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I posted this in the Financial Aid discussion, but there is not a lot of action on that board. Sorry for posting it here also.

My EFC per FAFSA: $13,300.00
Income: $75,000.00

CC Debt: $80,000.00
Mortgage: $220,000.00
Cars: $20,0000.00

Not sure if I am posting in the right board, but I am wondering if it would do any good to talk with the Financial Aid counselor at the State University my child would like to attend? I make pretty good money, but as you can tell, I don't manage it very well...there is no way I can afford $13K out of pocket with my current financial situation. Will Financial Aid departments take any of this into consideration when awarding financial aid packages or are we both (my son and I) SOL? Are there other reasonable loan options available for my child above and beyond the Federal loans...thanks for the help. Whatever your opinion might be, I hate to see my son pay for my idiocy so I'm hoping to find a way to get him off to school without personally taking any more loans (even if anyone would give me one.)

Thanks.

P.S. I am trying to sell my house to reduce expenses, but my equity position is likely lower than my mortgage balance. We all know how the housing market is right now, I think.
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I am wondering if it would do any good to talk with the Financial Aid counselor at the State University . . . there is no way I can afford $13K out of pocket with my current financial situation.

What is this - deja vu week at CC&CD??? See http://boards.fool.com/Message.asp?mid=24458838&sort=whole .

To directly answer your question - it probably can't hurt to ask - the worst that they can say is no. On the broader question, however, it doesn't look like you're in a position to finance your son's higher education, and that, for better or worse, your son is going to have to look for other resources, or start at community college. What kind of progress have you made in improving your situation since the August 112 post thread?

martybl
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I've been trying to stop the bleeding, but mostly have succeeded in slowing it down somewhat. We rarely go out to eat or do much of anything besides make the mortgage payment. I'm thinking about letting them foreclose and sell the place...any debt left can hopefully be negotiated down or eliminated in a bankruptcy.
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Not sure if I am posting in the right board, but I am wondering if it would do any good to talk with the Financial Aid counselor at the State University my child would like to attend?

As martybl said, it can't hurt, but given that it's a state university, and states have been continuing to cut back their educational budgets, I doubt that it will help much.....If you can't afford $13k, your son will probably have to borrow it, or make another decision about college, such as ROTC or community college.

Now to the root of the problem....

CC Debt: $80,000.00
Mortgage: $220,000.00
Cars: $20,0000.00


In the thread that martybl referenced, 6 1/2 months ago, you were $60k in CC debt, the car debt was the same, and I am assuming that the mortgage debt was similar. You also said you were running a $2k/month deficit.....Unfortunately, it looks like you are running a bit more deficit than you realized, since you have added an average of $3.33k/month to your CC debt during the last 6.5 months.

I will repeat my advice from then - You can't afford your house - call your mortgage company - ask to talk to the workout department - see what it will take to do a short sale or a deed in lieu of foreclosure.

You can't afford your cars, either. Others suggested that you look at selling your car(s) that have the debt attached. You should do that, too.

You need to cut your expenses to the bone, and increase your income, and do both very quickly. Otherwise, you are heading for bankruptcy, and fast.....You have already accumulated more than 1 year's income in credit card debt. At your current burn rate, by the end of this year, even if you don't pay for your son's college, you will be over 1.5 years income in credit card debt. Add in his college costs, and a few more unexpected bumps, and I wouldn't be surprised to see you at 2 years income in CC debt by the end of 2007. At that point, if you haven't declared BK already, you really need to think about it.

Maybe the BK will have a good point, though......If you declare before the end of this year, so you can include that on the FAFSA for next year, your expected family contribution for your son's education may go down.

AJ
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It wouldn't hurt to ask; it also may depend on what your son has to offer the university.

Last year we had an EFC of between $18 and $21,000 depending on whether the school used the FAFSA or the college board financial form or a combo of the two. We also at the time had over $9000 in cc debt which at the time seemed overwhelming to me.

DD was applying mostly to the ivies and other expensive private universities although she did apply at an in-state university and an out-of-state public university. When I talked to the finaid office at one of the schools, they offered to increase their offer of aid based not on our debt but because of our ages.

After several months of stress over all this, things worked out for us.
DD was offered a scholarship that would pay her tuition for 4 years (approximately $34,000 year). We paid about $8000 for room and board and so far about $1000 in transportation costs. She had 3 other scholarships that helped with books and the rest of the room/board.
The amount we have paid out of our own pocket this year has been about the same as the private school tuition we paid while she was in high school.

It isn't too late for your son to check with the guidance counselor at his HS to look for local scholarships. Talk to his guidance counselor about your situation. Not all the scholarships are based on academics.

Molly

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You may also want to check out the web site http://savingforcollege.com.

Fuskie
Who also recommends checking out your state college's website for tuition assistance information...
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There are several things your son can do besides negotiating down the EFC. He can look into merit based scholarships. Often schools have scholarships through their alumni association that won't be found in any books. I know this type of scholarship paid for half of my college education. Contact the school he wants to go to directly about this option.

He can also get a job. Either through a work study program or an independent job.

He can apply for private education loans. The bad part of these is that the interest is not deferred, so he'll have an even bigger debt when he graduates, but at least he'll get through college.

This won't help now, but the sooner you stop claiming him as a dependent on your taxes the sooner he can claim to be independent for the purposes of the FAFSA. (I think it's 2 years, but don't quote me on that.)

I know you said that you don't want to see your son pay for your idiocy (your words, not mine) but having him learn to pay his own way might be the best thing you can do to keep him from repeating your mistakes.

DEG
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In the original post, the OP had a daughter headed to college and now it is a son?

I am confused. It is after 11pm; maybe it is time for bed.

I would suggest they check out www.fastweb.com



Molly -
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DEG: "This won't help now, but the sooner you stop claiming him as a dependent on your taxes the sooner he can claim to be independent for the purposes of the FAFSA. (I think it's 2 years, but don't quote me on that.)"

Unfortunately, it doesn't work that way. For FAFSA, he's your dependent until he turns 25 (maybe 23, but pretty sure it's 25) or gets married. I think that grad students with bachelor's degrees in hand are also not counted as dependents.
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In addition to what the others have suggested, you might want to take a look at this site. It offers a comprehensive look at what help is out there for college financing.

http://www.finaid.org/

Nancy
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I've been trying to stop the bleeding, but mostly have succeeded in slowing it down somewhat.

Sorry, but your numbers tell a different story......

6.5 months ago:

$60k in credit card debt
deficit spending projected @ $2k/mo

Assuming all deficit spending is put onto the cards, projected CC debt now would be $60k + (6.5 * 2k) = $73k

Actual CC debt now is $80k - $7k more than projected

Your deficit spending has actually proceed at a rate of $3.33k/mo for the last 6.5 months.

Either your estimate of $2k/mo was wildly optimistic, or you have opened up another major vessel and added to the bleeding, rather than slowing it down.

It may be possible that you have started to miss or go late on payments, and your previously low rates have been increased to penalty rates - that would probably add $1.5k/mo in interest plus any late fees - is that what is occurring?

We rarely go out to eat or do much of anything besides make the mortgage payment.

You have $220k in mortgage debt.....Assuming a first for 80% at 7%, and a second for 20% at 10%, you would have the following monthly housing obligation:
1st mortgage P&I                   $1,171
2nd mortgage P&I $ 386
Taxes (assume 2.2% annual) $ 400
Insurance (assume 0.75% annual) $ 138
Total                              $2,095
You make $6,250 a month. Assuming 20% withheld for taxes and deductions, that leaves $5,000 a month for spending, which means you are spending $8,333 a month at your current deficit spending rate. If you don't do anything other than pay the mortgage, where is the other $6.2k a month going?

I'm thinking about letting them foreclose and sell the place...any debt left can hopefully be negotiated down or eliminated in a bankruptcy.

At this point, given your current debt obligations, both secured and unsecured, and your apparent inability to make headway on those obligations, I would suggest the following course of action:
- Starting maxing out your 401(k) and other available retirement plans - if you can save up the money, put money into IRAs for yourself and your wife for 2006 and 2007 - Retirement plans are mostly protected in BK
- Don't buy anything new the next 6 months except necessities - any spending within 6 months before BK could be examined for fraud and thrown out of a BK
- Pay your house payments for 3 - 4 more months (depending on where you live) - then quit paying it - the bank probably won't start foreclosure for 3 - 4 months after you quit paying, and even in TX, the quickest state for foreclosures, it will take almost a month for the foreclosure action to get you evicted - by that time you will be in BK and will stave off the foreclosure until the BK judgement is rendered
- Save $1000 a month in cash under your mattress (not in a bank) that is not touched - this should give you $6,000 in 6 months - enough to pay the BK attorney, plus deposits on a new place to rent
- Go for credit counseling in 5 months (pre-requisite for BK now)
- Declare BK in 6 months
- Be absolutely truthful in your declarations of debt and assets when you file BK - if you file anything falsely, you risk having the BK thrown out

It's up to you which other obligations you should pay during this 6 months - do you want to try to save your cars? Then you should pay those, if your state will allow you enough equity in them to save them. If not, save the payment money in order to buy cheap used cars.

