Hotcouponmama's Personal Debt Cutters thread

[hotcouponmama]

Debt Cutters

How much debt do you need to reduce?

$266,000 - not including first mortage

How did you get in debt?

Our debt was purposeful in that we made the decision to do the following: student loans for school, a huge home remodel, and we had to replace a vehicle after a severe car wreck.

You've accrued debt. What are the main factors that keep you from reducing it now?

Right now, there's really nothing keeping us from reducing our debt. We're actually working very hard on killing it.

Have you created a budget?

Sadly, I haven't created a budget. Our income really fluctuates each month because of my work.

List your top 5 budget busters?

Eating out, kids' activities, travel, hired help (like the guy who's doing the yardwork while Mark's in Iraq)

What is your plan to get out of debt?

This year, we've reduced the amount of travel we're doing, and I'm hoping that I can do a better job about eating out, reducing that to only a handful of times a month. I also plan to build my savings account at the same time.

List your debt with balance, monthly payment, and interest rates.

Second Mtg - 94K - 4% interest - $763 payment (it's a 15yr note); Car 1 - 22K - $350 payment - 5.24% ; Car 2 - $21K $400 payment - 6%; Student Loans - $66K - $800 payment - 6% interest; Credit Cards - $61K - $800 monthly - 8.9% interest or less

How much will you try to reduce your debt by this year?

Our goal for debt reduction this year is $50K

What kind of support do you need from fellow Debt Cutters to help keep you on track?

I respond pretty well to both positive and negative reinforcement. So if I screw up and eat out too much this month, you can take me to task for not staying on track!

[hotcouponmama]

A couple of things I want to add to this because to the outsider's view, our debt this year is outrageous.

Here's some more take on the "why" behind our debt.

When we learned a few years ago Mark was going to deploy for sure, we made a couple of decisions about our financial future.

Being a "worst case scenario", we planned for what we'd do if Mark were to die in Iraq. We'd been slowing doing upgrades to our 1977 house, but we made the decision to put the home repairs on the fast track. We took out a $125K home equity loan and began the process of doing everything we wanted to do. Along the way, the housing market crashed and our line was cut off. The rest of our projects ended up on a credit card.

However, in the middle of the remodel, our heating/air system, which was original to the house, went out. So we ended up with an extra $15K on a credit card cause it had a better interest rate then the financing from the hvac company. So, our credit cards look pretty outrageous.

We also decided that if Mark were to die, I'd have to be able to support myself. So I made the decision to go back to school. About $28K went into student loans to get my MBA, and we already had student loans from before. So that jacked up the loans.

Lastly, we made two decisions about cars. Our cars were paid off two years ago - we owned three cars outright. My van needed an upgrade, so we bought a used van and I owed about $12K on it. Then we got hit by a Walmart semi and Mark's car was destroyed. We had just put about $4K into repairs on it, and got only $1800 from the insurance company because it was so old. So, we took our paid for little truck, and upgraded Mark into a bigger (used) dodge ram truck. Well, when gas prices went through the roof, we made the decision to trade the truck in for a commuter car. Gas in his truck was running us about $800 a month for him to commute the 100 miles a day he was driving. So, even though the car payment increased, the gas price decreased. But suddenly, in a 6-month window, we had car payments again when we had none.

So, going with the morbid theme, we also made sure Mark and I had enough life insurance that should something happen to him, the home remodel (and the entire mortgage), the cars, and the student loans would be wiped out. We also have enough that if something should happen to me, Mark can do the same.

The other crazy factor in our finances is Mark is less that 2 years from retiring from the army. The govt. gives you what's called a TSP account - like a 401K. You can contribute like a 401K, but you can only contribute while you're working. We were late to the game trying to get it funded, but we have made the decision to fully fund it until he retires. It's about $17K a year, which would go a long way towards paying down debt, but we also need the pretax deduction to help with our tax bill. And this year, it was really critical to get the money in the account because not only is it going in pretax, since he's deployed overseas, the earnings on this money he can make over the next 20 years it's banked will come out pretax. That's more than we'll pay on interest potentially over the life of the loans we have.

Lastly, with his income reduction in 2011 when he retires, we wouldn't have been able to leverage what we needed to get all of this done after he separates from the military, so getting this done now while he's at this income level was important.

But, we'll be paying on this for a while to come. We managed to kill over $50K in debt in 2009. We hope to repeat that in 2010, but my income is sporadic since I can't do much while he's gone. With three kids, it's just too hard.

Fortunately, about 45K in credit card debt is at 4% and all interest paid on that money will be rebated when Mark comes home from Iraq. Special military deal. That's about $2K.

It's important to add here too that do not have a negative net worth. If we cashed it all out, sold the house, etc, we'd still be a bit ahead of the game. And Mark has a secure job that he could stay in beyond 2011 if he chooses. If the govt. becomes insolvent, then we have more problems than just our debt.

