Skip to main content
No. of Recommendations: 6
Greetings and hi-how-da-ya-do! It is time to tackle a debt crisis and swear off ever carrying a balance on any loan again! Well, the swearing off will have to wait until I take care of the first order of business:

CC debt to the tune of $32,232 (not a mis-print!) Thirty two thousand, two hundred thirty two US dollars! There, I said it. The balance is spread across three different cards and for the first time in years I am motivated to pay these off entirely. We have actually played pretty good defense for years, but the debt has revolved largely due to an anemic income. For years the income just wasn't enough to get any sort of snowball effect at all. Over time this lead to hopelessness and eventually apathy with regard to ever becoming un-burdened by the cards.

Finally there is hope on the offensive front, and luckily we have years of training in the 'living on a shoestring/beans-and-rice' side of the coin, that continuing to live very frugally will not be a problem.

I am not sure if there is a charachter limit here, but since the message box is near full, I'll spare the details. Be prepared, I'll stick around. There is a certain catharsis I am getting just from this, post #1.
Thank you,
MB
Print the post Back To Top
No. of Recommendations: 2
There is no character limit, so spare no detail about your debt, your spendable income and your monthly expenses. You sound very upbeat for someone at the end of their rope, but you should be prepared for some tough love as the members of this board, veterans of debt management, tell it to you straight. $32k is a lot to owe but it's not the worst to hit this board.

Fuskie
Who notes it will likely require additional sacrifice on your part and a focused dedication to your repayment strategy...
Print the post Back To Top
No. of Recommendations: 1
Fair enough, Fuskie. There is actually more bad news that I'll get to. There is also a reason that I seem upbeat. In early 2013 I took a new job with the same employer, and began making slightly more money. In 2013 my (still quite modest) income was 9K more than any other year to date. I didn't fully appreciate the math during 2013 until I received my W2 and it struck me. My wife, who has been paying the bills for the past few years, shared that it has definitely been easier to make ends meet and in fact, pay the debt down a little. I am not even fully aware of what the CC debt peaked at(apathy, remember), but per my wife there has been a downward trend as of late.

I mentioned that there is more bad news, but there is also more better news. By the end of 2013 I was allowed to set up my desk in my home, eliminating approx 3000 miles of commuting per month. This is, in effect, a rather nice raise if the penny saved/penny earned rings true. The fuel alone averages $300/month! That is exactly the kind of FUEL I need to burn off the debt that I have carried for years!

Fuskie, there is even more good news to go along with the more bad news, but can you see the reason for being upbeat? For the first time in years, there is realistic hope that I can get the snowball rolling. It has already started and that hope has given me reason to finally face this and even to be 'upbeat.'

I'll prepare myself for the tough love that is to come from these boards. Here are some details on the numbers:

Chase $8826.93 at 15.24%
BofA $7863.09 at 11.99%
BofA2 $15,542.00 at 0% until ??

Spendable income and monthly expenses...I only have a general idea of this, which after reading the boarsds for a few days I realize is part of the problem. I'll have to track down those numbers.

Thanks all,
MB
Print the post Back To Top
No. of Recommendations: 1
You definitely need to get the numbers in your hands. For one thing, DW will feel moe like you are taking this seriously if she's not flying solo on the household finances. Similarly, you should make sure she is involved with your Foolish activities here as well.

As to your debts, how did you come by them? Are they medical costs? Related to home repair or renovation? A big screen TV. or other luxury you couldn't afford? Did you take cash advance to buy a car, take a vacation, put a child through college? Or did it just sneak up on you a couple hundred dollars at a time?

On the second BOfA card, what is the end date of the promotional rate and what is the full rate after the promotion expires?

Fuskie
Who suggests, until you provide further info, if you are not already paying the minimum on the BOfA cards and throwing the bulk of your cash at the highest interest rate Chase card, then that is where you start...
Print the post Back To Top
No. of Recommendations: 0
Ok, I have found that the large balance at 0% ends June 2014, not sure exact date or if it's with the June statement or what, but that's the ballpark. The rate will go tp 12% variable it appears from looking at our statement.

In looking at the 2013 statements, all three cc's that carry a balance have decreased, so we seem to be beyond the 'peak' now that our income is up a bit.

Taxes are now done and that will help. I've been reading up a bit on Efunds and want to direct the first $1000 of our tax refund to an emergency account. After that, we will have right around $7k that can go towards our debt. I'd like to zero out the 15.24% card, so will also be cashing out some PTO hours at work to make this happen. (still leaving a large cushion of PTO). The down side of the PTO cashout is that they pay 80%, but such is the price of getting out of debt I suppose.

After these moves, for now we'll chip away at the 11.99% card and look for a way to get a better rate on that large balance for when the 0% expires.


I need to figure up how much we can put towards debt monthly and get a timeline together, but this will likely take several days to tack down a number, as we have no 'formal' budget. There are tons of 'variables' in our highly populated household.

