New Q/A Series with Steve Rhode, Resident Debt Expert

We are excited to introduce you to Steve Rhode (our resident debt expert from GetOutOfDebt.org). This post will kickoff a new series of question & answer posts that deal with real debt-related issues.

Steve Rhode is a true expert with over 20 years experience in the debt relief industry. We are privileged to have him as a resident debt expert providing you with unbiased and straightforward answers to your toughest debt-related questions.


Q:

Today’s question comes from Maryann.

Dear Steve,

Our household is grossing $80K a year. Sounds great right?

We both have finally gotten our advanced degrees (one Master’s and one PhD). In our fields of choice (education), however, we won’t make much more than we make now, so the likelihood of increased income is slim.

We have three teenagers in the house. One in college (with her own student loans), one starting in 2012, and the other in 2015.

We “own” our home but pay a 1,000 mortgage payment each month.

We have TREMENDOUS credit card debt (see attached file) and 30K in student loans. We have no car payments but own four older model cars.

We cannot make ends meet every month…we end up putting anything we need to buy towards the end of the month (groceries, etc.) on credit cards because money runs out, but we try VERY hard not to do that (lots of pasta).

We don’t spend extra on anything. Every piece of furniture in our house is second and third hand that we’ve had since grad school. We have household repairs that have gone to wayside because we don’t have cash to pay for them.

Both our work eligible children have jobs to pay for their own stuff.

We both have excellent credit, which probably put us in the situation we are in. We used credit in the early days because we didn’t have a lot of income. Now we have income and LOADS of debt. We pay all of our bills every month somehow, someway. All our bills (utilities included) are 100% up to date.

We don’t participate in our employer matching contributions (7%!!!) to our 403b’s because we need every penny we can get. We are both in our early 40s.

Finally, my spouse drives 3 hours round trip every day to work, so we have a large gasoline expense every month.

Please look over the spreadsheet I created to help us get out of this situation. I think I’m on the right track, but I want you to look at it and see if you think it’s looks like things are calculating correctly and the “goal dates” are feasible.

Do you see smart adjustments we can make to our monthly payments that will relieve the stress on our monthly bottom line without adding years and years of more debt. We want to be out of this mess by the end of 2015.

Hold on to your hat before opening that file. I stare at it for hours sometimes because I just can’t believe it.

 

Maryann

Click image for larger view.


A:

 

 

Dear Maryann,

Well it looks like you are at least pointed in the right direction.

The big items I see are if you get a big tax return back each year then you should adjust your withholding to break even and put more money back in your pocket each month.

Also, it appears that a debt consolidation loan from LendingClub may be beneficial for you. To check how much you could save, getting yourself organized using ReadyForZero is also a good first step; they will recommend debt consolidation if it’s an option for you and calculate the savings. While the LendingClub limit is about $35,000, you’d at least be able to consolidate your highest interest rate cards way down and free up some money each month to give you some breathing room.

The issue right now is that by not being able to participate in the 403(b) programs you are throwing away free retirement money. We need to change that immediately.

I’m confident you’ve already look at every other possible way to reduce your expenses to free up income and adjusting the spread
between income and expenses is the key here. We need to get your life to fit inside your income and allow for enough leftover money to save, pay down debt and enjoy life.

The pressure between your income and expenses is far too great right now, as evidenced by the increase in balances on your cards at the
same time you are trying to pay them off. I can see that you make some progress and then have to turn back to the credit to help deal with some issue. That simply erodes any progress you’ve made and sets you back.

I’d also suggest you review this credit counseling information to see if participating in a debt management program would lower your interest rates significantly to give you some relief from the high interest. If you do decide to go the LendingClub route, let me know and I’ll be happy to be one of the many investors that will fund your loan request.

According to my friends at in the credit counseling industry, if you included your cards in a debt management program you’d be looking at a monthly payment of about $1,400 and interest rates around 9%. Interest rates could be lower but that would be on a case by case basis.

If you go that route the cards included in the program would be closed but given that you are teetering on the edge of a financial disaster, that’s not such a horrid thing right now. At least the credit counseling approach would give you a big break in your monthly minimum payment and that could take the edge off, help you save a bit and still get out of debt in five years.

Check out both of those solutions and come back and post a comment on which path you decide to follow.

Big hug.


@GetOutOfDebtGuy

If you have a credit or debt question you’d like to Ask Steve click here. He is here to help, free of charge.

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