We have a reader of this blog who would like to share their get out of debt journey anonymously and post regular updates with what they are doing to save money, how the debt repayment is going and ask for advice.
Here is their situation:
They are a family of four not currently living in the USA. They rent, have 1 car with a car loan, have 2 online tax returns due soon (approximately $6,000) and both children are in public school. Their income dropped drastically this year when he left a government job and she was let go of her job.
They have huge consumer debt and keep finances separate.
His debt: $29,900
Personal Loan $11,000 repayments $500 per month
Credit Card 1 $9,000 repayments $193 per month
Credit Card 2 $6,900 repayments $139 per month
Credit Card 3 $3,000 repayments $61 per month
All of them are a 17% interest rate
Her debt: $30,402.50
Personal Loan 1 $10,845 repayments are $400 per month
Personal Loan 2 $19,557.50 repayments are $560 per month
Hers were medical issues causing the debt. His was consumer driven.
Current bank accounts
His: $8,000 shares which he cannot access right now (if you want to have shares, we recommend learning about it first such as with Wealth Within Institute).
Hers: Car $20,000 (cannot sell for 12 months so not really an asset at this point)
His income: $2400 per month
Her income: $2800 per month
When they incurred the debt they were on significantly higher incomes which they are working on getting back to. In the meantime, this is what they have to live off and here are their expenses in monthly amounts based on recent expenditure, remember they do not live Stateside, so some expenses are much higher than if they were back home but these are per month expenses.
Car maintenance $125
Car insurance $90
Health insurance $230
Home insurance $50
School fees $50
Cell phone $103
Medical fees $500
Clothing, entertainment, miscellaneous $200
A few extra details
They cannot sell the car to buy a cheaper one. They cannot transfer to 0% credit cards right now either as their income is too low. They are unable to move and feel very stuck with the current situation. The car is still under warranty and must be serviced by a mechanic, so not savings there. The internet option they have is the only one available. Cell phone is locked into a plan until November.
1.) Food bill – it is massive! Check where free food is available, start growing some such as herbs and onions from food scraps already, look at what food is being thrown away and why, shop from your pantry first, menu plan, buy in bulk or join a food co-op, cook things from scratch and buy at the markets or wholesale. Cut processed, prepackaged foods and absolutely no takeaway.
2.) Get in a boarder or rent the room out on AirBnB to get some more money coming in and reduce the rent if you can.
3.) Do everything possible to drop the electricity such as close and seal gaps, hand clothes to dry instead of the dryer, unplug everything not in use etc.
4.) Walk everywhere, bundle trips, look into carpooling for school and work when going out or check out public transport options if viable
5.) Compare insurances to see if you are getting the best deal on everything
6.) Talk to the school to negotiate fees
7.) Compare cell phone plans and possibly go prepaid
8.) DIY Beauty? We’d need more detail on what beauty is being done
9.) Medical fees we assume are unavoidable at this time
10.) Look at ways to bring in extra income. Sell off everything you can, take on extra jobs like cleaning, delivery driving, freelance writing, anything you can.
11.) Get a $1,000 emergency fund. Freeze the credit cards and stop spending unless it is completely essential.
12.) Decide what debt you want to clear first. Are you going to keep finances separate and if so, you need to be clear on how you are splitting expenses, who gets what when you earn extra or sell things, what debt it goes to etc.
What are your thoughts?
Wealth Within Institute are an Australian share company. After this post was published they contacted to have a link placed for payment. We researched them and are confident in them as a company.
60k in debt is not a joke! That’s a huge amount of debt. Your suggestions I think are reasonable. I believe the one in debt should focus on how they can save in food, gas, clothes, and electricity, which cover most of the salary. More importantly, adopt a method that fits their situation such as debt-snowball method.
The Thrifty Issue says
Wow. $60k is huge, although sadly after talking to a few friends it is not that uncommon. I take it they must have previously had good salaries?
We shared 101 ways to make money from home which might be of interest to them. http://thethriftyissue.com.au/?p=3490
I agree with all your suggestions and suggest they discuss it with the kids so the whole family is on board and understanding. Not telling the kids they are broke, but asking the kids what things they like to do, talk about free things to do and I don’t know how much the kids do around the home to clean and help out but maybe get them doing a bit more to free up more time for mum and dad to work a bit or something.
Joseph Beckenbach says
Without knowing countries of residence and of citizenship, we’re left pretty much offering only brainstorming and speculation. As laid out here, they’re far underwater ($2131/month with debt payments, $278/mo without).
First order of business: nuke-and-pave expenses while getting income back. Perhaps one adult focuses on slashing outgo while the other focuses on generating income. Any consideration of which debt to pay off first is moot until there’s reliably more money than month. Even with all repayments deferred, bank accounts on hand will run out in two months. Renegotiate debt amounts? Bankruptcy?
From whence the income — unemployment benefits of some sort? How long before these go away? “Back home” and “Stateside” means this was a US Federal job he came off of?
Batten down HARD on the expenses; drop/defer everything not essential to life, limb, sanity, or earning income. Everything. Apply for whatever public benefits for the kids. Arrange debts into hardship deferral with the creditors. Reach out to neighbors, friends, family for assistance. Find someplace with lower rent: move in with friends nearby, or relatives stateside? Borrow a travel trailer to tow behind the car and live in that? Send the kids and one adult stateside, keep the other abroad to earn at high rate?
Find locals who can advise on living on little money. Think grandmothers who went through hard economic times, parents growing their own gardens, professionals who get low wages yet somehow survive, other elders, personal-finance bloggers/columnists in-country. Ask, listen, act. Keep the expenses paved as long as possible, snowballing smallest-debt-first to maximize flexibility.
“Tax returns due ($6000 each)” suggests to me that it’s more debt inbound, not earnings. Oh dear. Negotiate hardship deferrals on those too.
Why unable to replace the car with a cheaper one? If it’s not underwater or legally impaired, sell the car, buy a beater, knock out at least his personal loan and one credit card, and come up with $283/month to apply to the other debts.
If neither car nor rent can be changed, well, pray.
Budget And The Bees says
Thank you for your amazing response! I will be checking in with them. The $6000 tax return is money coming to them, not debt. Sorry, I should have worded that better. I’m hoping to have an update from them soon.
Cash Crone says
Good suggestions for this family! Here are a few more:
*Be grateful for what you have now – it allows better things to come into your life. Family is an awesome gift.
*Create a food budget and make meals at home, based on local sales and free food. Don’t be ashamed to visit your free food pantry. Their food budget seems high.
*It looks as though they have no childcare expenses. If so, they could consider taking in kids before and after school for other working parents. Just two kids before and after school ($10 per hour each child, 20 hours per week) could add $400 per week to the income.
*Consider their strengths as a side job – web design, baking, etc.
*Barter for services – Timebanks is an international organization for bartering.
*If they have to keep their car, they could turn it into an asset. Check out car wrap advertising sites, like adstogo. Or offer a car shuttling service to airports, etc. Advertise a service that shuttles other kids to after school activities – this would be easy to do if they have kids in activities and their friends need rides.
*Consider moving to a less expensive house for the time being.
*They have a large amount coming back from their taxes – perhaps they could take a look at their deductions and keep more in their pockets next year.
*Tax refunds (and extra money) should immediately go towards their debt – he could pay off one of this cards and free up money to add to other debt.
*Give every dollar a job – those miscellaneous expenses can multiply if they are not watched. Assign a “play” budget for the family so they can still have fun, but when the money is gone, it’s gone.
I hope this helps!
Budget And The Bees says
This is great Cash Crone! I am positive they will appreciate the advice. Thank you.