Any input is welcome, and of course there is more to straighten out in our financial picture. One day at a time.
Thanks all,
MB
Print the post Back To Top
No. of Recommendations: 2
Ok, I have found that the large balance at 0% ends June 2014, not sure exact date or if it's with the June statement or what, but that's the ballpark. The rate will go tp 12% variable it appears from looking at our statement.

So, it looks like it's probably going to the same rate as the other BofA card that you have.

Chase        $8,826.93       15.24%
BofA1 $7,863.09 11.99%
BofA2 $15,542.00 0% until 6/14, then 12%

Taxes are now done and that will help. I've been reading up a bit on Efunds and want to direct the first $1000 of our tax refund to an emergency account. After that, we will have right around $7k that can go towards our debt.

So you are getting about an $8k refund? Was there something unusual that happened in 2013 for your refund to be that large? If there wasn't anything unusual and you are heading toward that level of refund again this year, I would strongly suggest adjusting your withholding so that you can take the additional money from each paycheck toward the debt paydown. Here's a link to the IRS withholding calculator: http://www.irs.gov/Individuals/IRS-Withholding-Calculator If you adjust your withholding so that you will only get, say, a $2000 refund, that would give you an extra $500/month in take-home pay to put toward the debt.

I'd like to zero out the 15.24% card, so will also be cashing out some PTO hours at work to make this happen. (still leaving a large cushion of PTO). The down side of the PTO cashout is that they pay 80%, but such is the price of getting out of debt I suppose.

So, if you still have a large PTO balance that you can cash out, how much could you cash out to put toward BofA1, and still feel comfortable with the PTO balance that you would have left? Could you get another, say, $2500? That would drop the balance on BofA1 down to about $5000.

After these moves, for now we'll chip away at the 11.99% card and look for a way to get a better rate on that large balance for when the 0% expires.

So, after you pay off the Chase card, you should have $150 - $175 that you used to spend on the minimum payment for that card to put toward BofA1. If you can adjust your withholding so that you get an extra $500/month take-home, and assuming that your current BofA1 minimum payment is at least $100/month, that means you would be putting $750 - $800/month toward paying down BofA1, and could have it paid off by September, if you are able to pull out another $2500 from your PTO. If you don't feel comfortable pulling an additional $2500 out of your PTO, you should be able to pay off BofA1 by the end of this year if you can put $800/month toward the balance.

Assuming that the minimum payment on BofA2 is at least $150, after you get BofA1 paid off, you should be able to put close to $1000/month toward BofA2 - the $750 - $800 that you were putting toward BofA1, plus the minimum payment on BofA2. At that rate, you could have BofA2 paid off about a year and a half after you pay off BofA1.

If you look for a BT offer for BofA2, be sure you run the numbers to see if it will actually save you money because if you are paying the balance down pretty quickly, the BT fee may end up being more than the interest you would save.

AJ
Print the post Back To Top
No. of Recommendations: 1
Re the large IRS refund: Mathematically correct AJ, but historically we have always managed to stay broke. The refund has been nice to take care of some of the budget busters that proper planning, which we have lacked (ugh) may have prevented. Just being honest here, but I doubt we would plan for some of the big annual or biannual bills if we did as you describe. It is still likely, IMO, that we would be broke and have to add to our debt when some big expense comes up, expected or not. I'd prefer to stick with the large refund for perhaps a couple more years, until we have conquered the debt and even have some breathing room and don't feel completely broke. Sounds stupid since this is contributing to the 'being broke,' but I do feel like the day will come that we won't feel like we 'NEED' that big refund just to bail us out. I will certainly look to do it your way when our debt situation and behavior have improved.

"So, if you still have a large PTO balance that you can cash out, how much could you cash out to put toward BofA1, and still feel comfortable with the PTO balance that you would have left?"

Well, the level I would cash out would be able to be built back up within one year. I sort of hate to cash out more than can be replenished in a year. I guess I'm sort of able to look at that PTO cashout option as a sort of Efund itself, and I don't really like the idea of raiding my Efund. Perhaps since I think of it as such (and I have only pulled cash out one other time when it was maxed so that it wouold continue to accrue) maybe I should look to NOT set aside $1000 of the tax refund as 'E' money, but rather put that $1000 to work NOW to the tune of 11.99%. (?)

AJ, I don't want to come across as being resistent to good counseling, and Lord knows I need plenty of advice. Rather, I'm just sharing some perspective here, right or wrong, without dismissing what you are suggesting. I'll certainly give some more thought to what you are saying here and I thank you for it! I do agree with the rest of your numbers/logic in that well thought out post.