I have mixed feelings about giving this advice, because credit spending was what got you in trouble in the first place - You and your wife may want to each choose 1 credit card that you want to re-affirm during the BK - probably your lowest debt obligation - If you choose to do this, continue to pay on that card.

AJ
- whose parents declared BK while she was in college, and with the help of student loans, she paid for her college, and later paid for her own grad school
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I'm thinking about letting them foreclose and sell the place...any debt left can hopefully be negotiated down or eliminated in a bankruptcy.

My goodness, it seems as if this was very easy for you to say.

I hope you are not looking at forclosure and bankruptcy as a way to solve your problems. They are both very difficult and will have dreadful financial consequences in your life and your family's life for many, many years to come.

Please consider any and all other options seriously-- there is no easy way out. Many good ones presented to you now and previously on TMF.

Kath
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Well...
I'm certainly not an expert but has your son considered the military route? I am a retired officer who entered the military as a hs dropout.
My family was working as migrant workers living in a shack. The military provided me opportunities (and the GI bill) that allowed me to become the first person in my family to graduate from hs and later college and a professional degree. I am now on my second career after spending 24 years in the service of my country.

Steve
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Geez, AJ, how do you KNOW all of this stuff?

GS
hoping not to hijack the thread
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Not sure if I am posting in the right board, but I am wondering if it would do any good to talk with the Financial Aid counselor at the State University my child would like to attend?


I'm sorry to say, but you are probably SOL.

I qualified for a full Pell grant my first year in college, because my mother was on welfare (low income) and I had no earnings. During that time, I earned a WHOPPING $12,000. (Actually, it was $11,542.)

Because I earned SO MUCH MONEY, I did not qualify for the grant my second year, only a loan. Or work-study, the FinAid lady happily tells me.

"Uh, I already work 40 hours a week AND I'm planning on taking 12 credit hours. When would I work-study?"

"Oh, well, that would be a problem, huh? Well, your EFC is $8,000, which is more than the grant."

They didn't care that I lived on my own, and that my mother was on welfare. All they cared about was that I made a certain amount of money, and was of an age to live at home, even though I wasn't able to live at home. (My mother's Section 8 housing wouldn't allow it.)
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Geez, AJ, how do you KNOW all of this stuff?

10 years in the customer service part of the consumer finance industry - including stints at a subprime card issuer, a prime card issuer and my current job at a mortgage company, plus seeing my parents go through BK. It's amazing what you can pick up from seeing customers/relatives make poor decisions.

AJ
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I would suggest the following course of action:
- Starting maxing out your 401(k) and other available retirement plans - if you can save up the money, put money into IRAs for yourself and your wife for 2006 and 2007 - Retirement plans are mostly protected in BK


I sorry but I hate this advice. It is basically saying screw the evil CC company and grab all the cash that you can for retirement before declaring bankruptcy. Since CC companies are evil, it is an okay this to do. When other posters come to this board and complain about 25% interest rates on their cards, we can point to the advice above as one reason why their rates are so high. Basically, you are recommending theft. The fact that you can legally get away with it doesn't change that fact.

IF
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I would encourage you to have your son contact the financial aid office. As someone who did this herself in college, I am now proud of the fact that I took care of things for college instead of letting my parents do it all for me. As I know work at a university, I hear plenty of stories of how adults (that is, the college students) still have Mom and Dad do everything for them. We're generally surprised and pleased when a student takes the initiative. Plus, if they do have ideas of scholarships or grants to apply for, the kid needs this information, not you, so that it's first hand instructions not second hand.

It might not help, but it just might!
Selphiras
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I sorry but I hate this advice. It is basically saying screw the evil CC company and grab all the cash that you can for retirement before declaring bankruptcy. Since CC companies are evil, it is an okay this to do. When other posters come to this board and complain about 25% interest rates on their cards, we can point to the advice above as one reason why their rates are so high. Basically, you are recommending theft. The fact that you can legally get away with it doesn't change that fact.

Ummmm.....the CC companies were screwed by the OP a long time ago and are still being screwed by the OP. Going from $60k in CC debt to $80k in CC debt in 6.5 months is just the latest evidence that the OP is still screwing the CC companies - the CC companies have the option to cut off the OP at any time, and frankly, I'm a bit surprised that they haven't (or maybe they have, and he just hasn't told us).

The OP isn't going to pay his full CC bill in any case - he has 107% of his annual income in CC debt at this point, up from 80% of his annual income 6.5 months ago, and his spending has only accelerated from that point.

The reason that credit card rates are so high isn't because he can try to salvage a little something out of this fiasco, it's because he, and others like him, live beyond their means to start with, and depend on CC companies to finance their lifestyles. When they don't/can't pay, the CC companies increase their rates so that they can continue to make profits. I suppose if you want the OP to completely give up any retirement contributions he may be able to put in during the next 6 months, he may end up paying back a little more to the CC company, but let's face it - he's not going to pay them back most of the money anyway, and how much of the money that would have gone to the retirement fund do you really think will end up at the CC companies?

The advice given was so that the OP could salvage a little something for retirement. If the BK court sees the contributions as fraudulent, they can force the distribution of the retirement accounts.

Yes, it may be loophole, but it's one of the few loopholes in the BK law - since it is the law, the OP may as well try to salvage something.

AJ
- doesn't think CC companies are evil, especially since they paid her salary for several years
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Why does your son need to go to "The State University"

Community college near my home costs about $1200/semester for 15 credit hours. Figure a generous $500 per semester for books and misc fees and your son could fund the whole thing with a full time summer job and a part time after school job.


I live forty minutes from two good state universities. Both of them accept transfers. Is there a state school that doesn't? My high school senior starts at the local community college in the fall. I think he'll be fine.

If you can't afford something, one choice is to do look for an affordable substitute. I know a lot of people who got their start at junior colleges. My wife and I both did. It can work out just fine.
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The OP isn't going to pay his full CC bill in any case - he has 107% of his annual income in CC debt at this point, up from 80% of his annual income 6.5 months ago, and his spending has only accelerated from that point.


I think you're right that he won't be able to pay his CC bills, but I don't agree that hiding his cash so that he can have rent money and stuffing money into his own 401k so that he can have retirement assets is the way to go. I find it dishonest since he has already spent the owed money, and instead of putting his dollars towards those already-incurred bills, the advice is to save something for retirement.

No, I think he needs to try something like not spending any money, which seems to be exactly the opposite of what he's doing.

I also find it offensive that somehow he thinks he should be getting more financial aid for his college-bound son because the OP cannot afford the EFC based on his debt. Financial aid should be for those kids who cannot afford college, and not for those kids who had parents who spent every penny and then some, and now want someone else to pay the college expenses.

I think the OP is actually asking quite a lot in looking for ways to get more financial aid. Instead, he should be looking at ways to pay back his existing bills while his son should be doing things like looking for a job, a scholarship, ROTC opportunities, a community college, a job where the employer will have tuition reimbursement even if it means he has to get his degree by going to night school, or simply taking a year or two off while he works to earn enough money to put himself through school.

I do agree that bankruptcy is probably the OP's next stop, but I don't find telling him to beef up his retirement savings now while he can to be the best advice. I think he needs to live up to the contracts he has signed, and that includes paying his credit card bills.
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I've been trying to stop the bleeding, but mostly have succeeded in slowing it down somewhat. We rarely go out to eat or do much of anything besides make the mortgage payment. I'm thinking about letting them foreclose and sell the place...any debt left can hopefully be negotiated down or eliminated in a bankruptcy.

leftyf, do you have a budget, or a spending plan, or some idea of where your money is going? A couple of people on the thread have pointed out that you've been going negative at a rate of $3,300 per month, which is higher than your previous estimate of $2000 a month.

Are you still using the cards? Do you feel like you need the cards to get through the month? Something that helps a lot of the time is to try to write down everything you spend money on for a month, to try to get a handle on where you're hemorrhaging money. You don't have to put numbers on here, if that's too personal, but it could help you get an idea of what you need to cut back on, or why your cash flow is so negative.

