My financial situation has completely changed

[edenky22]

Hi everyone,

Years ago I found the MSN Money boards, and lurked for a long time.  I also migrated here years ago, but only in the sense that I read the forums daily.  Everything you taught motivated me to save, save, save.  And I haven't been on this board for a few years. 

A year and a half ago, I had $20,000 in the bank, but then I built a house without first selling my original house.  I owned the first one for 8.5 years, and in addition to paying double mortgages for 9 months, I had to take $11,000 to closing.  Needless to say, my financial life has changed drastically.  I now have $10,203 in credit card debt, and only $1200 in savings.  I hate this feeling and will work really hard at getting myself out of this hole now that I have sold the original house.

My question for you guys is, if you were ever in this much debt and/or had your financial picture change so drastically, what steps did you take to recover?

[Rocky Mtn Saver]

I've definitely been there, and probably worse!

The first step is usually to identify honestly how such a change happened and what you are prepared/need to do in order to stop the hemorraghing and get back on track. 

[Deleted]

Oct 14, 2014 11:48:24 GMT -5 edenky22 said:

My question for you guys is, if you were ever in this much debt and/or had your financial picture change so drastically, what steps did you take to recover?

Step back.  Breathe.  Then make a plan.  Write it down.  Post it here for constructive criticism.   Track it.  Post updates here for encouragement. 

I'd start with a budget and a list of all your debts, minimum payments and interest rates. 

I used to have FIFTEEN loans/lines of credit that I was juggling at one time. 

[Peace77]

Live frugally.  

Look for ways to cut expenses and increase income.

Pay more on the debt each month even if all you can do is round up to the nearest dollar.

Continue until the debt is paid off and savings are up to 8 months worth of expenses and retirement contributions are maxed each year.

[edenky22]

Thanks Rocky Mtn Saver.  This is a scary feeling for me.  The credit card debt, and decrease in savings, are purely the result of the down payment on the new house, the double bills for 9 months, and the money I needed to bring to the closing of the old house.  I just feel like it is going to take me forever to climb out of this, and it's a scary time at my place of employement as well.  I guess I'm just scared.

[Deleted]

You don't mention your age, but the short answer is "slow and steady". The younger you are, the more time you have to recover. (And I bet you've learned a valuable lesson for the future!)

If you were motivated to save, save, save, you probably still are so we don't have to tell you to separate needs from wants, that your 7-year old doesn't need a smartphone, that it's not a good idea to put a koi pond in your back yard. Just stick with us and keep saving!

My own story isn't as dire but I'll tell it anyway- divorced at age 43 from a guy who'd been unemployed the last 5 years of the marriage. Fortunately we have a lot of equity in the marital home, but we were in a HCOL area and I put my share down on another house which still had a big mortgage, and I had a 12-year old son to take care of. I WAS able to hang onto the savings in my name, which helped, but I ended up spending $48K on DS' HS education because the public school system failed him. During those years I couldn't save much beyond the 401(k) and could afford only to keep the house repaired- certainly not upgraded. Seventeen years later things are much better than I ever expected. I remarried, we moved to a LCOL area, sold the old place at a nice profit (which I invested). I just retired a bit early and DH and his wife have a beautiful baby girl.

Welcome back!

[edenky22]

Thanks Peace.  I don't live frugally, but I do live well below my means.  I had all of the above (except the maxing out of the retirement accounts) prior to the last year and a half.  My income part of the equation is good, the debt just feels impossible...

[edenky22]

Oct 14, 2014 12:00:28 GMT -5 @athena53 said:

You don't mention your age, but the short answer is "slow and steady". The younger you are, the more time you have to recover. (And I bet you've learned a valuable lesson for the future!)

If you were motivated to save, save, save, you probably still are so we don't have to tell you to separate needs from wants, that your 7-year old doesn't need a smartphone, that it's not a good idea to put a koi pond in your back yard. Just stick with us and keep saving!

