We need some sound advice on how to manage our money on a low income, while being steeped in debt.?

Question

Long story short: we have some major debt b/c of stupid decisions. Credit cards - around $40k, student loans haven't kicked in yet since my husband is still a student. We have one car note, pay insurance, groceries, rent, electric, gas, etc ... all the basic needs. We also pay tithing (10%) to church. We don't spend frivolously (anymore, that is) and still have to pinch pennies. We make around 30k, TOGETHER. We are struggling to make our credit card payments and maintain our basic living expenses. The deal is, we don't want to NOT pay our bills. We made them and we are more than willing to pay them back. However, our credit is now destroyed and we can't even get a house if we wanted to b/c of that, plus my husband is finishing his degree and we make pennies! We need some help. Can anyone please offer some wise, been-there-done-that-advice? Thanks and God bless.

Answer 1

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Answer 2

Seriously consider getting temporary part time jobs to help you out of the hole.  It is better to have a bad, no fun year than a bad, no fun decade.  Here is a plan for you.  If you work the plan, the plan will work for you:

1. Make a budget. Make the budget a week before you get paid. A budget is not a punishment! It is a tool which will free you from ever having to worry about money again. Put everything in your budget. Especially those annual, biannual, or quarterly bills like car registration, insurance, etc. Give every dollar you are going to bring home the name of where it is going. Add an "emergency fund" category to your budget for 25 dollars and save up until you have 1000-1250 dollars. Your emergency fund will help keep you from getting into new debt because of an emergency. If you can, set up a direct transfer to a savings account for your emergency fund. That way it moves automatically and you don't even have to worry about it. You must cut your spending and live on less than you make.

2.First get current on all of you debts and make no more late payments. Stop using your credit cards immediately. Do not take on any more debt. Credit cards are like quicksand only the death is much slower. Make a list of all of your debts in order of highest interest rate to lowest interest. Use cash only for your spending from now on.

3.Pay the minimum due on all of your debts and then put your extra money towards paying off the highest interest one first. After you get that one paid off, you put the money you were paying on debt #1 (the minimum payment and the extra payment) towards debt #2. That will pay debt #2 off faster. When that is paid off, you put all three payments towards card #3 and that one will be paid off pretty quickly. As an example:

To start :

Debt #1 (highest interest): minimum payment+ extra payment

Debt #2 (middle interest): minimum payment

Debt #3(lowest interest): minimum payment

Debt #1: paid off

Debt #2: minimum payment from Debt #1+ Minimum payment from Debt #2 +extra payment

Debt #3: minimum payment

Debt #1: paid off

Debt #2: paid off

Debt #3:Mimimum payment from card #1+ minimum payment from Debt #2+ minimum payment from Debt #3+ extra payment.

That way, you will get them all paid off, on time, and pay the least interest. It will also help towards rebuilding your credit since you will no longer have any late payments. This works no matter how many different debts you may have.

4. After you get all of your debts paid off, add to your emergency fund until you have 6-12 months of income saved up. Put that emergency fund money into a liquid money market fund or into a Bank of America no-risk CD so that if you need the money you can take it out without penalty.

5a. When you have your emergency fund in place, add a category for "fun" to your budget. Save for a holiday, a vacation, a big screen, or dinners out, whatever goal you want. Remember to enjoy your life.

5b. When you have your emergency fund in place, start saving for your retirement. Join the 401(k) plan at work and contribute the maximum. Your employer probably matches at least part of your contribution so why give up free money. Open a Roth IRA and contribute the maximum on a monthly basis. If you start saving for your retirement now, you will probably retire a millionaire.

5c. When you have your emergency fund in place, start saving for your next car. Only buy cars, or other things that depreciate, with cash. Save up for a nicer car. That way you get the interest instead of paying the interest.

Answer 3

Let the church know you are going through hard times and you can't give money to them for a while. God will not be mad, he/she will understand.

Call the Credit Card companies and see if they will lower your interest rate, also cancel any unnecessary services like premium TV, Basic cable is ~$20/month. Be sure to get your internet on the lowest plan.

Answer 4

Hi. Sorry to hear your story but you are already on the right track in realizing that you have to do SOMETHING. I would start with the tithing. Not to stop, but to contribute in other ways to the church. Before tithing anymore you need to save up 4 to 6 months of minimum expenses emergency budget money. Cut up the credit cards. Talk to each other about the budget. Remember that NOTHING {except God} is more important than your spouse. Try looking at daveramsey.com and check out his books at the library. He would even tell you this is the best way to get his books because it will not cost you ANYTHING! He has a very simple way to get out of debt by committing to never be in debt again. He has a simple plan to get there with your firm commitment. I know if you will read and share his plan you can work yourself out of this. I truly hope this comforts you and give daveramsey.com a visit.

