Looking for advice on debt

[electro]

Hi, I found this site on Google. Looking for advice on my current situation. I'm not familiar with debt or choices when dealing with debt, so here it goes..

Facts:

I make around 39k a year (After tax deductions, retirement, etc, I have ~2400/month)
Fiance works part-time making around 10k a year
I currently have about $5,000 in credit card debt.
In September I financed a used sports car that I currently owe $14,000 on.

Story:

Last month I got into an accident in this car. Long story short, there is high chance that insurance will not pay this car off. A couple of weeks after this accident, I found out that my girlfriend (now fiance) is pregnant. Because we have a baby on the way, I decided to begin paying my credit cards off so that when the baby gets here I will have a clean slate.

For the past month and a half I have paid a good amount down, I've been paying about $800 every two weeks on cards/credit accounts. I'm am left with around 4 accounts: totaling around $5,000. I am also left with a wells fargo dealership loan totaling 14,000 ($320/month).

My fiance and I are getting married before the baby gets here, because of her traditional family. Nothing big, maybe just a ceremony and lunch at a park. I have $3,000 saved up for the wedding, so i'm hoping that will cover that.
We are also moving into an apartment (I still live at home) around late May to early June. Browsing Craigslist for a 1-bedroom apartment, I'm expecting to pay around $1,000 a month for rent. I'm not sure how much the baby will cost, but Google is saying to expect around 12,000/year for the newborn.

So there is my situation. A family friend suggested that I file for bankruptcy to get rid of the $20,000 debt. I didn't know anything about bankruptcy so I began to look into it today. A ton of people are saying not to file for bankruptcy unless it is absolutely the only way out. I don't think it is the only way out, in my case.

If I continue paying the $320/month car payment, in addition with credit account minimum-ish payments and rent that will total around $1,900 a month out of my $2,400 that I get after tax deductions. That will leave me with $500 a month for food and baby things. That sounds like money will be very very tight and barely doable for the next 5 years (until car loan is paid off). I want the best for my family so I am tempted to consider bankruptcy to give us more money to do whatever we want.

Would I be able to call my credit cards/car loan companies and ask to pay less? Or do I need to begin missing payments so they realize I'm broke and agree to cut my monthly payments in half? Would bankruptcy be a horrible idea in my case? What are my options, and what would you do in this situation?

Thanks for reading, I really appreciate any insight as I am completely blind in this field.

[disneysteve]

Last month I got into an accident in this car. Long story short, there is high chance that insurance will not pay this car off.

Why is the insurance not covering the damages from the accident?

[disneysteve]

I have ~2400/month)
Fiance works part-time making around 10k a year

I'm expecting to pay around $1,000 a month for rent.

Will you and your fiance be combining finances after marriage? How much does she take home monthly? Will she continue to work after the baby?

You can't afford $1,000/month on your own. That's 42% of your income, way too high. If she brings home $700/month, you're still at over 32% which is on the high side but manageable.

I'd suggest that until the baby comes, you shift your focus to building up cash to cover expenses related to having a new baby and also to cover any time that she is out on maternity leave. The debt can wait.

[electro]

Why is the insurance not covering the damages from the accident?

Investigator seems to believe that I was racing on a freeway, which isn't covered with my policy.

Will you and your fiance be combining finances after marriage? How much does she take home monthly? Will she continue to work after the baby?

You can't afford $1,000/month on your own. That's 42% of your income, way too high. If she brings home $700/month, you're still at over 32% which is on the high side but manageable.

I'd suggest that until the baby comes, you shift your focus to building up cash to cover expenses related to having a new baby and also to cover any time that she is out on maternity leave. The debt can wait.

We will be combining our finances, however, we haven't discussed actual amounts yet. I'm guessing her take-home amount will be around 400-500 a month. She will most likely take a few months off after the baby, but she will be going back afterwards.

I'm not seeing any apartments anywhere around us for under $900 so it seems like the $1,000 is something we will have to manage with.

That being said, I appreciate your suggestion to start saving cash instead of paying of debt. I'll stop paying large amounts towards my credit cards.

[electro]

I should also say that we both have about 2 years left in college so a part time job for either of us would be out of the question due to the lack of free time.

[disneysteve]

We will be combining our finances, however, we haven't discussed actual amounts yet.

There are no amounts to discuss if you will be combining finances. Then all the money goes into one pot and bills get paid from there.

