Just as I was surprised last month, I’m shocked to find again, the I’m actually looking forward to the end of this month to take stock of where we are. We struggled a little more with our budget this month, but have agreed to make some adjustments starting next month, so we can stay more in-line with what our goals are.
I also started back at grad school two nights a week, which adds around 150 miles/week, meaning two additional tanks of gas a month, so we will need to adjust for that, also. Luckily, the lending company from my undergrad student loans is deferring my payments while I’m enrolled – we’ll still pay the interest, but that will provide an additional cushion for the next few years…I was so pleased to hear my husband say, “we should put some of that in savings.”
This weekend was somewhat of a breakthrough for us in the “talking to friends about our situation” area. As I’ve mentioned before, we’ve kept our situation pretty close to the vest, even with our close friends. We’ve since determined that there needs to be a certain level of healthy discussion with those you care about or else you could end up distancing from them in other ways, too.
It goes beyond just turning down invitations to do things that are expensive – it impacts the other parts of your conversation with people, usually unintentionally. The way we experienced it was last fall when we had to move and drastically reduce our lifestyle, but felt strange about disclosing all of the details to our friends as to the “why” of our move. We would say, “it is just too expensive, we need to downsize” but not elaborate. We thought we were doing this so that we wouldn’t burden our friends and become “Debbie Downers,” but we really were doing them a disservice and unintentionally communicated that we couldn’t trust them.
The other facet is that when we did talk to our friends, we were coming from a “survival mode” and they were coming from their own places, usually good things, so I can see how we might have come off as distant or cold or self-involved – all we were thinking about is “how are we possibly going to make this work.”
I think we’ve made some inroads on this matter in the last few months. We have started making being intentional to discuss it with some of our better friends and while we haven’t talked dollar amounts, we have talked about some of the mis-steps we have made and the reality in which we find ourselves. In one instance, the wife of the couple asked what kind of blog I was going to be working on for the next three years, and so I told her. She shared that she and her husband went through a similar process and was able to borrow money from family to reduce their debt and then live frugally to pay it all back. I systematically started setting up times to talk to our friends face-to-face about what we’ve been living through, and we’ve been so thrilled by the response of our friends.
The conversation that I have been struggling with the most is the one with one of my best friends – we’ve been friends for over 5 years, and there have been some things that both of us have held back. This weekend, after spending the day together and having a great dinner, my husband and I started to share about our debt reduction plan on the way back from dinner. I started with the date that we are going to be debt free (July 20, 2012) and said that I knew it would be a tough road, but I knew we could do it if we were just disciplined. Her response floored me. She said “That’s awesome. You know, I’m so mad at myself. I got into trouble years ago, and then finally worked myself to a place of being debt-free, and now, I’ve let it creep back up and I’m in exactly the same place.” This was HUGE for us. Neither of us had volunteered this information and now we know that we are each going through it.
I’m so pleased that we are continuing to fight the fear – at first it was a fear of facing our debt, then taxes (more on that later) and now the fear of sharing. It is much more freeing to face all of this head-on, I think…
Here are a couple of excerpts from this great article on the TIME website titled, “The Great Recession: America Becomes Thrift Nation,” by Nancy Gibb:
Talk to people not just about how they feel but about how they’re living now, and you hear more resolve than regret. Nearly half say their economic status declined this year, and 57% now think the American Dream is harder to achieve. And yet pain and promise are a package deal; even after all this, fully 56% believe that America’s best days are ahead. It would be nice if it took something short of a heart attack to get us to work out, eat better and spend more time with our kids. But in the end, where we wind up matters more than how we got there.
I like the optimism, because that is where I am choosing to live in the midst of this really dark financial time for our family – I choose to believe that it will get better, for all of us. I think it will take honesty and work from everyone, but I do believe we can get there.
But I think the best part comes in the last two paragraphs:
No one wishes for hardship. But as we pick through the economic rubble, we may find that our riches have buried our treasures. Money does not buy happiness; Scripture asserts this, research confirms it. Once you reach the median level of income, roughly $50,000 a year, wealth and contentment go their separate ways, and studies find that a millionaire is no more likely to be happy than someone earning one-twentieth as much. Now a third of people polled say they are spending more time with family and friends, and nearly four times as many people say their relations with their kids have gotten better during this crisis than say they have gotten worse.
A consumer culture invites us to want more than we can ever have; a culture of thrift invites us to be grateful for whatever we can get. So we pass the time by tending our gardens and patching our safety nets and debating whether, years from now, this season will be remembered for what we lost, or all that we found.
Today’s post is a little more about our history and what we learned from our Bankruptcy research.
I wrote before about how a conversation about our finances led my Mom to suggest that we needed to file for bankruptcy. She told us “stop paying your credit cards, meet with a lawyer and file the paperwork this week.” So the next Monday, we started researching the process and we found out the following:
Before you can file for individual bankruptcy, you need to attend a pre-bankruptcy counseling session (either in person on online) to obtain a Bankruptcy Counseling Certificate.