Open to rebuttal on any of this, especially my IRS and PTO safety net feelings. Also worth noting: in the event I am unable to work, say for medical reasons, the PTO will pay out at 100% with no penalty so I can continue to receive a paycheck. (Also have ST/LT disability insurance)
Thanks all!
MB
Print the post Back To Top
No. of Recommendations: 3
Re the large IRS refund: Mathematically correct AJ, but historically we have always managed to stay broke. The refund has been nice to take care of some of the budget busters that proper planning, which we have lacked (ugh) may have prevented. Just being honest here, but I doubt we would plan for some of the big annual or biannual bills if we did as you describe. It is still likely, IMO, that we would be broke and have to add to our debt when some big expense comes up, expected or not. I'd prefer to stick with the large refund for perhaps a couple more years, until we have conquered the debt and even have some breathing room and don't feel completely broke. Sounds stupid since this is contributing to the 'being broke,' but I do feel like the day will come that we won't feel like we 'NEED' that big refund just to bail us out. I will certainly look to do it your way when our debt situation and behavior have improved.

I think you are putting the cart before the horse. If you wait to resolve the problem of 'managing to stay broke' until after you have resolved your credit card debt, you are likely to take much longer to resolve your credit card debt.

As for planning for 'large annual/biannual bills' - what are they? Which of them that you had to pay for last year did you not have to pay for the previous year? And if you didn't have to pay for them the previous year, did you know about them in advance for last year? Bills like that shouldn't come as a surprise. And if you are spending your tax refund now to pay down your debt, how are you going to pay for those bills this year?

If you can't resolve the problem of putting money away to pay for items that you know you will have to pay in the future, you are likely to be forever stuck in debt.

My suggestion to you would be that you, your spouse, and anyone else who spends your money all need to start writing down every penny that is spent, immediately, so that you can track what your money is being spent on. This will help you to develop a budget that you can use to help you plan for current and future expenses. You also might want to check out some budgeting software. A lot of people around here like a program called 'You Need a Budget' http://www.youneedabudget.com/ And the title seems to be appropriate for your situation. ;-)

AJ
Print the post Back To Top
No. of Recommendations: 4
"If you wait to resolve the problem of 'managing to stay broke' until after you have resolved your credit card debt, you are likely to take much longer to resolve your credit card debt."

We do stay broke whether our income is up a bit or down a bit for any given month. The trend has been that it was consistently up, or at least not down for 2013 and 2014 is/will be even better. Staying broke is part of shedding debt. We could add another $500/month of income to the mix and still remain broke, not because of increased (new) spending, but because that $500 could be thrown at debt reduction.

Yes, certain forseeable expenses creep up on us when we stay broke...the driver's ed course, the subsequent insurance hike, the rather large increase in property taxes without a move/addition/property upgrade. Ok, so a tax refund once per year cover's these things. Did we not plan for those expenses, or is the refund itself the plan?

An IRS refund may not be the smartest planning 'vehicle,' but it doesn't seem terrible either. If we added that money on a monthly basis by adjusting witholding, some of it would have to be set aside and build up to pay property taxes and such. Would it be in the bank? If so I guess I am giving up maybe 1/5 of 1% in interest on that money, vs getting a lump sum once per year with no added interest. While every penny does count I suppose, giving up that miniscule bit of interest just doesn't seem like a cash hemorrhage.

Wait! In writing this I am realizing that the chunk of refund that eventually goes to debt would actually be earning, via penny saved-penny earned, 15.24%, or 11.99% this year. <Lightbulb!> This didn't occur to me after your first post AJ. I need to reconsider what you said.

I'll also start taking steps to figure out a budget. It will be quite difficult to nail down with the size of our household and all the irregular stuff, but I'll attempt it. Good news is that my 2014 income will be up another 10K +/-, in addition to the continued savings from working from home!

Feeling fairly confident that we will eventually get there now that we are headed in the right direction!
Thanks again,
MB
Print the post Back To Top
No. of Recommendations: 4
I'll also start taking steps to figure out a budget. It will be quite difficult to nail down with the size of our household and all the irregular stuff, but I'll attempt it. Good news is that my 2014 income will be up another 10K +/-, in addition to the continued savings from working from home!



Ok, let me put in a plug for YouNeedABudget. You can get a 34 day evaluation of the program free, but if you want to buy it, send me (or someone else who uses it) a private message for a 10% discount.


On the YNAB forums we're fond of saying that there's no such thing as a "normal" month, because every month, something comes up.

You keep mentioning the size of your household as being a problem for tracking, but I can't see where you said what that is?

How many of you are spending from your primary accounts?

You mentioned driver's ed class? So are there teenagers? Teens can have their own accounts and their own income to manage (even if you decide that's an allowance from you). When my kid turned 12? 13? I got her a Visabuxx card and put her allowance on that. She could pull it out as cash or use it as a debit card.

If it's just you and your spouse spending from the primary accounts, it shouldn't be that hard to nail down what needs to be accounted for. Have a place on your desk to put receipts and go through them once a week or so.