My own story isn't as dire but I'll tell it anyway- divorced at age 43 from a guy who'd been unemployed the last 5 years of the marriage. Fortunately we have a lot of equity in the marital home, but we were in a HCOL area and I put my share down on another house which still had a big mortgage, and I had a 12-year old son to take care of. I WAS able to hang onto the savings in my name, which helped, but I ended up spending $48K on DS' HS education because the public school system failed him. During those years I couldn't save much beyond the 401(k) and could afford only to keep the house repaired- certainly not upgraded. Seventeen years later things are much better than I ever expected. I remarried, we moved to a LCOL area, sold the old place at a nice profit (which I invested). I just retired a bit early and DH and his wife have a beautiful baby girl.

Welcome back!

[Peace77]

You can do this (get back to where you were).
It will take some time.  You didn't get in debt overnight, you won't get out overnight either.

[edenky22]

Sorry.  I hit the quote button, and typed out a response to it, but it disappeared when I hit post.  I'm not sure what happened or how to quote and post in the same post.

I am 36, single, no kids.  So all financial responibility for the bills and the debt come only from my income.  (The flip side is, I don't have to pay for anything for anyone else!).

I have always been a saver, and this debt and lack of savings is a direct result of the the down payment on the new house, the double bills for 9 months, and the $11,000 I needed to take to closing on the old house.  I really, truely hate this feeling.

Thanks for sharing your story Athena and giving me hope.

[Abby Normal]

One step at a time.  Decide how badly you want to be rid of the debt and what you are willing/can to sacrifice to do so.  Initiate your plan, and track your progress.

Back when I had a car loan- I hated it. I mean hated it with a passion. I cut all the extras I could and set up my autopay for over my regular payment by that amount.   Anytime I would consider going out to eat, or get coffee etc, and NOT do it- I put that money in a jar.  I took it to the bank once a week and posted it to the loan.  The bank hated me.  But even seening that little bit of progress made me feel so much better.

You can do it-  it's just one step at a time.  Celebrate the small milestones-  even if it's just a quick pat on the back.

[Tiny]

I now have $10,203 in credit card debt, and only $1200 in savings. I hate this feeling and will work really hard at getting myself out of this hole now that I have sold the original house.

It might not be as bad as you think...

For yourself:
If the cc debt isn't all on one card - you may need to list the CCs, interest rate, min payment. You want to go after the CC with the highest rate first. You'll need your budget/spending plan and start allocating $$ to the debts. Maybe you can move some of the $$ to 0% offers if they have high interest rates.

Coming up with a plan - having an 'end date' mapped out, having a plan for how to come up with the payments every month, and then working the plan can be very empowering.

You'll get thru this, it just takes time and effort. 

I've juggled a mortgage and up to 8K on CCs (in addition to my typical monthly expenses on CCs) I managed to pay off the 8K over the course of a year - I committed to a fixed amount each month, committed to using any windfalls to it, committed the 'extra' from my two 'extra' checks a year, committed my Vacaction Day cash out and Holiday bonus.   Thankfully i had a working spending plan that covered my monthly expenses (and holiday spending and vacation) so the belt tightening wasn't that bad.  I still had $$ for some fun stuff (just not as much as other years).

[Rocky Mtn Saver]

Oct 14, 2014 12:25:19 GMT -5 Tiny said:

I now have $10,203 in credit card debt, and only $1200 in savings. I hate this feeling and will work really hard at getting myself out of this hole now that I have sold the original house.

Coming up with a plan - having an 'end date' mapped out, having a plan for how to come up with the payments every month, and then working the plan can be very empowering.    

  Just having a written plan made my situation 10 times better and more manageable. 

Make a viable plan, too, not a plan built on fear.  A plan made in fear or other emotions will often be unsustainable, too extreme, or otherwise dangerous.  Focus on making a plan that works for you within a reasonable amount of time.  Don't expect to your debt in a few months, but don't feel like you'll never get anywhere, either. 

[muttleynfelix]

Take a deep breath and see what your new budget is.  I think that is the hardest part about having a major upheaval is how long it takes to get back into a budget.  With a brand new house, take a step back from buying things. I know it is hard, but if you aren't having overnight guests, then you don't need to things like curtains or blinds today (for example).  Your landscaping does not have to be perfect. That can wait.  Get a handle on how you are spending money. Is something really necessary? What happens if you wait?  

