Hi friends! Too early to consider you friends??? I don’t think so, so let’s go with it!
First and foremost – thanks for expressing an interest in hearing more from me! I’ve already gotten a couple of great comments referring me to additional debt-reduction resources and I am really excited about this next chapter of life!
In my first post, I shared with you my debt story – the events that led me to becoming seriously in debt. But I didn’t really share much about my current debt situation, our monthly budget, and debt-reduction goals. I’d like to take the opportunity to do that here. Grab a cup of coffee and a snack because this is going to be a long one. Let’s dive in!
Goals
My #1 goal is to get rid of all my credit card debt FAST! Like, yesterday! As I mentioned in my intro post, I have about $10,000 of credit debt (exact details coming, below in this post). My goal is to be FREE of credit card debt in one year or less. One year seems like a nice, round number.
Just so you know, I do plan to pay off ALL my debt (and there’s a lot). But at this point, I’m thinking it could take 10+ years to get rid of it all, so I want the focus for the blog to be on blasting through my credit card “toxic” debt.
That being said, you need to know my FULL debt situation so you have a picture of where I’m coming from. Due to other minimum obligations, I’ll still have to be paying for portions of my other debt and I want to “keep it real” so you all know the full scope of my current situation. Also, one commenter asked if I would be willing to blog until all the debt (except the student loans) are gone. This will definitely take an extra couple of years and the credit cards remain my #1 goal, but I’m open to sharing my journey in eradicating all of our other debts, too (except the student loans – those could literally take a decade). So here’s our current debt situation, in all of its awful glory.
Current Debts
These are listed according to interest rate: highest to lowest. Numbers reflect February-end balances.
Place
APR
Current Balance
Capital One CC
17.9%
$413.27
Wells Fargo CC
13.65%
$7697.59
Sallie Mae – Federal Student Loans
8.25%
$4687.05
Carmax – Car Loan
7.75%
$24040.68
Bank of America CC
7.24%
$2219.90
ACS – Student Loans
7.24%
$21035.00
Sallie Mae – Department of Education Student Loans
7%
$69191.00
License Fees
0%
$5808.00
Mattress Firm
0% until Sept 1, 2014
$1381.00
Medical Bills
0%
Approx. $9,000.00
I want to explain these items, but first let’s look at totals. This is how things shake out:
Total Debt: $145,473.49 (Good Lord! This even caught ME a little off-guard! I’m on top of our budget, but I guess I just haven’t added things up like this recently.)
What I really want to focus on:
Total CC Debt: $10,330.76
So, can I explain these things?
Credit Cards: The credit cards don’t require much explanation. I’ve got to get out of this debt NOW! I definitely feel the fire under my butt!
Student Loans: The student loans certainly make up the largest portion of my debt – really an obscene amount (a good $95,000!). In the comments someone asked me if all the education was necessary – could I have stopped with just my Masters instead of pursuing my Ph.D.? I think this is an important point to highlight here. My “dream job” is to be a professor. For that position you do need a Ph.D. I have been lucky to know almost my full life that this was the job I eventually wanted. Unfortunately, the job market is tight in my field. At this point, my employment opportunities have all been in areas that only require a M.A. (not a Ph.D.) Soooo, at this point it looks like my Ph.D. could have been pointless. I am still active in academia and continue applying for full-time positions so *fingers crossed* hopefully I can still land that “dream job” at some point. But hiring tends to occur in Nov-Dec for the following academic year (starting in August) and I didn’t get hired during this last “hiring season”…..so my next time up at bat won’t be until Nov-Dec 2014 for positions starting August 2015. In other words, I’ve got a full other year+ of this part-time stuff. In the meantime, I cannot afford the monthly payments on my school loans. It would cost almost $1,000 monthly (basically all of our “extra” income above just the cost of our monthly bills), so they sit in deferment. Side note – I plan to eventually consolidate all student loans into a single loan, but once you consolidate you have to start making payments…..which I don’t and can’t do currently. So that’s why there are so many different student loans listed.
CarMax: In terms of the car loan, I was very torn on this one. Recall that I only had a Kia Spectra prior. I loved that little Kia – it was good to me. But someone rear-ended me and totaled the car right at the same time that I was pregnant (and found out we were expecting twins), so we were already planning to get another car. The totaled car just hurried along our search. We did get money from the other person’s insurance (they were at fault), and we ended up buying a used 2011 Ford Explorer….which seems like a “reasonable” vehicle….but it still cost $25K (when did cars become so expensive???) We added on the warranties, tax, title & license, and even with our down payment from the Kia wreck, we still had to finance almost $30K. I had SERIOUS buyers remorse afterward. I felt like we had rushed into the decision (we kind of did…we had no car and were in a hurry) and made a terrible financial decision. I HATE having this much car loan debt (after having no car loan in almost a decade!) On the plus side, I love the car and its great for our family…but on the “cons” side, it cost a fortune and we owe more than its currently worth, so no point in selling. My hope is to get our credit card debt lower, improve our credit scores (which aren’t bad, but we’ve had a terrible debt-to-credit ratio which affects it), and try to refinance the car loan through a local credit union at a lower interest rate. Good idea/bad idea? I’ve never done something like that before, so advice is appreciated.