If you are going to keeping things separate, then you need to decide how much each of you will contribute to everything. The common way is for each person to put in the same % of their income, so if you put in 30% of your income toward rent, she puts in 30% of hers as well. I don't recommend that method but folks do it.

As for college, who is paying for that?

I'm assuming the insurance investigator has some good reason to think you were speeding based on the extent of the damage or data from the onboard computer.

[electro]

There are no amounts to discuss if you will be combining finances. Then all the money goes into one pot and bills get paid from there.

If you are going to keeping things separate, then you need to decide how much each of you will contribute to everything. The common way is for each person to put in the same % of their income, so if you put in 30% of your income toward rent, she puts in 30% of hers as well. I don't recommend that method but folks do it.

As for college, who is paying for that?

I'm assuming the insurance investigator has some good reason to think you were speeding based on the extent of the damage or data from the onboard computer.

I meant that I haven't asked her how much she makes, but since we're married, we'll be discussing that soon. We'll both be putting our money into a pot.

We both have fee waivers and grants that are taking care of school right now.

I'm slowly accepting that insurance will not cover the accident. Now that I'm beginning to accept that fact, i'm trying to think of solutions to lower the $320 monthly payment down to $100 or anything like that.

[disneysteve]

I meant that I haven't asked her how much she makes

You are engaged and having a baby with this woman and you don't know how much she earns?

You both need to sit down tonight and have a nice conversation to fill each other in on the details of your lives. You should go online together and pull your credit reports to share with each other. Get out your bank statements, any investment statements, retirement accounts, etc. Each of you should know absolutely everything about the other's financial situation. How much you earn, how much debt you have, how much in savings, etc.

i'm trying to think of solutions to lower the $320 monthly payment down to $100 or anything like that.

I have no idea how you could drop the payment like that. Is the car totaled? Have you looked into what you can sell it for in its current condition? It is always worth something to somebody either for parts that can be salvaged or scrap or whatever. It probably won't be much but hopefully it will help a little.

Unfortunately, you may be screwed as far as the car is concerned. First you bought a car you couldn't afford and then you wrecked it in a way that isn't covered by your insurance. It is an expensive life lesson but one I'm sure you won't make again.

[dczech09]

Unfortunately, you may be screwed as far as the car is concerned. First you bought a car you couldn't afford and then you wrecked it in a way that isn't covered by your insurance. It is an expensive life lesson but one I'm sure you won't make again.

I second this. I am not sure how you would be able to lower a car payment in such a way. If you can, then more power to you. However, I believe you may be stuck with that $320 per month payment. Lesson learned.

You and your fiance need to get on the same page financially. My fiance and I will definitely be taking the time to know about every detail of the others finances. We will also be getting on a plan to run the household ship together, financially. Of course we are not getting married for over a year, so we have time. You on the other hand do not have much time.

What you need to do is make only the minimum payments on your debts. Any extra money (that $500 per month) needs to be stockpiled and saved until the baby comes. Once the baby is born, and everyone is home safe, then any remaining money that was stockpiled can be thrown at the debt. However, the #1 priority right now is to stack up cash in order to ensure that no debt follows the baby home.

How did you rack up the $5,000 in credit card debt? This is a rhetorical question that you need to ask yourself. What can you do to prevent that from happening?

Do you have an emergency fund? It does not sound like you do. You should have $1,000 to $3,000 set aside for emergencies while paying off debt. If you do not have this, then you need to make sure you do before you start throwing any more money at debts.

Step 1: Stay current on all payments, do not fall behind, and stop using the credit card... Get on a budget to ensure this foundation stays intact...
Step 2: Pay minimums on all debts...
Step 3: Stock up money until the baby is born...
Step 4: Once the baby is home safely with mama, then keep $1,000 to $3,000 for emergencies (whatever gives you and your spouse more peace of mind)...
Step 5: Continue paying minimums on debts...
Step 6: Throw any extra money at credit cards until they are paid off...
Step 7: Throw any extra money at the car loan until it is paid off...
Step 8: Build emergency fun up to equal 3 to 6 months of expenses...
Step 9: Invest 15% for retirement...
Step 10: Save up for down-payment on house...

These are 10 steps to take over the coming months/years. I have even gone beyond the debts. This will not be this simple as it is in writing and things will come up. Go with it! Go with the flow! But you as you go with the flow, you will return back to these steps.

Hopefully both of you can finish school in due time and can get jobs making decent money. It is awesome that you have grants covering school and that you do not have any student loans. You will want to keep it that way!

[Jovanny]

Planning your budget may help you cut down on unnecessary expenses.