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My wife and I purchased our first home in April 2008. We knew it would be a challenging year given the direction the economy was going in. However, as most would admit, no one could have predicted the collapse of the stock market, banks, and $5 gas. Now our jobs are on the line. My wife an I are both employed however we work each day like it may be our last. We've been able to maintain a small savings and we're working hard to pay down our debt. Just wondering what our outlook is like and what changes we can make short-term and long term to weather this storm.
As I said in April, my wife and I closed on our first house. We paid $345K for the house and put 5% down. The purpose of buying this home at the time we did was to provide a place for my wife's mother to live. Her husband passed away last Fall and she suffers from MS and needs 24 care/ supervision. We were able to find a two family mother/daughter, and we hire daily home health care to tend to her daily needs while we work. My wife and I bring home a gross annual of $150K (about $75K each) and I make another $8K-10K per year playing in a wedding band. It sounds like alot, however if you live in NY it goes very quickly. If either my wife or I lost our job, our income would be cut in half immediately. This is what our debt/ income currently looks like.
Income
Jobs- $11K gross... $7200 per month net. We still file '0' deductions and we take out 10% in 401K
Rent-$600 (MIL pays us rent.. we cover her other living expenses like food, heat..etc)
Band- $500 per month average (varies from month to month)
Total net income $8300
Savings- We have maintained a balance of $5K.
Mortgage-30 year fixed 6%-$2736 monthly
Principal & Interest-$1928 per month
PMI-$140
Taxes-$583
Insurance-$85
Monthly Bills not including CC cards
Utilities- $450 Heat and electric for both units. (Remember heating oil was over $4.50 per gallon this summer.)
Groceries-$600 per month (includes MIL)
Car- $588 until May 09... $306 thereafter (2 cars, one paid off by next Spring)
Car Insurance- $160 monthly
Cable/Internet/Phone- $150
Cellphone $112
CC Debt- balance and average payment
Card #1-Store card $1000 19.9%... average payment $100 per month
Card #2- Visa-$1800 13.2% ave payment $50
Card #3-MC $500 balance 25.5% ave payment $100
Card #5 $0 balance 27.7%
Line of Credit-Closed $7500 8% ave pay $150 per month
Total $400 per month
Medical debt
Owe $1800 in medical expenses from various doctors resulting from a surgery.
I'm expecting to get a nice sum back on our taxes next year... At year end we will have paid $18K in mortgage interest and another $5K in taxes. We currently have our deductions at '0' and pay the maximium. I also expect to receive the Housing Credit for 2008 (up to $7500) on top of the taxes I receive back. I'm hoping for a windfall.
My questions are...
#1- what is the best method for paying down this debt as quickly as possible without jeopardizing our savings?
#2- Should we deduct from our savings to wipe out our credit card debt?
#3-Should I itemize my taxes next year and include my MIL as a dependent?
#4 Given the debt and income we currently have how much should we be putting away in our savings each month... and how much should we have as a minimum?
I know I have alot of questions... I would just love all opinions on this... good and bad.
These are just suggestions... but I'm not a tax expert or financial adviser... so take advice with heed
Quote:
Originally Posted by ocnymonty
My questions are...
#1- what is the best method for paying down this debt as quickly as possible without jeopardizing our savings?
- Spending less on non-essentials, going out less, consumption, etc.
- Consolidate your CC debt and transfer the balance into a low interest or zero percent interest 6-12 month introductory card - (suggested to me by some savy city-data posters). And pay them all off when you get your tax windfall once the intro rate is over.
#2- Should we deduct from our savings to wipe out our credit card debt?
No... available credit is getting cut, and cash is at a premium. Should try to keep available credit/free up credit and build cash savings.
#3-Should I itemize my taxes next year and include my MIL as a dependent?
Not sure, but I think with a house your deduction should be higher than the standard deduction. If she is a dependent... then you should do it.
#4 Given the debt and income we currently have how much should we be putting away in our savings each month... and how much should we have as a minimum?
They say 15% of gross income should go into savings... but it really depends on your savings goal and age until retirement. For an emergency... they advise 6-12 months of living expenses.
