WWKD,
We have 36k in credit card debt. We make around $6,400 a month after taxes. The mortgage payment is $1,500 and we are current. We are able to pay utilities and food as well as the car payments but that is about it. The credit card companies are bugging us everyday wanting money from us that we just don’t have. As it is we are still having to charge some things like cloths on credit. I am a stay at home mom, and have three kids the oldest is 8. I don’t want to get a job because what I make would be spent on day care. What should we do? Is bankruptcy the answer?
Signed: Should We File
Dear Should We File,
Just like I wouldn’t recommend someone get a divorce, I wouldn’t recommend someone file for bankruptcy. Both are the easy way out but cause pain and heartache for years after the papers are signed.
What bankruptcy does is clear up the symptom (stops the bill collectors from calling) it doesn’t address the root cause of the problem which is spending behavior. Bringing in $6,400/mo is good income. From what you have said here I would first look at where your money is going. You mentioned $1,500 mortgage, utilities and food, all these things are necessity. You also mentioned car payments. Car payments is a killer to budgets. The average car payment is between $380-$460 month every month for up to 60 months, sometimes more. If you have two cars, each with a $380 payment, that is $760 bucks that you could be putting on credit cards to pay down your debt.
I have said it before, used cars are fantastic. I have a 2001 Explorer that I paid $5,600 for 2 ½ years ago, it runs great, is reliable, and has cold air. But what makes it even better is it is paid for. No matter what I would never be able put $380 a month into that on repairs. My recommendation would be to first sell the cars and buy something you can pay cash for. Most likely you owe more on the car than it is worth, so worst case, trade down on the car. Trade it in for something with a much lower payment that you can get paid off in a year or two.
Make a budget. Write down all your expenses, right down to money you feed into the vending machine, eating out, newspapers and magazine subscriptions. Then objectively take a look and determine where you can cut back. When coaching clients I can usually find $250 to $500 of over spending each month, that is a big monthly raise.
Once you have a budget laid out, make the decision to follow it. If you want to spend money, check the budget, discuss with each other if you can afford it now or if you have to save for it. Stop using credit cards. Spending on credit means you can’t afford it. Discipline yourselves to look long term instead of getting it now.
Most people who file bankruptcy are in debt again within two years, hence all they did is clear up the symptom instead of cure the cause which is over spending. Your goal should be long term solution, not short.
As a side note, children are like sponges, they watch how Mommy and Daddy handle money, they may not understand it now, but they are learning the behavior just the same. How do you want them to handle money when they are old enough? Like you are now, or by paying cash and living without bill collectors calling?
Please let me know what you think.
