To Consolidate Debt or Not?
My husband and I have fallen into financial strain. We are both National Guard, however I am AGR and he is a traditional guardsman. He has been unemployed for a year, and we have burned through our emergency fund and credit cards.
We have equity in our car, and I'm debating refinancing my car and using that money to pay off our credit card debt, which is becoming overwhelming. This would help us to not fall behind on our credit card payments while he continues to search for work. I've already closed one high interest credit card account and set up a payment plan to close out the final payment (based upon the financial hardship). This would help me to pay off our other credit card debts.
My husband thinks this is a great idea (and it's one I came up with). However, I'm cautious about making any large financial decisions, as I've made the wrong ones in the past. Is this a good idea to help us make those difficult payments and start saving our emergency fund again? I know this would tie our car into our debt, but I think that provides even more of an incentive to pay things off (and it comes at a much cheaper interest rate).
Thank you for taking the time to assist me in making this decision.
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You might also consider quitting the guard. Find a productive line of work outside of government.
I agree that you should not get into more debt. Your husband should find any job he can even if it is pushing carts at a big box store. It is tough to find a job but anything is better than nothing at all
He also should seek out groups that help military find employment. They often have employers that hire military and retirees
First I am happy to see that you are concerned and seeking advice. That is the biggest step you need to take. Great job. As many other's have said, read Dave Ramsey. You can get his book for free in a local library. If not I'll send you all the books I have for him and others for free as well. Just reply to the message with your email and I'll contact you. Sorry, but I am very protective of my info. LOL.
Definitely listen to what everyone has told you here. It's easy once you get started.
I suggest that you do not go into further debt, especially using a secure item such as your car or even house to try to pay off your bills. You said you have equity in your car. Do not refinance your car unless you are doing so to drop the interest rate. If you do, then use a credit union. Their rates are cheaper and usually helpful. Otherwise all you are doing is adding another finance charge on your bill and prolonging paying it off. If you can, sell your car and find something cheaper that you can afford and that still runs. Buy that with cash. This will save you a monthly car payment that you can put towards your bills. Cars are not investments. They are the worst thing to invest in. They depreciate in value and cost too much to fix. Find value in other assets such as a home, but do not (DO NOT) by any means use these items as collateral to pay off debt. Why risk your house or etc., especially if those things are paid off.
Make sure you budget. Make every dollar have a mission. See the truth of your overall situation. See where you are overspending. Cut back on things you don't need and use that money towards debt or buidling the first 1000 for your emergency fund. Realize a want vs need when it comes to spending. Also tell you husband to get a job, even if it's at Mc Donald's or delivering pizzas. Right now is not the time to think " Oh I won't work there. I deserve something better." Seriously, you are in debt. You need more income. I'm not saying he should stop searching for a better job, but he needs to bring something home as well. If not, you really need to readjust your budget to one income. Do not quit the job you have. You have medical benefits and something coming in at least. Adjust your budget to that.
For an emergency fund, save as Dave Ramsey says about 1000. It will give you a cushion to attack your debt if anything should come up. Remember only to use it if it is an actual emergency. Then when you do use it, replace it back up to 1000 until you get out of debt. Next use the debt snowball or use the debt avalanche. The key is to get started and continue doing it, while still spending less than what you earn. Do not go into more debt. May I also suggest you call your creditors. Explain to them one of two things. Either your job has cut back your hours and you would like to see how they can help you because you are afraid you can't make your payment or tell them you have other offers from other cards with a better APR and are thinking of transferring your business to them. Ask what they can do to help you as you would like to stay with them. I would suggest using the first one and just be honest. They are there to help you. They want and need your business. If the first person tells you that they can't do anything then call back or ask for a supervisor or to be transferred to someone who can help. Remember to be nice and patient with them. They are more likely to help someone that is friendlier than a customer with an attitude. Ask them if they can drop your APR temporarily, so that your payments can actually go more to the principal rather than interest.
Many people open new credit cards to transfer their balances and consolidate to a lower interest rate. This may make sense and easier if you can consolidate. Understand that for each transfer you do, there are fees, usually 3 to 5% of amount transferred, that apply and add on to the balance. This may work for you, but don't make the mistake of adding more debt to it.
Once you have set these in action and have a plan to follow, it's really easier said than done. Find more ways to save money as you are paying down debt. It becomes almost like a game. Challenge yourself as well. Set up goals and try to reach them or even beat them. Just remember, depending on how much debt you are in, how much you work towards it, and you current financial situation, will all depict on the day you finally become debt free. It may take a while, but do not forget the light at the end of the tunnel. Other's have been in your shoes, but it's better to learn than not continue down the wrong path.
I feel like you understand the concept of an emergency fund already, since you mention that you had one and have already burned through it. It sounds like the extraordinary situation has slowly slipped into being ordinary as your husband continues to look for a job. I don't have any real answers but some things to think about:
- Have you tried calling up the USAA financial advisors to see if they can provide some free, over-the-phone advice on your situation?
- Some financial advice columnists I read have recommended http://www.debtadvice.org/nea/ in the past to get hooked up with a debt couneslor to help with exactly these types of situations.
- I agree with the other posters that your husband needs to take up any job right now to help bring in some income while he continues to search for that "real" job. You also need to go through your spending and budget with a fine-tooth comb if you haven't already, and look for ways to really cut back. You've exhausted your life lines of emergency fund (good) and credit cards (bad) so now you have no choice but to live within your current means, whatever that takes. Can you take on a roomate? Cut cell phone, cable, and other superfluous spending?
I am not a debt counselor and have not been in this situation. I can see your logic though of taking "equity" out of the car in order to not go delinquent on the credit card payments. I think if you did that though you would have to realize the extreme measure it represents. I could see that making sense if you then a) made the minimum CC payments until your husband got a job and b) cut back/increased income by whatever means necessary so that you were living within your means going forward, to not perpetuate the hole you are in now.