If you do decide to get YNAB, there are mobile apps and you (and anyone else spending from your accounts) can record things as they are spent, on the go.

Ishtar
Print the post Back To Top
No. of Recommendations: 4
We do stay broke whether our income is up a bit or down a bit for any given month. The trend has been that it was consistently up, or at least not down for 2013 and 2014 is/will be even better. Staying broke is part of shedding debt. We could add another $500/month of income to the mix and still remain broke, not because of increased (new) spending, but because that $500 could be thrown at debt reduction.

I don't disagree that while you are in debt reduction mode, you do 'stay broke' in terms of spending only on 'needs' vs. spending on 'wants'. But if you don't track the money that you are spending, how can you be sure that the extra $500 actually went to debt reduction, and not 'stuff' (i.e. 'wants')? And if you don't plan for future 'needs', how can you be sure that you will have the money available for those needs, without having to go back into debt?

Yes, certain forseeable expenses creep up on us when we stay broke...the driver's ed course, the subsequent insurance hike, the rather large increase in property taxes without a move/addition/property upgrade. Ok, so a tax refund once per year cover's these things. Did we not plan for those expenses, or is the refund itself the plan?

Okay, but if you are going to put $1k of your $8k refund into an e-fund, and put the other $7k toward debt reduction, what happens when the property tax increase is $2k? You can pull $1k from your e-fund (assuming you haven't used it on the driver's ed course and insurance hike), but where does the other $1k come from? And then how do you pay for the driver's ed course and insurance hike?

My point is - if you have other foreseeable expenses coming up this year, you probably would be better off putting some of that refund money aside to help pay for the future expense, rather than going on the rollercoaster of paying debt down, then having to increase the debt again because you can't pay for the expense that you knew was going to happen. But how do you know how much you should try to set aside if you aren't planning for it (i.e. 'budgeting' - or if you don't like the word 'budget' - you could go with 'spending plan').

Wait! In writing this I am realizing that the chunk of refund that eventually goes to debt would actually be earning, via penny saved-penny earned, 15.24%, or 11.99% this year. <Lightbulb!> This didn't occur to me after your first post AJ. I need to reconsider what you said.

Exactly! And by paying debt down some each month, instead of waiting until you get each year's refund, you actually save even more money. Your current Chase balance is $8,826.93, right?

If, 12 months ago, your Chase balance was $10,352.83 and you faithfully made a $250 payment each month, at an interest rate of 15.24%, you would have gotten to this balance, by making total payments of $3,000 ($250 x 12 = $3000) - $1,526 in principal and $1,474 in interest. To pay the Chase card off, you need about $9k - the $8.8k+ balance, plus $150 - $175 in interest, depending on exactly where in your cycle you are when you pay the balance off. So, in total, you will have made about $12k in payments to pay off a $10,353 balance.

If, instead, you had changed your withholding last year so that you got an additional $500/month in take home, and faithfully added the extra $500/month toward the Chase card, so that you faithfully paid $750/month....

You would be getting a $2k refund (instead of the $8k you are getting now) and your current balance on the Chase card would be $2,359.87. This month, your typical $750 payment to Chase, plus another $1.7k from the $2k tax refund would pay off the Chase balance. You would have paid about $11.4k to pay off the $10,353 balance, and paid Chase about $600 less in interest. You would still have $300 of your refund to put toward your e-fund without pulling a cent out of your PTO.

I'll also start taking steps to figure out a budget. It will be quite difficult to nail down with the size of our household and all the irregular stuff, but I'll attempt it.

Mastering the concept of planning your spending will help you pay down the debt faster than you otherwise would have. Sure, you'll have some stumbles along the way, because expected irregular stuff, along with unexpected stuff ALWAYS happens. But that stuff happens whether you plan your spending or not. And if you have a plan to cover at least part of the unexpected stuff, along with most of the expected irregular stuff, you won't have ride the debt rollercoaster back up again to pay for it, and you will get to the end of the ride more quickly. As your reward, you will be able to get on the even better investing ride that much quicker.

AJ
Print the post Back To Top
No. of Recommendations: 2
Open to rebuttal on any of this, especially my IRS and PTO safety net feelings. Also worth noting: in the event I am unable to work, say for medical reasons, the PTO will pay out at 100% with no penalty so I can continue to receive a paycheck. (Also have ST/LT disability insurance)
Thanks all!
MB


Tax refund fraud is a growing problem, which can take years to straighten out.

I would not have a "comfortable feeling" about a large pending refund. I don't know the size of your employer. Most large employers have paychecks done by outside firms that allow partial deposits to be made to more than one account. Instead of having the IRS keep your money, diverting the money to an account to which you don't have easy access is another option.

(I don't have to worry about 2013. We owe a significant amount of taxes.)
Print the post Back To Top