How Do I Budget to Pay Off My Credit Cards, Medical Bills, Student Loans, Etc?

Consolidation Loans

I just heard a radio commercial as I was driving, which stated: “Debt happens, it’s how you get out that counts.” It then stated that you could get a personal loan at a low fixed rate from Marcus by Goldman Sachs. Goldman Sachs, one of our oldest and most solid banks in America. 

Is that a make sense way to get out of debt though? Even my  fifteen year old son who was in car with me asked, “how is it getting out of debt when you’re getting into more debt?”

That sounds like an express train to Bankruptcyville, and as a bankruptcy attorney, trust me, I know. However, yes Marcus, that’s right, it really does matter how you get out of debt. What counts is that every account that gets paid off with the new loan must also be closed at the same time, whoever you happen to get the new loan from. That’s what counts. 

A new loan to refinance your old debt can be a great way to get out of debt if the new loan makes sense in your budget and if you close all of the credit cards as you’re paying them off. I’ve done that before, we took a 2nd mortgage on the house and paid off $40,000 in miscellaneous credit cards and loans. We reduced our $1200 per month credit card payments down to about $450 per month for the 2nd mortgage payment and then continued to pay the $1200 per month on the 2nd mortgage. Most of the time at least.

Consolidation loans are great if you can qualify for the loan or if you have sufficient collateral to qualify for it. Try contacting Marcus and find out if it works for you. Of course it doesn’t hurt to try out several possible lenders. Most of the time it’s going to be a non-starter. It took me about a year to be able to do it myself because my home didn’t have a high enough value to do it when we first applied.

Budgeting When a Consolidation Loan Won’t Work

Budgeting can be very hard, particularly if it is an unfamiliar task such as if a loved one who used to take care of the task is now gone because of a death or divorce in the family or your parents finally told you to move out.

Another challenge might be that a source of income has terminated such as if you were fired from one of your jobs, or there were a death or divorce in the family or your parents finally told you to get a job or move out.

In any case it might feel tricky. Sometimes you may have to take completely drastic measures. I knew a family who would wash laundry when the parents took showers, and they would put the clothes on the floor of the shower and stomp on them as they washed their hair . . . and their feet.

Helping Family

Helping children, brothers, parents, grandchildren, and sometimes even just friends will force you into the poor-house. I’ve seen people lose their homes because of it many many times.

Of course, you can’t be heartless and turn them away, but I’ve seen it happen so many times that they move in with you, and because they’re so familiar with you they don’t respect you, so they think that they don’t have to pay any rent, or that they don’t have to pay a regular rate of rent. So they don’t help you out. But your mortgage is the same or your lease payment on your apartment is the same, car payments, car insurance, day care, home insurance, life insurance, car registrations, and pet food all the stay the same. However, your utilities, groceries, gas for your cars, maintenance for your cars, and credit cards all skyrocket.

Next thing you know you’re co-signed on a new car so that your son-in-law can get to and from work, and your own mortgage is several months in arrears and they still won’t pay the rents so that you can pay your mortgage and you’re about to be foreclosed and on top of that your credit cards are about to sue you if they haven’t already and then your son-in-law leaves your daughter and stops paying on the car note and it gets repossessed. 

Or maybe you request, hey, I’m going to lose my home, you know, the one that keeps a roof over your head, and I need you to pay rent and pay that car payment and then for some strange reason, even though your daughter and son in law both have jobs, they don’t pay any rents, don’t pay your wife to babysit,  and they won’t leave either. 

If you want to help out your kids, then they must agree in writing to pay rent to you at a fixed rate which includes the utilities, and includes the groceries and if they don’t have a job, then they must get one immediately, not just look for one, or they can’t move in. They must sign that agreement before they move in. Or, you can write them a letter that says “You’re a guest in this house and I can throw you out at a moment’s notice because you are not a tenant.” In that case, if they won’t help out, if they won’t even clean up after themselves, then they can come home and find all their stuff on the lawn. You won’t get any rent out of them but you might at least get a clean kitchen or garage. 

(It happened to me, so I know how it goes). Of all the things I’ve seen people do to get themselves in financial trouble, this is by far the biggest and most egregious one and it happens all the time. Be wary of helping people whom no one else will help.