Good luck, I wish you well. Your child going to college might have to pay for college for himself, so he might want to think about community college for the first two years and then transferring to a more expensive college. I don't know how declaring BK affects the FAFSA, that would be something to ask the Financial Aid department at the college your child wants to attend.


--Booa

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Not sure if I am posting in the right board, but I am wondering if it would do any good to talk with the Financial Aid counselor at the State University my child would like to attend? I make pretty good money, but as you can tell, I don't manage it very well...there is no way I can afford $13K out of pocket with my current financial situation. Will Financial Aid departments take any of this into consideration when awarding financial aid packages or are we both (my son and I) SOL? Are there other reasonable loan options available for my child above and beyond the Federal loans...thanks for the help. Whatever your opinion might be, I hate to see my son pay for my idiocy so I'm hoping to find a way to get him off to school without personally taking any more loans (even if anyone would give me one.)

Thanks.

P.S. I am trying to sell my house to reduce expenses, but my equity position is likely lower than my mortgage balance. We all know how the housing market is right now, I think.


Consider that your son could attend one or more years at a local community college that costs much less, and then transfer to the school of his choice.
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I think you're right that he won't be able to pay his CC bills, but I don't agree that hiding his cash so that he can have rent money and stuffing money into his own 401k so that he can have retirement assets is the way to go. I find it dishonest since he has already spent the owed money, and instead of putting his dollars towards those already-incurred bills, the advice is to save something for retirement.

I was suggesting that he save cash for the BK lawyer (for some reason, they like to be paid cash upfront before they file) and so that he would have deposits to rent a new place after his house is foreclosed, not so that he would have 'rent' money. I suspect he's going to have to put more than just first/last and security deposit down on a rental with a brand new foreclosure on his record.

I see your point of view of it being dishonest to save money in retirement accounts, but I was merely trying to suggest a legal way for the OP to salvage something - he has no equity in anything else to save. I don't think that declaring BK will be without repercussions for the OP.....according to his profile, he is a financial analyst, and he said in a previous post that he is a CPA. So I suspect that declaring BK will have career related implications for him, too.

No, I think he needs to try something like not spending any money, which seems to be exactly the opposite of what he's doing.

Agree completely, but that was already suggested in August, and the suggestion didn't seem to work.

I also find it offensive that somehow he thinks he should be getting more financial aid for his college-bound son because the OP cannot afford the EFC based on his debt. Financial aid should be for those kids who cannot afford college, and not for those kids who had parents who spent every penny and then some, and now want someone else to pay the college expenses.

I think the OP is actually asking quite a lot in looking for ways to get more financial aid. Instead, he should be looking at ways to pay back his existing bills while his son should be doing things like looking for a job, a scholarship, ROTC opportunities, a community college, a job where the employer will have tuition reimbursement even if it means he has to get his degree by going to night school, or simply taking a year or two off while he works to earn enough money to put himself through school.


Also agree, and already suggested some of these things. Don't know that the suggestions will be heeded any more than they were in August.

AJ
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Don't know that the suggestions will be heeded any more than they were in August.


Unfortunately, I also agree with this statement. You can lead a horse to water, and all that.... Maybe this will finally be the time the OP sees the light, so I'll try to be optimistic.
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"Financial aid should be for those kids who cannot afford college, and not for those kids who had parents who spent every penny and then some, and now want someone else to pay the college expenses."

Most financial aid is loans and really doesn't involve someone else paying the college expenses. I think that any parent/child should be able to borrow money for college even if the reason that the parent/child can't afford to pay cash is due to poor past financial decisions (which is usually not the fault of the child in any event).

I agree that the kid shouldn't have access to grants, but see no reason why eligibility for loans should be denied.

As far as bankruptcy laws -- I think that people should operate within the law in filing bankruptcy. The right to bankruptcy is set forth in the US Constitution and I have no problem advising someone to assert all of their rights under the law including protecting retirement assets. Of course, I likewise think they should *not* engage in any fraudulent activitiy.
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DEGbookworm: "This won't help now, but the sooner you stop claiming him as a dependent on your taxes the sooner he can claim to be independent for the purposes of the FAFSA. (I think it's 2 years, but don't quote me on that.)"

That may have been an applicable rule at one time, but I seriously doubt that it would have any effect under current FAFSA rules.

"[Q:] Are You an Independent Student?

[A]: The independent student definition created by Congress is strict and is considered controversial by many students and parents. However, Federal regulations related to the classification of a student's dependency status for financial aid must be followed by school financial aid administrators in determining one's eligibility for federal and state aid funds. Whether a student lives in his own home or apartment and/or claims himself as an exemption on his federal income tax return has nothing to do with a student being considered independent for financial aid purposes. [emphasis added]

The only way a student can become independent for financial aid purposes (which means the custodial parents' income and asset information are not required on the FAFSA) is if the student meets at least one of the following guidelines:

1. For the 2006-07 school year (blue FAFSA), the student must be born before 1-1-1983; or for the 2007-08 school year (yellow FAFSA), the student must be born before 1-1-1984);

2. The student must be married; or

3. The student must have a child or other dependents who receive more than half their support from the student; or

4. The student must be enrolled as a graduate student (master's, doctoral) or professional student (medicine, dentistry, or law); or

5. The student must be a qualified veteran of the U.S. military or be active duty in the U.S. military; or

6. The student must be an orphan (parents deceased) or ward of the court or was a ward of the court until age 18; or

7. The student must have special and unusual circumstances which can be documented to his or her college financial aid administrators (i.e., abuse in the family, alcoholism, etc.). This exception is rare and only an experienced financial aid administrator at your college can make this "dependency override" on the FAFSA application."

http://www.fafsa.com/independent.htm

Regards, JAFO



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AJ
- doesn't think CC companies are evil


They're also not stupid. I was an MBNA (KRB) stockholder for several years before the BAC merger, and I used to enjoy reading their annunal reports. They were quite self-congratulatory that only 5% of their CC lending went bad - apparently under the industry average. They KNOW that some folks are going to declare bankruptcy, but if they're collecting 18% or 24% or 29.99% interest, they can afford to treat a 5% default rate as a cost of doing business.

martybl
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Forgot to mention, I have about $100K in a retirement plan...don't really want to liquidate it and pay taxes to pay off debt, but maybe I could use as collateral for a bank loan with reasonable interest rate and payment terms? The stress of debt will probably kill me before I retire anyway, so it is a bit of a Catch-22. It's not a lot of money, but it could be a reasonable way to handle the situation. Contrary to the perceptions of many here, I do prefer to pay my debts...always have. I've been in smaller ($8K) and ($15K) debt situations before and paid my way out...the key here is for me to get out of my housing situation, I think, but this will probably require more debt to pay a realtor. Don't suggest selling it myself...I've been doing that with the local "Sell it Yourself and Save Cash" for about 1 1/2 years. As promised before, I will try to post some info on where I am spending my monthly income...the amounts mentioned by AJ above are nowhere near accurate, specifically the 20% withholding. My medical alone is more than 20% of a deduction from my pay...AJ, do you have a government job by any chance?
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Forgot to mention, I have about $100K in a retirement plan...don't really want to liquidate it and pay taxes to pay off debt, but maybe I could use as collateral for a bank loan with reasonable interest rate and payment terms?

Nope - If your retirement plan allows loans, you may borrow against it within the plan. However, retirement plans are not allowed to be used for collateral for bank loans. If they are, they are deemed to be distributions, and taxes and penalties apply.

However, even borrowing against your retirement plan within the plan will not 'handle the situation' - it's just rearranging the deck chairs on the Titantic. You still owe the money and you still need to make the payments.

the key here is for me to get out of my housing situation, I think, but this will probably require more debt to pay a realtor

It was suggested in August, and again on this thread, that you call your mortgage company and inquire about a short sale or a deed in lieu. Have you done so yet? Once you understand how much they would accept on a short sale and what the terms will be, you can be an informed seller.

the amounts mentioned by AJ above are nowhere near accurate, specifically the 20% withholding. My medical alone is more than 20% of a deduction from my pay...AJ, do you have a government job by any chance?

Nope, never worked for the government in my life - in fact, I work in the customer service area for a mortgage company right now. Sorry I mis-estimated your withholdings - I based it on mine, which are about 21% and include Federal income tax at a single rate, Medicare, SS, Medical, Dental, Vision and ST Disability. I figured that the higher income tax withholdings would offset the higher insurance deductibles. If your medical insurance alone is more than 20% of your gross, I guess it was a bad estimate. Since I don't know where you live, I didn't know if a state/local income tax deduction was necessary, so I did not account for that.

