Newbie - Budget/Financial Advice Needed!

MaggieW518 · October 2013

Hi all... I'm starting to feel overwhelmed financially, and I’m hoping to get some insight… I apologize in advance at the length of this post, but I always see posts where additional information is requested from the OP, so I’ll try to provide as much as I can think of upfront.

I’m 29 (soon to be 30 in less than a month). Newly married (May 2013). My husband is 41, and honestly, horrible with money. He does pay all of his bills on time and has amazing credit, but does have about $10K in credit card debt and literally almost nothing saved (not that I’m in better shape, but I hope to be in another 10 years).

We are both very much paycheck-to-paycheck right now, so for the most part, our money has stayed separate. I have way too much credit card debt and student loan debt, so we both felt more comfortable keeping our paychecks separated except for the $40 per paycheck that each of us puts into our joint savings automatically.

So, for the most part, I treat my financial situation as if I were single, as neither of us are in a position to help the other out financially. I will say right out the gate that I know I/we need to cut back on eating out and I absolutely need to cut back on buying my breakfast/lunch at work (I work for a large insurance company and we have a fantastic cafeteria… I am horrible at getting up in the morning, so I grab breakfast at work almost every day and never pack my own lunch. This is my biggest area to work on.)

Gross Paycheck: $1085.00 (after taxes, but prior to other deductions) – paid twice per month

5% of each paycheck (pre-tax) automatically contributed to 401k (employer match as well)

$35.00 each paycheck automatically contributed to HSA

$40 each paycheck automatically to joint savings (used for joint expenses (we own a cat) and emergencies) – or, for example, we live in a townhouse complex and had to pay an additional $147 per month to pay for them to reroof the complex… those payments were for 16 months and just ended last month. Those payments came from the joint account. ~ $1400 balance

$40 each paycheck automatically to personal savings (TBH, I dig into this most months rather than pay for things on CCs, so my balance is only about $300)

The cafeteria is set up on a badge swipe system, so I don’t pay cash – it gets deducted from my paycheck each time. Looking back at the last several paychecks, I spend an average of $80. So, I spend about $160 each month for breakfast and lunch M-F. (I know this is horrible!! Please don’t yell! Haha)

Monthly Bills:

$26 - Fitness Center @ work - ($13.00 each paycheck auto deducted)

~$80 - Car Insurance – but I used tax return $ to pay in full upfront in June

$350 – Mortgage (only husband’s name on mortgage – about $900 per month, so I pay less than half because that’s all I can afford)

$125 – Student Loan #1 – approx. $14,000 balance - interest Rate: 4.75%

$240 – Student Loan #2 – approx. $21,200 balance – interest rate: 3.54% (graduated payback scale – minimum due increases by about $40 every 12 months – scheduled to be paid off by 10/2019)

$50-100 (depending on cash available) – Kohl’s CC – approx. $1000 balance – try not to use this anymore, except at Xmas time for gifts

$75 – CC #1 - $1000 balance – interest rate: 11.24% (required min pymt = $35)

$100 – CC #2 - $1300 balance – interest rate: 13.99% (required min pymt = $30)

$125 – CC #3 - $3100 balance – interest rate: 14.99% (required min pymt = $69)

$100 – CC #4 - $3600 balance – interest rate: 16.9% (required min pymt = $85)

$200+ – CC#5 - $6500 balance – interest rate: 19.99% (required min pymt = $157)

$40 – Weight Watchers

I also have $600 that I owe my parents for car repairs that they took care of while I was on my honeymoon… but they’ve stated I can hold off on payment until I’m in better shape and have some wiggle room financially.

Phone, utilities, cable/internet are all paid by DH

Additional expenses:

~$60 on gas per month

~$200 on groceries (food and household items)

~$50 on alcohol

~$100 on eating out

Note: CC #5 is the only CC I actively use anymore… this unfortunately was where some unplanned wedding expenses went as well as payment of my wedding dress, which was the original purpose of the card, but obviously, I didn’t stick to…

Opened all of the CCs with a promotional 0% APR for X months… trying to get ahead of the interest rate on other cards, so… yeah… don’t plan on applying for another credit card unless it would truly make sense to do so.

