Can't get out from under this revolving debt

[UDRogue]

Hi,

This is my first post.

The good news is that my husband and I have retirement accounts (IRAs and 401Ks) to which we automatically send contributions. So saving for retirement is not a problem.

The bad news is that we can't seem to control our spending otherwise. We have several credit cards plus a home equity line of credit. Right now the total balance on this revolving debt is many tens of thousands of dollars.

I have tried getting rid of credit cards. It doesn't work because my husband travels a lot and needs them for business. Both of us buy almost everything online so need them for those transactions.

Every time I beat down the debt it creeps back up. We spend it on both wants and needs. We don't do a good job of sorting those out.

We have NO tool for budgeting. I used to use Quicken but I cannot enter all the data anymore. The credit cards and bank accounts have hundreds of items going through them each month. I cannot keep up with it. His work expenses all go through our personal credit card. I've set up separate checking accounts to try to track this stuff but that has just resulted in it all seeming more spread out and more confusing than ever.

Likewise we thought getting more credit cards would simplify things. One for his work stuff. One for my household stuff. One for only vehicles. But likewise that too has become a tracking nightmare. We have six active cards now and I simply cannot track all the line items of all the bills. There is a lot of money coming in between our income plus the reimbursements for his business expenses, but it's all going out and more is going out than coming in. It seems we are hemorrhaging money and I can't get a grip on it.

We can't cash in part of our retirement to pay this off because I know the debt will just come back. We really need to get a handle on managing our daily spending.

I saw a suggestion for mint.com in another thread and looked at the site. Is this something that could help me? I am loathe to allow a website to access our financial data! But I cannot imagine a way for me to track all our credit card and checkbook transactions manually. Anyone who uses mint.com, can you tell me if they are trustworthy?

Anyone else been in this situation? How did you fix it?

Thanks in advance for any help.

[JulieAlbright]

Okay.

Well this is the key portion of your post

We really need to get a handle on managing our daily spending.

You need to start with a budget. You can use Mint, a pad and paper, a software like You Need a Budget (YNAB which is what I personally use) or whatever, but until you wrestle your spending down to where your outflow is less than your income, you will not solve this problem. I do have a Mint.com account but I don't use it for budgeting. I really use it more as just a way to glance at all my credit card balances in one place to make sure there isn't anything that looks wrong or suspicious.

I think everybody just kind of develops their own way of budgeting. I personally prefer YNAB software for budgeting because it is more focused on telling me how much money I have LEFT to spend this month on all the different categories rather than just a report of what I've already spent.

I sympathize with the numerous business expenses because I handle that too between my husband's travel for his job and then my Independent Contractor types of work, but that isn't an excuse for not controlling your money. Right now, you are just completely out of control and then standing back and going …. oh I just can't do that because it takes too long. I'm guessing that right now you probably don't have a very good idea of what you guys spend on many categories, and you don't know where your money is going.

And when I see you say "There's just too many of his work expenses for me to handle…" my first question is how much money are you guys losing on unreported work expenses not turned in on his expense reports because you aren't paying attention to the details to make sure everything is correct?

[UDRogue]

Thanks for your quick reply! I'm looking at You Need a Budget website right now.

Do you use the download function? My problem with data entry and all those hundreds of transactions is that I have a disability that limits how much I can type. If the transactions automatically go into the software I think I can take it from there. I tried that with Quicken and it was a mess, but a review of You Need a Budget says it works better than Quicken.

[JulieAlbright]

Yes, you can import the transactions into the software but you then have to go in and approve them. It's more of a point and click kind of thing than an overload of typing.

[UDRogue]

Yes, you can import the transactions into the software but you then have to go in and approve them. It's more of a point and click kind of thing than an overload of typing.

That should work. Thanks, I think I will try the free trial.

By the way, when I try to preview my posts I get a "content encoding error" message. I tried to post a question in the "everything else" section about it but apparently my post was deleted. Do you know anything about why my preview button doesn't work or why a mod would delete my question about it? (I hope they don't delete THIS post too.)

[doingitallwrong]

I use Mint.com and haven't had any trouble with it. It will tell you how much you have left in each budget category. I haven't looked too closely at YNAB because I'm cheap and Mint is free. Different programs work better for some people than others, so YNAB might be just what you need, but if it's not intuitive for you I just wanted to pipe in that Mint.com has been fine for me.

The first step is getting a handle on our financial situation. The programs will do this for you for the most part, but you may have to enter some things manually. You want to look at your total debt, your monthly expenses vs. income, and your net worth (assets - liabilities). It's not usually pretty, but it's often just the kick in the rear needed to get on a solid plan to gain control and get out of debt. I'd also suggest calculating how much interest you're paying each month -- the easiest way is to add up the interest amounts on your statements. That can really be an eye-opener!

If you list your information here (monthly expenses, income, debts with interest rates and minimum payments, etc.), you'll get a lot of advice on where you can cut expenses, what debts to tackle first, etc.