You can do this.  When we built, we had all sorts of financial issues to sort out afterwards. It wasn't that pretty - things went on the CC. The bill didn't get paid completely off.  It was a mess and I was so mad at us for getting into that mess. But looking back, learning how to get out of that mess was the best thing to happen to us.  After we got back on track, my DH started having some health problems.  We went down to 1 income, had 2 had kids, and have had a buttload of medical bills.  But we've managed because we learned how to overcome adversity. 

[gooddecisions]

2006 was a tough year to buy. Prices were almost at their peak and only went down from there. I'm guessing you built a beautiful house that meets your needs much better than the original home you purchased. It's usually worth it to get into a little debt when it comes to your home.

[raeoflyte]

Have you sat down to run the #'s and have a general idea of where the money went and know that there are no more leaks now that your old home is sold?  You spent $11,000 on the downpayment/closing costs so that is accounted for.  With the rest of the money you had in savings, plus the $10,203 added in debt,  that would mean that those 9 months before the house sold were costing you $2000 a month.  As long as that is accurate in terms of what that house was costing you to, then make your new plan and you will be fine.  If you know that house wasn't costing you $2000 a month, try to figure out any other 1 time moving expenses that dipped into your savings during that time and see if you can come up with a more accurate number.  All of this is just to make sure that you haven't suffered from lifestyle creep.  I know for me being a saver, that when I give myself the okay to spend I can easily overspend and trying to reign myself in can be difficult.  

Next step I'd say is to take the next month and track your expenses.  You can still make your new budget in this time frame, but put the focus this month on tracking expenses, not on matching your budget exactly (but make sure you're not using the card either).  

[busymom]

Without looking up the old numbers, I believe DH & I were about $27,000 in credit card debt.  It happened from a variety of things that happened over several years:  our youngest was diagnosed with an expensive learning disability, a couple of companies we worked for went through downsizing or closing of work locations, etc.  (You get the idea:  the "perfect" storm.) 

I'm old school, so I wrote everything down.  Current monthly expenses, periodic expenses (insurance, property taxes, license tabs, etc.) & made up a plan.  DH & I originally decided to knock down our debt in 3 years (yes, I know that sounds like forever), but the momentum of seeing the numbers go down was THRILLING, & we started doing stuff like garage sales, & selling stuff that we no longer needed.  We not only paid everything off, but did it months ahead of schedule.

Make a plan that motivates YOU.  We had a "spread sheet"-style plan, & we were using a highlighter to show the progress we were making each month.  There is NO FEELING as good as when that debt is finally off your back.  You CAN do this! 

[Deleted]

Oct 14, 2014 11:48:24 GMT -5 edenky22 said:

Hi everyone,

Years ago I found the MSN Money boards, and lurked for a long time.  I also migrated here years ago, but only in the sense that I read the forums daily.  Everything you taught motivated me to save, save, save.  And I haven't been on this board for a few years. 

A year and a half ago, I had $20,000 in the bank, but then I built a house without first selling my original house.  I owned the first one for 8.5 years, and in addition to paying double mortgages for 9 months, I had to take $11,000 to closing.  Needless to say, my financial life has changed drastically.  I now have $10,203 in credit card debt, and only $1200 in savings.  I hate this feeling and will work really hard at getting myself out of this hole now that I have sold the original house.

My question for you guys is, if you were ever in this much debt and/or had your financial picture change so drastically, what steps did you take to recover?

well to begin with, I don't consider $10K in credit card debt to be all that much on the scale of no cc debt to oh my god I can't believe the amount.  when you say your financial life, does that mean income or is it just the cc debt and lowered savings?  if it's the latter, I would just redo the budget to build up savings and paying whatever's left over to the credit cards.

[zibazinski]

Didn't we have a poster called INDEBT? He was amazing. He became someone else as I recall. Is he still around? I found his ideas/progress to be profound.