Oh and by the way, never cosign anything for anyone if you value your good credit and your good name.  Don’t do it. If no one else will give them a loan, why should you? 

Moving on to Mundane Matters

Eliminate Things From Your Budget and Save Big-Time

  • Stop drinking lattes and switch to regular coffee Savings $3/day or $90/mo
  • Stop buying regular coffees at Starbucks and get them at the doughnut shop, (but don’t eat the donuts because you’ll get fat instead, trust me on this one) Savings $1/day or $30/mo. 
  • Stop buying coffee at the doughnut shops and pick up a big can of coffee at Ralphs or the Piggly Wiggly Savings $20/mo
  • Only drink water instead of coffee and Save that last $10/mo 
  • Stop drinking sodas every day or when you go out to eat (if that’s what you do) because you’ll lose weight, avoid diabetes and save money on prescription drugs and early death Savings $20 to $50/mo
  • Stop Drinking alcohol and Stop Smoking, Savings $Your Marriage, $Your Health, $Your Liver, $Your Lungs, $Your Job or Career and probably around about $5 – $20/day or $100-$500/mo
  • Eat less meat and buy more vegetables Savings about $50/mo
  • Don’t eat out as often or eliminate it altogether 
  • Stop air-conditioning the whole house by shutting vents, and buy a whole house fan, Savings about $200 – $300/mo during the Summer which will pay for the whole house fan in the first Summer you buy it.
  • Cancel your cable TV or DirecTV or other TV service because everyone has Internet and abc.com, nbc.com, and a whole lot of others are online Savings $50 to $110/mo 
  • Still have a home phone? Cancel that too because most of the calls will be from your Visas and Mastercards anyway. Savings about $40/mo
  • Get Netflix, Hulu or Amazon Prime but not all three because don’t watch so much TV all the time you’ll get a lot more done and that’s good for everyone, especially if you spend some of that time walking or exercising
  • Cancel the Gym Membership Savings $20/mo and work out at home or go for long walks or jogs with the dog
  • Generic Brands
  • Read Books
  • Ride your bike to work (if you can)
  • Use a generic brand to wash your dishes Savings $10/mo and use it to wash your clothes too Savings $15/mo and you can use it to wash your hair Savings $8/mo.
  • Clean your home a lot, Savings indeterminate but the savings in down time from being sick alone will be worth it. 
  • Wash your laundry as already elaborated above
  • Cook at home if you can make the time for that
  • Pack a lunch to work Savings $5/day x 20 = $100/mo
  • If you can’t make the time to cook at home, then even microwave dinners are still cheaper than drive-through fast food which again helps you lose weight, and avoid diabetes and heart disease and therefore those nasty prescription drugs
  • Of course going shopping at thrift stores, such as Good Will, Salvation Army and etc. It’s a great idea, particularly if you can get to the ones in nicer neighborhoods because they will have nicer stuff
  • Have  you ever been to a food bank, it’s kind of like second hand food but the food is still good, which is not to say that it will taste good but it won’t have gone bad yet. We picked up a box and they gave us a few little bags of what must have been an experimental flavor of Doritos chips, tequila lime. They were the worst flavor ever, but they also gave us an excellent tasting gallon of milk and an excellent half gallon of chocolate milk and lots of vegetables and big bag of jalapenos which I gave to the Mexican couple in line behind us. The box was $25 but the amount of groceries would have filled an entire basket at the store, Savings about $100
  • Switch from a name brand phone service to basically a generic such as Boost or Cricket or Metro PCS, Savings $30 to $150/mo depending on family size and plan
  • Buy a Wahl groomer for your boys and dogs and Save $20/mo each
  • Grow your own vegetables at home, Savings $50/mo and they’ll also be organic and taste home-grown. 
  • Find a cheaper car insurance (but don’t cancel it or you might wish you hadn’t)
  • Find a cheaper life insurance (but don’t cancel it or you might wish you hadn’t)
  • This is not an exhaustive list of things you can change or expenses you can cut. Maybe you’ve cut them all already, and there’s nothing left to cut. If that’s the case, maybe a bankruptcy is a good idea. 