So your medical insurance is costing you more than $1250 a month? Even for 5 people that seems extremely high....It's probably too late for this year, but does your employer offer a High Deductible Health Plan? Even if you have to pay the entire deductible, it still may be cheaper than your current insurance. If they don't offer one, you may want to look outside your employer for insurance coverage next year. Unless your family has pre-existing conditions, you should be able to get less expensive coverage for a more reasonable cost.

AJ
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Fastweb.com is a great source for scholarships, grants as well as jobs and internships for High School through Graduate School. It is very easy to join; I have two accounts there -- one for each of my children. My son began applying for scholarships and grants when he was a Junior and a week before his graduation we received a letter from his Principal with a list of all the funds that he had received. It would have been nice to know about it beforehand, and it was a great surprise. His college also offered an additional grant for each year since he is a legacy. Legacy status doesn't necessarily mean a parent; it can also be from a grandparent, sibling, aunt or uncle.

My daughter found her job on Fastweb and both of my children continue to apply for school funding.

Hope
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That may have been an applicable rule at one time, but I seriously doubt that it would have any effect under current FAFSA rules.

Maybe it's been too long since I went to college. :) Thanks for posting accurate info since I wouldn't want to mislead anyone.


DEG
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"[Q:] Are You an Independent Student?

[A]: The independent student definition created by Congress is strict and is considered controversial by many students and parents. However, Federal regulations related to the classification of a student's dependency status for financial aid must be followed by school financial aid administrators in determining one's eligibility for federal and state aid funds. Whether a student lives in his own home or apartment and/or claims himself as an exemption on his federal income tax return has nothing to do with a student being considered independent for financial aid purposes. [emphasis added]


May only be anecdotal, but two of my sons fell into this "not independent" category; but both (one at a state school and one at a private school) were able to increase the amount of loans offered, before they reached the age of 26. Perhaps the loans they were given were not all federal loans, but the schools seemed willing to work with them based on low parental income. Both schools allowed them to be considered as "independent of parental support".

This parent helped as much as she could.

Karen
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BK courts look back as far as 3 years for fraudulent attempts to conceal assets. this is one of the primary duties of the trustee assigned by the court to ensure that creditors get a fair share at assets on hand at the time of filing, and they are pretty thorough when there are any assets to speak of. a sudden "bump" in spending or transfers can result in the money being transferred back to the "estate", as it's called, and penalties to the debtor.

BB
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I used to work in the financial aid office of my university as one of my work-study jobs. From a need-based standpoint, you'd pretty much be SOL except for loans.

Finaid departments will listen and consider issues like job loss, illness, death/divorce, or having to take care of an aging parent/grandparent.

They do not have a lot of sympathy for those who simply spent unwisely in the past, when they've got so many other sob stories to contend with.

There's always merit scholarships...which you don't always have to be an oboe playing, Native American, star lacrosse player to get :P
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Thank you for the advice. Based on what I have read here, here's my current plan:

1) Kid goes to community college to start. Not much of a student anyway and I'm still not sure if the "drug phase" is completely over.
2) Sell house or pack bags and mail in the keys (deed in lieu of foreclosure)...real estate market not so great as we all know. Makes it tough when you can't even afford the house you bought in the boom...
3) Negotiate debt down myself or use debt-reduction service...not sure about this, but I'm still stuck on the idea of avoiding straight bankruptcy. Foolish pride, perhaps. I'm in the type of profession where a bankruptcy on my record would look extremely bad, that's what I mean by foolish pride.

Regrets:
1) Should not have bought house that would consume so much of my income.
2) Should have liquidated the $100K in my 401K and bought RICK stock when I made my original $500.00 purchase at $4.02 per share. Seems I have a knack for knowing what's happening in the market sometimes (not usually)...pretty predictable actually....Father Abraham could have called it.
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Thank you for the advice. Based on what I have read here, here's my current plan:

1) Kid goes to community college to start. Not much of a student anyway and I'm still not sure if the "drug phase" is completely over.
2) Sell house or pack bags and mail in the keys (deed in lieu of foreclosure)...real estate market not so great as we all know. Makes it tough when you can't even afford the house you bought in the boom...
3) Negotiate debt down myself or use debt-reduction service...not sure about this, but I'm still stuck on the idea of avoiding straight bankruptcy. Foolish pride, perhaps. I'm in the type of profession where a bankruptcy on my record would look extremely bad, that's what I mean by foolish pride.


You are missing a very important part to your plan - cutting your spending on things other than your house. Yes, your house was probably too expensive, but even if you hadn't been spending that amount on your house, you still would have been deficit spending.

In building up your cards between August and February, you were deficit spending at a $3.33k/month clip.

I estimated that your housing obligation was at $2100/month (PITI). So if you completely stopped spending the housing obligation, you still would have been deficit spending at a rate of $2.2k/month, and not had a place to live.

Even with your initial estimate last August of $2k/month deficit spending, and not paying your housing obligation, you would have only had a surplus of $100/month, and still not had a place to live.

So it's not just your house that put you in this spot. It's all the other spending, too.

Unless you gain control of your spending, it's not going to matter whether you want to declare BK or not.

AJ
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2) Should have liquidated the $100K in my 401K and bought RICK stock when I made my original $500.00 purchase at $4.02 per share. Seems I have a knack for knowing what's happening in the market sometimes (not usually)...pretty predictable actually....Father Abraham could have called it.

Well, after having 20% withheld (mandatory), you would have had $80k left to invest, so you could have purchased 20k shares or so. If you had sold at $11.02 (near the 52 week high), you would have gained $140k, for a total of $220k. Of course, you would still owe an additional $15k in taxes on the withdrawal, plus $21k in capital gains taxes, which means that you would have $184k left. $80k toward the credit cards, and you're all ready to start spending again, except now you have $104k accessible and nothing in your retirement account.

In 2 years or so, you'd probably be back to putting expenses on the credit cards, but have nothing to fall back on.

AJ
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To all & AJ,
Here's something I may or may not have mentioned before...this credit card debt has been built up over the past 2 1/2 years. Living on credit cards is not my style and I was totally debt free (except a mortgage) for 5 years before we made this move. Heck, I was driving a 1987 Lincoln Towncar that I bought from my grandma in 2002, drove it until it died and I do that with all of my cars...that should give you some idea of the "luxurious" lifestyle I maintain. We do eat out a lot and that is probably the main problem we have ($500.00/month eating out.) I guess the big problem is that we did not adjust our lifestyle for the fact that we now had a much more expensive house and 2 little kids (yes, I know I have one college-age too, but we went ahead and started another family)...bought the house on emotion and, of course, the builder providing the mortgage (that they would sell within weeks of the loan) was more than happy to stretch me to the breaking point. May want to check with a lawyer on that issue before I move on to the bankruptcy lawyer...never know, crazier lawsuits have been won/settled. Should have walked away from the house as soon as I realized I couldn't afford it, but what can ya do now?
Anyway, my point is I really do not want to file bankruptcy...any opinions out there on the following:
1) Debt negotiation (myself or a debt-negotiation service.) and then borrow from 401K to pay them off asap.
2) Consumer credit counseling consolidation loan (or whatever it is that they do.)
3) Liquidate 401K and pay debt...seems to be a bad option.
4) Any other ideas?
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I've owed this monthly expense report to the board for quite some time...this is a typical month, I think:

Gross wages 6,000
Mortage & Prop Tax (2,100)
Groceries (1,000)
Taxes (800)
CC payments (750)
Auto payments (650)
Utilites (500)
Dining Out (500)
Healthcare (510)
401K (360)
Gas (350)
Condo Dues (200)
Phone (160)
YMCA (66)

Deficit (1,946)

I think the dining out is a no-brainer, but any other ideas?
The Y is a great place to take the kids and not quite as nasty (bacterially speaking) as the McDonald's playland...I figure if I cut that expense out, I'll just increase my healthcare costs anyway.
Thanks,
Lefty
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leftyf,

I'm glad you've decided to come back with info!

The big thing that pops out at me is almost everything ends in a '0'. That says to me that you aren't really tracking where your money is going - just guessing, more or less. And I see a lot of things that aren't on here.....like car insurance; possibly cell phones and cable; clothing; household supplies (cleaning, laundry degt, etc.) - this may be in the groceries, but should be broken out; entertainment (Blockbuster, NetFlix, Movies, etc.); gifts; kid expenses; etc.

I would advise that you and DW need to start tracking every penny that you spend, including cash, checks, debit cards and credit cards for the next few weeks. Once you get a full month's worth of data - compare it to your estimate. I'm betting that you will find a lot of mis-estimations.

