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September 22, 2008


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1. Sell the condo if can break even or come close, then rent cheap.

2. Forget buying the big house or any house with GF. He just got scorched from his divorce. Entering into a non-marital financial partnership is an even worse idea (won't be good for the kids either.)

3. Use surplus cash from frugal living to kill credit card debt, build up cash reserves, save for retirement, and save for children's college education.

Playing house with GF is way down the list of money priorities. If he wants to do that, let GF buy house and you pay rent to her.

Since the divorce, he has been thinking of himself, thus the poor money decisions. Now is the time to think of his kids. If he does that, his best money decisions will be clear to him.

"Do I sell my place and look for a good opportunity to buy a bigger home with my girlfriend? (After all, a 5% loss on a 400k property is less significant than a 5% savings on a 700k property...and I woud actually come out ahead)"

This was troubling to read after the long description of cashflow issues. How about improving everyones' cashflow by having the girlfriend move into the townhouse and splitting the payment? (unless she makes a lot more than what he makes, in which case, way to go dude...)

I'd definitely keep putting money into the retirement plan, you can't beat a 50% return on your money you're getting there.

It doesn't sound like you'd be that happy moving down and renting out the current home, so I'd probably just keeping plugging away on the credit card and work my butt off for the rest of the year trying to maximize that bonus money. Hopefully then you'll have enough to pay off the cards and "start fresh". I definitely wouldn't go off and purchase something more expensive just because you and your girlfriend think you can afford it. Why not have her move in with you first and save the extra money for awhile? Do you really need a 700k home when you have a 400k home you're struggling with?

I was in your situation a few years ago, albeit with no kids - getting divorced, selling our home and struggling to pay off credit cards. Did I mention I was also laid off that summer? It was pretty rough for awhile, but I pared down my lifestyle considerably and now my new wife and I are thriving. My advice - you've been through a lot so move slow. It took time to get into this so it will take time to get out.

I think you're actually in a pretty good position, as you have realized your mistakes and are ready to get back on track. As long as your CC debt is at a low rate, there's no rush to pay it off. Here's what I would do:

1) If you want, sell the car while it is still only 2 years old and get a cheaper used one. This won't be a huge money saver but it might help.
2) Sell the townhome and rent a cheaper place.

You didn't say what you did with that $85k from the divorce. With that money, in addition to the profits from the house sale:
1) Pay off your debt and do not use your cards anymore unless you pay them off monthly.
2) Set up an emergency fund with $10,000
3) Set up a Roth IRA with $5000.
4) If you do plan to buy another house in the future, set some money aside for a down payment, but try to buy something a little cheaper.
5) If there is any left, put it in a Vanguard index fund.

Then work on a monthly budget. I wouldn't cut back on your 401k, in fact, I would raise your contributions to at least 10%. I would also budget to contribute $5000 to a Roth IRA each year.

Finally, don't buy a house with your girlfriend. Either rent a place together or pay her rent like another poster said.

I agree 100% to what ToughMoneyLove said.

Over all it seems you're able to make due except you have the lower cash flow through most of the year and then a large bonus at year end. So I'd do this:
1. Take a portion of your next bonus and set it aside to cover emergencies and give yourself a buffer for the next 12 months. 2. Put the rest of your bonus into your credit card. This will free some monthly cash by lowering your card payment.

Can your girlfriend move in with you or can you move in with her? Living with the GF would let you share some of the house expenses and would be simpler then selling your house and buying another.


I am very confused by the statement about buying a bigger house. It seems that most of the current problems are caused by the current house which indicates the mortgage on it is already too big. It certainly won't improve things to get a bigger one.

Buying a house with the girlfriend is a very bad idea. It makes a complicated financial situation that you have that much worse. And if you are relying on the girlfriend to help you cover the bigger house that still leaves you stretched and if the girlfriend doesn't work out it leaves you in a double pickle. Under no circumstances should this be considered a good position to put yourself into.

The suggestion above about having her pay you some money to cover rent at the current place is a much better idea.

Barring that I would just keep plugging along, spending as little as possible, and use the year end bonus to pay down the credit cards. Its not that far away and the cards are costing you very little interest they way you describe it. So given that, what is the problem with just waiting for the bonus to pay them down.

Another troubling statement you made was that you would like to find some other way to pay down the cards and use the bonus for other things. It makes me wonder what other things those are. It sounds like that while you may have spent a fair amount of time reading this blog that perhaps you are still holding on to some past habits that helped to get you where you are. Please do yourself a favor a follow a simple path that can take care of all of this:

1. Don't be buying any other things at this time.
2. Do not buy a bigger house.
3. Do not sell your house unless you plan to stay renting for a considerable time. Just stay where you are or downside on an extended basis but definately do not upsize.
4. Do not enter into a financial transaction with your girlfriend, have her pay you some rent if you desire shared financial responsibility (any amount will help).
5. Spend as little as you can and apply that bonus to your credit cards.

I have to agree with these guys, playing house with your new girlfriend sounds like a way to get yourself deeper rather than getting yourself out of the mess you're in.

I would sell the car and economize to get rid of some of that creditcard debt, and get the rest covered by your bonus at the end of the year--it's only three months away. Whatever you can scrap together by being frugal in the meantime should be used to pay of the creditcard debt as well.

I have not read other comments.

You have 14k in debt, and you have a 20-25k bonus coming in at the end of the year (prehaps higher), gross of taxes. The interest rate on your debt is about 2%.

Your options are:
-- use the bonus to pay off as much of the debt as possible, and procede from there.
-- engage in some sort of real estate investment strategy that relies either on finding a reliable tenant that you haven't been able to find, or on flipping real estate in a declining real estate market without any expertise or experience.
-- stop investing at a 36%+ rate of return for retirement.

