial shape rather than living deeply in debt.

Hope these suggestions help.

I need help---my husband and I have accumulated $11k in credit card debt on top of about $8k in student loans I am paying $250.00/month on and will be until June 2004. We recently had a beautiful baby girl and I am only working part-time to cut out any daycare costs. We own a home and just refinanced at 7.125% for 30 years. We also are at the end of a lease on our vehicle and need to buy a new vehicle and need 4wd because of the location of our house. I feel totally overwhelmed - we are able to meet all of our monthly bills, but I'm starting to feel like the cc debt will never be gone. Should we take out a personal loan or consolidate all of our debt. We both contribute to 401(k) and/or deferred comp. plans - should we stop those contributions - I am 27 and my husband is 30??

How about lowering your contributionsjust to the company match? Do you have a detailed budget and a plan for buying the major things like a new vehicle? Do you know where your money is going? Is there any luxury items you could cut? (cable, extras on the phone, etc?)


We really want to start a College Fund for our Daughter who is 7 months old - but realistically we know we need to get out of debt first!!

Don't worry about that so much. There are hundreds of ways to pay for school, if you don't have a large fund built up for her. Pay your debts. You don't say anything about what the household income is. There are some people here who think that 11K isn't much debt. You'll be ok.

Ishtar

I need help---my husband and I have accumulated $11k in credit card debt on top of about $8k in student loans I am paying $250.00/month on and will be until June 2004. We recently had a beautiful baby girl and I am only working part-time to cut out any daycare costs. We own a home and just refinanced at 7.125% for 30 years. We also are at the end of a lease on our vehicle and need to buy a new vehicle and need 4wd because of the location of our house. I feel totally overwhelmed - we are able to meet all of our monthly bills, but I'm starting to feel like the cc debt will never be gone. Should we take out a personal loan or consolidate all of our debt. We both contribute to 401(k) and/or deferred comp. plans - should we stop those contributions - I am 27 and my husband is 30??

First of all, you can't borrow your way out of debt so consoldiating isn't going to do you much good until you get the lifestyle down. Reducing future contributions to the 401(k) is a good start, as it will give you more monthly cash flow to pay off debts.

I'm sorry to tell you this, but you can't afford a new vehicle and the longer you try to rationalize it, the longer it will take you to get out of debt. For sure, you surely shouldn't lease another one. Cut your payments to the minimums, stop the 401(k) and see how much you can save up very quickly to buy something outright (i.e. no payments). It'll probably be ugly and may even smell bad, but you can find used cars that will get you from A to B safely. Any car payments you get will just keep you in debt that much longer. Perhaps you could take a lot of that "stuff" you bought on the credit cards and sell it to add to the car fund.

As far as you staying home to reduce day-care costs, I'm fine with that. That sounds like a reasonable trade-off to me. Could your husband work extra?

Leviathan

Some excellent advice here. One thing I notice up front are your high interest rates on CCs. If you havent done so already, I would really call each a few times to get those lowered at least to the teens. You may even be able to get those rates down to single digits. Lots of great posts how people have done that here. All the previous tips have helped me significantly.

Boy, I was going to jump right in and reply, but RepoWoman took all of the words right out of my mouth.

I completely agree with every point she made, including the Richest Man in Babylon, which changed my life.

Don't stress over your finances, you are in pretty good shape. Take control, snowball and keep expenses low. You will do great.

Bret

It is possible to pay off $19,000 of debt. It will take a plan.

1. List your bills, including balance and interest rate. Snowball your payments in order of interest rate.
2. Continue to contribute to your 401K as long as your employers match funds. If they match up to 5%, then put in that amount. If they don't match anything, you may want to hold off until you pay off your debt.
3. Hold off on the college fund until you are out of debt.
4. Get an emergency fund of at least $1,000. Once your debt is paid off, work toward 3-6 months of living expenses before thinking of investing or college fund.
5. Cut down on your expenses so that you can pay of debt sooner. Goodbye cell phone, cable, extras on the phone, magazine subscriptions, yard service, cleaning service...cook from scratch, no more eating out, cloth napkins and rags (instead of paper), turn down the heat, turn off the lights, shorter showers, wash in cold, make baby food, generic diapers, hang clothes to dry, www.onesuite.com for long distance, no new clothes for grown ups for a year, make gifts, thrift store and consignment shop clothes for your daughter, increase the deductables on the house and car, de-clutter and have a garage sale and sell on eBay, use half the soap for the laundry/dishes/shampoo/toothpaste, etc., Reduce the cleaners you use -- vinegar in water works great for floors, shopping is not a recreation.
6. Buy a used car.
7. Call and request a reduction in the interest rates on your cards.
8. Never miss a payment and always pay on time.
9. Never close an account unless it is paid in full.
10. Most important...QUIT CHARGING!

You can get out of debt, have a decent savings, save for retirement and for your daughter's education. First things first.

L

excerpt:
Some people here freeze their cards in water or put them in a safe. I just put mine in a desk drawer; that seems to be far enough away from the wallet. If you need to buy a plane ticket or something where a credit card is helpful, go ahead and charge, but send your payment in the exact amount of the charge the same day!
(end excerpt)

--whhaa? First, you are assuming that this person HAS enough money to pay for this plane ticket sitting in their MM account or somewhere? Sorry, but they probably don't if they are on this list.
Also, if they have a card to put it on without a balance they have a month or maybe more till any interest is even due on it. I just bought a ticket where the bill doesn't come due till mid July.
(I was concerned the flight prices might go up if I wait too long.)

joyce

--whhaa? First, you are assuming that this person HAS enough money to pay for this plane ticket sitting in their MM account or somewhere? Sorry, but they probably don't if they are on this list.

I don't think that's necessarily true. I lurk here, not because I have CC problems, but because sometimes I find some helpful info. When I buy plane tickets, particularly online, I prefer to use my CC instead of my debit card. So I DO have the money sitting in my account.

-Steph

excerpt:
Some people here freeze their cards in water or put them in a safe. I just put mine in a desk drawer; that seems to be far enough away from the wallet. If you need to
buy a plane ticket or something where a credit card is helpful, go ahead and charge, but send your payment in the exact amount of the charge the same day!
(end excerpt)

--whhaa? First, you are assuming that this person HAS enough money to pay for this plane ticket sitting in their MM account or somewhere? Sorry, but they
probably don't if they are on this list.

uh, no, I made no such assumption! I'm just using the plane ticket as an example. I guess I did imply that the hypothetical plane ticket purchase should only be made if the person does have the money on hand, say, for example, in his/her checking account.

Just because someone is on this list doesn't mean they don't have money on hand before buying plane tickets! I personally never buy plane tickets anymore unless I have the funds on hand. (and yes, I'm on this list and I do still have a pile of cc debt.) Then, I put it on a cc, but send the payment to the cc immediately. Even though interest doesn't accrue for a month, I find it works better to send the payment immediately, to avoid the temptation to spend the money twice. That's why I made the recommendation I did.
-Repo