As for possible cuts -
Groceries seem high for 3 adults and 2 kids, although part of this is probably household
Cutting your 401(k) contribution will probably cut about $300 out of your deficit, once you consider the taxes. I know that this is probably only the amount to get the match, but really, you are in so deep that you can't afford to contribute if you are really serious about cutting your debt.
Gas seems high, but I have no idea what your commute is - any chance of carpooling or taking public transportation?

AJ
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this credit card debt has been built up over the past 2 1/2 years.

Okay, so you have built up $80k in debt over 2.5 years - that means that you have been deficit spending at rate of $3200 a month, on average. Your post where you estimate $1946 a month in deficit spending is WAY off, then - you are missing almost $1250 a month in spending.

You really need to figure out where your money is going, by tracking it. If you can't commit to tracking your spending, you will not be able to figure out where the necessary cuts will need to come from. And even getting out of your house won't be enough. Seriously, you are on your way to BK if you don't start figuring out what you are spending money on and how to change it.

Sorry if I sound like a broken record, but every post seems to confirm the idea that you don't know where your money is going. Without understanding where it is going, you will never be able to determine how you should change it.

AJ
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Gross wages 6,000

Gross wages is not the same thing as net. I know you have your 401(k) and taxes listed, but I'm not sure that you estimated all the things that are pulled from an average paycheck.

Insurance. I'm not seeing insurance (property, life, car, disability).

Nancy
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)...bought the house on emotion and, of course, the builder providing the mortgage (that they would sell within weeks of the loan) was more than happy to stretch me to the breaking point. May want to check with a lawyer on that issue before I move on to the bankruptcy lawyer...never know, crazier lawsuits have been won/settled.

I just have to ask - why is it the builder's fault that you stretched to afford your house? It is irrevelant that he sold the mortgage as most banks do sell the mortgages, so this is normal. Who services your mortgage and collects the payments has nothing whatsoever to do with things like the size of the payment or whether or not you can afford it.

To me, this is just you trying to claim you're not responsible for your debt somehow, and that it's really someone else's fault. It's not, and part of digging out of the hole is admitting that you got yourself into the hole in the first place, and that you need to make changes to get out of the hole.
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Your budget is not complete as there are many categories missing, and the ones you list are high with some being discretionary.

You spend $1000 on groceries plus another $500 on dining out? What exactly are you eating? I can feed a family of 4 really well [and that includes a teen-aged bottomless pit, er, son] on about $350 per month. That's about one third of your grocery bill. If you could even cut that in half, that would give you $500 right off the bat to put towards other things. Add in that $500 per month for eating out, and you've cut your deficit in half.

I'd also get rid of the YMCA charges, and work on cutting back on utilities which seem very high to me.

What about the missing things on your budget? You have children, but I don't see any kid expenses. What about clothing and school expenses for them? I don't see any gifts listed in the budget, and though I'd recommend reducing or eliminating them, I'm finding it difficult to believe that you're not spending something on that now.

Why is your phone bill so high? Do you have both a landline and a cell phone? I have cell phones for 4 people on a family plan plus a landline for slightly less than you are paying, so I can't see why yours is so high.

I also don't see anything for cable tv or internet, and I'm thinking you probably have those, so again, I think you need to go back and find out all the things you're spending money on because this doesn't look complete.
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Gross wages 6,000
Mortage & Prop Tax (2,100)
Groceries (1,000)
Taxes (800)
CC payments (750)
Auto payments (650)
Utilites (500)
Dining Out (500)
Healthcare (510)
401K (360)
Gas (350)
Condo Dues (200)
Phone (160)
YMCA (66)

Deficit (1,946)


Does groceries include things like shampoo, tissues, laundry detergent?

I don't see any mention of car insurance payments, is that rolled into the Auto payments? How about car maintenance costs?

Your gross income is less than my family's and almost every expense you listed is higher. Knowing how hard it has been to pay down our own debt, you are going to have to look at some really tough cuts.

The Y is a great place to take the kids and not quite as nasty (bacterially speaking) as the McDonald's playland...I figure if I cut that expense out, I'll just increase my healthcare costs anyway.

The nice weather is coming. Outdoor playgrounds are free as are many other activities for kids. Even if there aren't playgrounds near you, better the kids be a little bored than not have a roof over their heads.


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Last fall you posted that you were thinking about selling your house. Are you still working on that?


Mortage & Prop Tax (2,100)
Utilites (500)
Condo Dues (200)


You could decrease enough of those expenses to get yourselves solvent. Maybe if your oldest is moving out to go to community college or whatever, you will find it's a good time to downgrade to something smaller, anyway.

Beyond that, please listen to everyone else who's suggesting you track your ACTUAL expenses, including the "whoops, it's time to pay the ____" type.

mm
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Dining Out (500)

************************
earlier in the thread, you wrote:

"we rarely go out to eat or do much of anything..."

This is not consistent. Unless of course, you rarely go out but when you do go out you spend an awful lot of money.

Molly--enjoys dining out
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<<<CC payments (750)>>>>

**********

Earlier you gave your cc debt as $80k. I am not sure you actually know how much you owe. Rounding off to the nearest $5 is one thing but you seem to have a lot of really round numbers here.

I would think your minimum payments would be > $1600 a month unless you have cards like we did with a zero minimum balance.

I think it would really help if you were to list all your credit cards and show the amount owed, limit, minimum payment and interest rate.

You need to bring in more money. Can your wife work? I know you have little kids but the older child could babysit for the little ones. That might help the older one pay for some of his college expenses. I also think he should consider ROTC as a way to pay for school.

Molly

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<<I would think your minimum payments would be > $1600 a month unless you have cards like we did with a zero minimum balance.>>

Sheesh, that should read "zero minimum payment."

Molly--who should proofread more often
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<<<Kid goes to community college to start. Not much of a student anyway and I'm still not sure if the "drug phase" is completely over>>>
******************

Well, in that case, maybe the kid should take a "gap year" and work full time.

Molly
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I also don't see anything for cable tv or internet, and I'm thinking you probably have those, so again, I think you need to go back and find out all the things you're spending money on because this doesn't look complete.

This comment triggered a thought.....

Leftyf - are you not counting things that go on a credit card automatically as 'current month spending'? I know that I don't really think about something like internet service payments as being a regular monthly cost until I look at the credit card bill, because it's automatically billed, so I don't have actually pay a bill.

It might help you to go through your credit card bills for the last few months and see what types of automatic charges are included in your monthly spending, and make sure you have accounted for those things in your list of monthly expenses.

AJ
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<<<Okay, so you have built up $80k in debt over 2.5 years - that means that you have been deficit spending at rate of $3200 a month, on average. Your post where you estimate $1946 a month in deficit spending is WAY off, then - you are missing almost $1250 a month in spending.>>>
********************************
AJ, there was a point earlier where the OP claimed his medical was 20% of his income (that works out to $1200)

OTOH, he later lists medical as $510

I think we need a clearer picture of all this.

Molly

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AJ, there was a point earlier where the OP claimed his medical was 20% of his income (that works out to $1200)

OTOH, he later lists medical as $510

I think we need a clearer picture of all this.


Yeah, I noticed that because I was taken to task for estimating his tax and insurance deductions from his paycheck at 20% and was told that I was WAY OFF.....when in actuality, the taxes and insurance on this summary come out to 21.83% Guess I wasn't so far off after all ;-)

AJ
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I still think this is an instance where expense cutting won't do the job without a significant increase in income from some source.

I am wondering if DW is on board with any of this.
She could make a serious dent in the food budget by using the grocery game website. Is she looking for a job yet?



Is the phone of $160 a bundled bill--internet, phone & cable? If not, what are the cost of those?


You have 3 kids and I don't see anything specifically kid related.
Your 17 year old is a senior so I know he is expensive even in a public school. Is he working and paying his own way?

2 kids under 4 aren't exactly cheap, either.

Molly
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Lefty,

Are you getting a tax refund this year-- federal and/or state?

If so, you might be over withholding. Just a thought.
If you are, you should consider decreasing your withholding to increase you cash flow.

It might not help much, but little bits here and there can start to add up.


Molly
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The little kids don't really have clothes...they mostly walk around nude or in a diaper. ha-ha.

