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I like your general take on the rates/cards, but I think the KEY THING for this family situation is NOT the credit cards at all. The whole concern they have is the possible loss of about 50% of income and the need to take of ill MIL.
My concern is that the need to RAPIDLY eliminate debt and RAPIDLY build cash reserves can pretty much only happen by looking at the asset situation of the ill (eldery) MIL -- this is not a time to be "proud" or "independent". This is time to figure out how to make sure that ALL THREE OF THEM don't get wiped out! My hunch is that mom has some income and/or assets that could IMMEDIATELY extinguish these debts and help to increase savings.
From my friends who do bankruptcy litigation, a depressingly LARGE number of their clients simply get eaten away by costs associated with catastrophic medical situations AND THAT WOULD CERTAINLY include MS -- getting rid of high rate CC is ALWAYS GOOD, but in this situation it might be like trying to drive a car on fire through a car wash -- there is chance that water will put out the fire and you'll come out shiny, but it would be a whole lot more prudent to pull over, call the fire fighters and plan for some serious repairs if anything can be saved...
Yes... you are correct. She does have income and quite a bit of assets that would help greatly... and that is essentially our 'cushion'. We haven't planned it this way... then again we're in this situation out of necessity not choice (we would have chosen to pay down our debt rather than buy a house this year). So we could ask her for a loan to pay off all our remaining debt, interest free... and I think that we will probably do that. She is completely dependent on us, and we can't be in a position to be financially unstable.
Last edited by ocnymonty; 12-10-2008 at 11:42 AM..
Yes... you are correct. She does have income and quite a bit of assets that would help greatly... and that is essentially our 'cushion'. We haven't planned it this way... then again we're in this situation out of necessity not choice (we would have chosen to pay down our debt rather than buy a house this year). So we could ask her for a loan to pay off all our remaining debt, interest free... and I think that we will probably do that. She is completely dependent on us, and we can't be in a position to be financially unstable.
that seems like a good idea. there is nothing that you can invest your money in now that would give you a higher return than paying off the debt that you are actually able to pay off.
If MIL is eligible for Medicare, check into Medicare Advantage Plans...they are bridge coverage to cover what Medicare does not.
Take MIL as dependent...whether or not she lives with you, if you are responsible for over half of her cost of living/expenses, she is an eligible dependent. That should help a little bit in the tax arena.
Again, another pleasurable thread to read! Tried to rep everyone but just recently repped some of you in another thread. Oh well, an IOU is in order.
that seems like a good idea. there is nothing that you can invest your money in now that would give you a higher return than paying off the debt that you are actually able to pay off.
Excellent Point The best bang you will get for the buck you have is to pay off high interest credit. You are not earning a return, but you are saving much more than any investment could earn, which with CC's can be 20% plus
Don't forget -- possible unemployment really changes picture for THIS situation...
Quote:
Originally Posted by Asheville Native
Excellent Point The best bang you will get for the buck you have is to pay off high interest credit. You are not earning a return, but you are saving much more than any investment could earn, which with CC's can be 20% plus
I would agree with your analysis for every situation EXCEPT for when you have a possibility of job loss AND the NEED to have care for MIL.
That situation pretty much demands cash-in-the-bank -- if they have paid off their debt but get their income CUT and STILL need to pay for MIL's care they will go bankrupt very quickly.
The debt is being kept current, and while it would put them in a tight financial situation as long as they the ability to pay from saving for the life expenses they are still not bankrupt...
you're correct that you should be getting a good amount back in taxes this year, and you should use that to pay off the credit cards asap (I'm assuming you're already getting your paperwork together, so you can file your taxes on 2 January?). If your car payments are fixed, no sense in rushing to pay those off - just keep tucking money away in a money market at least.
Try to come up with a budget and think of it like a diet/losing weight strategy. If you write down EVERY penny you spend for a couple weeks (including those coffees, tolls, lunches out, soda machine stops, etc. - be honest!), you might be able to identify places where you can pare down. (It's a great Weight Watchers strategy) Something as simple as packing a lunch or giving up the coffees and packing a thermos can gain you $100+/month.
If you are seriously trying to save, open a totally separate account from any you currently have, and faithfully put the money in there (starting with as big a chunk as you can manage from your tax returns). Something that simple means you are making a concrete choice to deplete your savings, if you take money out of it. Give yourself a "spending" account, too, and that will allow you to have the occasional splurges for things not on budget. I don't care how much you need to save, you need the occasional pick-me-up.
