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Getting out of debt

I try to be honest so here it goes – I suck at financial planning.  I can squeeze a penny until it cries.  I can budget to the nth degree.  I can’t predict the future.  This makes financial planning an absolute mystery to me.

When I first started getting credit cards, they had a nice manageable limit.  I loved that because I knew exactly how to pay them off.  I could use my credit cards, pay the minimum through the year, and then pay them off when we got the tax return.  It worked beautifully.

Then I got married.  Suddenly, those manageable credit cards with low limits starting to change.  I got higher limits, whether I wanted them or not.  I ended up with more credit cards.  It was like the monkey’s paw.  It was out of control.

Since I have a good grasp of money and budgeting, I was able to figure out plans that allowed us to pay off the cards in a reasonable amount of time.  I could plan but I couldn’t predict.  I didn’t know we’d lose our house to a fire and have to move some place that was significantly more expensive.  I didn’t know that my husband would lose his job and not be able to get a new one.  I didn’t know that the credit cards would become the burden beyond burdens and that we’d come to expect them to stretch our paychecks.

One day, I realized I couldn’t do it anymore.  We would have to file bankruptcy.  We were stuck.  We had our car almost paid off, hit ice and totaled it.  Bought a new car that lasted two years before the engine blew (and we still owed money).  At that time, we had 2 cars with payments since my husband and I both worked in different places.  We sold one car to my dad who took over payments before the second one bit the dust.  We couldn’t survive without a car because we live in a rural area.  We ended up with a new to us car and a payment  much bigger than we could afford.

I couldn’t wrangle in the expenses anymore and I had no hope.  I talked to my cousin who had filed bankruptcy.  He said you have to go to Consumer Credit Counseling before you qualify for bankruptcy.  They saved us.  I talked about this earlier this week – it was a hard adjustment but one that finally allowed us to get things into perspective.

My husband and I have a dream – we want to own a house with some acreage.  We have student loans, debt and a son just about ready to go to college.  Money becomes something we think about often.

I took a quick financial planning class this past month.  I’m not an expert but it did give me some things I want to share.  Soon after, I read a blog post on the most important thing you can do to plan for an emergency.

You want to know what they said – get rid of your debt.  That’s not as easy as it sounds.  Some people have a lot of good luck with do-it-yourself debt reduction plans.  They are easy to find.  I used the one at CNN Money.  However, we found they were difficult to follow.  We had to get outside help from Consumer Credit.

There is something you need to know about consumer credit programs – they are not all the same.  Some are nonprofits designed to help consumers get out of debt.  Some are scams.  We were lucky enough to have one recommended to us which is why I am sharing them with you.  This is an honest company.  The best part – they offer classes to help you understand debt.  The hard part is you have to give up your credit cards and not incur debt while on the program (which means no house for us until it’s over).  But we are building back our credit.  We hope that by the time we have that and our car paid for, we’ll have amazing credit.

So the first step in financial planning is to figure out a solid plan to get out of debt.  This is not an easy step at all but getting out of debt will help you more than any other plan.  Right now we pay $412 in credit card fees (and ACCC fees) and about $250 for our car.  That’s $662 a month we pay in debt.  Since our goal is to buy a house, that money plus our current rent could mean buying a $300,000 house with no change in our current expenses.  That’s with a 30 year mortgage and a calculator that gave me a good estimate.  According to that same calculator we could get a $200,000 house with a 15 year mortgage for the same price.

There is some debt that is hard to get out from under – student loans being a big one.  I have over $80,000 in student loan debt.  I love the new refinance programs.  We qualified for a $0 payment plan which allows us to start the clock on our forgiveness plan.  I just pray they don’t change the program before my time is up.  Because I work for the state of Washington, I stay on the program for ten years and my loans are forgiven.  For my husband, it’s twenty years but his loans are significantly less than mine and we could probably pay them off on our own.

For our financial planning, we know we can start looking at buying a house sometime in the next five or so years.

The next step would be to start putting away savings so we have money for a down payment and to apply to the cost of buying a house, as well as putting away money for emergencies.  Unfortunately, we don’t have the resources to start an official savings account.  What I do instead is take out all the extra money when I finish paying bills.  Then, I determine what I’d like to pay in tithing (which is about 10% of what I have in cash).  The remaining money is split between what we are saving and what we are spending on things like gas and food.  It’s not a lot of money that gets saved but it’s building a habit (so long as we can keep ourselves from spending it).  Since the amount is so small, I keep it in cash so I don’t have to worry about banking fees.

Now, there’s the chance my husband will get a job.  Once that happens, we’ll change our budget to reflect the new income.  Our hope is to get a savings account and have money pulled out of my check, since it comes on a specific date, to be put in the account.  Most banks offer free savings accounts if you set up regular deposits.  Our goal is to start with $200 a month or $2400 a year.  It’s not a huge amount but we may find that we can put more into savings as time goes on.

This is becoming a really long post.  So I will stop here and revisit the topic soon.  I want to share with you what I have learned about retirement and I should share a whole post on planning for college.