Guess I need to provide a more detailed expense listing...I obviously have car insurance (well over $200/month including teenager who has damaged all 3 of my cars) and my phone service is all cellular for $160.00/month (3 phones, unlimited texting, and basically unlimited minutes.) Despite my rounding of the numbers, I am actually fairly anal about tracking everything and I do have the detail available in Money. I may have to drill-down a little though....also, I don't do a great job of tracking toiletries or beer/alcohol vs. groceries. Cable is included in my utilities at $80/month including internet (roadrunner)
May need to start itemizing the grocery bill a little more...
I appreciate the help and I think I get the concept of living below your means, but does anyone have opinions on what I should do in addition to cutting expenses?
Assume I do sell this house or do a deed in lieu...any advice on debt negotiation or Consumer credit counseling?
Thanks,
Dave
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Despite my rounding of the numbers, I am actually fairly anal about tracking everything and I do have the detail available in Money. I may have to drill-down a little though....also, I don't do a great job of tracking toiletries or beer/alcohol vs. groceries. Cable is included in my utilities at $80/month including internet (roadrunner)

So if you have Money and have been tracking, you should at least be able to generate a report that shows how much you've been spending each month. Start with that, and figure out which categories you need to break down further, and be really anal about tracking those expenditures.

I appreciate the help and I think I get the concept of living below your means, but does anyone have opinions on what I should do in addition to cutting expenses?

Increase your income.

I am guessing that DW probably wouldn't make enough in a full-time job to pay for the additional taxes and the child-care, but can she look for an evening/weekend job and you can watch the kids?

While she is at home with the kids, can she start selling some of your stuff on eBay?

Can you get another job in the evenings/on weekends? It may be too late for this tax season, but you said you are a CPA - can you do taxes? Or start a side business doing bookkeeping for small businesses?

Assume I do sell this house or do a deed in lieu...any advice on debt negotiation or Consumer credit counseling?

Have you talked to your mortgage company yet? Can they restructure your loan(s)? Are they willing to do a short sale? You need to talk to them about all your options. With the sub-prime market blowing up in the last few weeks, they are probably really willing to work with homeowners, especially if homes are not selling in your area.

As far as credit counseling, they will want to see your budget, so be prepared for that.

Debt negotiation - if you have no cash (and it doesn't sound like you do) you will probably have little to no luck trying to negotiate settlements, especially if you haven't been late on anything. To 'settle' a debt, the company would require money within the next few weeks or months - and you don't have any to give.

AJ
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...I obviously have car insurance (well over $200/month including teenager who has damaged all 3 of my cars) and my phone service is all cellular for $160.00/month (3 phones, unlimited texting, and basically unlimited minutes.)

If your teenager has damaged 3 cars, why is that teenager still driving your cars?

BTW, who does the unlimited texting? If it is said teenager, let him/her (at one point I recall you referring to teen as a she and another time as a he) pay for the testing or get rid of it.
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I obviously have car insurance (well over $200/month including teenager who has damaged all 3 of my cars)

Why isn't the teen-ager paying for his own insurance? My kids will turn 16 next month, and they have known for years that they are expected to pay their own car insurance. Both of them have more than enough in their savings accounts, and will continue to save because there's always next year's bill. So why isn't your teen paying for his own insurance?

I appreciate the help and I think I get the concept of living below your means, but does anyone have opinions on what I should do in addition to cutting expenses?


You need to increase income. I don't recall if your wife works, but she could get a job even if it has to be at night so that you can watch the kids. That would save you on daycare expenses, but the cost would be that you and she would see each other less. You could do this as a temporary thing until the debt gets paid down.

Similarly, you could also take on a 2nd job to increase income.

Your 17-year-old should be working and paying for some of his own expenses, like that car insurance. I'd also have him paying for his own gas and providing his own spending money. At this age, there's no reason he can't be doing that. It will teach him responsibility and give him a sense of accomplishment as he starts to earn his own way.

I think you should have your expenses identified down to the penny, and that you might consider writing down every expense for at least a month to see where the leaks are. That will also help you to understand if your money is going to the things you consider to be high priority, whatever those are, instead of to the things that are way low on the list and just causing you to have leaks.

You may need to go into what I have always termed 'massive savings mode' when it's been for us. For me, that's been times when we were saving for a house downpayment, but during those times, we essentially didn't spend any discretionary income. Every penny went to the house fund. It's hard to do, but it's also short-lived to get you to a goal, so pulling back on all expenses, though drastic, may help to give you a boost in terms of throwing money at the debt. I'm thinking if you can see some immediate progress by doing something like this, that might serve to motivate everyone to keep going.

The biggest thing to me, though, is you need a firm handle on your expenses, and I can't see that you have that yet. Then, you need to go through those with a fine toothed comb and remove everything until you reach a point where you are not spending one penny more than what comes into the house as income every month.
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Dave,

I'd like to weigh in here. My points have already been mentioned, but I feel they are important enough to repeat.


<< I obviously have car insurance (well over $200/month including teenager who has damaged all 3 of my cars) >>

My brother was just such a teenager. The day he got his license he loaded up all his friends and promptly rolled Mom's 3yr-old Volvo station wagon. Thankfully no one was injured, but Mom had to use the house painting money and cash advances from the "emergency" credit card to replace the car. He was forbidden to drive either of the family cars and was taken off the insurance. He was required to buy his own car and insure it himself. He got a lot of use out of his bicycle for several months, as well as rides from his friends. (Believe me, they were much happier driving him than riding with him!) Mom doesn't believe in the 3 strikes law. Good thing, as he also damaged his first 2 cars. He learned about consequenses for irresponsible behavior, and the value of a buck. Wrecking his own 20yr old Volvos were a whole lot less expensive than replacing Mom's next Volvo station wagon!


I know it was true in my family, so I'm guessing it's also true in yours -- that financially unaware parents teach those habits to their children. I'm assuming that up until now your teen has had a free ride through life (at least financially.) It would be a great service if you were to require him/her to begin paying for every thing above the basics; room & board.


Once you get the budget worked out, you might sit down as a family (of course the little ones are exempt) and lay it all out. Treat it as a teaching moment. Once everyone understands the problem, the cutbacks will be easier to go along with. When everyone has an active part in deciding what is to be cut, your project will have the greatest chance of success. Also, There's no sense letting your teen loose on the world without a basic understanding of the costs of housing, food, and fun. Let the lessons be learned while the consequenses are still small.


<< Despite my rounding of the numbers, I am actually fairly anal about tracking everything and I do have the detail available in Money. >>

It's a good sign that you've already got some details you can look back on. Laying them all out next to your income is going to be an eye opener, I'm sure. When I did this the first time, it blew my mind! I was shocked to see just how far off my "figures" were. I call them this because I'd obviously just "figured" what they were rather than using raw data. I was also dismayed to see my past Quicken data listing almost 1/3 of my expenses as "misc" and not separated out. I'm anal too, but I was clearly doing a half-@$$ed job of tracking my spending.


<< I may have to drill-down a little though....also, I don't do a great job of tracking toiletries or beer/alcohol vs. groceries. >>


Here's a great place to redefine your wants/needs. Groceries & toiletries can likely be cut a bit, but are needs. Beer and alcohol are wants, not needs. If they are needs, perhaps that's another problem that needs looked at. (Barring religious needs, but that's not likely to cost as much as general social drinking.)

I'm wondering if you need cable at all. I do because I live in a gulley, and the broadcast signals don't come in clearly enough for me to read the closed captions. I have only the very basic, non-digital cable service. I pay only $11.38 now that it's bundled in with phone & internet. The entire bill is under $100/mo. I've considered dropping the internet, too and going back to dial-up. I will if it comes to it, but I'm more solvent than you seem to be. I don't know what options are available to you, but it's worth checking into. $80/mo is pretty good, but how low can you go?


You're at the beginning of a long road, and you're starting to see what needs to be done. Keep going, you're headed in the right direction. It's going to be frustrating and seem impossible from time to time. It's very rare for that to be the case if enough cuts are made. There are going to be wants that seem like needs because "we've always had that" or "but everyone has this." That's one of the great benefits of posting here with great detail. We can point out things you haven't noticed.

Extra jobs or changing to more well-paid jobs are, of course, also good to consider -- as others have mentioned.


Credit counseling may be a thought, but first lay out your budget and let the Fools on this board have a crack at it. No extra fees for this service. (grin) You'll need a very detailed budget in any case, so I hope you'll take the time to do this before jumping anything drastic. Same with ditching the house. Likely a good idea, but the first step is to fully understand where you're at now. And that comes from a detailed budget.


