[Brittany]

Hey all,
I am helping my cousin get going with changing his life situation.
I have more of a back to basics kind of question.

What is the plan when you’re stuck and basically underwater in debt?

He and his wife (35m&34f)
have a combined income of $175k annually.

Work full time, have 2 kids and in school full time right now too. She’s going for bachelor’s and he’s going for masters.

They have 100k in consumer debt (all of which are credit cards, auto loans (2) and personal loans) plus the mortgage.

Personal loans were taken when she was laid off from her texh company 3 years ago and it took almostst a year to fond anything.

She took a pay cut when the first offer cand in. I dont blame them for this. That time was hard.

Credit is shot and cards are being rejected to be renewed due to high balance across all accounts and with each closure it tanks their score more.

So refinance is out of the question.
Selling their house is as well since they bought in 2019.

They can’t afford a new one even if it was smaller. If they tried to buy their new house it would be worth over what they paid for it by 300k

Renting is more than their mortgage.
They currently only pay for Netflix as their extra spend each month and the rest goes to bills.

It’s just enough to cover bills and sometimes groceries. He admits that some months it’s a robbing Peter to pay Paul kind of thing.

I know it’s an income versus expenses kind of thing but expenses are non flexible. There is nothing to adjust.

They can’t sell their cars are they live 2-3 towns away from each of their jobs to earn as much as they do.

Both careers are stuck and not growing.
She’s a business analyst and he work in manufacturing.

Making more is not an option where they are- he is in the company that pays the highest already and hasnt gotten a raise or promotion in 3 years.

She has beenn actively looking for a new company for over a year but this job market is rough.

Plus it’s not like they are going to land into 200k a year salaries for their jobs.

So what’s the FI answer when you can’t cut expenses because it’s more expensive elsewhere and you can’t make more money?

Oh and they have tried side gigs and wound up going further into debt and now are VERY gun shy on this.

[Mickey]

I would question both of them in school. Maybe only one person do school while the other gets OT or another job, then switch.

That sounds like a good income but we don’t see all their expenses. You are not giving the full picture.

Can they get help from food banks to supplement for the near future? Can they sell any items.. furniture? Duplicates of items?

I’m assuming the interest on CC is what is not making a dent.

Work on those.
But it definitely sounds like an income to debt ratio, they need to bring in more money if they can’t cut costs.

[Michele]

Have them look up Dave Ramsey and do the baby steps, read the book, listen to the podcasts.

As for the schooling, is it 100% employer paid? Sometimes there’s a limit companies pay out.

If they are going over the limit, they need to stop and only take whatever the company is paying, which is usually only reimbursed after they pass their classes.

Is that the case or is it covered up front? So, are they spending on school and taking on more debt?

I think they’re too spread out and spending too much time thinking about the future and not handling their current reality.

They need to pause on everything but the basics, do a reset and start the baby steps and use the time currently spent in school working other gigs to pay off the debt.

Then they can resume their education and those other goals.

[Jule]

What are they studying? Would his masters degree get him any more money? Usually it doesn’t unless you are in the healthcare field.

I am in tech with two masters degrees and I can tell you that I’d be in the same exact place without them. Certifications in my field are a better ROI.

They need to get in the Dave Ramsey plan.
Consider going down to one car and sharing rides. Spouse and I make over $500k and we do this.

It’s a sacrifice but the second car it’s an unneeded expense (insurance, maintenance, etc).

At the very least, they should consider down sizing cars – selling their current cars and buy something for $8,000 to clean up the debt.

[Angela]

You can always make more money, it might not be with the same employer but getting another job or babysitting etc is always a possibility

[Raphaëlle]

I understand it might be not ideal for their career, but here in the mining industry in Canada, there is a lot of job.

There is a lot of mine that are fly in fly out, which mean They dont have to move to another area.

Let’s say, one of them get a fly in fly out job. They can sell one car. When one of them is back home, that person can do a side gig.

Also, they are going to save 50% money on food for one person in that family. Just some idea.

[Sherie]

1 they both should ask for a raise. Is school going to help them in their careers? Do they see a need for what the schooling will cover in the job area they are looking?

If not then I would put the one that isnt on hold until debt is paid off in a year or two or if neither will in the next 5 years then put yhem on hold and have that person get a side hustle or part time job.

Also check to see if there are plasma centers in their area that pay and so that twice a week – im averaging about $450 a month.

But it depends if I go the allotted 2x a week.

[Renee]

I mean based on all the responses you’re giving, step one is to stop making excuses. “Too old to switch careers”?

And one thing I’ve learned is that groceries can always be cut. Especially for two adults, someone needs to humble themselves with some beans and rice and peanut butter and jelly sandwiches.

Even and extra $25 a month to start the snowball method. Use tax returns to pay down debt, do one doordash/Uber eats/ Indra cart/ spark order a day… I mean babysit for crying out loud.

Go pick up all the garbage bags of free toddler clothes always on Facebook, separate them out by gender and size and sell them by the gallon size zip lock for a few dollars a piece.

But honestly, right now it is a mindset issue.

