I have a family member who is having major financial anxiety. The net income in her household is about $2600 per month. The bills every month (mortgage, lot rent, truck payment, insurance, credit cards, utilities, etc) are about $2200 per month. Once food, gas for the truck, kerosene, etc. are paid for every month, there’s no money left for paying more than the minimum on credit cards and nothing to save for an emergency.
They only have 1 vehicle (both adults work the same shift at the same company).
They don’t have cell phones. They don’t go out and have fun. Their only frivolous spending each month is $125 for the cable/internet/telephone. She could cancel the cable and internet and save about $100 per month but that is very honestly the only pleasant part of her life.
They don’t qualify for a debt consolidation loan. They don’t have any collateral. Their mortgage is for a trailer on a rented lot.
Bankruptcy? She’s not thrilled at the idea. She’s terrified of losing her house and vehicle. Also, she makes sure she pays her bills on time every month so obviously she CAN. But, her quality of life sucks beyond belief. I can’t imagine the courts caring about that though.
Debt consolidation? She said she looked into it and was told that there’s no guarantee her credit card companies will accept consolidation, no guarantee that her bills will be reduced (about $550 monthly is for credit card debt) and that basically she sucks and they hope she dies. (she can be very negative when she’s having an anxiety attack)
Anything else? I don’t know what to tell her. Getting a second job is not an option for either of them. If they could physically handle more work, they’d just do OT at their current company (which would pay a hell of a lot more than a McJob). Unfortunately, his old injury and her new injury are making life very unpleasant for them and more work is not in the cards.
Please someone tell me that you’ve gotten out of a similar mess. I try to be encouraging for her but I’ve never been in this situation. Even at my worst my situation was nothing compared to what she has to deal with.
How about cutting the internet/cable for 6 months and paying the $100/month to reduce the credit card debt?
After 6 months the $600 reduction in balance should enable her to pay more than the minimum off every month and get it reduced more quickly. It’d be 6 months were her and her husband can learn to spend quality time together, going for walks, chatting, cough alone time etc. Also go to the local library and borrow some books she’d always planned on reading.
She’ll be glad she did it in a years time after the debt has been reduced and is reducing a lot faster than it would have been.
Also, tell her not to put more money on the card and pay as much off as she can each month. It’ll hurt in the short term but I think of it like pulling off a plaster.
Are the credit card accounts open? In the past I’ve been able to make payment arrangements with CC companies. It closes the account, but reduces the interest rate on the balance, and they’ll work with you on what you can afford to pay.
It reduced my monthly CC payments from right around $500 to $320.
You said “both adults”, does that mean they have kids? That makes significantly reducing the food budget trickier but it can still be done. At the height of my austerity budget period I used a lot of recipes from a Mennonite cookbook called “More With Less”.
It takes a fairly sizable time investment, but we save a lot (typically around 40%) on groceries using coupons, combined with store specials. It takes hours to clip and sort and organize the coupons and to compare them all with the specials, but I have a 13 year old son who eats twice his own weight in yogurt, cheezits, and spaghetti each week. It does make a difference and for me it’s time well spent.
Is the truck newish and in good shape? Could they sell it and pay cash for a slightly older vehicle and get rid of the car payment?
The downside with that is that an older vehicle would have more maintenance issues, so that can be a wash. When we sold our minivan, the payment for the replacement vehicle was roughly equal to the monthly repairs we were spending on the minivan.
Definitely they should look into making the food dollar stretch more. More careful shopping, going to a cheaper store (is there an Aldi anywhere near them? I’ve heard good things about Aldi for bargans). They may be doing all that anyway of course.
The idea of giving up the cable for a few months is worth looking into; if they can keep the internet portion (and really, these days it’s close to being a necessity) they can watch an awful lot of TV on Hulu and the like. Depending on costs, they could even swap out the cable for a Netflix subscription and save a few dollars a month. Speaking of the library, they often have videos etc. available to borrow.
Phones: Do they have cell phones? land lines? If land + two cell, get rid of either the land line or one of the cell phones.
Depending on their state, they might perhaps qualify for “food stamps”.
Maybe a friend or family member might have enough cash flow to issue a private bill consolidation loan (but they should do it all nice and legal with repayment terms, interest rate etc and insist that the credit card accounts be closed or at least put aside).
We don’t know what the total credit card balance is, but if the minimum payments are $550, the balance has got to be in the $10k-15k range, so throwing a measly $600 at it is not going to significantly reduce the monthly minimums.
