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Paying off last credit card
Hi ladies.
DH and I both work full time. We have 3 little ones all in daycare and are renters. With the cost of daycare at the moment (two infants and a 4 year old), our budget has become quite tight. I'm continuing to work because next fall my oldest will be starting Kindergarten and that should free up some money in daycare costs. Both of our cars are paid off and we only currently have one credit card bill that is at $4700. Ugh!
We have a 6 month e-fund as well as a daycare fund that we keep stocked in case we get short during the month.
We've been paying the credit card monthly (about $600) but we do continue to put stuff on it here and there. I just put DDs birthday party on it ($260) since we didn't have that available out of our checking account at the moment. First two weeks of the month are difficult for us.
We constantly go back and forth on whether we should take the $4700 out of our e-fund, pay the credit card off and free up that $600 for montly expenses. I think our biggest fear is not building it back up once we take it out, so we've just continued paying monthly, and we aren't really digging ourselves out of the hole.
Since we do have the 6 month e-fund, do you recommend we pay the card completely off and no longer use it (so we don't just keep building up more debt), or continue paying monthly and stp charging things?
WWMMD?
Re: Paying off last credit card
Here is our hypothetical budget (that we don't follow, which is why we have $4700 in CC debt).
We take home $7500 a month. I put 16% into my 401k.
-Cable (keep internet, get Netflix and Hulu)
-Dining out (at least cut in half to $100)
-Haircuts seems very high. Can you do the kids yourselves? Switch to Supercuts? I've been very happy with Supercuts myself.
-I'm not a mom yet, but clothes seems high. For kids, and even business clothes, I'd try quality consignment shops or moms' group swaps. Take a break from "fun " clothes if you've been buying any.
I think you could get at least $200 out of budget cuts to add to the $600. I don't see diapers on there-do you CD? If you're including that with groceries I could see it being tight.
Though it may sound counterproductive, I'd add a token amount of "fun money" for you and your husband ($25-$50 each) to reduce overages in other areas.
As to the e-fund, I wouldn't touch it. I like a solid e-fund. Others might say you'd be good to cut it to three months. If you do, be sure you keep enough to cover all of your insurance deductibles at once.
In general, it seems like you need to track your actual expenses and come up with an accurate picture of where your money is going. You can compare that with your hypothetical budget to see if your spending is in line with your financial priorities (which presumably your hypothetical budget represents). Where are you over spending every month? Do you need to increase the amount you budget to that category? Are there places you can cut back so that you don't spend more than you earn each month?
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Thanks everyone. As for where the other money goes, that is the problem. I know we over spend on things. Me shopping for the kids, things for the house, eating out (we don't really eat out but more like order in). Trips to the zoo, boardwalk. Picking up unneccesary stuff here and there. Buying lunch at work and not bringing one. Not really following a budget. Something that we do really need to work on, especially with the $2300 a month daycare costs. ::barf::
I also want to say that we don't put tons of stuff on the credit card monthly. Maybe a tank of gas here and there, this month was a big one with DDs birthday.
If I were to take the money out of our e-fund and pay the card off, we would "NOT" put anything else on it once paid off unless and emergency. We actually have one other card that we never use since it has a zero balance.
Together our e-fund and daycare fund, we have 9-10 months of expenses in savings.
I'm leaning towards taking it out, paying it off, re-budgeting and really work at putting it back in as soon as possible.
You all always have such great advice and I appreciate your help.
Track every penny you are spending so you can put together a realistic budget. Cut back on things ($60/month for haircuts is crazy, you can get two smart phones through T-mobile for $100 a month, purchase gently used clothing for your kids, try making homemade cards and gifts to save some money)--- also, I don't see a line item for insurance (auto or renters--both are very important)...
Good luck!
Such great advice.
I don't want to touch retirement since I'm afraid that once I lower it I'll never raise it again. Renters insurance we pay yearly and actually I just got the notice for that a few days ago. Auto insurance we pay every 6 months so it isn't a monthly bill.
I'll discuss with DH the cable. Not sure how he'll feel about that.
For the haircuts, that may be off. I haven't had my hair done since the month before I got pregnant with the twins (over a year) and my daughter's had her haircut a whole 3 times in her 4 years. It's probably closer to $40 a month since DH is military and gets his hair cut every 2 weeks.
I know honestly the problem is the frivolous spending that isn't being tracked and the card swiping here and there. I think getting that under control will be our first step. And by "our" first step I mean MINE. Because I'm the mom who can't go to Target without buying something for the kids.
There is also somewhere for improvement.
You definitely need to worry more about where that extra $1000+ is going every month. You already budget for clothes and gifts and haircuts that you don't get every month, so that's even more money that is getting spent who knows where.
Stop shopping for your kids. They don't need anything. At all. And not always buying them something everytime you go in a store will only help them in the future.
If you just do that and figure out whatever else it is that you are buying, you will be great.
Also, my husband gets his haircut on base and it's only $8. Even $40 a month for your husband's hair is too high.
You've gotten a lot of great advice so far- one thing I'm going to add is that there is a ton of free stuff to do with your kids, especially if you live in a big city. And since that is an area you often don't budget/overspend that would be something to look into. We have a bunch of museums that have free days, the zoo has a free day, and since it is summer there are several movie theatres around us that are offering $1/$2 and even free showings in the mornings for kids. There is an email list I'm on for the city that puts out some of the events that are going on that week from library story times to weekend events, and it features free events which is awesome. Maybe check into something like that?
I understand that kids can be a budget killer because 'it's soooooo cute' or 'I wish I had that when I was a kid, so therefore my kid needs it' but honestly, we all survived, and had fun regardless of how much we had, so a year or two of cutting back and your oldest daughter won't even remember. When you are out of debt then you can go back to doing some of the more spontaneous things with the kids.
Do either one of you have a Cafeteria Plan at your workplace for daycare expenses? They are basically a "federally okayed" (for lack of a better phrase) program where you can have your daycare expenses taken out of your check before taxes; however, your employer has to offer the program.
In essence, you wouldn't be taxed on the money you use for daycare. The only caveat is it is a yearly "use it or lose it" program. So, if there is some money left at the end of the year that did not get used for daycare, it is lost.
Freeze the credit card and STOP using it!
Spend more time getting in touch with that is a need and what is a want. Fund the needs. Wants only happen when you have the CASH to pay for them AFTER paying your obligations.
Read Dave Ramsey's Total Money Makeover and David Bach's Smart Couples Finish Rich -- they will help to motivate you to make the nedded changes in your life.