What are my options?...(m)

Avatar for big_red1
iVillage Member
Registered: 03-28-2003
What are my options?...(m)
8
Thu, 05-29-2003 - 1:02pm
I may have posted here before, but I don't recall. Anyway this is my situation. My fiance and I just bought a house. We both have excellent credit scores, however, we do have debt. He was previously married and in the divorce he got the credit card bills, in total about 15,000. His parents were nice enough to take out a home equity loan at a very low rate to pay off his credit cards, so now he has one low payment of 106 a month. It would only have been 53 a month but they are doubling it to pay it off sooner. I too have credit card debt, but because my parents would kill me if they found out I don't want to ask them for help. I want to know my options because I have no idea where to start. I have about 6,000 in credit card debt, a student loan with about 16,000 left and a personal loan with around 2,000 left. Should I look into consolidating all my debt into one lower payment or just the credit card debt? Right now I am able to make the payments on all my bills, on time, hence the good credit score, but am now worried that the added responsibility of a home will put me further into credit card debt and may cause late payments. Before purchasing the home I stopped using the credit cards and actually saw balances getting lower, however, since moving into the house I have begun using the cards again in order to make sure we have the cash on hand to pay the bills.

I hate balancing my checkbook because it makes me sick. And what makes me more sick is that I wasn't raised this way. My mom did a wonderful job of teaching me to budget and I did for several years, but then I don't know what happened. Life I guess. I want to cancel my credit cards and just start paying them off, but then I worry something will come up and I won't have the cash and then I will be SOL. It also doesn't help that my fiance has no concept of money. Partly because his ex-wife's father bought them anything they wanted and he had the best of everything and he still expects that now. I still don't understand how he could have 15,000 in credit card debt from his marriage when ex-wife's dad bought everything for them, but that's another story.

Should I go to credit counseling, consolidate my debt, cancel my credit cards or what? Where do I start? I've also thought about trying to get a credit card with 0% interest on balance transfers and transfer my balances to it and close the other ones. Would this be a stupid move? Any advice is appreciated.

iVillage Member
Registered: 03-26-2003
Thu, 05-29-2003 - 1:46pm
Good luck with the house! It's a big step, but it can definitely be a good one!

Now my first piece of advice is sit down and find out why you are using your cards again. Are you having trouble making ends meet otherwise? Are you using them to buy everyday living expenses? You must avoid that.

I was in your situation. DH and I bought a house. At the time my credit card debt was from a long chain of bad decisions and poor financial control. I bought what I wanted when I wanted. But then with the house, I was afraid of running out of money, so I charged groceries. The problem with that was I only made minimum payments and the debt kept growing until all of my cards were maxed and of course my minimum payments were higher than when I first started and I now had even LESS cash to get by on.

If you can, I'd simply suggest you stop charging and continue making payments. Make extra payments when you can to get it paid off. Concentrate on one debt at a time and when it's paid off, move the entire payment that you were paying over to the next debt. It's called snowballing. That will get it paid off a lot faster than if you just make minimum payments.

If you need to reduce your payments because you can't make all the bills, you can try a couple things. There are a number of companies out there that will consolidate or just refinance student loans. And now's a good time to lock in a good rate. Shop around. I use Suntech for my private loans. It's a variable rate, but it's far less than what it was before I refinanced. I left my federal loans alone because the rate on those is very low as it is and I am just anxious to get them paid off.

You can consolidate your credit cards with your personal loan. Either by taking out a new loan or finding a credit card with a low rate and just doing a balance transfer. We refinanced an auto loan once to give us a little breathing room. Of course, that's putting your car at risk if you can't make the payments. I suggest using a local bank if you can. A lot of those national companies charge rediculous rates on their loans. Shop around.

Once all this is done, you really need a budget. You need to have a set spending plan. The most dangerous thing is going over budget and missing payments as a result. It snowballs and you will find yourself falling into a deep hole and fast. SO.... write down all of your bills and expenses including food and gasoline. And figure out a plan that you can live with and still make all of your bills. Most importantly, stick to it. If you do that, you'll gain some healthy spending habits and you'll be in good shape! One tip that helped other people is pay all of your bills on payday. Allocate the rest for your expenses and what's left can be saved or spent if you need extras. But if the money's already out of the account... you can't accidentally spend it. Stop over at the Budget Tips and Ideas board and you can get some much more detailed ideas.

Sharon

 

iVillage Member
Registered: 01-30-1999
Thu, 05-29-2003 - 1:56pm
Hi,

I think you have to get it "in your mind and heart" that continuing to use the credit cards will eventually spiral you down a path you don't want to go. You need to cut them up

soon or you'll use them. The tempation is too great....I speak from experience like everyone else here. Even though I am dedicated to getting out of debt if i had easy access to a cc i'd probably use it.Do it now while you're still above water! Just my opinion:)
iVillage Member
Registered: 03-27-2003
Thu, 05-29-2003 - 2:09pm
Stop using those cards!!