Chapter 7 takes your assets and distributes them to your creditors and the rest of debt (except student loans and a few other types of debt) are discharged. Chapter 13 develops a payment plan so your creditors get as much as they can for 5 years. (These explanations are over-simplified – I’ll post some resources that help with providing more detail later).
After you file, your creditors can no longer call you, until the Meeting of the Creditors where you have to face your creditors.
Both filings stay on your record for 7 years.
If you are married, only one spouse *can* file, but both incomes are taken into account, which adds to #6.
It’s really difficult to qualify for Chapter 7.
The bulk of the debt is only in my husband’s name ($42,000+) and filing might cause some complications with my job, so we decided that my husband would contact his Employee Assistance Program and get a referral for a Bankruptcy lawyer. He was connected with one and the lawyer did a phone consult with my husband. The lawyer was very terse and said, “you can’t file, you make too much money.” This seemed to conflict with a lot of the research that we had done, so we contacted the EAP again and my husband got a meeting with a new lawyer – one who worked at a Bankruptcy practice. He took all of our financial records with him and at the end of the meeting it was determined:
We could file for Chapter 13.
The payments would take 5 years.
The firm would require $2,400 to file the paperwork.
Our credit lines would be closed.
Our standard of living would be very, very low for 5 years.
Both my husband and I felt a little defeated – it had already been a really touch 18 months, and we felt so hopeless. We had really hoped that we would be able to file for Chapter 7, but even though our debt (over $60,000) was more than our annual take home (under $60,000), we “made too much money” to have any of our debt discharged.
So, as our creditors were calling every day (seriously, EVERY day), I asked my husband to try and cut a deal (settlement) with them. I suggested that he tell them that we were about to file for bankruptcy and did they want to work something out with us so that neither party had to go through the system – I told him we should ask them to drop the principal and interest rate. Here is what happened:
MBNA – dropped the interest rate to 4.25% (from 19.95%) and put us on monthly payments of $370/month, which lowered our monthly payments by almost $200.
Citibank – dropped the interest rate to 9.9% (from 32.24%) and put us on monthly payments for $319/month, which lowered them by $200-300
Direct Merchants (they weren’t as friendly, but they cut us a good deal) – they cut our principal by 25% and took the interest rate to 0% – *however* we had to pay the balance monthly within 6 months – those payments are the $1,600+ payments (only 2 left as of this writing).
The “hitch” for all of this: (1) the cards/lines of credit are closed, (2) my husband cannot apply for any credit while paying these off or the terms will revert to the previous agreement – this is for 5 years, (3) if we miss a payment, all the terms will revert.
But all in all, I’m actually glad that we went through with this process instead of going through the bankruptcy filing. Sure, there would have been more protection and it would be nice to have it a little more “out of our hands,” but I really think that this allows us to push even harder to reduce our debt as our circumstances change. And even though the payment plans are 5 years, we’re still committed to being done with this process in 3 years, 3 months.
This month seems to be a little harder than last month – I haven’t quite put my finger on why that is, but I am feeling a little more “squeezed” when I look at the budget and the cash flow. Part of it is another car repair (one shouldn’t ignore a cracked serpentine belt, I hear) and the other is the fact that we have this one credit card that we settled with a 6-month payment (I’ll write a post about that process soon), but that means $1,600+ payments each month for 6 months. I promise you, we do *not* have an extra $1,600 laying around, so it has been quite an amazing process as we look for it.
But on to the “successes” so far this month – we have paid down a net of $484.10 so far. In the next 5 days, we’ll add another $1,974 to that, which will feel a little more accomplished, since our net goal for April is in the $2,800 arena.
I’ve been reading some posts by others talking about selling their stuff to make money – my husband and I should take another look and see if there are some things that we could sell. We had about $2,000 worth of things to go when we downsized, but only one person came to our “Moving Sale” – it was a little disappointing, to say the least. But maybe we can figure something out for this next month to help provide a little “breathing room” as we push hard to our monthly goal. Keep cheering us on!
Using out Microsoft Money Debt Reduction Planner (which takes all of your debts and liabilities, looks at minimum payments, interest rates and terms, and the maximum you can pay toward debt to determine a payment plan), we can project that our Out-of-Debt Date is….. July 20, 2012. Yes, that seems like it is quite a ways away, but it is so much better than “never.”
My husband and I have already agreed that any additional money that comes in (non-salary or payment for a job) will be split up the following way:
We think this is a balanced approach that will address the knee jerk reaction of “let’s go play” with what might feel like a bone crushing “we have no fun for 3.33 years.” All of the financial guides (including the bankruptcy counseling) said that it is important that we make sure that as we are responsible, that we balance it with things that will rejuvenate and excite us so that we can continue to be productive.
We are supposed to be matched up with a Financial Counselor from our church’s program soon. The committment is a 4-6 month time of working on the steps that they identify. I am very curious to see what else they would suggest – we’ve REALLY made a lot of changes in the last year (especially the last 6 months) so I’m wondering what else we could do. I’m excited that we have the opportunity to learn even more and that there could be something else that would make our “out-of-debt” date come even closer than 3 years, 3 months, and 1 week.