34 answers

Financial Choices.....I Need Some Savvy Mama's to Advise Me!

I was laid off from my job at the beginning of this year and although I went on unemployment, the loss of income was so great that I had to make a choice to pay the utilities, food, and mortgage before I tended to our credit card bills. It was the only way I could keep us from losing our home. During this time, I have diligently been looking for a job and I finally got an offer and accepted it today. I will start this new position right away. I have some big financial decisions to make and I need some help from the savvy Mom's out there. This new job will be a huge increase in salary....more than I have ever made in my life. I also found out that my former employer accidentally owes me 2 weeks pay and they are overnight-mailing the check for that compensation to me ASAP. Once I start getting paid from the new job, and receive the back pay owed to me, should I try to fix this credit card mess immediately and try to pay everything off as best I can or should I hold back a bit and be more conservative and continue on the "arranged payment plans" to keep the accounts out of collections for the moment? In total, we have about $8,000 of credit card debt circling the toilet! Many of you might think this is a “no brainer” and that I’d be a fool to not take the money and immediately pay off those delinquent credit cards but you have to understand that with this job layoff that I had, I went through all of our savings and we have nothing in the bank anymore. We live paycheck to paycheck from my husband’s job. My unemployment wages were used for groceries and gas for the car at best. I want to do the right thing here and I’m also still a bit panicky and anxious about the possibility of being laid off again or losing another job. This was the third time this has happened to me in the last 5 years and it’s all due to our tanking economy. I’ve never been fired…..but I have been the American Casualty like many others and it has affected me greatly. So, what should I do with the 2 weeks salary coming from the old employer, the rest of my unemployment dispensation, and the fact that the new job pays a boatload? My credit is already ruined from these credit cards being chronically behind for months so I need a good plan. Our mortgage and all the utilities are up to date and current which is a miracle in and of itself! Our cars are 100% paid off and all insurance payments are current. It’s the damn credit cards that are the problem! UGH! Can anyone give me some good advice?

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My take on it is that you need to have an emergency fund. Now i know that many people say 1000 dollars, but I always err on too much and say 1 months expenses (with this economy, it takes that long to get a new job!), so I would save that 1st. Then I would start in on the debt much like Dave Ramsey suggests.

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Get Dave Ramsey's book, 'Total Money Makeover'. It's an awesome book and has helped so many get out of debt.

First, congratulations on the jobs--it really bad out there and that is great news; and extra money on top of that is also HUGE. The first question I have is: how high are the interest rates on the credit cards? I think if I were you and IF I had a low interest rate on the credit cards I might try and squirrel money away into savings. I would also sit down and budget a way of putting money into savings and paying off the credit cards faster. You would probably feel better about not using the money to pay off the credit cards immediately if you had a sense of when you could pay them off completely.

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I am totally confused one of your other posts said you would be laid off in May and you were trying to decide if you should re-mortgage.

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First off congrats on the new job.

Google Dave Ramsey Financial Planning

I would call your credit card companies and tell them ok here is what happened and I'm now going to be able to pay again. I would only pay the minimum on those for the next 6 months. In the mean time I would sock away at least 1k in emergency money. Get yourself back on track.

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My take on it is that you need to have an emergency fund. Now i know that many people say 1000 dollars, but I always err on too much and say 1 months expenses (with this economy, it takes that long to get a new job!), so I would save that 1st. Then I would start in on the debt much like Dave Ramsey suggests.

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Dave Ramsey says first priority is a $1,000 emergency fund. This allows you to not have to use your credit cards anymore if an emergency comes up. The second step is a debt snowball; pay off your debts from smallest to largest, attacking the smallest one with all you can and paying minimums on all others. Once the first one is paid off, take the amount you were paying on that one and pay it on the second one, etc until they are all paid off. (Cards should be cut up and accounts closed even before you start paying them off). Third step is to increase your emergency fund to cover 3-6 months worth of your household expenses.

His system really works. I recommend getting one of his books or better yet, enrolling in his Financial Peace University, which is a 13 week course with meetings once a week. I think it can be online or you can join a group. The university gives you step by step, easy to understand and follow instructions and paperwork you need to become financially secure. There are a total of 7 steps. This will change your life! Good luck.

