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Past January I asked for advice about my financial situation and the answers were very helpful to me. As a result, I feel like my situation has improved somewhat. So I wanted to get some advice on my updated situation. Anyway, me in a nutshell:

  • Before Taxes Income: $170k (day job + moonlighting 2 days a week) - No changes since January
  • Savings: $22k
  • Credit Card Debt: $28k, down from $60k. The cards are consolidated and I'll be paying $1382 for around 2 years to pay it off. The cards are at 2%. Should I use the savings to mostly wipe out the debt?
  • 401k - went from $10k to $18k, mostly due to employer matching.
  • IRS debt: all paid off thanks to a bonus from work last February.
  • Kids school: most likely $1156 a month, plus a one time tax deductible donation of $4000 (they go there by court order)
  • Ex-wife does not work, is quite a deadbeat. The alimony/child support is almost $4000.
  • The children situation. Shortly after the January post, the judge gave me the kids 5 days a week (i previously had them 3 days), pending the ex-wife getting her act together. She didn't. Last monday, the judge gave me the kids 100% of the time because of continued court violations by the ex, pending a hearing at the end of the month. I suspect, the judge will give her another chance and this is just his way of implementing the "scared straight" program.
  • As a result of the above, I'll be asking the judge to reduce child support since it was originally based on me having the kids 3 days a week.
  • My rent is still $1300 (this is low end in my area), though I am considering either moving to a bigger place or buying a modest home. If I bought a home, I am shooting for a max of $2500 a month.
  • I owe my lawyer $10k following the epic custody battle of 2010. The arrangements for paying that off have not been made yet.
  • Credit Rating - somewhat improved. In January, it was 570 on Transunion and 520 on Equifax and Experian. I finally got around to looking at what's actually in my credit report and a lot of it was my ex (I assume) using my SSN to open all kinds of accounts. I disputed pretty much everything and the score went up significantly. At one point my Transunion score was 720. Today, all 3 scores are between 609 and 626. I am still cleaning out my credit as there are at least 2 new fake things.

After taxes, deductions, health insurance, 401k, alimony and child support, my monthly paycheck is $5k - with moonlighting it's $6k. I then have $1300 for rent, $1382 for credit card debt, $1150 for kids' school.

I do want to quit moonlighting at some point, because it is tiring to work full time, deal with 2 kids pretty much full time and then have to go and work some more.

I am not living paycheck to paycheck anymore (thus the 22k savings), but I still feel like I am barely making it.

What could I do to improve my situation?

  • How much are you generally able to save each month? – rjzii Sep 16 '11 at 14:58
  • @RobZ Typically about a $1000. Really depends on the month. As you know, I am sure, with children, the expenses can come unexpectedly. – NeedAdvice Sep 16 '11 at 17:11
  • @AndyW I hear you, but it's generally better for your health to simply accept it. Plus, knowing my ex, she'd probably live on the street, if I didn't provide her with spousal support. – NeedAdvice Sep 16 '11 at 17:13
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Sounds like you are doing much better than you were before but you still have quite a few variables in there that you need to get resolved with the big one being the custody situation. Until you get that resolved you should likely hold off on moving or buying a house. Likewise, you need to build up your savings quite a bit more before you will have a nice safety buffer for when you finally do go to buy a house.

In terms of the credit cards, it's hard to say what the best approach is as the dollar amount sounds pretty painful but you do have a defined timeline for them. Is the payment fixed then I would just stick with it, I've done the bulk payoff before based upon savings and I wouldn't recommend it as you tend to worry a lot about something going wrong. Likewise, if something does go wrong then you might be somewhat worse off than you were before. In my option having the defined debt and timeline to pay it off and the savings is better than the lack of debt and savings. That said though, you might want to readdress this every six months or so and see if you have the savings on hand to do a bulk payment to either knock down the debt more or just pay it off. Once you get closer to the pay off date it you could also drop that to doing the evaluation every month.

Until some of the big variables are taken care of I would just try to avoid any major purchases (i.e. house or moving) until you know where things are going to stand and focus on just building up the savings.

  • 2
    +1 for the warning on the risk of getting too illiquid. – JoeTaxpayer Sep 16 '11 at 15:08
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    +1 for last comment. Having some potentially big unknowns not a good situation to buy a house. Plus, w/low credit rating, and environment, I imagine you would need 20%, so 22K in bank, you probably have a long way to go. Renting a bigger place for the kids tho may be a good route, if its really cramped where you are now. – Andy Wiesendanger Sep 16 '11 at 15:59
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    @AndyW Having crappy credit, I was stunned that I was pre-approved for a $389k FHA loan with 11k down. And yes, we are pretty cramped at the moment. – NeedAdvice Sep 16 '11 at 17:15
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The way you lay out your budget, it's tough to find any slack, it runs pretty tight. The near $1400/month is painful. Is that 2% rate fixed till it's paid off?

Do you have any old 401(k) or IRA money not listed? If so, I was thinking that moving that money into the current 401(k) would provide a longer term cheap source for a loan. My 401(k) provider charges a fixed 4% rate right now. $28K 5 years at 4% is a payment of $516/mo. This frees up almost $900/mo which I'd rather see you deposit to the retirement account than to the cards debt for 2 years. Mine is not the popular view, and I respect the responses that say "stick to that 2 year plan." Personally, I'd not want to miss the potential to kick start that retirement account.

Your credit score - keep on top of it. There are times that an item already removed can reappear. If your ex is opening accounts in your name/SS#, she's breaking the law, and you should consider action. Your alimony may go down if she's in jail.

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    I have 3 credit cards - two of them at 2% and last one at 0%. The rates are fixed till payoff. You are correct about the old items reappearing - I checked the credit report today to figure out why my score went down from 720 to 620 and there were 2 items that I thought were already excised from the list. As far as consider criminal charges against ex, I don't think I'll do that - such as she is, the kids still love her. – NeedAdvice Sep 16 '11 at 17:20
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The one factor that people most hate dealing with in financial matters is time. There are things that just take a certain amount of time to finish, or a certain amount of preparation to begin.

You're doing well right now. You have a plan to pay down your debt. Your savings are growing. Your credit score is improving.

(On the note of the credit score: I'd recommend a fraud alert be placed with all three credit bureaus to prevent your ex from doing anything new in your name. Additionally, you should at least consider changing your social security number and driver's licence, to prevent her from doing anything new in your name down the road).

Based on your expenses, I would be leery of dipping into your savings at this point (even for the admirable cause of paying off debt). Instead, stick with your current plan. In two years, your savings will be higher, your 401k will be higher, your credit cards will be wiped out and there's a good chance your lawyer will be paid off, too. At that point you would be in an excellent position to buy a house. Until then, don't worry about it, as you're doing fine right now.

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I think you have a plan, and if you stick to it you should be doing good.

Remember the safety and happiness of your kids come first, and in that order. I bet your kids would rather remember Dad as doing everything he could to keep them around, more than they remember a house with more room. I would say if you can stop the moonlighting to spend time at home, even if that means no house in the near future, all the better. But get out of debt first!

Couple things:

  1. FREEZE YOUR CREDIT. It is 100% the best prevent any accounts being opened in your name without your consent. No monthly fees, nothing to worry about.

  2. Get that alimony reduced and kill your debt faster, then save money faster.

I remember you from before and it sounds like you are taking control. You are a good dad for caring and your family is going to be fine because you are working so hard to make it fine. Your kids will appreciate it down the line.

  • As a Dad myself, I can't giver her everything, but I can let her know I am always there fighting for her. – MrChrister Oct 1 '11 at 22:15

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