I think this is an obvious choice. Suck it up, pay the 2% interest for the next however many months, and pay off your debt at bonus time.

In the case that some part of your debt remains, it is likely to only be a few thousand dollars or less. At this point, you might decide to reduce your retirement contributions for a few months to erase the debt.

You should NOT try to become a landlord or a real estate flipper in response to this situation. You should not do anything that exposes you to additional real estate risk, or anything that would result in severe financial difficulty for you if you got a bad tenant, or were left without a tenant for a few months at some point in the near future.

You are talking about debt you have at 2%. What's the interest rate on your mortgage? Are you in a rush to prepay your mortgage too? Just keep things in perspective.

All that said, there is nothing wrong with selling your house and renting a smaller place if you think you are spending too much on your personal housing expense. I'm all for living below your means. Just don't do that for the wrong reasons. Getting rid of a debt at 2% interest that you can probably get rid of in a few months anyway -- that would be the wrong reason.

$14K isn't enough money to panic over. Just work it down slowly, and remember that money is money; whether money to pay down the debt comes out of monthly income or from a bonus is irrelevant. What is relevant is that you don't make hugely expensive financial decisions to save $14K.

Personally, I wouldn't sell the car. Known, reliable transportation is a good thing, and the note is probably in the "principal paydown" part of the payment by now. You may want to raise your insurance deductibles and such to their highest levels you can get away with on your loan to save money there - and once the note's paid, start saving cash for your next car and go to liability-only insurance.

Also, forget the RE games and stay put; now is an incredibly dumb time to sell RE. See if you can't get your TH re-assessed - prices may have tanked in your area and you may be able to lower your property taxes.

If you want to improve your cashflow, get a housemate - you may be able to rent a spare room for the $500/month you want. In addition to the extra cash, you'll get a lot of landlordish tax deductions that may be helpful.

And forget the idea of "saving" money buying a $700K place "cheap". You can't afford it on a $100K salary, unless you're marrying your GF and she makes at least $250K by herself.

In general, work down your credit cards and car payment (it probably has a higher interest rate than the CCs at the moment), and get one or both of them nuked with your bonus (assuming you have an emergency fund).

I used to enjoy this site. But, now it is so far removed from reality I find it annoying. We are facing the biggest financial disaster of our generation and we are talking about making money off selling beany babies. How about talking about getting out the vote to make sure a fiscally responsible president and congress takes over. That will make us all a lot more money than beany babies. Please get real here.

I can't imagine almost doubling an already large mortgage in this economy to live with a woman who you're not even married to. I thought the guy had his head on straight until reading that part. I would keep the car at this point unless you can get a decent price for it. Might as well sit tight in the TH too. You have enough income to keep your head above water until the bonus as long as you don't make any dumb moves like buying a $700K house or trying to "flip" property when prices are falling. The debt will come off a lot faster for you than most people.


Don't worry - the bailout is on the way.

Helicopter Ben and Hammerin Hank are looking out for you.

They've got the printing press fired up and ready to go.

And remember, country first.


We should all do our duty to participate in the political process and try to influence our political representatives to do the right thing. In reality, however, the most significant impact we have on our own personal finances is how well we steward the money that we earn.


Your best bet would have been to actually marry the right woman in the first place who wasn't so divorce happy. That is the problem with today's society, it rewards those that make less income to get divorced. I have never been divorce (nor will I ever be since I chose a woman who does not believe in divorce), but from the outside looking in, divorce looks like finanical scam.

Ryan, I found your comment very judgemental and not at all relevant. The divorce is in the past so your advice is of no help to begin with. Secondly, many people get married who don't believe in divorce but then things happen that make it so there is no other option. And why is child support a bad thing if 2 people are responsible for bringing them into the world?

To blank:

My advice is geared towards those who are not married yet and aimed to help those persons before they get into a mess like this. And if my advice that one should marry the right person is judgemental, call me Mr. Judgemental. And child support is not a bad thing, transfer of wealth is. If one child is brought up on $500 per month, why should another one be obligated $20,000 per month?

A housemate seems like the best option, is that an option? My friend got a great housemate by advertising in the graduate school nearby. You could try advertising there rather than just on craigslist.

I can't believe what I am reading from all the responses. There is a marital separation, but no mention that a divorce has been granted. The term "ex-wife" is only appropriate if the divorce is final. At the risk of being lambasted for not being politically correct, I ask if the divorce is not final, what are you doing with a girlfriend? Why are so many folks advocating or allowing for living together to save expenses? Some things are more important than the financial bottom line!

Sit tight in your house -- you sound too conflicted to make a good decision, plus the market is a mess. Why put yourself through that hassle?

Keep contributing to retirement. Keep paying on your debt, as much as you can. Put all ideas of "counting on" the bonus out of your mind ... and then the second you receive your final amount, go online and transfer it to pay off your credit cards (as much as possible, using every penny of your bonus). Never allow the idea of "using it for fun" to cross your mind -- be grateful you have a windfall on the way to help you out of your debt. You will not miss it. If by chance any bonus money is left, put it in an account for unexpected expenses, like home or car maintenance.

If you have debt remaining, continue to pay it off with all your extra cash.

Do not move in with your girlfriend. If you met after your separation, you have not known each other long enough for that commitment. If you met before your separation, that is a shame, and not a good circumstance to start a commitment. Think of the example you set your children -- do not teach them that it is better to be cheap than moral.

I would NOT buy a new hme with a girlfriend. You don'tt say whether or not you are living together. If you're serious enough to think about buying together, why not live together? This way she'll pay a portion of the costs thus giving you money to pay of debt, you get to see if you can take the relationship to the next level and you don't have the hassle of being a landlord or moving.

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