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I know it is scary, but I would put at least 50% towards your credit cards. It is terrifying not have a nest egg, but those credit cards and going to cost you more and more the longer you wait to pay them and they are not going to go away!

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Always save some! If I were in your shoes I would put 50% into savings and put 50% towards the credit cards. I would then continue that route until the cards are paid off. However, I would make it a priority to get them paid off as soon as possible.

Julia mentioned Dave Ramsey, but do not buy the books you can get most of them at your library for free. I bought them, had them for 2 months and then returned them because I never opened a book.

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1st, set aside $1,000 for an emergency fund. Then take as much as you can and pay like crazy on the card with the lowest balance 1st. Pay only the minimum payment on the rest. When you've paid off the 1st one, do the same with the one that currently has the lowest balance. You can afford to make larger and larger payments as you start eliminating them and no longer have minimum payments to make on those. Dave Ramsey explains all this in his book, The Total Money Makeover. He calls it the debt snowball. Changed our lives. We had at least $15,000 more credit card debt MORE than you do- we're on our way to getting rid of it. It should be gone in a year and a half.

We got the audio version because my husband and I don't have much time to read. He listened to it on his commute to and from work. He loved it so much, he listened to it twice! We cut up all of our cards, and now only have a debit card, which we only use when we need to make an internet purchase, or when my DH needs to make hotel reservations when he needs to travel for work.

He tells you everything you need to do, and the order of importance you should do things in. He calls them baby steps.

He also has a great radio program which helps keep us motivated. You can listen on his website for FREE (both live and archived stuff). Listen tonight, if you have the time, and you'll get a better idea of what he's like.

Best of luck to you- been there and know how stressful it is. Feel free to PM me if you have any other questions or anything. As you can probably tell, I'm pretty passionate about this because of how much it's changed our lives :)

http://www.daveramsey.com/home/

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Please pay your credit cards....interest is already so high ...people who don't pay them or just bankrupt them, only makes the rest of us pay for your overspending. Not fair, I work toooooo hard. I already feed the poor, pay for their medical expences, support all the illigitimate children, and God knows who else my taxes are spent on.

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I think you should pay your cc payments as you normally would if you didn't lose your job. You haven't been in this situation for very long (sounds like maybe 3 months) so your credit is barely going to be bruised. It would be good to start repairing it quickly & with the awesome new paychecks you will be getting you can start sooner rather than later. Your payments will not be too high on the cc so you can also start plugging away on re-building your savings.

Put away your 2 weeks salary in savings from old employer. Start making decent cc payments when boatload of money starts coming in. Congrats on new job.

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Do not pass go, do not collect 200.00. PAY OFF THE CREDIT CARDS. Then start saving.

You now know how to live on nothing, keep living that way and socking away the money you would be paying towards the payment plan in a savings account and then some, until you have a sufficient emergency fund. Also, put a very small amount away for a nice little weekend for you and your husband. This has been a stressful ordeal, you need to celebrate making it through the hard time.

**Updated** with regards to credit score, you will stop the bleeding right away, it will stop negatively reporting and you will immediately see a relief in your available credit. You should have no more than 30% of a credit line in use and that a significant portion of your score. If you can't pay it all off, pay it down to that. Your credit score is a terribly important safety net for the future. You cannot be concerned about them closing your card or reducing your limit, you immediately need to start rebuilding.

Also, I'm assuming you're paying the highest rate of interest upwards of 20% APR right now. If you can get rid of that payment you can have 1000 or 10,000 sooner than if you continue to carry that balance.

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Do like what Linda suggested and set aside the emergency fund... at least one month of living expenses. Pay off your credit card debts then cut those cards up and live a little more fiscally modest. She explains it well, do the lowest ones first and get them totally paid off so you can dedicate bigger chunks of money to the larger debts.

My husband was laid off from his job for almost 5 months and I was a stay at home mom. It was difficult but I sold some things online to help and we sold furniture and things too. We also moved in with family for a few months. We also used all our savings, but never used our credit card. If we hadn't of had those emergency funds, and I wasn't squirreling away food storage, we could not have made it.