I know I have alot of questions... I would just love all opinions on this... good and bad.
Another suggestion is to take a look at mortgage rates and the possibility of refinancing. 6% is a pretty high rate these days when rates are currently around 5.5% and may get lower if the Fed acts on buying MBSes to lower the rate to potentially 4.5%.
Some good stuff, but a lot of room for improvements.
Your cash "cushion" is more like a "washcloth" -- $5k saving on $8300/m income is unacceptable. You have to ramp that WAY up. You'd be surprised how quickly you could blow through 3 or 4 months of salary, ideally I would say put away savings UNTIL YOU JUST cannot, and try and keep at least 4-6 months expenses in regular old money market...
If you have NOT been itemizing you have almost certainly been overpaying in taxes. You may even look into going back and redoing your taxes. That ALONE could be worth thousands. You can go back and "refile" for the previous three years. HUGE potential for someone like you. Tax Topics - Topic 308 Amended Returns
You also desperately need to consult a estate planner / elder care attorney about the situation with your MIL -- rent may not be a smart thing to collect from her. You need to explore ways to pay for the level of care that she requires, without wiping out both her and you financially.
You have an unattractive mix of high interest debt and are paying it down far too slowly. I strongly feel you (or your m-i-l) would have some ability to find some way to consolidate this into a MUCH more tolerable payment. I would not rule out the possibility of 'borrowing' directly from your ill m-i-l to pay off the debt ALL AT ONCE, as you are ALREADY throwing far more OUT THE WINDOW to this debt that she is paying you in rent! This might be a VERY simple solution, depending on the source of her rent...
You should be able to cut quite a few expenses too. I would explore EVERY OPTION in reducing ALL of your ongoing expenses. Get a pay-as-you-go cell phone. Cut all electronic services to "bare minimum", investigate utility assistance for disabled, cut food costs, investigate getting CHEAPER CAR & insurance, evaluate possibility of eliminating PMI, oh and lastly CHANGE YOUR W2 ASAP so that YOUR MONEY stays in YOUR BANK instead of giving UNCLE SAM A FREE LOAN ALL YEAR LONG!!!!!!!
I know this is A LOT, and it might seem harsh, but if you really need to support the situation on potentially HALF the income you have better tighten-up the belt REAL fast and snug.
You seem to have some some good things, I hope you'll take my suggestions in the spirit intended -- to get on a MUCH more sustainable budget so that you can weather any set-ups and continue to make ends meet in what must be a VERY tough situation. One on my very good friends had a wife that died from MS and I can more than imagine how challenging this whole situation must be.
I just subtracted your take home from your monthly expenses and see $4104 remaining each month excluding the CC payments. Where is that money going? Did I miss something?
What is stopping you from immediately paying off the 3 cards with 13-25% interest rates, paying doctors, and then paying off your "line of credit" (what was that for?) immediately?
What are the car interest rates and amount? You should have more than 5K cash liquid.
Some good stuff, but a lot of room for improvements.
Your cash "cushion" is more like a "washcloth" -- $5k saving on $8300/m income is unacceptable. You have to ramp that WAY up. You'd be surprised how quickly you could blow through 3 or 4 months of salary, ideally I would say put away savings UNTIL YOU JUST cannot, and try and keep at least 4-6 months expenses in regular old money market...
If you have NOT been itemizing you have almost certainly been overpaying in taxes. You may even look into going back and redoing your taxes. That ALONE could be worth thousands. You can go back and "refile" for the previous three years. HUGE potential for someone like you. Tax Topics - Topic 308 Amended Returns
You also desperately need to consult a estate planner / elder care attorney about the situation with your MIL -- rent may not be a smart thing to collect from her. You need to explore ways to pay for the level of care that she requires, without wiping out both her and you financially.
You have an unattractive mix of high interest debt and are paying it down far too slowly. I strongly feel you (or your m-i-l) would have some ability to find some way to consolidate this into a MUCH more tolerable payment. I would not rule out the possibility of 'borrowing' directly from your ill m-i-l to pay off the debt ALL AT ONCE, as you are ALREADY throwing far more OUT THE WINDOW to this debt that she is paying you in rent! This might be a VERY simple solution, depending on the source of her rent...