That's your first step. As long as you are using your ccs, you are enslaved to them. The only way to get out of the slavery is to stop using them and starting paying down the debt.

I know it's scary. If you really feel like you need to keep one card available, get rid of all but one (probably your oldest one), and put it in a container of water and freeze it. That will stop you from using it unless it's a real emergency, and then you'll have to wait for it to thaw and meanwhile be thinking about whether it's truly an emergency.

Next, read Mary Hunt's "Debt Proof Living." There are other great books out there, but I think this is the one that I've read that is most useful for people just beginning to get out of their debt or just thinking about it.

This is mostly in her book, but you'll need to track your spending, so you know exactly where every penny goes, and track your income, so you know exactly how much is coming in. If your outgo is greater than your income, you need to change that. First, start cutting back. It may be snacks at the snack machine, lunches out, a few dollars a week in groceries, one night a week on the town, or it might be more drastic--cable television (though we haven't *ever* had that! LOL), high speed internet, prepackaged foods from the grocery store, gasoline, long distance phone, and so on. If, after cutting back everywhere you can bear to (believe me, it still won't be everything you feasibly *could* cut, but everyone has comfort levels), you still have less income than outgo, you'll have to find another way to get your income up. Take a (temporary) part-time job. Sell things on ebay. Do some babysitting, tutoring, sewing, typing, or other jobs on the side.

I highly recommend Mary Hunt's system because she'll teach you to plan for the "unexpected" while paying down your debt and building your savings. In months you'll be in control and on your way to debt freedom.

Also, be sure you get dh in on this. This is his responsibility too. Many, many marriages break up over debt and finances, so get on the same page now before it's too late.

Good luck and blessings,

Heather

Avatar for big_red1
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Registered: 03-28-2003
Thu, 05-29-2003 - 3:06pm
Thanks for all the advice. I think I am going to look at consolidating my personal loan and my credit cards together. I will leave my student loan alone since the interest rate on that isn't half bad. I know I should cut up the credit cards, but it's so hard to take that step. I worry so much that something will come up and then we won't have the money. I want to make a budget, but can't until we start getting our first phone, electric, and gas bills. I have no idea what they are going to be. We don't currently have cable tv and it's driving me nuts! I had also already planned on cancelling our cell phones once the year is up in June. That would save us 50 a month. I am also cancelling my internet service in July when that contract is up, saving another 20 a month.

Getting my fiance to work with me on this is the hard part. Just today he said he wants to buy a jacket with his favorite bands logo on it for 60 bucks! I told him no. Then he makes me feel bad for not letting him have something he wants, but that's his problem: he wants and wants and wants. I posted once on the relationshoip and money board, but found they were rude and said I should leave him. Hello! We bought a house together! He also tried talking me into getting a Menards charge card so we can get stuff for the house and I have to be the bad guy and tell him no. How do I get him to understand our finances and get him to realize there is a difference between wanting something and needing something? I've tried explaining it to him so many times, but he's so used to having the nicest everything that he still expects it now.

I was thinking of doing baking from my home like my mom used to do. She would make and decorate cakes for birthdays, weddings, anniversaries, whatever and sell them. She also made cookies and would sell those too, just to earn some extra money. She has all the supplies and said she would give them to me and I know how to do it, but would this be considered a business? I just want to do it on the side, for friends and family and maybe co-workers. I don't want to make a real business out of it. Any advice on this?

Thanks

iVillage Member
Registered: 03-27-2003
Thu, 05-29-2003 - 3:58pm
Getting significant others in on everything is really really hard! Would he be willing to sit down with you and look at your finances together? That might help. Also, ask him to read Mary Hunt's book with you. It may just take a lot of time. It took dh and I about five years to really get in sync on the money thing, and we continue to grow closer on it, although we still have our tense issues.

I think the baking idea is great! I don't know the legalities involved, but I would recommend starting small scale and doing a few things for friends and family first. That shouldn't require you to get a business license or jump through too many hoops. I won't give specific advice on taxes, but if you're paid in cash that certainly simplifies things :).

If it really takes off, you'll probably want to formalize your business and run account books and all that, but you can work slowly toward it so it's not so overwhelming. I wouldn't put too much energy into all that until you find out if you continue to enjoy it, if you get enough business with it, and if it's profitable enough to be worth it.

Good luck with both. Blessings,

Heather

Avatar for big_red1
iVillage Member
Registered: 03-28-2003
Thu, 05-29-2003 - 4:27pm
Thanks again for the advice. I think once we get our first bills, phone, gas, electric and anything else, then I am going to ask him to sit down with me while I pay them and balance the check book. That way he can see how much money we have coming in and how much is going out, plus how much is left. Also that's the time when I will look into consolidating my credit cards and personal loan. Once I consolidate them I will keep one card for emergencies only. I don't know if I will freeze it though, but I will not carry it with me. I stopped using my credit cards before and I can do it again. I've just been so worried that our first bills will be outrageous and we won't have the money to pay them.