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Well, I'm no financial guru or anything, but we are just pulling out of some tough financial times due to job loss/economy problems as well. What we learned (the hard way), was that we should NOT have spent all our savings in trying to save houses, and keep credit cards paid. If your credit is shot anyway, don't use that money to pay off the credit cards. Put it in savings, and build that savings as quickly as you can "just in case." Pay the monthy payment on the credit cards, and when you have a good chunk of savings and are easily able to, pay off the credit cards and don't ever use them again! :)

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Since someone else put it in caps I will put the opposite in caps, DON'T PAY OFF THE CREDIT CARDS!!! If you have nothing in savings. Thanks to our idiot President et al your credit limit will be removed the minute you pay them off. If an emergency comes up you will have no savings, and no way of getting anything but a pay day loan at about 600% interest. I can assure you they will remove your credit limit!! You will not get the advantage of having available credit!!!! I ran a balance on my credit card while I was in college when I paid it off they took the limit from $5,000 to $300. You have no idea how pissed I was since I wanted to get my credit back above 700 so I could refinance my mortgage. :(

If you can without blowing all your money try to catch up the actual minimum so that your credit score can get off life support. As soon as you are making the actual minimum and not the payment arrangement they will no longer report you as late. Then start eating at the principal.

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I say, use the money to pay off the credit card debt. This will show "paid" on your credit report versus an unpaid deliquent account(s). Being paid will also be a monkey off your back if you happen to face unemployment again and will also allow you to have the credit to use "in case of an emergency", provided the accounts are still active accounts. If your new job salary is a "boatload", you will be able to begin your savings and/or investments again and you'll back to where you want to be before you know it...without the credit card debt lingering. Good luck and congratulations on your new job!!

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If it were me I would pay off the credit cards just because the thought of paying their ridiculous interest charges while I had the money there to take care of them would cause me to lose sleep at night. Maybe you could take the windfall of 2 weeks pay from previous employer and put that directly towards the credit card that has the highest interest rate and then take the "windfall" balance your newly earned additional income and split it between savings and paying off the credit cards. You have to assume that your new employer isn't going to lay you off for at least a year, otherwise they wouldn't have brought on another employee. Also the benefit is that if you were to get laid off your unemployment benefits would correspond to your new higher income from this new job. It sounds like most of your new income can be used for paying off credit cards and savings so you should be able to put aside a healthy emergency fund fairly quickly. I would be sure to have at least 3 months of living expenses set aside if at all possible.

We went through a similar situation right after my daughter was diagnosed with leukemia. My husband is still unemployed and I am now working again, but we also never had any substantial debts other than our monthly mortgage which is thankfully low compared to others around us. Luckily for us we never had to touch our emergency fund, but we also cut back on a lot of things to match our reduced income. Of course having a sick child automatically cuts back on those "luxury" items like vacations and going out to dinner.

Good luck with the new job!

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i'm with kathleen R.... your credit is shot now anyway so just pay the minnimum on the credit cards till you have a few months of bill money saved up in an emergency fund (savings for those non dave ramsey people) and then start working as hard as you can to pay them off quick so you can start adding more and more money to your savings for other things you ahve restrained from this year while being out of work!!

its sad to think ina negative fashion but you never know when you will loose work again and you need to have some sort of cushion built up first before you do pay off but for sure make the monthly minnimums!!

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I'd put the two weeks salary from your old job in a separate savings account. This will be the start of your emergency fund.

I'd try to work out a payment plan with the credit card companies if you haven't already. (can they lower interest?). I'd only pay the minimum payments until I had a 3 month emergency fund in a high interest savings account (money market account with three months worth of mortgage, insurance, utiltities, & grocery bills).

Then I'd start paying down the credit cards, highest interest card first. Don't let the new salary go to your head, pretend you are still living off the old salary. Once the credit cards are paid off cut them up, you don't need them anymore now that you have an emergency fund.

Then add to the emergency fund till you have a six month emergency fund in place. Make sure you are contributing to your 401K.