Obviously, I need to cut back on eating out, drinking, and cafeteria spending, since those expenses are essentially causing me to almost break even every month. I know that's the obvious area for improvement, but does anyone have other thoughts on paying down my massive debt? I’m in a hole of my own making (I fully admit this), but I’m struggling to figure out the best approach to try to slowly dig myself out.

srfr8908 · October 2013

Dave Ramsey's Debt Snowball is a GREAT resource. My hubby and I have been using this method and are so close to being debt free! (Until we purchase a house in a couple of years.) :-) Dave Ramsey has a lot of other resources that are great, too. He is very encouraging and his steps WORK! Hang in there. www.daveramsey.com.

Sisugal · October 2013

Sell items you no longer need or use.

Get second PT job (holiday retail?).

Make your lunch before you go to bed. (yogurt & fruit, salad bag, nuts, cottage cheese, veggies ,crackers and cheese - etc - whatever you like.

In the morning - just grab breakfast and lunch and head out the door.

Bring a banana (apple, grapes or other easy to eat fruit) and piece of toast, (bagel etc) to eat in the car ifi you are not a breakfast person. Buy a coffee maker with a timer and set it to have coffee ready when you get up -- bring your own coffee on the drive.

Save now for your Christmas shopping - spend only what you have - do NOT put it on a credit card.

(eliminating the alcohol will also help your weight loss.).

hoffse · October 2013

I'm also bad about eating out for lunch because I hate to pack lunches in the morning. What I do now is I make sandwiches for the week on Sundays and then freeze them. I stick them in my lunchbox/bag and they act as an ice pack for other food. By lunch time they have thawed and usually taste just fine.

To inspire myself to eat breakfast, I invested in a Keurig. It's not the most cost-efficient way to drink coffee (k-cups are about $0.50 each, on average) but I love that thing and it completely eliminated the urge to buy $3 coffees every morning. We have a really great coffee shop on the first floor of our building, so I spent a lot of money on coffee and pastries when I first started working here. The Keurig has paid for itself in the sense that I haven't had the urge to visit that coffee shop since buying it. The drip coffee makers just didn't cut it for me.

As for your debt, you need to do a debt snowball.

In case you don't know, a debt snowball is a situation where you take all your extra money each month and put it toward some debt you have. Once that's paid off, you take all the extra money each month, plus the money you were spending on your first debt, and you apply it to your second debt. And so on. Eventually, the debt payments "snowball" so that you're making very high payments each month on your final bit of debt.

The big question in debt snowballing is the order in which you tackle your debts. I prefer to go from the highest interest rate to the lowest interest rate. I dislike Dave Ramsey's approach, which is lowest balance to highest balance.

In most cases (and in your case here) going highest interest rate to lowest interest rate will save you a lot of money over using the Dave Ramsey approach. I've caused some consternation on these boards over this, but DR's approach is more of a "motivational" (I call it touchy-feely) approach, and it doesn't really take the math into account - though you will be debt free eventually.

Using DR, you get motivated to pay off your debt because it will only take you a few months to pay off the lowest balance. That makes you feel good and then you are motivated to keep going with the next lowest balance, and so on. But for you, that's going to cost you a lot of unnecessary money in interest because your highest balance card also has the highest interest rate. You really don't want that thing accruing at 20% interest while you snowball the other 5 credit cards first. Or at least, I wouldn't.

Getting to the finish line with the highest interest credit card might take longer than getting to the finish line with the lowest balance credit card... but the mathematical approach actually cuts down on the total amount of time you are in debt and you spend less money in interest by doing it this way. So the trick is to not lose motivation while you're paying down the highest interest rate card first.

I think DR is great for people who aren't sure if they can commit to a debt-reduction plan. It does work eventually, and I give him full credit for that. But if you're really serious about it and are committed right now, save yourself the time and money and do it the way that makes the most sense mathematically: highest interest rate to lowest interest rate. And if you find yourself with two loans that have the same interest rate (this happens in student loans a lot), snowball the loan with the higher balance first, because the interest nearly always compounds. That means it grows faster on a loan with a higher balance than on a loan with a lower balance.

Re: student loan debt - your interest rates are so low I probably wouldn't pre-pay if it were me. But again, I'm in the minority on this, and I've caused consternation on these boards because I don't necessarily believe that student loan debt is a bad thing, as long as your monthly payments are reasonable and your interest rates are low (both are true in your case). Of course, you need to be making any money you save by not pre-paying student loan debt work for you - by investing it, increasing retirement contributions, etc. BUT if you are not convinced you could bring yourself to save that extra money, then go ahead and pay those down too. Also, if you work in an industry that has a lot of turnover, then paying down student loan debt makes sense because it can't be discharged in bankruptcy if you lost your job and had to file. Ultiamtely I think student loan snowballing is something that's situational. In my situation, I wouldn't pre-pay with those interest rates. In your situation, you might want to. But take care of the credit cards first.