[Rocky Mtn Saver]

Oct 14, 2014 13:40:44 GMT -5 @singlemominmd said:

Oct 14, 2014 11:48:24 GMT -5 edenky22 said:

Hi everyone,

Years ago I found the MSN Money boards, and lurked for a long time.  I also migrated here years ago, but only in the sense that I read the forums daily.  Everything you taught motivated me to save, save, save.  And I haven't been on this board for a few years. 

A year and a half ago, I had $20,000 in the bank, but then I built a house without first selling my original house.  I owned the first one for 8.5 years, and in addition to paying double mortgages for 9 months, I had to take $11,000 to closing.  Needless to say, my financial life has changed drastically.  I now have $10,203 in credit card debt, and only $1200 in savings.  I hate this feeling and will work really hard at getting myself out of this hole now that I have sold the original house.

My question for you guys is, if you were ever in this much debt and/or had your financial picture change so drastically, what steps did you take to recover?

well to begin with, I don't consider $10K in credit card debt to be all that much on the scale of no cc debt to oh my god I can't believe the amount.  when you say your financial life, does that mean income or is it just the cc debt and lowered savings?  if it's the latter, I would just redo the budget to build up savings and paying whatever's left over to the credit cards.

The OP has overspent/lost about $30k in the last 18 months, so that's probably what's freaking him/her out.  But if that was all just due to the housing situation, and that situation has been rectified, then I agree that he/she just needs to put a plan in place and try not to play the second-guessing game.

[Peace Of Mind]

Welcome, eden and know that we've all been there!  Everybody already gave you good advice and you will get back in shape in no time.  But it is scary to have your safety net taken away which is what that $20K was.  

Make smaller goals so you feel you are making head way quicker.  Looking at the bigger number can be overwhelming - like you said - and you feel it will take forever!  Slow and steady and change a few habits to scale back for a little while and you'll get there before you know it.

Then you can post here how you did it for people who are starting over too. 

[edenky22]

This!  My financial situation has taken a $41,000 swing in a direction I don't like.  ($20,000 down payment, $11,000 to closing on the old house, and a little over $10,000 on credit cards tyring to keep up with the double payments). 

I'm trying really hard not panic, but now that the old house is gone, I am now faced with actually facing the reality of the what I need to do and deal with to get out of this mess.

Prior to the last year and a half, I haven't had to live on a written budget for a really long time.  Although it will be worth it, its hard getting used to it.  And I feel like it will take forever to work through.

I know I made the right decision to build this house, and that this short term pain is worth it in the end.

Thank you so much everyone for sharing your personal stories and showing that it is possible to get through it, and there is light at the end of the tunnel.  It helps more than you know.

Oct 14, 2014 13:48:12 GMT -5 Rocky Mtn Saver said:

Oct 14, 2014 13:40:44 GMT -5 @singlemominmd said:

well to begin with, I don't consider $10K in credit card debt to be all that much on the scale of no cc debt to oh my god I can't believe the amount.  when you say your financial life, does that mean income or is it just the cc debt and lowered savings?  if it's the latter, I would just redo the budget to build up savings and paying whatever's left over to the credit cards.

The OP has overspent/lost about $30k in the last 18 months, so that's probably what's freaking him/her out.  But if that was all just due to the housing situation, and that situation has been rectified, then I agree that he/she just needs to put a plan in place and try not to play the second-guessing game.

[Deleted]

The important thing is the bleeding has stopped. 

[muttleynfelix]

Prior to the last year and a half, I haven't had to live on a written budget for a really long time. Although it will be worth it, its hard getting used to it. And I feel like it will take forever to work through.

That was me and my husband. We had just gotten married and between us, we could easily meet our bills, didn't completely combine funds, and just didn't pay that close attention to what the other person was doing. Then we started building our house and when we got done and we looked at our financial output and it was like crap, what in the world happened. It was a good wake up call.  8 years later, our income is only 70% of what it was, we have 2 little kids, and we've had over $40k in just out of pocket medical expenses, yet somehow we've managed (and thrived, our retirement has gone from $15k to over $100k) because that wakeup call got us to sit up and take notice and get our financial house in order.  If you had told me 8 years ago how the last 8 years would go, I would have told you we would be bankrupt and curl up in a ball and cry.     But you know, what doesn't kill you makes you stronger and I truly believe that.  