Penny
$90K in debt,
$40K income
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Thanks for all the advice...I'll post a more detailed update soon. Looks like housing is picking up a little and I've had more showings since I got a realtor.
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Just to clarify, I have a good buddy who has given us both boy and girl clothes that should last us for the next 2-3 years...that's why you do not see much clothing expense. I have been maintaining my fit 40/30 pant size, so I don't buy new clothes very often...my wife doesn't spend much on clothes either.
- The Editor
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Good news...house looks like it is sold. ADVICE: ALWAYS USE A REALTOR WHEN SELLING YOUR HOUSE UNLESS YOU ARE IN THE HOTTEST NEIGHBORHOOD IN TOWN. Most of my current grief is due to this error in judgement. Should be closing mid-May.
Bad news...I have to borrow more money(probably around $10K) to pay the realtor. I may even have to hit the 401K for this one...getting hard to scrounge up any credit these days.
This is a great opportunity to basically shut everything off and add back expenses when/if I can afford them. Been looking for a rental today...after this move is done, next step is CCCS to see if I can do anything about the debt load, but they may tell me to go bankrupt. My wife thinks I'm crazy and says we should just go bankrupt and get it over with...maybe I am. Perhaps it is my "evil angel" telling me to go ahead and try to pay it back knowing that will lead to my ruin (wife leaves with kids, health goes, etc.) Yes, I'm only half joking, there are signs of this happening already.
Thanks for all of your advice.
Leftyf
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Good news...house looks like it is sold.

Congratulations!

Bad news...I have to borrow more money(probably around $10K) to pay the realtor. I may even have to hit the 401K for this one...getting hard to scrounge up any credit these days.

Just remember when you are doing this that you are increasing your monthly expenses again. And 401(k) loans come off the top of your paycheck, so you will be decreasing your net income.

Have you talked to your mortgage company about a short sale yet? Since you already have a contract and you're only short $10k to pay the realtor, they may carry a small loan for you, or even forgive the amount completely. If they forgive the amount, you will need to pay income taxes on it, but that will be better than paying the whole $10k.

And when you say you can't get credit anywhere - this is a really bad sign. It's a sign that the lenders have finally recognized that you are a high risk borrower, and are unwilling to lend you anything anymore because they don't think you'll pay them back. Unfortunately, they are usually late in recognizing this, and by the time they come to this conclusion, most people are already close to BK.

This is a great opportunity to basically shut everything off and add back expenses when/if I can afford them. Been looking for a rental today...after this move is done, next step is CCCS to see if I can do anything about the debt load, but they may tell me to go bankrupt.

As I recall, even after you took the house payments out, there was maybe $150 left in your 'budget' to rent someplace. (And your 'budget seemed to be missing a lot of spending.) Your utilities were $500 - if you are able to cut them in half by renting, that will give another $250, for a total of $400. But $400 in rent doesn't usually get someplace big enough for 5 people in a safe area. Have you made other changes to your spending? Because if you haven't, CCCS isn't going to be able to help you. Your outgo will still be more than your income, especially if you have to borrow from your 401(k) to pay the realtor.

AJ
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AJ,
Unfortunately I'm going to need at least another $500 on top of the $400 in savings you mentioned to get a "decent" place in the area. Anything less than $900.00 around here and credit problems will probably be the least of my worries...ha,ha.
Right now I'm pondering the idea of borrowing from the 401K, paying off the cars (which I think will basically extend the life of my car loan and potential lost investment opportunity in the 401K, but will help current cash flow crisis, not sure on this one yet), and seeing if CCCS can help with debt negotiation/counseling/consolidation on the credit cards(I've heard great things about them in my area.) It may all blow up in my face, but I'm not looking so good right now anyway.
Thanks again for the advice...I finally met my match in negative thinking...I thought I was the most pessimistic person I knew. And I don't mean any offense by that..I do appreciate the advice.
Leftyf
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Unfortunately I'm going to need at least another $500 on top of the $400 in savings you mentioned to get a "decent" place in the area. Anything less than $900.00 around here and credit problems will probably be the least of my worries...ha,ha.

Yeah, that's why you need to cut spending in other areas, and/or increase your income.

Right now I'm pondering the idea of borrowing from the 401K, paying off the cars (which I think will basically extend the life of my car loan and potential lost investment opportunity in the 401K, but will help current cash flow crisis, not sure on this one yet), and seeing if CCCS can help with debt negotiation/counseling/consolidation on the credit cards(I've heard great things about them in my area.) It may all blow up in my face, but I'm not looking so good right now anyway.

Do you have enough lending left in the 401(k)? You said you had a balance over $100k, but by federal law, you are limited to a total of 50% of your vested balance, or $50,000, whichever is less - in this case it would be $50k. Since you already have a loan out - probably for around $18k or so, you will be limited to a maximum of $32k. Subtract $10k for the realtor and you end up with $22k. That doesn't sound like enough to pay off car loans with a payment of $650/month. And besides that, the 401(k) payment on a $32k loan will be $653/month, if your borrowing rate is prime; if it's prime + 1, the payment will be $668/month. So it won't give you anything toward rent.

I'm glad you have heard good things about CCCS in your area. The problem is, you are spending like you make $150k and you only make $75k. They won't be able to help you unless you start spending like you make $50k.

Thanks again for the advice...I finally met my match in negative thinking...I thought I was the most pessimistic person I knew. And I don't mean any offense by that..I do appreciate the advice.

Sorry if you think I'm being negative, I'm just being realistic with the numbers you have posted. I sound so pessimistic in your case because I still don't think you have taken the steps to really understand what a deep hole you are in, like actually tracking ALL the monthly spending your family does - not just the bills you pay.

You seem to believe that your house was the only thing that you are overspending on. Unfortunately, to have built up $80k of CC debt in 2.5 years, you have been overspending on way more than your house. Your house payments plus condo dues over 30 months are $69k. Even if your utility bill will go down by 50%, that's only another $6k. So you are up to $75k in house spending vs. $80k in CC overspending. And your family still wouldn't have a place to live. So $900/month for the 30 months for a place to live gets the house 'overspending' down to $48k. So what did you spend the other $32k on? And have you stopped spending that?

Until you come to the realization that you have to decrease your spending and/or increase your income, instead of trying to shift debt around, I will probably continue to sound negative to you, when what I'm being is realistic.

AJ
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AJ,
Well, going to closing in two weeks and still do not have the funds to actually close. 401K administrators claim I do not have a financial hardship so I do not qualify for a loan, great...

Editorial: um, I think this is still my money, whether I should take it or not is quite arguable, but it is my money. Looks like I will have to quit my job to get my hands on my own money. Novel concept, eliminate pensions, cut contribution matches, and make them go belly up before allowing them to touch their own money. Execs probably get a % off the top each year so they don't want the asset balances shrinking. I'll play the victim and let the lawyers sort out whether this is fair or not. End of editorial.

Apparently you must actually be in foreclosure to qualify for a loan, not just a month away from foreclosure. I think the credit card companies realize I may be trying to get a cash advance out of them and they seem to be stalling on a balance transfer I am trying to do to free up some cash.
The sad part is I will have the money to close in about a month...I called and the mortgage company seems uninterested in short sale so it looks like I may just have to move out and move on. Probably because I have a second mortgage on the property.
Questions are:
1) What should I do here? Do I ask my realtor to wait a month or 2 for his cash? In this market, maybe that will work.
2) What kind of legal trouble am I in if I can't show up with all the cash at closing? Can I back out of the deal still?
3) Any idea where I can legitimately borrow around $10K, even if it is at ridiculous rates? No mafia, please.
4) Any smooth legalese I can drop on the 401K company to make them hand over my money?
Obviously in deep doo-doo.

Thanks for any help.
lefty
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The sad part is I will have the money to close in about a month...I called and the mortgage company seems uninterested in short sale so it looks like I may just have to move out and move on. Probably because I have a second mortgage on the property.

Can you move the closing a month later?
Can you get a personal loan from a credit union?
Can you get a loan at prosper.com?
Can you borrow the money from a family member, with interest?

I think the credit card companies realize I may be trying to get a cash advance out of them and they seem to be stalling on a balance transfer I am trying to do to free up some cash.

If the BT goes through will you be able to take the cash advance? What makes you think they are stalling?

mm
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The sad part is I will have the money to close in about a month...I called and the mortgage company seems uninterested in short sale so it looks like I may just have to move out and move on. Probably because I have a second mortgage on the property.

Are the second and the first both with the same mortgage company? If not, you should be talking to the mortgage company that holds the 2nd about a short sale, because the 2nd mortgage is junior to the 1st - they are the ones that will be short.

If they still don't want to play, tell both mortgage companies that you are interested in exploring a deed in lieu of foreclosure. That may help them understand how serious you are about a short sale.

If your realtor will wait, you could sign a promissory note with him/her.

Can you delay the closing until you have the cash? If you can't come up with the cash and nobody (realtor, mortage company) agrees to fund you for a while, you won't be able to close anyway because you can't give clear title. You need to talk to your attorney (if you are using one) or your title company and let them know what is going on to see what your options are.

