There should be a bit of slack in your budget when a couple makes six figures between them, right? I suppose it makes a difference where they live, how much house they have, and possibly other circumstances a bit beyond their control, but $150k per year should give a bit of a cushion, and if they're blowing through that and more each year, there should be a bit of fat to trim. If there really isn't a cushion, then things might be a little harder than what follows.
The couple was looking for advice on where to turn to for help, as in debt consolidation services or consumer groups, and “how to get this ball rolling” to eliminate the debt.
Something doesn't compute with this situation. How can a couple “have no clue” on how to get out of debt when they're smart enough to earn close to three times the median household income in this country? I mean, the answers aren't obvious to everyone, but shouldn't they be obvious to them?
Anyway, how about this:
- Realize there's a problem. (Again, if the problem is really bad medical bills or some other catastrophe, then that's a bit of a different story.) If it's an issue of needing help to realize that there's a problem, check out Larry Winget.
- Spend less. Look at where the money goes. Dig out the credit card statements that have itemized charges, and categorize them. Where are the big culprits? Eating out? Travel? Shopping at Nine West? Or are the cars leased? Something's draining a whole lot of money, so plug the leaks and repair the damage.
- Sell stuff. Lots of videos, clothes, books, collectibles, whatevers that were bought but never used? Fire up eBay and sell them. Pay down the debt. The minimum payments, and the interest charged, will go down. That's putting the things to productive use.
Making $150k per year is a huge advantage in almost all situations, including paying down debt. A $90k debt isn't child's play on this income but it's a heck of a lot easier to pay it down than if the couple were making $40k per year.
It certainly seems likely that they need to change their lifestyle. If they can cut their lifestyle back to that of a sustainable household making $50K per year, they could rid themselves of that debt in a little over a year, without even having to sell a thing.
And some people make up stories.
I agree – something doesn't compute if they really have "no clue" what to do.
Mike
Pretty amazing. And yet–I don't have any trouble believing them or seeing how it could happen.
On some days, it surprises me that I have trouble living on the $75,000 I make, especially since it's more than my parents ever made and it's more than some of my friends make. $150,000 a year–why I could live nicely on that and never have debt. But the sad truth is, unless we're paying attention, we spend what we make, and sometimes, we spend even more than that.
The good news is they are asking for help. I hope responders spend less time being judgmental and more time being helpful to them.
Their post doesn't say if they have a mortgage and how big. In my area 150K wouldn't be enough to afford a house. It would be enough to afford some townhouse condos, but not all. If they ignored what they could actually afford and had bought a house anyway, then they'd need to save on everything else to make ends meet. If they didn't do it and just put everything on a credit card….
Still, unless they had a critical illness or something like it, you have to be stupid to get that much debt. If it is because of a house – they should've bought a condo or rented.
I agree that the advice is obvious – cut expenses as much as possible, downsize if necessary, find additional income if possible. Live the lifestyle of someone earning 30K and not that of someone earning 150K.
Grace, I don't know. I know it is easy for me to say because I earn over 100K alone and have a paid off home, but I wasn't always making that much nor had I always had a paid off home. I have a friend who when he was unemployed managed to live for a year on 20K. I can easily live on half of my salary (after max allowed retirement contributions) without even trying or giving up anything I really like, but even when I had less or even was poor, I had no trouble with spending less than what I earned. The trick is to condition yourself not to even think twice about stuff you can't or can barely afford, don't buy stuff you don't really need and maybe (if you think for a few minutes) don't even want that badly. Sometime a few simple questions "where would I wear it", "is this really worth that much money" (!), "is it really something special or is it similar to what I already have", "do I really need to replace X" would cut down a number of purchases. A common advice is to save before you buy – this is common sense, but what people sometimes forget is that just because you have money to pay for something doesn't mean it makes sense to do so. I think with some items if you need to save for it, you cannot afford it because the item itself may not be worth X months worth of savings. Whether something is worth a specific amount in savings depends on one's interests, but it is always useful to think about it.
BTW – I've never even considered myself "frugal", just normal, nor have I ever needed to keep a budget to spend less than what I earn. Maybe it is because I am from another generation or grew up in another country.
I guess what some people consider to be essential items, others would consider to be luxuries. I know someone who was always saying she wasn't well off but still managed to spend hundreds of pounds on clothes each month and always managed to feed all her family and pay all of her bills on time. I think it all depends on how we are used to living.
Debt is generally not good unless the capital you purchase with the debt is returning a higher rate of return than the interest expense.
Debt is a form of slavery. You become a slave to your assets you purchase with debt.