Get Out of Debt Guy

Our Income Barely Covers Our Debt. What Should We Do? - Valerie

Posted April 18, 2013

WRAL Reader Question

Seems simple really but it's not...My husband and I have accumulated $75,000 in credit card debt. We figured out along the way that our income is the problem. I have a great job and make a great salary ($65,000), my husband on the other hand works for the State and does not ($30,000) which doesn't include overtime.

It came to be that because we could just barely pay our monthly bills we don't have grocery or any kind of spending money, not even gas. We are living day by day. This debt doesn't include two car loans (one to be paid off in June), mtg, etc.

My credit is pretty good and we do pay our bills on time. Retirement is not an issue, I have a 401k (two loans against them at very low interest rate), we both have substantial Life Insurance and pensions although small.

We want to maintain our credit and heard of credit counseling but leary as I've heard this counts against you. I'd love to pay off the cr edit cards and close them, but then again I heard this counts against you also. We are trying to go about this the correct way without hurting our credit.

Looking at our current situation, how do you suggest we get rid of this debt and roughly how long should it take?

Thanks and please help!



Dear Valerie,

I'll start with offering you guys a big virtual hug and congratulate you for taking the first step to really working this out.

It seems you've been living beyond your income for some time. And then there is the issue of the 401(k) loans. Those are not innocent low interest rate loans, they rob you of the returns you would have earned had they been left alone. And most people are not aware that is for some reason you separated from your employer the loans can be due and payable in full.

Dealing with debt means to either reduce your expenses, increase your income, or a combination of the both. Seems simple when I say it like that. But you add emotion and habit into the mix and it gets all sorts of hard.

Let's not forget that debt is nothing more than a math problem wrapped in emotion. There are all sorts of emotions which drive our decisions to get in or get out of debt. Dealing with debt is also an emotional roller coaster and the more difficult the problem the more stages people go through. See the Seven Stages of Debt for more on this.

I get the feeling you are bargaining a bit with protecting your credit while getting out of this pit. The credit is the least important concern at the moment because like it or not, the hole you are in is pretty significant. 

Based on what you've said I would imagine that your credit card debt is continuing to grow as the monthly expenses you can't afford wind up on the credit card and grow that balance.

So to dig your way out means you are not only going to need to reduce your expenses back to a break even point but even further to get enough money available to actually reduce the debt. For more on this see The Budget Reality of Digging Out of Debt.

The good news is there are options to help you find relief. I'll get to that in a moment.

You also made a comment about closing the credit cards. This is just more emotional decision making as you currently equate the credit cards with pain. You can have good credit without debt. If you can pay your way out of this hole you should not close the cards. It will rob you of a good length of credit with those creditors and that can negatively impact your credit score.

So here we are at the crux of the issue, the real issue is if you can really afford to slash your budget deep enough, for long enough to pay your way out. At least the car payement that will end soon will help.

Rather than make one of those budgets based on lies, you know, where people sit down and write out how they'd like to spend their money, make a spending plan instead. A spending plan is created by actually tracking where you spend your money and then you can make some good informed decisions about what cuts are available and realistic. You can lean how to do this by following the instructions in my book Eliminate Your Debt Like a Pro, which you can download for free.

After a month or so of actually tracking the cash we will then be in a better position to know if the debt hole you are in now is even within your reach to crawl out of.  We can then look at the options here for dealing with debt using my Get Out of Debt Calculator.

Ultimately the best decision for you is going to come down to two primary issues. The first is the theory of dissavings and if you can break that cycle without intervention. The second is how much you value your future. You see our plan of action needs to be based on your desire to fix the past or fix the future. Do you want to spend the next five years trying to pay your way out of your past mistakes or learn from them and do better moving forward?

That's the decision that will determine how long this process will take. You will either be able to shed your debt in about 90 days or five years or so. The length of time is dependent on the underlying choices you make and if you want to sacrifice your future to try to repair your past.

I'd like to be more specific here but I've given you homework to do and data to gather before you make any choices. If you'd like, do the homework and then come and see me at the next free Get Out of Debt Guy Support Group meeting in Raleigh, I'd love to meet up and work this through.

Steve Rhode

WRAL Get Out of Debt Guy

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About this Blog:

Steve Rhode has had careers in opthalmology, real estate and as the head of a nonprofit debt counseling firm. On his blog, he offers hard-won, free advice about getting out of debt, consolidation and making the right choices as you manage your money.