Jen wrote to me through the GetOutOfDebt.org site and asked the following question. If you have a credit or debt question you’d like to ask just use the online form. I’m happy to help you totally for free.
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“Dear Steve,
Well we are young (24)married, and make good money, also live above our means a bit. depending on where you live this may sound high to you, but we make 70k a year, and about 4-7k per month varying. well it wasnt always this way, back when we were 18 my hubby got a truck re-posessed and into some debt. cell phones bounced checks, ect ect and they just blew up the bill after a few years of course. we knew we would pay them off someday and until then its a big burden on our credit. he did pay off the truck they took, but the remaining debt is about 3-4k. we were young and didnt make much then. we opened several credit cards ….all of which are maxed out still. most only have 200 or 300 limits and they charged it with 100 bucks in the first place to open them.
Well 6 years later now, and were finally making good money for about 2 years. weve been living on our own, and i guess above our means. i dont know what people normally spend per month, but our cost of living for an average month is all of it. lol.
We get paid once a month, so we often run out and pay a lot of fees to the bank, or loans for money back. really our cost of living is about 4k a month, and then sometimes we have nothing left, and rarely we will have 1-2k extra, which we spend on going out, vacation, our baby, ect ect ect.
This year we did our taxes and realized we owe 9k to the irs. we didnt really know what to expect when becoming self employed, but we owe a lot. So as of this month we pay 2k a month to irs, and our paycheck just got was 4k. thats half gone. were barely gonna pull thru this month. we are also trying to buy a house while prices are down, but credit is an issue. with that old debt from 18 years old on there. we’d like to pay it off, but arent sure if we can even afford it now! or the best way to go about it. i mean should we call them directly and negotiate? lump sum, or monthly payments? should we call a debt consolidation agency and try and do all of them on monthly payments?? or are they just an extra cost becasue you could call directly and do it yourself?
Jen”
The Answer:
Dear Jen,
I think before you contact anybody or do anything you should first concentrate on opening a savings account and building up cash to cover you in an emergency. I’d like to see at least $10,000 in that account as a cushion since you have little or no access to credit. If an emergency arises you will probably have to pay cash.
Building up a cash account will also let you save money to use to resolve these old debts when you can afford it. Just go and open a savings account at your bank or online with a group like ING. Start depositing a regular amount in that account each month, If you could put $1,000 a month in after you take care of the IRS issue, that would be a good start. Be sure to pay yourself first each month and put the money in savings in the account as soon as you get paid. Otherwise, the money will vanish into miscellaneous expenses.
Until you build up some cash reserves I think it would be a mistake to launch into any repayment of a big old debt.