[Angel!]

Make a list of all the CC's you owe money on & rates.  See if you can get any higher ones to 0% cards.  Make a budget.  Make a snowball plan to pay it all off.

I totally understand the stress, I think all of us have been there at some point.  Right now I owe ~20K in CCs.  But, if you have a plan & are making it work with a budget, then all it takes is time.  The time factor is what frustrates me most of all

[Bonny]

Oct 14, 2014 13:41:05 GMT -5 zibazinski said:

Didn't we have a poster called INDEBT? He was amazing. He became someone else as I recall. Is he still around? I found his ideas/progress to be profound.

the new name is Road to Riches.

Yes I agree he's got quite an inspiring story; along with a few others here.

[haapai]

It's not clear from your posts whether you were able to write a check for $11K from savings or whether you had to take out a loan to get the old place sold. 

Whichever is the case, you probably remember the drill.  Make that list of debts and details, add it all up, vomit and cry as necessary.

The budget comes next.  It's significantly harder to write than the list of debts and the first draft is going to exclude some important stuff.  (Save a copy.  It'll be funny some day.)  Do you remember the format that most people used that put all of the living expenses (and the mortgage) in the first section and all of the minimum payments on debts in a second section?  There's a bit of calm that comes from organizing it like that. 

Once you find out how much is left over after you have paid everyone the minimum, you can start writing debt amortization tables and figure out how long it will take to dig yourself out of this hole.  

If you've never done this before, it probably sounds masochistic, but I can testify that it helps.  It kept me sane when I had $200 in the bank, $14K of debt and was making $14,600 a year. 

[Bonny]

Oct 14, 2014 16:34:31 GMT -5 haapai said:

It's not clear from your posts whether you were able to write a check for $11K from savings or whether you had to take out a loan to get the old place sold. 

Whichever is the case, you probably remember the drill.  Make that list of debts and details, add it all up, vomit and cry as necessary.

The budget comes next.  It's significantly harder to write than the list of debts and the first draft is going to exclude some important stuff.  (Save a copy.  It'll be funny some day.)  Do you remember the format that most people used that put all of the living expenses (and the mortgage) in the first section and all of the minimum payments on debts in a second section?  There's a bit of calm that comes from organizing it like that. 

Once you find out how much is left over after you have paid everyone the minimum, you can start writing debt amortization tables and figure out how long it will take to dig yourself out of this hole.  

If you've never done this before, it probably sounds masochistic, but I can testify that it helps.  It kept me sane when I had $200 in the bank, $14K of debt and was making $14,600 a year. 

Haapai's former situation and her story of digging out of her hole making so little money is one of the most inspirational stories here.

[Deleted]

edenky22............this is not a "downtime" for you!  Think of all the positives.  You saved $20k and owned a house.  You moved onto the next stage of you life and built a new home (hopefully the one you want!).  You used the savings to take the next step.
Now you move on to the next step of rebuilding your savings and retirement fund.
There's nothing wrong.  You didn't do anything wrong or bad.  You moved on to the next stage of your life.
Congratulations.
 

[haapai]

It's only inspiring because I'm aware of YM's tendency to tear people apart and I've quite a few bits out. 

I didn't pay rent for two years.  The bulk of the debt was student loans.  I was so freaked out by unemployment and convinced that deferments were the road to perdition that I never applied for the automatic unemployment deferments or the forbearance options that I very likely would have qualified for.  As time goes by, I'm less and less sure that I dug myself out of that mess by brains and belt-tightening or whether steady increases in income pulled me through.  I also got gifts, which I would have squandered if I hadn't gotten my priorities figured out. 

The point that I'm trying to make here is that analyzing your financial situation helps tremendously.  You can (i.e. will) make some mistakes in your "digging out" but doing the spreadsheets beats the crap out of unending belt-tightening and the self-doubt that comes with it.