License Fees: This is a judgment-free zone, right??? : ) Honestly, I thought about hiding this debt by lumping it with the “medical” bills, but that would be dishonest and I think this could provide a learning opportunity for some readers… Remember I mentioned our ages (I’m 30, my husband is 31). Back a decade ago when my husband was 21 he got a D.U.I. (driving under the influence of alcohol). Being young and irresponsible, he never took care of all the fees he owed. His license was suspended for not paying the fees, and fees were thrown on top of fees and things just got out of control. Only within the past few years have we really started trying to tackle this debt (which amounted to over $10,000 at its peak). Payments all have a service charge, but the debt is technically interest-free. He has to continue making payments to keep his license, but the minimum payments are low so we’ve only been paying minimums since we have high-interest credit card debt to deal with. Good lesson though – the incredibly stupid decisions you make as a “kid” can catch up to you even a decade (or more) later as an adult. It is NEVER wise to drink and drive. Just don’t do it. Cabs are so much cheaper. And it’s never worth it to put your life and the lives of others at risk.
Mattress Firm: We’re dumb. Not much to say here. We financed a new bed to the tune of $2,500.00 at the end of last summer. As long as we pay it off by September 1st, it will be interest-free. As a result, we’ve just been paying minimums (putting our money toward higher interest CCs instead), though we’ll have to make a large payment in the summer (July-August) in order to have it paid in full by the first of September. We fully intend on doing this so we avoid the huge fees and penalties that strike if you don’t pay off during the “no interest” time frame.
Medical Bills: I don’t have an exact number for this, because the chips are still falling so we don’t know exactly how things will shake out. Long story short, we DO have insurance, but our out-of-pocket max is $8,000 for an individual ($10,000 for the family). At the end of 2013 Chris was hit with a terrible mystery illness. He didn’t work for 2 months (devastating, financially speaking) and was in and out of the hospital multiple times. He had to see several specialists and was even referred to the Mayo Clinic. He had a huge battery of expensive tests run and no one was ever able to figure out what was wrong with him. His final diagnosis was “atypical meningitis,” meaning they knew he had an extremely high infection in his spinal fluid (which indicates meningitis), but he tested negative for all the “typical” forms of meningitis. We know for sure we hit our out-of-pocket max of $8,000, but we are still responsible for all the co-pays from his multiple hospital trips and specialist appointments. Also, the Mayo Clinic was out-of-network, so we owe them for their pricey consultation. We’re still getting bills and trying to figure all that out so I don’t have an exact number. Fortunately, medical debt is interest-free. We owe most of the debt to a single hospital (about $6500), which agreed to take a low monthly payment of $25. I know that will take FOREVER to pay off, but it’s interest-free and I’m more focused on credit card debt at this time. We will also need to start making payments to other medical entities (other area hospitals, the Mayo Clinic, etc.) soon, too. That hasn’t all been set up yet.
Phew! Talk about putting it all out there! Can we talk assets now??? This one doesn’t require a whole table, though.
Current Assets:
Checking/Savings: $4,000
Capital One 360 Savings: $1750
Money Market: $6,000
Total Assets: $11,750
A little explanation…
Checking/Savings: I like to keep $4,000 in my personal checking and savings accounts. I tend to keep it in my savings and transfer it to checking as bills are due. I keep $4,000 (on average) because that’s about a month worth of our living expenses. The account may be a little lower or higher depending on the time of the month and billing cycle of our bills.
Capital One 360: I use Capital One 360 for my longer-term savings (things I’m not planning to dip into anytime soon). It’s an online-only account with higher interest rates than most banks can offer. I just started this account 3 months ago so the balance is very low right now, but I’m hoping to make lots of separate sub-accounts for specific savings purposes (e.g., house down payment, car repairs/new car fund, dental/vision/health expenses). Oh, did I mention that I have no retirement? Nor does my husband. I know this is terrible! Dave Ramsey recommends paying off debt prior to worrying about stocking retirements savings, and we’ve kind of taken that approach, though we do have this savings account.
Money Market account: I’ve been building this up steadily all through graduate school (after first depleting it with our move to Tucson). For a long time we lived entirely on Chris’ income and I deposited the entirety of my paychecks into the account. At this point I don’t do anything with it. I consider it to be for extreme emergencies only. Not just “oh crap, we don’t have money for rent”….I would figure something else out by shuffling other monies around. The money market, as far as I’m concerned, does not exist. I pretend it is not even there. Also, when I started our Capital One 360 account I stopped funding the money market, so it literally just sits there untouched.
So there you have it. I had planned to share our budget, but this post has gotten too long so I’ll leave the budget for an afternoon post.
Please share your thoughts on our current situation. It occurs to me that we have enough assets to entirely pay our credit card debt now. I know this is what the guy from NoMoreHarvardDebt.com did (liquidate assets, pay debt). That’s very frightening to me, though, given our variable income and the fact that we have children. If something terrible were to happen, I feel like we need that safety net to survive (as it is, that’s only 2.5 months of living expenses!). But I’d be open to hearing other suggestions. Should I be thinking about using that some of that money to pay down debt?? How much should we have in savings?
Suggestions/Opinions/Advice???
Check back this afternoon for a post with our monthly budget!