Compartmentalization is a good thing.
Thanks for everyone's helpful answers on this thread... and also to chet everett and bibit for sharing some insight on our depedent care situation. As anyone who has bought a house knows, the first six months is hard. You have to completely alter the way you save and spend because your budget is now completely different. We had so many unexpected expenses after the closing. And as I posted... $5 gas prices didn't help at all. I believe that we lost 40-50% of our discresionary spending in June-Sept just because of inflation. But things have settled down now. We've gotten our finances under control. Our jobs are not directly in jeporady... however anything is possible in this miserable economy and I want us to be the least vulnerable and the most prepared as possible.
My wife and I met seven years ago and was married two years ago. Up until then (I admit) I was not a $saver$. Part of the challenge is living in NY and the Northeast, there simply isn't alot leftover from your pay as the cost of living is so high. I'm not making an excuse... I fully admit that we weren't in the mindset of saving 10-15% of our take home. We lived paycheck to paycheck.
About three years ago after I proposed we saved $14K for our wedding in 18 months. I was floored. That's when it really hit me how we were just throwing money out the window. We had debt from the wedding and shortly afterward which we had planned to pay off... to put us in a position to buy a house in 2010-2012. Unfortunately tragedy struck and we were forced to put aside our debt payment plan and invest in a house. We have no regrets, however in 2009 as long as we are gainfully employed we are going to focus on making our debt more manageable and increase our savings. As I said earlier... I believe we will net a windfall come tax return. I plan to itemize, and claim my MIL as a dependent. We also have out of pocket expenses, and exceptions (home office) to write off. I hope that I look back in 10 years and realize how close to the edge we could've been if we had not turned things around.
Last edited by ocnymonty; 12-13-2008 at 12:10 PM..
Another suggestion is to live off of one person's salary..the one least likely to lose their job between the two of you.
As you pay the bills only take what is needed from the 2nd person's paycheck to meet your expenses and work to get the expenses down to 1 paycheck while the other paycheck goes into the bank.
It took me 1 year to reduce my expenses to 50% of my takehome pay and even then I had to dip into savings so I didn't make my 50% reduction but I was really close and am satisfied with my experiment. Next year's goal is to reduce even more. I get paid twice per month..one check went into the checking account for bills/expenses and the other went into savings(MM). When I was short and had to "borrow" from savings I knew I was over for that month. Keeping the spending money separate from the saving money let me see exactly where my money was going and how I was progressing.
Another suggestion is to live off of one person's salary..the one least likely to lose their job between the two of you.
As you pay the bills only take what is needed from the 2nd person's paycheck to meet your expenses and work to get the expenses down to 1 paycheck while the other paycheck goes into the bank.
It took me 1 year to reduce my expenses to 50% of my takehome pay and even then I had to dip into savings so I didn't make my 50% reduction but I was really close and am satisfied with my experiment. Next year's goal is to reduce even more. I get paid twice per month..one check went into the checking account for bills/expenses and the other went into savings(MM). When I was short and had to "borrow" from savings I knew I was over for that month. Keeping the spending money separate from the saving money let me see exactly where my money was going and how I was progressing.
This is true, and reps to you HT. We actually live by this rule on a regular basis...mortgage and recurring "must" expenses (food & utilities) can be paid for by one person's salary, or as close to it as possible. Hubby and I each experienced being laid off three times. There are certain rules we live by since the first layoff: We would never work for the banking industry if we could help it at all. This is just one of the most volatile industries there is around, and both of us laid off within 6 months of each other. Two: Never work for the same company at the same time; Three: Have one with a fixed income and one with a variable one through self-employment - each one compliments each other in a downturn. In good times, save save save for the bad. Just recently, I was hired as a consultant and the per hour rate was significantly higher than what I was earning as a full time employee because it did not provide for benefits. We still took the FT hourly equivalent rate and saved the rest, $15/hr for 3 months, as if it didn't exist. We then have provided ourselves a cushion for when the contract ends and is not renewed. I would do it again in a heartbeat. We did not think 6 months of cushion was ever enough way back after the first set of layoffs so we continuously fund that. Right now we have 18 months worth of cushion without touching our retirement accounts and stocks. In this economy, I'm not even sure that is enough, so we continue to build for that rainy day.
This is a wonderful thread; I wish I could give everyone rep points!
Thanks for taking the time for the thoughtful responses.
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Don't forget -- possible unemployment really changes picture for THIS situation...
