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January 13, 2012

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SR,
Have you thought about trying to get a new job as an attorney? I'm not sure what type of attorney you are but a combined $4400 take home seems very low, including your husband's income. If your raise comes thru that will help, but it doesn't look like you have much wiggle-room.
Welcome to the debt-free mindset! You'll find that it is easier than you think if you can ensure both you and your husband are fully onboard. We started our debt-free trek about 5 years ago and paid off our final debt (the house) a little over a year ago. My wife was skeptical at first but after she realized what life would be like with no debt she was more strict that I was. Best of luck to you! Don't get discouraged!

SR,

I don't understand why you can't afford a $900 mortgage? That is 20% of your take home pay- can you get housing that is significantly less? Even Dave Ramsey is OK with mortgage debt- I would not be too quick to move unless there is some other factors that make the cost of the home really unaffordable- very high utility cost, an insane home owners dues or the home is really far from your jobs.

I would say the car payments are much more of a problem, at $765/month those car payments almost equal your mortgage! Could you go with one car when the lease on yours is up?

You didn't list the interest rates for the CC debt- have you tried to get the companies to reduce the rates? It is worth a call to ask and see if they will. You could also play the balance transfer game, to reduce the amount, or look into getting a personal loan at a lower rate.

As for baby costs- don't go nuts on getting stuff for the baby. You can easily get virtually new clothes for a baby because they outgrow them so quickly. If you know other couples that have older children ask if they have any baby clothes that they no longer want. I wouldn't be surprised if you can get all the clothes the child would need for a year or two just by asking around. If you got to a church sponsored garage sale you can typically get a ton of kids clothes- near the end many have special all you can fit in a bag for $1 – just so that they clear out items. You can literally get outfits for pennies a piece in this way.

Most of the baby stuff you really don't need- the sheer volume of products is almost insane. You should get a new car seat to be sure it hasn't been in a crash, but other things like a crib, stroller, etc. can be had for far less used. Just be sure to double check if that model of crib doesn't have any safety recalls via an internet search.

Also remember that a baby has no awareness of the level of luxury of the crib, stroller, clothes, etc. If they are warm, dry, and fed they are happy- they won't care about fashion for years to come. Stick with practical clothes and items.

-Rick Francis

I and my wife werre in much the same situation a few years back. Now I have a 4 year old a 1-1/2 year old and we've paid off CC and Cars and we're working on Student Loans. It can be done.

The glaring expense to me is $400 for part-time childcare! I am in the Metro area Twin Cities in MN and we only pay $300 for two children at a top daycare.

I also followed the Dave Ramsey plan - somewhat - we don't compromise when it comes to healthy fruits, vegetables, and Meat among other small things. You have to find what works for you while tackling the debt or you won't stick to it.

Good luck

Don't forget the added cost for health insurance for the new addition. This could be an extra $200 or more.

I really don't think you should sell your house. It is a very reasonable payment and your credit card debt, while never good, seems manageable considering. It's hard to imagine you reducing your housing payment by more than $400 per month, which you could do by getting rid of your husband's car. Would you really rather move than get rid of that car?

I'd focus on paying down the CC debt as quickly as possible. Then save up some cash to replace your husband's car with something cheaper and get rid of that payment. As others said, you should also looking at increasing your income, which seems disproportionately low for your job. These are all more important and practical to me than selling your house, especially since you're happy with where you live.

Why would you refinance your home if you're going to sell it? Won't there be closing costs that you'll have to pay that will negate any savings since you're leaving the home?

I also don't think you should sell the home. The mortgage isn't that high and you built it do that means something. I agree with SA about your husband's car. I'd sell that before selling the house.

Agree with SA and Rick. Don't see the need to sell the home and do see a need to cut the vehicle expense. You have to live somewhere, and while it's not what it was in the boom days, it's still not a terrible thing to be building equity in a home. And the interest is tax deductible. If it is too much home, do you have enough space to rent out a room?

Have you considered how much your new extra deduction is going to save you? That might help out some of your monthly numbers as well.

I agree with the others that the house is not a problem once you refinance, but that the cars are an issue. I also agree with the others in that you should be making more as an attorney. It sounds like your husband may not be overly happy with the long hours, but can't cut back as your earnings are low and you need the money.

I don't think you should sell your house either. If you're thinking of buying more house for the baby take it from me it might not be necessary. Unless you live in a 1-bedroom apartment.

I have a few friends that had babies last year (a total of 4 of my gal pals) and a few of them were thinking of selling their condos or leaving their apartments and buying a larger home. All 4 are staying put after having a baby.

Why?:
Remember a baby is really small and they don't need that much space to begin with. It isn't till walking age you might want to rethink your living situation.

Boo for comments disappearing.

I agree with everyone above don't sell the house. It's appropriate for your family as it is very new, high quality, and reasonably priced.

You should think about selling the cars and swapping into something more affordable as others have mentioned.

More important is the large amount of home equity you have sitting unused while you carry other more expensive types of debt. Go to your local credit union and apply for a home equity loan. If your valuation is right you could take out $18k at a tax deductible rate of 4% or so.

Borrow that money, it's cheaper and the repayment term is longer which gives you more cashflow flexibility with the baby on the way. Pay off all the credit cards and perhaps some of the car loan. A 10 yr fixed rate $18k home equity loan at my credit union would cost you $186 a month, I'm willing to bet you pay more than that in credit card interest alone.

Keep in mind this takes discipline. You aren't getting free money from the magic piggy bank house, you are paying to borrow against the equity in your house. It's just a far more efficient way to structure the debt you already have.