My mom did the baking thing when I was growing up and always just got paid in cash, but I didn't know if that was illegal or what. I like to bake and I think I am fairly decent at it and I know how to decorate cakes because my mom taught me so I thought I could give it a try. I'm not sure that I would really want it to take off or not since my real dream in life is to own my own used book store. But since my mom already has all the equipment I would need for the baking it would be a lot less money to start it up then a book store! Plus I can do it at home in my spare time.

Oh can I find this Mary Hunt book at the library? Or do I have to buy it? I don't need another expense!

iVillage Member
Registered: 03-27-2003
Thu, 05-29-2003 - 5:01pm
I borrowed "Debt Proof Living" from the library (that's Mary Hunt's book). I think most fair-sized public libraries probably have it. Ours has several copies. If I ever decide to have a "books" budget again, I will probably buy a copy. By the way, I never buy books unless I've borrowed them first--if they're not available through my library, I try an inter-library loan. If that fails, it's usually because it's a very specific, specialized book--like one about building with cob or giving birth unassisted--which usually means someone in my circle of similarly-minded friends has a copy I can borrow (did I just give away a little bit about how crunchy granola I am? LOL).

I don't know much about the legalities involved. I do know that many businesses get away with "under the table" arrangements. I once worked in a restaurant that paid me in cash, which was very convenient for all involved as there were no taxes and they didn't have to deal with worker's comp and so on. I'm not recommending this--just noting that it does occur. I think most people with small operations like you're describing probably don't mess with the business license and so on. But I would do some research and find out what the legalities are and whether you're willing to deal with the risks (including liability, should someone get sick from one of your cakes--or think it was from your cake--or whatever). There are lots of issues involved, and I am by no means an expert. But, I think if you start small with friends and family, that you probably don't have to worry much. I also think (though I'm not sure) that if your business makes less than a certain amount, you don't have to worry about any of the legalities (except, I think you're still supposed to pay taxes). Anyway, this is all stuff you'll want to check out. It may be as easy as contacting your local small business bureau. I make cloth diapers for friends and acquaintances, but I already had a business license for something else, as well as a tax ID and all that stuff, so I just use those things for the diapering, and keep track of my income and expenses so I can pay taxes at the end of the year (I set aside a portion of proceeds for taxes, so I don't have to come up with it all at once). It's not difficult once it's set up, but it does take a little research at the start--and every state and community has different laws and regulations on small businesses.

Just some thoughts on when you sit down with your SO. Make sure you have made arrangements to cover "unexpected expenses"--car repairs, tax bills, medical bills, etc.--that crop up. Hunt covers this in her section on "freedom accounts," but basically you calculate how much each of these categories has cost you over the past year or two and then divide that into a monthly amount, and set that amount aside each month. That way the money is there for all the little "emergencies" that occur from time to time. It's slightly more detailed than that in Hunt's method, but that's the gist of it. The reason I mention this is that when you sit down with SO, if you haven't already made arrangements for these things, he may see that there's $200 or $300 "left" in your budget, and immediately want to plan to spend that money on something new and "fun". But if you're already armed with knowledge about how much you spend on repairs, clothes, Christmas, medical, dental, etc. each year and have those figures in hand, you can stave this off much easier. Can you tell I've had similar issues with my dh? LOL

I think it's great to start with the baking. A used bookstore is a fabulous idea, and something I think you should aim for. And the first step toward that goal is to get financially stable and start laying in a nest egg for that goal. If baking helps get you there, great! It doesn't have to become a full-time business, and even if it does--you can always sell it, liquidate it, pass it on to interested friends, or if none of that is practical, simply abandon it (after finishing all your obligations of course!). There are few disadvantages to having a *successful* business, lol.

Blessings,

Heather

Avatar for cl_phocid
iVillage Member
Registered: 03-26-2003
Thu, 05-29-2003 - 5:30pm
Hi Big Red! Thanks so much for posting!

This is a wonderful network of supportive people - but as you can see, we're willing to give the occassional nudge in the pants when needed.

I agree with other posters that the first important step to getting out of debt is to stop using the credit cards. Don't carry them with you. Mine live hidden in the house. The concept of an "emergency" is frankly made up by the cc companies - and we've ALL bought into it!

The next important step for you is to get your fiance on board with your debt reduction plan. If he's not willing to work with you, then my honest advice is not to marry him. I'm not going to advise you to leave him, only you can decide if that's the right thing to do, but don't further entwine your financial lives until you know he's a mature man with a solid understanding of how to run a family's financial life.

We're all here for you! I loved the Mary Hunt books - any of them are a great read, and yes, they're available at the library (typically).

All my best,

Danni

All my best,
Danni