Not a huge amount, for sure - if the minimum is 2% of the balance that would reduce the minimum by 12 dollars. If the minimum is higher (a lot of banks raised it to 5% last year) that brings it up to 30 dollars.
I don’t think any individual thing that anyone suggests will make a huge impact, but if they do a bunch of different changes it might all add up to something substantial.
They may not like it, but… when I was in dire need I went to some food banks for some grocery shopping. It was awful and I hated it, but it saved me a month’s worth of grocery shopping. Sure they may not feel like they’re in that much trouble to go to a foodbank but if they’re barely scraping by they are in that much trouble.
Look into seeing if their employment pays for a mass transit pass. I started riding the train (for free) into work 3 - 5 times a week and I went from buying gas every 8 - 10 days to every three weeks. At $45 a tankful that’s a lot of savings.
I have a friend in much the same situation, but she’s getting by with some help from her mother. Is there something like Catholic Charities in your area? It’s worth at least calling and asking if they are eligible for some kind of help (the CC here would make a payment for heating, refer you to food banks, things like that). Or call Dept. of Social Services? to see if they can get food stamps? or something? If they have kids, they will help a little bit, but it’s all according to how much you make… It’s an awful situation, I hope they get some kind of help.
The easiest places to save money are in the parts of your budget where you spend the most money. It is much easier to move or get a cheaper vehicle and save money that way but sometimes that isn’t possible so my advice would be the following:
If at all possible move to a cheaper place. If this isn’t possible try to rent out space in their home/trailer for some extra income.
Switch to a cheaper vehicle. If they can sell their truck and buy a Corolla the money they save in gas alone will be fairly significant, not to mention the reduction in insurance costs. If this is not an option they should try to find people who work with them and live nearby and set up a carpool so that they don’t have to spend as much on gas.
Get rid of cable and phone and keep the internet. They can set up skype or get a cheap cell phone to share for phone service and use hulu or other internet options to watch movies and tv shows. They can also rent lots of DVD’s from the library.
Call their credit card companies and shut down the cards. Explain the situation to the companies and ask them to reduce the interest payments for them. Most companies will understand this and be willing to make that reduction in return for not having to turn you over to collections some day.
Review their insurance plans. They may be paying extra on their homeowner’s policy or they may not be recieving all possible discounts from their auto insurance (for example, if your ex-military discounts are often available or if you’ve had no accidents sometimes your auto insurance company may offer a discount if you rent the defensive driving DVD and pass the state defensive driving test.) They may be able to switch to a higher deductible health plan or find another way to reduce those costs.
Bring their food budget as low as possible. I know several people have tried to bring their food budgets down to $1 per day per person and blogged about it but mostly it looks like that doesn’t work too well because you can’t really get enough calories on that amount of money but based on their trial and error attempts it appears that $1.50 or $2 per day per person would be plenty to keep you healthy. (365dollaryear.blogspot.com and onedollardietproject.wordpress.com both address this issue.)
Step 1 - Cut up the credit cards, all but one. Freeze the one in a block of ice.
Step 2 - Make a real budget - track every expense over the last three months in detail, then use that to see where money can be saved.
Step 3 - If they have 401ks through their employer, talk to HR about borrowing against them. Most people recoil in horror at that suggestion, but if they can borrow enough to pay the credit cards, they will certainly end up paying a much, much lower rate. For example, my husband could get $11,000 (half) of his 401k money at about 5%. Something like that would drop their payments significantly.
Step 4 - As a friend, buy them a subscription to Dave Ramsey. I know a lot of people here look down on him, since his advice is just common sense, but a lot of people need common sense when they’re broke. You could get a copy of his “Total Money Makeover” for $1.00 on Amazon - that gives them the “baby steps” of how to deal with budget, credit and being broke. It really works.
Step 5 - Talk to them about “snowballing” their debts. It is the core of the Ramsey program, and it really works. A good snowball calculator can be found here. You type in the debt amounts, put in the minimums of each card, then add any extra amount toward one a month. Even an extra $25 can make a significant difference, and the calculator can show them how.
I would not recommend a bankruptcy at this point. Assuming the total dischargable debt is the in $10-15K range, that’s not all that much, even though I know it feels insurmountable to them. Save that discharge for some really terrible time, like if they lose their jobs - you can only get a discharge every eight years, for all intents and purposes.
Yeah, they need to read the Total Money Makeover. It will change their lives.
Their situation is a rather mundane debt crisis that can be tackled in short order. They’ll have to work hard at it, though.