So, that's the full picture for those who might be having heart palpitations when they read how much debt we have.

[ILv2Shop]

This could be a godsend thread for some who are considering bankruptcy if they will put their pride aside and let others help them with suggestions to help pay off their debt. Just use the format to post your own answers and let others who have been through this before or have knowledge in the area, help you become debt free.
Great thread and very timely, hotcouponmama. As usual, :beavisnbutthead: you rock. This thread will give hope to a lot of people.
If you have knowledge in this area, please step up an and offer assistance to those that could use it.

[queenofthehivemomof5]

Julie...every time you call me from a fast food restaurant I am going to scold you. LOL

Love you girl! And I pray everyday that the worse case scenario with Mark does not happen and that he comes home safe and sound. Keep plugging away at that debt (those credit cards!) and you will be fine.

[justmama]

I want to just let you i've read your post(s) and i with you good luck on your goal. We just finished a massive debt payoff, so i know the feeling.

Here's a boost for ya .

[Castingbread]

Doing a little cheer here for your decision, your honesty and your success.

[Mothernature]

I am curious if the mechanic who did the 4k work (assuming it was a mechanic v someone you knew) was honest about the value of the vehicle v repair. Every mechanic I've dealt with has informed me when the work will cost more than the KBB of the car. I'm not criticizing you-- I am curious.

If the student loans are from the government (and in one persons name), when the person passes on, the loan is forgiven.

[hotcouponmama]

I am curious if the mechanic who did the 4k work (assuming it was a mechanic v someone you knew) was honest about the value of the vehicle v repair. Every mechanic I've dealt with has informed me when the work will cost more than the KBB of the car. I'm not criticizing you-- I am curious.

If the student loans are from the government (and in one persons name), when the person passes on, the loan is forgiven.

Oh yeah, the car needed a serious overhaul when we did it - 160K original miles on it, and it had hardly needed anything in that whole time we had it. Then suddenly a handful of things went out at once. But, we owned it outright - it got great gas mileage, and we really weighed repair vs. buy and we still loved the car. We had it for 11 years from brand new, and it was a road warrior. DH commutes a ton for his job, so we just beat this car up.

And on the student loans, I think you can expire federal ones at 25 years of paying on them if they aren't paid off in full by then. I always joke that we'll die with them, or will them to our kids!

But I can't complain about them, cause the year I started school (in earnest anyway), I was entirely homeless with nearly no parental support. I lived with my dad for one year of it, but he paid nothing for me to go to school. And then when I moved to the dorms, the loans covered everything - housing, meals, transportation, tuition, books.....

So, the student loans aren't as evil as they sound. When you figure that they were essentially an income for me since I had none, and no parental contribution, it's not as bad as it looks. And then the new ones for master's degree - well, the master's degree has more than paid for itself between the consulting jobs, ad agency job, and teaching/writing gigs I've gotten as a result of having it. And I'll be able to do more with it when Mark get's home and I can do more FT stuff.

[hotcouponmama]

A few more things I'll add...

Before we knew about Mark's deployment, we were just down to the first mortgage, the first batch of student loans (before the graduate degree) and one car payment with a loan balance of $12K.

When we made the decision to leverage our credit, we did so knowing we had enough in savings to pull out and cover the consumer debt. So if push came to shove right now and I was struggling to pay the bills, we could tap our savings and be back to just the 1st mortgage and the student loans. We could wipe out everything else.

The money we banked during Mark's deployment, at less than the historical market average over 20 years, will make us a significant chunk of change, so another reason we are putting money in Mark's TSP instead of using it to chunk bills.

Your monthly deposit of $0.00 for 20 years with an interest rate of 6.50% compounded Monthly
with an initial starting balance of $17,000.00

Year Balance
1 $18,138.52
2 $19,353.29
3 $20,649.42
4 $22,032.35
5 $23,507.89
6 $25,082.26
7 $26,762.07
8 $28,554.37
9 $30,466.71
10 $32,507.12
11 $34,684.19
12 $37,007.05
13 $39,485.48
14 $42,129.90
15 $44,951.41
16 $47,961.89
17 $51,173.99
18 $54,601.21
19 $58,257.95
20 $62,159.59
Final Savings Balance: $62,159.59

This year's contribution should yield us $45K over the long haul.

[anbfraz]

You may already be aware of this, but a new repayment option began as of July 2009 for federal loan borrowers called Income Based Repayment (IBR). There's a lot of info on ibrinfo.org, including a calculator to help determine if you might be eligible for the program.

Your comment about dying with your student loans sounded very familiar...DH & I are using IBR to repay our debt. Since we both work for a non-profit organization we qualify for the Public Service Loan Forgiveness option, so in 10 years we will finally be free!