Marry a Doctor, Lawyer, Established Actor, or an Oil Tycoon

Just kidding, when the doctor I was interested in all those years ago found out I was going to be a lawyer she was more interested in not being a doctor at all and why couldn’t I be a rich lawyer so she wouldn’t have to work. I said hey that’s my idea, you’re the one in medical school after all. And I was on an airplane headed home shortly after that. Didn’t work out, long distance relationship and even longer apart in philosophy. Not to mention I didn’t speak Mandarin. 

How Do I Budget to Pay Off My Credit Cards, Medical Bills, Etc?

Assuming you can in fact adjust your budget, or you demand and in fact receive some extra money as rents from your relatives, or maybe you find an additional job or something, or anything. Somehow you can also afford to pay all the minimums on your credit cards too.

Assuming all that’s true and you can also squeeze an extra $100 per month from your budget and then use that to pay part of your credit card payments, then there is a method to pay off your debts.

If for instance you have ten (10) credit cards, and they range from $500 to $10,000. Let’s say the amounts are $500, $800, $1000, $2000, $2500, $3000, $4000, $5000, $8000, $10,000. If, just for instance, it turns out that the payments are $25, $50, $75, $100, $120, $130, $130, $180, $220 and $240 respectively, you now have a plan to pay your debts.

First take that extra $100 per month that you’ve saved by switching to Folgers and a generic dish washing detergent for everything, and you add that $100 to the payment for the smallest credit card with the payment of only $25 and a balance of only $500. At that point, you also continue to pay the minimum payments on all of the other credit cards at the same time. You pay that little credit card $125 per month for four (4) months until it is paid off. 

Then, once that smallest credit card is paid off, you take the payment that you were paying to that smallest credit card and you add that payment of $125 to the regular minimum payment for the credit card up from the $500 card. The next card up has a balance of $800 and a payment of $50. Add that $125 to the $50 giving you a new payment on the $800 credit card of $175 per month. It will take approximately five (5) months to pay off that 2nd credit card.

In the 10th month you start paying on the 3rd smallest credit card, which has a payment of $75 and a balance of $1000. Adding $75 to $175 gives a payment of $250 per month. But the balance is only $1000 so it will take approximately four (4) months to pay off the 3rd credit card.

The next card, the 4th card, has a balance of $2000 and a monthly payment of $100. Add that $250 from the other paid off cards to the minimum payment of $100 for this card and your new monthly payment for the 4th card is $350. It will take approximately six (6) months to pay off the 4th credit card.

Card number five (5) has a balance of $2500 and a payment of $120. Adding $350 to this card’s minimum payment gives a new payment for this card of $470 per month and your fifth card will be paid off in about five (5) months.

Assuming you continue to do the same thing until all the accounts have been paid off, your final payment will be of about $1370 and it will be paid approximately forty-five (45) months from your start date of doing something as simple as switching to Folgers and reading more because you’ve cancelled your cable TV.

Yes, I’ve ignored the interest and minimum payments.

A Chapter 13 bankruptcy payment plan would be for sixty (60) months and the payment would be about $740 per month. It’s a great payment plan if you need to do it. You would pay a total back of about $45000. A Chapter 7 bankruptcy wouldn’t have a plan but you do have to have low enough income to qualify to file a chapter 7. And the chapter 7 qualification test called the Means Test is unforgiving if you have a higher income. And the Chapter 7 bankruptcy trustee‘s job is to take things away from you if they can, sell them off or liquidate them, and pay your creditors with the proceeds. So to file a chapter 7 bankruptcy, you would have to have a low enough income and fewer assets than you can keep if you file a bankruptcy.

The plan to pay your debts without a bankruptcy outlined above requires you pay significantly more than the Chapter 13 bankruptcy payment plan would, but that’s because you’re not bankrupt. Because you’re not filing a bankruptcy, you’re still paying your minimum payments which in the beginning are about $1270 per month. So in the non-bankruptcy payment plan where you pay off the smallest one first and then move up the chain one by one until they’re all paid off, you’re going to pay that same $1270 per month plus that initial $100 per month or $1370 per month for about forty-eight 48 months. So the total paid back is about $65,000 give or take. Of course your credit is perfect, you’re still not bankrupt, you’ve got $35,000 in available credit and probably a lot more, and you did exactly what you originally set out to do, borrow some money in good faith, do some good with it, and then pay it off. 

Maybe a Bankruptcy is Exactly What you do Need?

Why file bankruptcy?

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