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Breadwinner Needs to Make Some Budget Cuts

 
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February 1, 2012
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QDear Erica,

I am the breadwinner for my family of four. My husband is on Social Security disability, He gets $982 per month. He has to pay $200 for a truck note, $110 for a couch rental from a rental center and, until April, $185 a month for a cash advance. I have to pay the remainder of the bills: $200 for groceries once per week, $150 for the electric bill, $50 for the water bill, $67 for my car insurance and $110 every three months for home insurance.

I have four credit cards that are maxed out for a total of $2,500 and a personal loan for $4,000 (which I have to repay at $158 per month). To top it all off, I owe three cash advance places a total of $2,740. I’ve been having to borrow money from family and work a lot of overtime in order to make ends meet. I am too tired to do things with my family, and I’m depressed. What can I do at this point? – Ann

AHi Ann,

If I could do one thing in my life, (professional thing, that is) it would be to stop people from trying to borrow their way out of financial trouble. It’s a desperate and profoundly flawed move. Borrowing money today to pay for the things you couldn’t afford yesterday and won’t be able to afford tomorrow is irrational and is a temporary solution at best. Just ask lenders. If the only type of credit you qualify for comes with a sky-high interest rate and terrible terms, they consider you to be a big, bad risk — which is your cue to walk away.

Look, I know that emergencies come up and it’s not always easy — or possible — to cover their costs with immediately accessible cash. But rather than take out a loan that you’ll regret in the near future, it would be far better to suffer though the situation by taking drastic but productive action. That could include everything from living on pasta for a month, to selling family heirlooms, to asking teenaged kids to contribute their odd job earnings.Ask Erica

Now that you did turn to expensive debt instruments, though, you’re tapped out and exhausted. Is there anything you can do? Yes, but no miracle is waiting in the wings. You and your husband are going to have muster some energy for a fresh effort. So brew a pot of coffee and gear up for some changes. Here’s a plan:

  1. Don’t borrow one more dime. Resist all urges to add to your balances. Remember, more debt will not help; it will hurt.
  2. Set your income ceiling. Your husband is bringing in monthly Social Security Disability (SSD) checks of $982. As you’re the primary breadwinner, I’ll assume that you earn more than that. Whatever that sum is, add it to his. For example, if your monthly net pay is $2,000, you’ve got $2,982 to work with. Unless you can earn more, that’s the maximum you have to spend.
  3. Determine necessary expenses. What’s with the rented couch? You could have picked one up from a garage sale for a single payment of $100! You’ve got to budget down so you can pay for the things you really need. Find areas to slash, like spending less at the supermarket. Total those essential bills up.
  4. List your obligations. Write down who and how much you owe, then prioritize those debts by interest rate. The most expensive ones (ahem, those cash advance loans) are at the top, and the rest falls under that.
  5. Pay your debts. Subtract the total of your necessary bills from your monthly income. Use whatever is left over to pay the minimum for each. If there’s any extra, apply it to the liability that’s No. 1 on your list, and, when that’s at zero, send more to the next in line.

And then there’s filing for bankruptcy. While discharging all that debt would offer immediate relief, you’ll soon be back where you started if you continue to spend and borrow outside your means.


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