Answer 5

Join the club!  There are millions just like you -- in debt up to their eyeballs and struggling to pay it off on miserably low incomes.

1. Get a grip on your spending, even tighter than it is now.  Sort out needs (get out of debt and rebuild your credit), vs. wants (house).  Pay bills in order: rent, utilities, car loan, car insurance, debt repayment, transportation to work.  Be true to your word and fulfill obligations you are already committed to -- crucial to rebuilding credit.

2.  See where you can cut: if the rent is month-to-month as opposed to a lease, can you save money by moving to a smaller, cheaper place?  Or are you near enough to the bottom of the market that moving costs would eat up any difference?  Are you energy-wise? Can you cut usage enough to save $5, 10, 25/month?  Probably at least that!  What's the shortest, most fuel-efficient way to work?  Limit errands and shopping to twice a month, aim for one trip a month!  

3.  Groceries, clothing, gifts, etc. are all discretionary expenses.  Wear only the clothing you already have, etc.  Cook from scratch, eliminate snacks and junk, etc.

4. Have a garage sale to clear out clutter, enable yourselves to live in a smaller place, and raise money to pay down the debts.

5.  Get a second job to increase your income.  What skills do you have?  Can you get overtime, get some freelance work on the side, whatever?

6.  Gratitude: with each paycheck, a successful garage sale, paying off each $10,000 of debt, celebrate with a "Thanksgiving dinner" and light your candles on the dinner table, or take a stroll together on the beach, in the park, etc., being thankful/grateful for what you have received & been able to achieve.

Answer 6

Try looking for jobs for your husband now. Since he's finishing up his degree he can jump right into the work force and substantially help your financial situation. As long as you guys pay the minimum on all your loans on time and try to negotiate with the various companies you pay bills and loans to regularly, it'll also help. Try to talk to the companies and get some benefit for being a 'long time customer'; that can help give you some extra money. Talk to the companies that you owe money to and explain to them that you don't want to claim bankrupcy, but you can't afford the minimums they're giving you. Chances are, they may help you guys because they don't want you to claim bankrupcy, they lose money when you do that. The important thing is making sure your husband can jump into the best job he can as soon as he gets his degree.

Best of luck.

Answer 7

If you listen carefully, you can hear me shouting, 'Consumer Credit Counseling' if you are in the U-S.  I know from experience that it works.

They are a non-profit that is free to consumers...they educate you about budgeting, help you negotiate lower interest rates and/or payments with creditors, ESPECIALLY credit cards.

You might not get a credit card company to agree to a reduced rate or frozen interest, but with CCC behind you, they usually will.  The program takes away a lot of the stress, because when you sign on them to reduce your debt, you give them a money-order, and they dis-burse to your creditors.  I don't remember for sure, but some things they will not include in the agreement, like regular living expenses (food, rent, gas bill, etc.) but any other creditors, including most things that you would finance (furniture, appliances, credit cards, etc.) they will take care of paying monthly, as long as you keep up your end and give them the money-order.  They won't take cash, as they want a paper trail for proof...but it is a great program at no cost to you...

Their expenses, salary, etc. is paid by companies that profit from CCC helping them get re-paid.  

Remember, you won't always be this tight financially, but you can learn some really good skills that will help you make the most of your money when you actually have some to work with!!

Look in your phone book--if they don't have one near you, they do work with clients on-line.

About 18 years ago, I had a difficult pregnancy, and had to go on bed-rest at 4 months...our income dropped by half and our credit rating took a plunge...I tried dealing with bill collectors, credit card companies, etc...and I was getting really stressed out, and also getting NOWHERE in dealing with the creditors--until I partnered with CCC.

By the time our baby was 6 months old, we had worked with CCC to clean up our debt enough that we were able to move from our rental home into a home of our own.

Your husband is still a student--take advantage of everything geared towards students that you can get...grants, scholarships, etc.

Kudos to you for tithing 10%--but remember that if you have to cut back to a smaller percentage that would be OK...I remember our pastor telling us during that rough time that we owed it to our family to get things straightend out first, then we could work toward getting back to the 10-percent.

Some people might say that is a terrible thing to reduce (the tithe) but I think that God would not punish a couple for trying to keep their family afloat, and also that God helps those who helps themselves!