I understand needing a 'credit card' for online purchases etc., however these days most banks provide a debit/check card that can be used just like a credit card, but the funds instantly come out of your checking account. If you don't already have one of these cards, get one, and use it as your only 'credit card'. Cut up the other ones. This will not only simplify your bookkeeping, it will also keep you from racking up more debt. (You can get a separate account/card for the business if it won't be too much hassle for you; you'll want to do that at some point anyway, it's much better if you aren't commingling business and personal funds. If you think that will be too much for you at first, however, get down to one and get things figured out, and then add the second.)

[autoxer]

Credits cards are a great tool for managing money if you live below your means and a dangerous tool if you don't. You may want to consider cutting up all of your credit cards (except the business account), until you figure out how to balance your spending against your income. The credit cards are enabling you to spend beyond your means and you need to put an end to that.

Try switching to a cash budget for a little while. Once you have all of the bills paid, figure out how much cash you have available. If it's $300, learn how to divide that up between groceries and fuel for the vehicle. You don't 'need' to be buying things online, take a break from the spending.

[UDRogue]

This is all great input, thanks.

I will try the mint.com too and see what works best for me. I do the tracking and billpaying in our marriage so whatever works for me the husband will be okay with, but he might have a problem cutting up the credit cards.

We did determine that half our spending is him and half me. We are both equally to blame and we generally work well together on problems. (once we focus on them)

I'll consider posting some numbers, but also I will read a lot more other threads and try to learn as much as I can. This is the first budget forum I've joined and if it works like the forums on other subjects, they are amazingly helpful. Sharing knowledge with hundreds of anonymous strangers still seems miraculous to me (you can tell I am old because I didn't grow up with the internet.)

[snafu]

Like JA, I'm concerned that if you are not paying close attention to business costs DH incurs and your Independent Contractor expenses you are not being totally reimbursed. By incurring interest and possibly fees on CCs there is considerable slippage. You have not outlined the interest rates you are paying on 6 CCs [credit cards], Home Equity Line of Credit and just those sums added together can destroy the best intentions.

YNAB is a terrific tool. If DH agrees with the need to get debt under control, I suggest you both declare a moratorium on all spending except Mortgage, Utilities, Cell, Vehicle loan/operation, 6 CCs, Equity Loan until an agreed plan is in place. Unfortunately, you'll need to exempt DH's business expenses that cannot be put off for say two months. You'll notice I haven't mention food as I propose you make every effort to develop a basic menu plan that uses the foods at hand in fridge, pantry and freezer buying only the fresh produce and dairy that's absolutely necessary. I'm challenging you both to avoid eating out which is close to double the price and full of salt, sugar and fat.

Rather than make regular purchases on line, I suggest you both create a 'wish' list that you can action when you have better control of income, reimbursements, credit card balances, reduced home equity loan etc. If you have a reasonable FICO score, you may be able to transfer to a no fee, 0% interest card but the catch is you must be able to pay it off within the designated time frame or extremely high interest kicks in to swamp your income and intentions.

One idea to rid yourself of too much deb its called 'snowball.' Once spending is designated/budgeted for basic expenses, the minimum required payment is continued on every debt and loan except the lowest CC's balance. Throw every cent both of you can scrounge goes to that specific card until the balance is paid in full. We'll cheer your success as you move to the next lowest balance card.

Try small savings like a coin jar, dumping all cons daily into a jar. Once full find the bank that has a coin counting machine. Look at all services and charges. Find a bank plan whose services are of value to you. Use a Credit Union or electronic bank for free services. Don't incur un-necessary costs by using $ 5. ATM machines for example. Review every room in your home and find those items you don't use, don't need, don't love and run an ad to sell on local FB sell, Kijiji, CraigsList or hold a yard sale. The double benefit is less clutter to care for and cash to reduce the sum owed on the focussed CC.

Many people find some part time work to increase income to apply to debt and reach their goal faster. The point is to stop adding to your debt and give every dollar a 'job.' You might like whatsthecost.com/snowballaspy

I feel confident you and DH can work together to control spending and get debt paid down quickly.

[UDRogue]

Like JA, I'm concerned that if you are not paying close attention to business costs DH incurs and your Independent Contractor expenses you are not being totally reimbursed.

Snafu, that's a great post. YES this is part of the problem; we get reimbursed for the expense, but not for interest and fees. We cannot get reimbursed for that. He is not an independent contractor, he is an employee and they set the rules. The only recourse I have is to not incur late fees by paying the bill on time and to try to minimize interest by keeping it paid off. Possibly see if we can write off the interest on taxes as a job related expense?

I just looked at this month's bill (the CC for his business expenses) and the interest charge this one month is $90.... I am sick.....

Doingitallwrong, I might take your advice and post a month's of our transactions. At the very least it will force me to look at each item.

I've had my head in the sand because I felt I had no control but you all have already guided me toward some great tools to get a handle on this. I wish I'd asked "teh intrawebs" for advice long ago.