Also, one caveat - I just saw you have a Kohl's card. I would probably pay down the Kohl's card first for one simple reason: Kohl's will ruin your credit with one late or missed payment. I have a Kohl's card too (for the coupons), and it's the only card that I always pay off immediately after leaving the store. The others I pay off in full at the end of the month. It just makes me nervous having a balance on a Kohl's card at all because for some reason that company makes a point to call credit bureaus after a single missed or late payment. You can read all about it online. So I would do that first to make sure you don't miss a future payment with them, and then begin snowballing the rest.

vlagrl29 · October 2013

yeah when I use to work full time I would make all my lunches on sundays and freeze them as well. I would also do all my ironing on sundays. I didn't like doing chores like that during the week when I got off work. Just wanted to veg out.

Ducktale · October 2013

A great first step is figuring out where your money is going, so thats great! After that, it's really up to you. How committed are you to changing your situation? I would recommend learning the difference between wants and needs and focus on cutting out needs. You already know some areas you need to cut back on. I would not spend money on a gym or weight watchers with such credit card debt (not to mention clothes, out to eat, and seriously cutting back on gifts) But it's all your personal choice and how serious you are about getting out of debt. Institute a spending freeze. Like pp said, sell items and get a second part time job. A good first step would be reading Dave Ramsey's Total Money Makeover. And I also agree on the debt snowball. These are some very tough life style changes that would take daily commitment. You can do it, and use this board for Questions and support. It's totally possible for you to get out of debt and afford your bills, it will just take serious commitment.

Wulfgar · October 2013

With the amount of credit card debt you have I would cut up all of your credit cards so you are not tempted to use them. I would pay off the Kohls credit card since store credit cards are the worse to have especially if you have a balance. I would then tackle all of the other credit cards starting with the one that is $1000 working towards the higher amount ones. I would also pay just the minimum on all of your credit cards but the one that you are trying to pay off that way you hyper focus on one to knock it out then go to the next one (that being said, I would freeze the minimum payment to their current minimum).

I had to do the math, you currently owe roughly $16,500 on credit cards. That is a huge weight to have around your neck, even worse is that some of the interest rates are 20% and it has the highest balance.

I would suggest cutting back on your alcohol and quit weight watchers until you get some of your credit cards paid off. If you packed your lunch that would free up more money to put towards you credit card debt.

Mom987 · October 2013

This is tough to type on my phone so please don't judge if I mess up.

Dave Ramsey's method would suggest tackling the smallest CC balance first, even if it means paying minimum on others.

If you did this, you could pay an extra $70 (difference between minimum on CC2 and what you're paying), + $56 (same difference on CC3) + $15 + $43, so all of a sudden you are paying an extra $184 on top of your current CC1 payment. That $1,000 balance will be gone really quick especially if you cut back on all the breakfast, lunches and alcohol. Then, once the $1,000 CC1 is done, tackle the second with all that same extra money, plus what you were paying on CC1, so plus the $75, that $1,300 balance of CC2 will be done quickly too. And you'll be more excited at the attainable goals. I'd probably drop the $40 weight watchers if you've been with it long enough to know the system and keep track yourself.

hoffse · October 2013

People - if she starts with the lowest balance and moves to the highest balance, she's paying off her highest balance/highest-principal card last. That card currently has 20% APY on a $6500 starting balance - credit cards usually compound monthly. And her monthly minimum payment on that card is $157.

Compounding means next month her PRINCIPAL on that card will be $6,448 after she makes her $157 minimum payment. Notice she has only reduced her principal by $52, and $105 of her $157 payment has gone toward interest. Will she eventually pay it off doing this? Sure. But it takes forever. Snowballing makes it go faster, but Dave Ramsey has her snowball in the wrong order.

So no, the Dave Ramsey method is not always the greatest, and it's definitely not the greatest for this OP. I agree she needs to do Kohl's first so that they can't totally destroy her credit, but using DR's method she's paying off 5 credit cards before she ever makes it to the card that is compounding at 20%.