You should be able to cut quite a few expenses too. I would explore EVERY OPTION in reducing ALL of your ongoing expenses. Get a pay-as-you-go cell phone. Cut all electronic services to "bare minimum", investigate utility assistance for disabled, cut food costs, investigate getting CHEAPER CAR & insurance, evaluate possibility of eliminating PMI, oh and lastly CHANGE YOUR W2 ASAP so that YOUR MONEY stays in YOUR BANK instead of giving UNCLE SAM A FREE LOAN ALL YEAR LONG!!!!!!!
I know this is A LOT, and it might seem harsh, but if you really need to support the situation on potentially HALF the income you have better tighten-up the belt REAL fast and snug.
You seem to have some some good things, I hope you'll take my suggestions in the spirit intended -- to get on a MUCH more sustainable budget so that you can weather any set-ups and continue to make ends meet in what must be a VERY tough situation. One on my very good friends had a wife that died from MS and I can more than imagine how challenging this whole situation must be.
Good Luck!
Thank you... this is great advice. And I appreciate the blunt message and the detail that came along with it. Yes you are right... we have to do more to cut our expenses. Part of the distraction has been that we moved into our house in May and moved my MIL in July... As with buying any house there are some immediate expenses that came along with it. We didn't go hog wild and buy furniture for every room, but we did have to pay some $$$ into some minor repairs and small decorating. In total with the move and expenses that came along with the house it was an additional $3-4K. Some of those expenses I plan to write off as they were neccesary to make my MIL's area liveable.
So in April we put everything that we had into the closing... we left some savings left... but the bulk went to the downpayment and closing.
In June we put 2-3K into repairs and refurbishments
In August we were hit with $5 per gallon home heating oil (I have a 350 gallon tank... $1712). In fact the cost of everything went up... our food bill was $700 in July... We spent $600 alone of gas commuting to work. So it's easy to look at what we brought in since June and ask where did it all go... much harder to explain where it all went to.
Since October I feel that we have found our footing. Our mortgage is paid two weeks ahead of the month, all of our bills are paid on time and we finally have stopped depleting our savings for unexpected stuff. Now we have to buckle down and prepare for a loss of income... if it comes. Neither of us have been laid off yet... but the clouds are getting darker.
Last edited by ocnymonty; 12-09-2008 at 02:25 PM..
I just subtracted your take home from your monthly expenses and see $4104 remaining each month excluding the CC payments. Where is that money going? Did I miss something?
What is stopping you from immediately paying off the 3 cards with 13-25% interest rates, paying doctors, and then paying off your "line of credit" (what was that for?) immediately?
What are the car interest rates and amount? You should have more than 5K cash liquid.
Did I miss something?
Yes you did... I didn't explain well enough in my post.. this is our net income going forward. Over the summer I didn't gig much with my band as I we were getting into the house and we didn't start charging rent until October. So subtract $1100 from the $8300 and we were really netting $7200. And as I explained in the post above... soon after we moved into the house gas prices skyrocketed, through unexpected costs everywhere. We didn't pay for it on credit... we just used more of our income to make up the gap. Our closing cost us about $26K... and we had $31K saved. So we used about $2K in savings for a new ceiling and some other repairs to the house... all will be deducted as improvements.
There were also about $1500 in medical expenses that we also laid out in September that were not covered by insurance.
Still we should be saving more... and we plan too... We just needed some solid footing.
My wife and I purchased our first home in April 2008. We knew it would be a challenging year given the direction the economy was going in. However, as most would admit, no one could have predicted the collapse of the stock market, banks, and $5 gas. Now our jobs are on the line. My wife an I are both employed however we work each day like it may be our last. We've been able to maintain a small savings and we're working hard to pay down our debt. Just wondering what our outlook is like and what changes we can make short-term and long term to weather this storm.
As I said in April, my wife and I closed on our first house. We paid $345K for the house and put 5% down. The purpose of buying this home at the time we did was to provide a place for my wife's mother to live. Her husband passed away last Fall and she suffers from MS and needs 24 care/ supervision. We were able to find a two family mother/daughter, and we hire daily home health care to tend to her daily needs while we work. My wife and I bring home a gross annual of $150K (about $75K each) and I make another $8K-10K per year playing in a wedding band. It sounds like alot, however if you live in NY it goes very quickly. If either my wife or I lost our job, our income would be cut in half immediately. This is what our debt/ income currently looks like.
