Dear Adey,
I just can't seem to get out of debt. I owe over $55,000 in debts. I was just trying to handle my credit card and car note bills when an unexpected medical emergency showed up out of nowhere costing me almost $30,000. I have a baby who is about to start daycare because my wife is tired of being a stay at home wife. She wants to get a job but i doubt it would make any difference due to her level of education. I am tired and just wanna give up . Your advice will go a long way.
Thank you
Tom
Hello Tom
I will like you to calm down and breathe. I understand that $55,000 is a lot of money but don't let it ruin your happiness. Your situation is not out of this world. Many people have had worse amount of debt and have paid it off overtime.
First thing first. Get a pen and paper or open up an excel sheet on a laptop and draw up your monthly budget. I want you to write down every thing you spend money on. An example would be the following;
- Rent/Mortgage
- Electricity
- Water/Sewage
- Internet/Cable
- Transportation/fuel/car maintenance
- Grocery
- Clothing
- Hair cut
- Coffee
- Restaurants
- Sports/Entertainment
- insurance- health, auto etc
- Mobile phone
- wife expenses
- Add as many items to the list.
Make sure everything you spend money on has a name and add the dollar figure to each item. Review your budget properly to ensure that it has all the important stuff on there. During this process you might be able to immediately spot the unnecessary things that take your money. Cut it out from the budget and proceed to step 2.
Next thing would be to Itemize all your bills; Credit Card, Car note and medical and list each bill from smallest to largest. Add up the total amount, in your case Tom, your total would be $55,000
What this process does is to lay out a clear picture of your expenses and the debts you owe.
Next would be to list all your income from all sources. For the purpose of this question, let us assume that all your income each month is $6592 after taxes and expenses are $5300 that means you have a left over of $1292.
I will like you to do the following if you have left overs after subtracting your income from your expenses
Open an account and save up an emergency fund of at least 20% of your salary. it might take you a month or two to get that saved up. After that start paying off the debts with the lowest balance. This way you don't have too many bills lurking around which can make one go crazy and give up. With time no matter how long, your bills will get paid off. Using the figures above, it will take you a month and some change to save up 20% of $6592. By month 2 i would like you to put all the left over money towards the debts. Trust me after knocking out the first bill, you will be happy and feel like you got everything under control which you actually do.
Your budget will most likely need to be adjusted each month since nothing is constant. You may need to add your child's day care at whatever month your wife decides to resume work etc. however make sure everything goes into the budget and if its not in the budget then there is no money for it.
Are you aware than under 2 years, you could be done paying off all your debts. Yay... That would be sweet if these figures were your actual figures
however If after step 3 you have a deficit after subtracting your income from your expenses then you have to go back to step 1 and review the budget. Somethings would have to give. List your monthly budget in the other of importance.
- Shelter
- Food
- Electricity
- Water
- Transportation
- Assign an amount to save towards the emergency fund
- and the rest. The list ends went you reach 0.
Once you have an emergency money saved up, you can then use the figure assigned to the emergency fund to pay your debts bit by bit. In no time, you would've knocked out $55,000 like a real G.
Also let your wife start something no matter how small. She probably sees all the stress and is trying to help out. Little money is better than no money at all.
Finally cut back on your spending habits.... if you don't have the money to pay for it, then you cannot afford it.
Learn how to save up for anything you want instead of swiping those credit cards
Drive what you can afford and don't fall a victim of the credit society we live in.
Live within your means
Don't buy fashion that cost you half of your paycheck. It would probably go out of style before you are done paying for it
I know we don't pray for medical issues but we can plan for them ahead of time by saving for them since we are sure they will show up unannounced.
Get your wife on board and you both should sit down and work this plan together. You will notice how quickly things will turn around for good for your family.
I know this is a long response but i believe it will help you out a lot. Also there might be a reader who also needs this
All the best Tom
Regards'
Adey
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