On bankruptcy–she would not necessarily lose the house or the car. As long as she is current in the payments, she can probably do a reaffirmation agreement on both. This is essentially a contract, says even though she filed bankruptcy she will keep the property and continue to pay for it as normal. If she gets behind after entering into the reaffirmation, they can foreclose/repo as normal.
If she qualifies for a Chapter 7 bankruptcy, she could get some good relief. Credit cards and other unsecured debt would be discharged. To qualify for a Chapter 7, she has to pass what is called the means test–basically she has to be at or below the median income for her part of the country and household size. It wouldn’t hut to at least talk to a bankruptcy lawyer about her specific situation, see if she could qualify for a 7, and discuss in detail the relief available thereunder.
Talk to people who are on the same shift as them, as work. Offer to pay some small amount, for a ride to and from work for the both of them. (Handy that they work the same shift, use it!) For a prearranged one year period. Sell the vehicle, put all the money on the highest interest credit card. That should lower at least one payment enough to handle the occasional cab fare. They should be eating out of the food bank, or at every community meal they can find. Cancel the cable, keep the internet, there isn’t much you can’t watch on the web, these days.
They should definitely be using every skill to reduce their food costs, buying in bulk, preparing food from scratch, making all their own lunches, etc.
They may not be able to work overtime, or a Mcjob, but they could babysit a friends kid, for cash on the weekend, or find a way for any natural skills, they have, to pay. Sewing, knitting, baking cakes, cookies, taking in laundry, etc.
Number one though, is to lose the cards. Nothing will change if they don’t. Living on cash is usually the adjustment most people in debt need to make. Stop making it possible to live beyond your means, and you won’t any more.
I wish them good luck, it won’t be easy, but it can be done!
How much are their energy bills, and how much prepared food do they buy?
Making sure the trailer is properly insulated, windows and doors close tightly, lights and cooling/heating are in use only when and where needed, TV/radio aren’t on if nobody is paying attention, can reduce the power bill by very large amounts (I once moved into a shared flat and dropped that bill to 1/5th what it had previously been in the first month; I’ve had bills that were 1/20th the bills of friends living in the same area, in similarly-sized homes).
McD breakfasts are shit on wheels minus the wheels, and not really a saving in time either.
I am not a financial advisor or a lawyer, just someone dirt poor with opinions
Keep the phone and the internet, cancel the cable. I’m sorry that’s her alloted fun, but if she can find something else to do for 6-12 months and put that $100 towards paying down the credit cards, or $50 of it to the cards and $50 to an emergency that really is only used for emergencies she’ll start slowly pulling ahead.
Alternatives include broadcast TV, borrowing DVD’s from the local library (if they have that available), on-line services like Hulu, going for walks, talking to people, playing bridge, sex with the spouse, needlepoint, bird watching… There’s actually quite a bit to do out there.
You may not need collateral. You may not need to go through an debt consolidation agency.
Last time I had to put significant sums onto a credit card (medical bills for FOUR family members - it was a bad year) I iniitally put it on the cards, then went to a credit union to get a loan to pay off the balance on all those cards. Said loan was at a lower interest rate and a lower monthly payment. MUCH better for me. The new payment was low enough that some months I could even pay double and get rid of the debt faster (well, until I got laid off, but let’s not go there).
IF your family member has been able to keep up with the payments, that is, the minimum payments have been ON TIME and IN FULL for the minimum then said family member can use that as an argument she can pay off a lower with a lower monthly payment. After all, if you’re able to keep up paying more a month, you should be able to handle less, yes? In which case, maybe no collateral needed. See how that works?
Is there any guarantee they’ll be able to get that? No, of course not - but it doesn’t hurt to ask
Can she pay her bills? Yes. Then she’s not bankrupt. You’re right, the courts don’t care about quality of life.
Also - I wish to reassure her - bankruptcy does NOT take away your home or vehicle. Seriously. I’ve known many people who’ve gone through bankruptcy. Not one lost a primary residence or a vehicle needed for normal transportation (if you have a 42 vehicle car collection that’s different - but we’re not talking about that, are we?)
Talking with a bankruptcy lawyer might still be a good idea. There are other options than bankruptcy. Many offer a free consultation for the first visit. Even if they don’t fall under that, just being able to ask questions might reassure them that if something does happen to put them into that category it’s not as bad as they fear.