Income
Jobs- $11K gross... $7200 per month net. We still file '0' deductions and we take out 10% in 401K
Rent-$600 (MIL pays us rent.. we cover her other living expenses like food, heat..etc)
Band- $500 per month average (varies from month to month)
Total net income $8300
Savings- We have maintained a balance of $5K.
Mortgage-30 year fixed 6%-$2736 monthly
Principal & Interest-$1928 per month
PMI-$140
Taxes-$583
Insurance-$85
Monthly Bills not including CC cards
Utilities- $450 Heat and electric for both units. (Remember heating oil was over $4.50 per gallon this summer.)
Groceries-$600 per month (includes MIL)
Car- $588 until May 09... $306 thereafter (2 cars, one paid off by next Spring)
Car Insurance- $160 monthly
Cable/Internet/Phone- $150
Cellphone $112
CC Debt- balance and average payment
Card #1-Store card $1000 19.9%... average payment $100 per month
Card #2- Visa-$1800 13.2% ave payment $50
Card #3-MC $500 balance 25.5% ave payment $100
Card #5 $0 balance 27.7%
Line of Credit-Closed $7500 8% ave pay $150 per month
Total $400 per month
Medical debt
Owe $1800 in medical expenses from various doctors resulting from a surgery.
I'm expecting to get a nice sum back on our taxes next year... At year end we will have paid $18K in mortgage interest and another $5K in taxes. We currently have our deductions at '0' and pay the maximium. I also expect to receive the Housing Credit for 2008 (up to $7500) on top of the taxes I receive back. I'm hoping for a windfall.
My questions are...
#1- what is the best method for paying down this debt as quickly as possible without jeopardizing our savings?
#2- Should we deduct from our savings to wipe out our credit card debt?
#3-Should I itemize my taxes next year and include my MIL as a dependent?
#4 Given the debt and income we currently have how much should we be putting away in our savings each month... and how much should we have as a minimum?
I know I have alot of questions... I would just love all opinions on this... good and bad.
Why don't you just pay the $500 mastercard in full? And the other cards should be immediately transfered to the low interest visa (assuming you have a high credit limit). Do you not see this? And then get it paid off. Stop charging stuff.
CC Debt- balance and average payment
Card #1-Store card $1000 19.9%... average payment $100 per month
#3 - This is next one to pay off ASAP (after the 25.5% card) then cancel, it is limited to that store.
Quote:
Originally Posted by ocnymonty
Card #2- Visa-$1800 13.2% ave payment $50
#4 - this is the next card to pay off, but keep it due to interest rate is the best you have.
Quote:
Originally Posted by ocnymonty
Card #3-MC $500 balance 25.5% ave payment $100
#2 - Pay the puppy off ASAP, then cancel, but cut the card up so you can't use it till it is paid off.
Quote:
Originally Posted by ocnymonty
Card #5 $0 balance 27.7%
#1 - Cut that puppy into tiny pieces today and cancel, treat as if it were as toxic, cause it is. Tell the card holder to stipulate "canceled by consumer request"
Quote:
Originally Posted by ocnymonty
Line of Credit-Closed $7500 8% ave pay $150 per month
Total $400 per month
Now that you are out from under the CC bills and outrageous interest, start working on getting this paid off.
Cliffs Notes:
Pay off the highest interest rate first, then the next highest, etc., making minimum payments on the others to remain current.
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...
I'm in agreement with chet. The CC debt is always bad and should be gotten rid of first, but in this case there is a possible job loss so building up the cash reserves takes priority.
Minimum to strive for is 6 months of current living expenses..more if you can but once you hit 6 months tucked away in the bank then tackle the CC debt.
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). In fact the cost of everything went up... our food bill was $700 in July... We spent $600 alone of gas commuting to work. So it's easy to look at what we brought in since June and ask where did it all go... much harder to explain where it all went to. 