If they won’t even try and just make excuses then that is on them at this point, and you can’t help people who don’t want to be helped.

[Scott]

You need to do a zero based budget, and attack it from there. Make them justify to you why they can’t live on 100k a year.

You now have at least 50k a year to throw at debt.

The problem should be solved in 2.5 yrs

[Jim]

You listed out a bunch of “can’t change this, can’t change that” but I can bet my hat that they could sell both newish cars and buy 2 10 year old Hondas or Toyotas.

If their house has gone up $300k, they can probably get a HELOC or home equity loan to pay cash for two used cars, retire any personal debt that’s over 10% and leave a little left over after selling the two newer cars.

Or they can change nothing at all and expect better results in the future; their choice.

[Shawn]

I can’t imagine anyone spending that much money in a year….. I would need to see a breakdown to help you better.

If they were making a half as much I would still wonder where all the money goes.

That’s like triple the average household income in America.

[Frederick]

You’ve been given very good suggestions and you’ve parroted their refusals of the solutions.

Selling the cars and taking WHATEVET equity they may have vs what their balance owed is, and buying a cheap car IS doable.

I bought a Toyota matrix in Seattle last year for $3,000. It’s driven cross country twice. This would be the quickest and easiest way to make a dent not having these notes due.

I’ve seen many other GOOD older cars for sale in the area for a lot less than having financed cars would be.

Also, cheaper insurance costs is a savings point on an older car
Take on a renter

There ARE jobs that will give someone part time hours. Heck, she could have been door dashing or insta carting this whole time.

Why hasn’t she done something like that since she has time to?

I don’t understand how side gigs have put them further into debt… unless they signed up for some MLM get rich schemes

I’d love to see their budget breakdown of exactly where they intend to spend their money in the month.

And then the actual follow up of where they did spend their money in that month.

My guess is they’re not sticking to a budget.

[Robert]

While I don’t wanna be redundant, I do echo the comments of a number of people have made about the expenses this couple are incurring.

Trust me on this one – you can make a lot of meals from the stuff you get at the Dollar Tree.

And given how fast kids outgrow their clothes; there’s nothing wrong with shopping at Goodwill or the Salvation Army; especially when your cousin is looking at the numbers she’s looking at.

I do fully understand being deep in credit card debt as that was my own situation due to several years of underemployment and some bad luck that came my way; so they should either look at chapter 11 or chapter 13 bankruptcy; or deal with the credit counseling services that will consolidate all their credit card payments into one payment.

Granted, their credit score will take a real hit, and they will be credit impaired for a long time afterwards; but at this point, they don’t have a lot of options.

The other thing to consider is picking up stakes and selling the house, AFTER they have both found jobs in lower-cost areas.

If they are living in Washington state, then they are obviously living in one of the highest cost areas in the country; and there are a lot of places where decent jobs can be found (as long as you have an education) but the cost of living thing is much lower.

Maybe they love living in Washington state; but again they don’t seem to have a lot of options.

Another option is for them to simply put their school plans on hold; and work second jobs or side hustles and eat beans and rice until they get that credit card debt paid off.

Selling the house and moving to a LCOL could also free up a lot of cash to kill the credit card debt.

At this point, there are no easy answers for your cousin; and I sympathize because I’ve been there.

But when there are no easy answers, that means difficult choices have to be made. But this situation is not unsalvageable.

[Olga]

I agree that both being in school at the time of financial struggles is not smart. One of them has to get a a second job. I would also keep looking for a better job in her place.

She took a pay cut out of desperation, now she is no longer desperate for a job.

Sell one car and get a used one that is half the price of their current car cash proceeds. Go to food bank for groceries.

Can they rent out a room in their house? Is filing for bankruptcy an option since their credit is so bad anyway?

[Mike]

Cars have to go, no way around it. Use proceeds to buy a car for cash (please tell me they aren’t upside down).

Also, do they have any retirement savings?

Might make sense to tap that to get rid of CC debt

[Julie]

Unfortunately, the answers ARE cut expenses or make more money. There has to be a way for one of those to work.

Others have suggested swapping out the cars, and that probably will be the best first thing to do.

Then whatever savings there is from the existing car payment and the new one (and maybe there will be no new car payment) could be used to pay down the debt with the highest interest rate.

That would be a good start!

[Kessin]

Side gigs don’t have to cost money…do things people don’t want to do. I clean airbnbs on the weekends…not glamorous, but it’s money towards my goals.

Other things like that.

I think they would really benefit from a Dave Ramsey plan to get out of debt.

They have a good income/shovel, they just have to put in the work. It’s going to sting for a bit…

[Cole]

Those are all excuses. First thing they can do is sell vehicles and drive cheaper vehicles.

Auto loans are the easiest to get rid of and most of the time the biggest relief for people

[Jule]

Get rid of the car payments and buy older, used Toyotas for $10,000. Yes, they do exist.

Even though they have two years left on the loans, that’s still a lot of money that they don’t need to spend.

The wife could babysit after work, walk dogs, sell things around the house that they no longer use/need.

[Author]

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