(I know someone who filed for bankruptcy about 15 years ago. He now has a credit rating back up over 800 and no debt - it’s NOT the end of the of the world although it’s an unpleasant thing to go through. His comment? “I wish I’d talked to the lawyer sooner”)
See above. You don’t have to go to the credit card companies (although it probably won’t hurt to ask). If she’s a member of a bank or credit union she might be able to secure a loan, pay off the damn cards, and wind up with a better deal. If she’s NOT a member of a credit union she should see if she can join one - sometimes they have deals for new members. It doesn’t hurt to ask.
If there are health issues a second job is out - there is no point working themselves sick, they’ll only be worse off.
I’m living on $1200 a month for two people - does that qualify?
After rent and the fixed bills about the only place I can economize is food. (We already dumped satellite TV and one of our cellphones.) I grow a big garden in the summer, and use food stamps when I can (there were several months this summer I actually made too much to qualify. Unfortunately, I have less work now and the new application for food stamps is on my kitchen table as we speak). I cook a lot of stuff from scratch, use a lot of my own vegetables, have been known to use local food pantries, go to “thrift bakeries” for day-old bread, shop a lot at Aldi’s, use coupons, and we eat less meat than we used to. Problem is, if both parties have injuries gardening may not be an option, as it does take physical effort. The last thing they need right now is to aggravate an injury. It’s vital they stay healthy as possible.
Regarding food stamps - if they have an income of $2600/month that’s too much for two people to qualify. If they have kids, though, they might qualifty. In any case IT REALLY DOESN’T HURT TO ASK. Fill out an app and the worst that happens is that they’re told “no”. HOWEVER - at least in my county - the food stamp program is a gateway for other social service programs. By going there, the case worker they speak with may help them get in touch with other programs that might be of use to them. Again, it doesn’t hurt to ask.
OK, it can psychologically uncomfortable to go to social services. It’s certainly not fun. But it might help her situation.
Oh, no - that’s a terrible idea! If they can make the truck payments and it’s relatively new they should definitely keep it - an older used vehicle is more likely to have maintenance problems which could easily wipe out any savings swapping out the new vehicle could achieve. With only one vehicle, and the need for reliable transportation to remain employed, they should leave well enough alone.
Good point - put the $100 into a savings account for an emergency fund. That way, if an expense does come up they might be able to pay it off right away rather than put more on the cards. If she can do that for 12 months she’ll have a $1,200 rainy day fund.
If she gets a loan to consolidate the debt, as I mentioned above, she also has the option to save up $500 or $1,000 and apply it to that loan (leaving some money in the emergency account).
Other strategies I use:
I shop for clothes at Goodwill and second hand stores. Since my job means I go through 3-4 pairs of jeans a year this is a substantial savings. I also wear a lot of old clothes, no more “buy something new everything season”.
Yard sales - get rid of stuff and get a little bit for it. I have been going through my stuff and selling things on-line - books, appliances, stuff like that. You won’t make a huge profit, but it reduces clutter and brings a few pennies in.
I’ve been saving old pop cans, food cans, etc. and some of my work enables me to pick up more of the same, scrap metal, etc. (All, I hasten to add, legally obtained - I in no way advocate stealing). I take it down to the junkers for about $12-15 a month. While that is not a lot of money it sounds like they could use even that little bit extra. Even an extra $5 a month, obtained by tossing pop cans or food cans into a bag then recycling, might be welcome and it’s not much effort. I usually use my scrap metal money on gas for my pickup or car.
Phones: my employment requires me to have a cell phone. But we got rid of cellphone #2 and went with the most bare-bones cell plan we could get. our current cell bill is 1/3 what it used to be. We use the internet for long distance (MagicJack for us, but there are a number of alternatives out there). They should use the internet for long distance and get a bare-bones plan for their landline.
If they do not qualify for Food Stamps they might benefit from Angel Food Ministries, which provides staple foods, including meat(!!) at a very low price. There are no restrictions or qualifications. http://www.angelfoodministries.com/about/how_it_works.asp
I also agree about selling the truck – IF, that would settle up the loan; cars can be underwater just like houses. It is not smart to buy an old broken down beater but there is a LOT of grey area between “falling apart hoopty” and “making payments on a brand new truck.” Trucks can be extremely expensive as cars go. Unless the truckness is actually needed for their work, it is an unneeded luxury right now. $5,000 will get you an approximately 4 year old, under 50k miles, small economy car. it kind of bugs me that some people are saying that if you sell the truck (which can cost as much as a nice BMW) they are crazy because any other car will be horrible and falling apart and not reliable. I’ve never owned a new car in my life, and most of my cars were low-milage; all were very reliable.