[Eagle]

@UDRogue

Welcome to the forums! You've come to the right place.


What is total your monthly household income (last month for example)?

What is total your monthly household expenses (last month for example)?

A good measurement of your financial health would be your net worth. Net worth can be calculated by taking your assets and subtracting them from your assets.

Assets (what you own) - Debts (what you owe) = Net worth


Yes, www.mint.com is a good resource. We've used it for several years now.

[autoxer]

At the very least it will force me to look at each item.

You are on the right track. The process of analyzing each expense will help you separate wants vs needs, so you can cut out things that aren't really adding value to your life. That'll make it easier to trim spending without feeling like you are depriving yourself.

[UDRogue]

What is total your monthly household income (last month for example)?

What is total your monthly household expenses (last month for example)?

A good measurement of your financial health would be your net worth. Net worth can be calculated by taking your assets and subtracting them from your assets.

Assets (what you own) - Debts (what you owe) = Net worth

I bought YNAB and for the past month have been learning it. What a wonderful program. It's put me on top of all the confusing information.

An average month:

Income (net): $7600
Expenses: $7734

The expenses include some big annual bills like insurance and fuel oil but does not include hits such as medical emergencies or unexpected home repair. We don't have a cash fund for these rainy day events. We used the equity line and credit cards as that cushion (big mistake I see now). This plus the chronic $134 overspending is why the big revolving debt.

We are working on the expenses. We are going to cancel cable, maybe the land line, we have kicked the kid off our cell plan, I'm going to cancel the monthly pest control service and so on and so forth.

The net worth is large because we have religiously contributed to 401K's and IRAs for 30 years.

Total Assets: $1,528,000
Mortgage: $ 199,600
Revolving debt: $ 91,400
Net worth: $1,237,000

The mortgage payment is $1961 per month and we have 13 years to go, it's at 4.75% interest. It was a 15 year mortgage.

Here is the $91,400 revolving debt:

Credit card 1 (25%): $1600
Credit card 2 (15%): $9000
Credit card 3 (11%): $11,800
Credit card 4 (11%): 0
Credit card 5 (9%): $5700
Credit card 6 (7.5%): $3800
Equity line (4.75%): $59,500 (another $16,000 available)

Obviously I need to get rid of the high interest rate credit card balances. I am starting to "snowball" the payments to the top ones first. The highest one my husband was using for business but we don't need to separate that out anymore thanks to YNAB categories. The next has good rewards, but I doubt they counter the high interest, so we are tabling those cards and using only the low ones from now on, and we will pay all new charges off each month as they occur. YNAB makes it really easy to calculate how to do that - and we are focused on cutting spending.

But we still have the existing balances. What can we do immediately?

Options:

1. Apply the remaining $16,000 equity loan to the credit cards
But I view the equity line as our emergency cushion. I'm loathe to max it out.

2. Cash out IRA or 401K to pay this off
I'm also loathe to touch our retirement. Big tax hit, plus we are old and will need it soon.

3. Get a personal loan from the bank at 5% using the business vehicle as collateral.

4. Consider LendingTree, I think we can get a 6% loan there, no collateral needed.

In addition, we are selling some personal items, but won't raise much cash. Most of our wealth is the retirement funds.

So our two big problems are getting rid of the revolving debt, and building an emergency fund.

[autoxer]

1. If you max out the HEL and pay down your credit cards, then the cards become your emergency cushion. Not much different situation, just moving debt around. I would say go for it, because you can save a lot of interest cost.

2. Leave the retirement funds alone. Focus your energy on the monthly expenses. The skill of managing your expenses will be very valuable in retirement.

3. & 4. are also just shifting debt around, so although they can help by reducing interest, they don't address the root cause which is the spending. Use them if these options are available.

[JulieAlbright]

Take your Retirement accounts off the table right now. That money is SACRED. You can use it to get your husband a life saving emergency surgery, but nothing less important.

You can move the debt around to lower the interest charges you are paying. It will help a small bit. But remember if you do this you are cementing your ties to your house right now. Is adding on to your Home Equity debt going to put you underwater on your house value vs the total mortgage debt? What are the chances that you might need to move and sell the house anytime in the near future?

But the BIG thing that is going to solve your problem is again getting your expenses to be less than your take home pay. Keep wrestling on that. Pay close attention to your YNAB categories and think very hard about anything you spend money on. Every time you make a purchase ask yourself "Is this something I can do without? Would I rather have this, or would I rather pay extra to my debt?"

This is the process I did when I was in your position.

Right now you are bringing home around $91,000 a year to spend. ($7,600 x 12)

There are plenty of people who live on much less. There are people who live comfortably on $50,000 to $60,000 and even less. How do they do it? What can you learn from them? Where is your "extra" $30,000 going to that they don't spend and how much of it can you reclaim? Make it a game, challenge yourselves.

Remember, every extra dollar you can send to your credit card right now is saving you 25% interest. You'd be pretty excited to earn 25% returns in the stock market - right? So get your expenses down and go save that money.