One you take out this loan continue making all the minimum debt payments you used to, just roll them up into one large accelerated payment on the next most expensive debt you have.

It is good that you are now focused on paying down your debt. If you keep at it then you'll be much better off in the long run. Try not to get too impatient, it takes a while to pay down the debts.

Your combined income is very low but I don't know if thats typical for a small town or not. I would hope you can increase your income level.

What about starting your own law practice? Any potential to get business on your own? Maybe you could start it part time on the side and grow it over time gradually.

I agree with Rick, that house should be affordable for you in the long run. Right now your expenses listed adds up to $3485 leaving $915 per month to pay down debt. Seems to me your car payments are the bigger problem. You're putting $765/month into cars. When your car lease is up and you've paid off your husbands car that will give you several hundred more to work with.

Does your husbands 401k have any matching? If it does then I would think about taking advantage of 401k match as a higher priority than paying down current debts. 100% match on a 401K is worth more than avoiding a 15-25% interest charge on a credit card. You could then turn around and get a loan against the 401k money to pay down the credit cards. Worst case you have to repay the loan and cash out the 401k money with a 10% penalty. That 10% penalty is less than the interest on most credit cards.
If your adjusted gross income is under $56500 then you could also qualify for a tax credit from the government due to the Savers Credit. That could give you another 10% bonus on retirement savings.

You might qualify for Income Based Repayment on your student loans. I don't know what the loan balance is or your net income. But from the sound of it you may qualify. IBR would give you lower debt payments on the student loans for now. That would help you put more money towards paying down the credit cards faster.

Iwoods, is your daycare expense of $300, per week or month? A friend of mine in Minneapolis pays $360/week for an infant and a preschooler.

What struck me about your combined income was that it seemed unbelievably low. The geographic variations must be far greater than I ever thought. It makes me wonder whether for some occupations life can actually turn out better in a more expensive part of the country.
I checked San Jose, CA which is close to where I live, incidentally it has a fantastic climate. The median salary for an attorney was $107K and for an assistant supermarket manager it was $49K. This turns out to be a combined gross salary of $13,000/month. Admittedly there are no houses for $225K, the lowest starter home would be at least double that. My daughter was a paralegal & office manager in San Jose in an office that employed three attorneys and she was making about $100K/annum when she quit being full time in 2002. She now telecommutes from Maui to the same office and just does the billing for them at a much lower salary. In addition to her salary she also received the maximum contribution to her SEP-IRA every year, and that IRA, which I have managed for her since 1988, is now over $1.5M.

I agree with the others to not sell the house. You have such a fantastic amount of equity! After you finish clearing your other debts you'll be even closer. Then, only if you really need to, you can sell and move to a bigger home using the equity from your current house.

Others have already pointed out your car issues. I just wanted to commend you on putting yourself out there like this! It's not as easy thing to hold up your finances like this to other's scrutiny! I think your gas/food miscellaneous expenses are pretty decent for two working people and something I personally need to get better at.

So agree with the others- refi your house, find a way to lose a car payment as soon as you can, continue with your credit card pay down strategy, then go after the student loan debt.

The general consensus is that an attorney should be making more money and that the house sale is not necessarily a good financial move. Relocation is rarely a good financial move. Moving expenses, time lost from work, and the general chaos accompanying a move that make all phases of life more difficult contraindicate a move. But, if the move occurs because of a job advancement, or a great deal on another house, it might be a different story.

I am guessing you live a ways away from a major metropolitan area, and that is why your combined income and expenses are low.

I am concerned about your husband's long hours at work, as you have an infant joining your household, and he is not happy with his job. Long hours will stress both of you, especially if he is not being well compensated for those hours. I am not knowledgeable about this market, but I would urge the two of you to research alternatives. It may be that there is a better fit out there; for hours, wages, and a workplace that he is happier with.

You are wise to tackle the credit cards with their exorbitant interest rates. I wish you luck in your pursuit of debt freedom.

@David
Relocation can be a great career move. It was for me when in 1958, at age 24, married with 2 children, we moved from Aurora, Colorado to Sunnyvale, California. I went from a small aviation company with a limited future to a leading aerospace company that paid for me to get my MS degree in engineering and that had some fabulous longterm military contracts. As things turned out, our whole life took a sharp turn for the better by making that career move. I ended up having a 32 year career, several promotions, and, above all, spending our life in a far more desirable area.
However since state laws vary from state to state an attorney would need to go back to school for a short while, and then retake the bar examinations for the new state before being able to practice. Physicians have a similar problem when moving to a different state.

Thanks everyone for the comments. We had our baby this week so I haven't had a chance to review them in detail but I do appreciate the input!

Congrats on the baby! I had mine born same week on Tuesday 801am! Thank goodness for medical insurance, our tab is now reaching 100k. We have 30 days to add our baby to the plan, update term life, file FMLA,etc. Maternity leave term length stinks doesn't it?

Luis - $100k for a baby? I don't have kids yet, but I've heard "babies are expensive!" as well as "babies really don't cost too much" each in comments on various financial blogs. I always figured the latter was probably more true in a relative sense...But $100k in medical costs and the baby was just born this week? Tell me that's a typo!

@ Jonathan Sorry for the confusion I needed to add more detail. My wife and I had a preemie and he has had to be in the NICU since delivery. I hope he will be healthy enough to be discharged next week. We have faith in our little fighter but we welcome your prayers too, thanks.

Congratulations on the baby.

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