AJ
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Well, going to closing in two weeks and still do not have the funds to actually close. 401K administrators claim I do not have a financial hardship so I do not qualify for a loan, great.

Are you trying to take a distribution or a loan? The loan provisions I have seen personally don't require a reason. If you are trying to take an early distribution while you are still employed, then that is a whole nother ball game. You will have to have money for taxes and penalties, even if you qualify for a hardship distribution. Or do you already have a loan outstanding on your 401(k)? If so, you may be out of luck, since the plan provisions I have seen only allow 1 loan to be outstanding at a time.

foolazis
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Well, going to closing in two weeks and still do not have the funds to actually close. 401K administrators claim I do not have a financial hardship so I do not qualify for a loan, great...

Obtain your 401K plan paperwork. Loans are not a requirement, but most plans allow for loans. "Hardship" provisions are normally a requirement for distributions. If loans are permitted, loans for less 50% of the balance and less than $50,000 should not be a problem.

Did you make an after-tax contributions to your 401K? They may have different distribution rules.

Debra
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Regarding the loans...this 401K plan is strange. I have taken small loans before with basically no questions asked...I'm leaning towards a "hardship" distribution to pay down some debt and see if I can get my balance to a manageable level. "Hardship" according to my current plan is death and nothing else...just kidding, but it's pretty tough. I understand what they are doing and it makes sense, but sometimes people are just in bad shape...I've been panicking for about a week now and I'm so unproductive at work that I'll probably get fired. Literally. That is one way to get the distribution, but not a good option.
Not sure why I'm freaking out...it's like I just realized I have a s-load of debt even though it's been building for the last 5 years. Guess I'll actually have to have the heart attack before I qualify for a loan or distribution. One good thing about taking money from my retirement plan is that I'm guaranteeing myself a long and healthy and financially unstable life...Murphy's law always applies in my life. Can't wait to live in my daughter's basement next to the sump pump...ha-ha.

Any idea what time period CCCS will require? I'm guessing 5 years is about the longest you can stretch it...? My wife wants to file the straight 7, but I don't think she understands how hard that will be. I'm thinking maybe a 13 if necessary, but that might also be a waste of energy. She thinks I'm just delaying the inevitable anyway and will just waste a lot of money along the way. I'm actually considered the spender in the family, but she mentions to me today that she saw a $500.00 table she would like to buy...I'm really beginning to think this is a team effort. We have a garage full of crxp that I would love to unload, but it's only worth a $1K. Everything I see now I seem to convert to it's current cash value...unfortunately, not a lot of cash. I thought "You've got to be kidding. I can't even believe I'm out buying a pizza right now."

Sorry for the rambling and thanks for the help.
Leftyf
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I'm actually considered the spender in the family, but she mentions to me today that she saw a $500.00 table she would like to buy...I'm really beginning to think this is a team effort. We have a garage full of crxp that I would love to unload, but it's only worth a $1K. Everything I see now I seem to convert to it's current cash value...unfortunately, not a lot of cash. I thought "You've got to be kidding. I can't even believe I'm out buying a pizza right now."

Two quick points.

First, do not go out and buy furniture or anything else other than basic needs prior to declaring bankruptcy. Some judges have declared this to be fraud, and you could end up in a lot of trouble.

Second, have a garage sale and sell the stuff you aren't using, paid too much for and went into debt for. You'll be moving soon, and you'll have to pay moving and/or storage fees for everything you have. And at this point, every extra penny will help.

Good luck.

Nancy
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I would like to try to negotiate with the credit card companies on my own...any advice? I'm thinking about the good cop/bad cop approach. I'm a pretty nice guy who tends to compromise and I rarely raise my voice (welcome mat, so to speak)...my wife, on the other hand, is just waiting for the opportunity to "go off" on someone. Commentary: I'm the one with the high-blood pressure, by the way.
Which one of us should call the credit-card companies? Or should we both call at different times? She wants to head straight to bankruptcy, but I, for several reasons, would like to avoid this.

Moving out of condo next week, one way or another. Hopefully with full funding to close...mortgage company is supposedly sending $3K of over-funded escrow. Sounds like they wanted to get me out of this deal too...still borrowing as we speak to get out of home loan. Title company acted sympathetic and told me they are seeing a lot of this lately.
They did not offer a loan and basically laughed at me when I asked if I could use a credit card to pay closing costs...that is pretty funny and pathetic at the same time. At this point, I'm trying to avoid the attorney costs of a foreclosure so I can use the cash for bankruptcy if/when necessary. Thanks for letting me vent.
P.S: AJ, I'm keeping the short-sale in my back pocket and will be pulling it out early next week if necessary.

Thanks,
Lefty
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my wife, on the other hand, is just waiting for the opportunity to "go off" on someone.

Not a good tactic for negotiating. You need the CSR help. Insulting or irrating them is not useful.

Debra
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Hopefully, this is a wrap on the house. I've secured funding to pay my closing costs by doing the following:
$9,300.00 CC Advances
$1,800.00 IRA that's achieved a nice 3.2% return for the past 5 years.
$3,100.00 I've been building up an escrow with the mortgage company unintentionally. If Aurora Loan Services ends up with your mortgage, please refinance immediately.
$5,500.00 Actually equity, surprise, surprise.
Yep, $19,700 to walk away...anyone who's not AJ, please keep in mind the short sale or deed in lieu of foreclosure as soon as you realize you can't afford your house...and definitely don't try to sell it yourself unless you're in a really hot market, in which case you should probably do whatever you can to hold onto it.

Never felt more pathetic in my life, and I've been pathetic a lot. If there's any "surprises" at the closing I'll be hitting my kid's piggy banks...yes, really.
Despite all of this, it's actually a bit of a relief to be able to get out of this deal. I'm not sure why I was so concerned about a foreclosure with bankruptcy looming...I think it's just the idea of being thrown out of my house with the sheriff standing there that freaked me out the most. I don't even know if that really happens, but I was really bothered by a foreclosure for some reason. Also, I thought that would immediately throw me into bankruptcy and I want a little time to see if I can manage it without filing. And i figured the attorney's would probably end up with more fees if I was foreclosed on and bankrupt...just a guess.

Anyone ever try Scott Bilker's tips in dealing with the cc companies?
Dave Ramsey says absolutely no to CCCS, so i think I'll take his advice and try to call the companies myself.
If I end up doing a 7 or 13, would it be wise to keep the wife out of it? I think (but do not know) that most of the debt is in my name alone.
By the way, wife is pretty ticked that I wouldn't let her bid $500.00 on a table yesterday...she'll get me back when I try to buy a 6-pack this weekend.
Thanks for any advice.
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Hopefully, this is a wrap on the house. I've secured funding to pay my closing costs by doing the following:

I'm glad you came up with the money eventually. The interest rates are going to be awful on the advances (but I'm sure you knew that).

Dave Ramsey says absolutely no to CCCS, so i think I'll take his advice and try to call the companies myself.
If I end up doing a 7 or 13, would it be wise to keep the wife out of it? I think (but do not know) that most of the debt is in my name alone.


You may not have any luck w/ the companies since you are completely maxed out. If you can get under the limits and wait for your paid-off mortgage to show up (2-3 months?) you may have better luck. I wouldn't expect too much in the way of rate reduction. You may be able to work out a payment agreement though.

I would give things a month or two with the new housing situation before you jump into bankruptcy. Hopefully there will be some room in your budget to get things under control. Have you worked on a new budget to see?

mm
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I'm not sure why I was so concerned about a foreclosure with bankruptcy

When obtaining a mortgage, a foreclosure is worse than bankruptcy.

Debra
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Thanks, wasn't exactly sure on that one. But although I fear both, I was more afraid of a foreclosure for some reason. I see why now...a mortgage will hopefully/probably be in my future regardless of how I resolve my debt problems. Credit cards will not.

My brother filed a bankruptcy a few years ago but claims he has no problem getting credit...and wouldn't mind filing bankruptcy again if necessary. He was just divorced and he is not sure if he can afford the house payment on his own...he said if he can't, he'll just let them foreclose. I SCREAMED "DO NOT LET THEM FORECLOSE!"
The strange thing is that he probably has quite a bit of appreciation in the house and didn't even think to sell it instead of letting them foreclose.

Guess this lack of personal financial management skills might be genetic or a learned behavior. The only real difference is that I'm an accountant (quit laughing) and he's a truck driver (nothing against teamsters)...I feel really guilty about debt and he does not. Seems like self-control can be problem regardless of your education or understanding.

This post doesn't mean much of anything...just venting after a talk with my brudder.
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