Every once in awhile doing highest interest rate to lowest interest rate isn't the most efficient - but that's only when you have a very small difference between interest rates (maybe 1-2%) and you have a significantly higher principal balance on your slightly lower interest rate card. In that instance, your higher principal offsets the lower interest rate. However, that's not particularly common, so if you want a good rule of thumb without having to actually do calculations, it's best to just do highest interest rate to lowest interest rate for credit cards. Sometimes that will happen to jive with what DR says to do. But most of the time it won't.

Not to put too fine a point on it, but this is about math, not feelings. I'm thinking I might make "Feelings =/= Wealth" my mantra.

mkerr09 · October 2013

Everyone has given you great advice already. The only thing is I don't see lines for cell phone, clothing, and health insurance. I'm assuming your Dr co-pays come out of your health spending account that you contribute to monthly. I would create an excel spreadsheet and track and budget everything.

MaggieW518 · October 2013

Thanks for the advice everyone! I really appreciate it! I've already taken some action steps based on everyone's suggestions.

I switched from the monthly pass with WW to the eTools subscription - since I know the plan well enough, but love having access to the website for recipes and tips/tricks. It's $35 for the first 3 months (as opposed to the $40/month I pay now) and then $15 each month after that. It doesn't cut it out completely, but at least cuts down on what I'm paying so I can still utilize the resources they provide.

Based on when certain bills are due and when I get paid, until I have any excess cash to move around, snowballing anything is dependent upon what bills are due when. So, when I'm going to do is pay minimums on CC #1-4.

CC #1 and CC #4 are due around the same time as Kohl's, so I'll take the excess I was paying on those to apply towards Kohl's to pay that off quicker. (that's also when mortgage and student loans are due, so $ is tight)

Similarly, CC #2, #3, and #5 are all due around the same time, so I'll pay minimums on #2 and #3 to allow a little more to go on #5 (the big one!).

After Kohl's is paid off, I'll re-assess from there and see what makes the most sense (probably paying towards the big one as well, or split that excess between the big one and the littlest one).

Thank you all for the advice.

MaggieW518 · October 2013

mkerr09 said:

Everyone has given you great advice already. The only thing is I don't see lines for cell phone, clothing, and health insurance. I'm assuming your Dr co-pays come out of your health spending account that you contribute to monthly. I would create an excel spreadsheet and track and budget everything.

Cell phone is paid for by DH. I have a very basic phone (no iphone or internet) so it's not much.

Health insurance has so far been able to be covered by HSA. I have about $3000 saved there as it can only be used towards medical, and I haven't had to utilize it very frequently.

Clothing, to be honest, isn't really in my budget, but I don't shop very often. I used to shoe shop about 8 years ago, so I have a ton of shoes that I never wear. I got a pair of sneakers for Xmas, and the last pair of work shoes I bought at Payless for $15 about 8 months ago... I haven't bought new clothes in about 6 months... and when I do, it's mega-sale and I don't buy a lot... I used to work in retail and had a bit of a shopping problem (hence the debt), and I have issues getting rid of stuff, so I have more than enough clothes w/o the need to buy much ever... I went from one extreme to the other... though, I should factor in clothing purchases once in a while.

maple2 · October 2013

Just one more idea on saving $ for breakfast and lunch. I don't know what your kitchen/fridge situation is at work, but I have been bringing in ingredients for a week's worth of salads on Mondays then making them every afternoon at work. It's much better than making them the night before, and chopping veggies everyday is actually a nice break from the usual work routine. DH keeps raw oats, molasses and raisins in his office. He heats up a cup of water in the microwave then mixes in the oats and other ingredients. He lets it sit for 10 minutes or so then its ready to eat.

jessica490 · October 2013

bring all the clothes that you don't wear anymore to a consignment shop...You will make a few bucks on each item.

HarryCanary · October 2013

It sounds like you and your husband are both happy keeping your finances separate. However, you may want to consider looking at your entire financial situation as a couple.

If you are looking at your total credit card debt as a couple and both of you apply extra payments to the highest rate card, you can pay it off more quickly and with less interest paid. And your snowball becomes that much more powerful.

Also, for my husband and I, looking at our entire financial situation has helped us to be on the same page with spending and our long term goals.

Good luck!

Newbie - Budget/Financial Advice Needed!

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