Once you have a 6 month emergency fund leave it be. Now put away money in your "regular" savings account for a rainy day by having a set amount withdrawn from checking every month. (for car and home repairs, vacation, etc.). Consider re-financing your mortgage if rates are still low.

Good luck!

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I'd say get something into savings first. You don't want to be without a savings account for emergency expenditures. Then pay off the credit cards as quickly as you can, and keep them paid off. All signs point toward our economy getting worse before it gets better, so the less debt you have, the better shape you'll be in. Then save, save, save! Start a plan now for how you can save, esp since your income will be larger. Plan now to save it because otherwise before you know it, you'll be spending it--that's just how it goes.

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Congratulations on your new job! It's great that your mortgage, cars, utilities, insurance, etc all all current.

It sounds like you want to hear, "stay on the CC arranged payment plan" and that others have indicated that your should pay off the CC first as a "no brainer". However, I would advise you look at your immediate financial issues as well as planning a more holistic approach to get your savings back on track and keep your sanity.

First, you didn't know about the 2 weeks back pay, so that's an added bonus - i.e. unfound money if you will. I would use that immediately to pay off or down some of your credit card debt. $8k is a lot to be floating (or "circling the toilet"). Start by assessing which card or cards have the highest interest rates. Start tackling those now! You will end up paying a whole lot more in the long run with the arrangement plans.

Second, with the unemployment monies, have taxes have been taken out - make sure you keep that in mind. You don't want to owe a whole bunch of money this time, next year. With that money, perhaps you want to put some toward paying down the CC debt and put a couple hundred in your savings.

Third, given your impending employment, and that you will be making "a boatload", take a real hard look at what you really need to be spending your money on and figure out what you can start contributing to your savings immediately. I would elect for a direct deposit into your savings account so a portion of your salary goes into that and you never really miss it from your paycheck b/c you never relied on it before. Ideally, you should have approximately 3-6 months worth of savings to cover basic living expenses. You will get there again!

I'm not sure who you do your banking with, but often times, they offer free financial planning advice. Take advantage!

These are trying economic times, but it sounds like you've managed really well thus far given 3 lay-offs in a 5 year span. You can get back on track! Good luck.

I think that now that you already have the lower credit score and you have your house and car loans in tact, you need to replenish your savings while doing what you can to get back in good graces with these accounts. You can attatch a note to your credit report telling about the unemployment. It won't change your score. But it will help in future dealings. All you really need is 2 years of paying everything on time to be able to increase your score again. Hopefully you are happy with your house, won't need to sell and can get a long with your cars without wanting to trade them in. The score being low can make your car insurance go up. But maybe when they run your score they will see the note and take pity.

It sounds to me like God is looking out for you :)

If it were me I would put aside the two weeks salary in the bank as a cushion and then start paying off as much as you can spare from your new paycheck. Check out Dave Ramsey from the library and see what he says to do. I skimmed through one of his books recently and he sounds wise.

Dave Ramsay would be a perfect plan for you. Use that first check to buy The Total Money Makeover. CUT UP ALL CARDS NOW!
And yes--at least get current on everything first, then pay off all debt smallest to largest THEN start socking away savings, etc.
Good luck and congrats on the new job!

My advice is to save that 2 weeks and your first paycheck.....after that budget and pay more than the monthly payment to your cc bills (3-4X the minimum pymt amount if you can) and save 1 paycheck a month if you can until the ccs are paid off and then save more. Just my thoughts without actually knowing what your min payments are or how much extra cash you'll have on hand.....It is a good idea that no matter what, you do both at once...PAY YOURSELF (savings) and PAY DOWN THAT DEBT! :) Congrats on the new job!

Pay off the card that has the lowest limit 1st - not the lowest balance. If you are maxed on a $300 card, that affects your credit worse than owing $2000 on a card with a $10,000 limit. It's a debt to income ratio thing.
You've proved you can live on unemployment and your majors are up to date, so debt fixing your credit is the next logical thing. Bad credit affects your car insurance, and many other bills you would never think of. So cleaning up your credit will help the rest of your budget as well.

i'd take this first year and stick with with the arranged payment plan, pay your basic bills, and put the difference in savings - or at minimum - live off what your old paycheck was - and the difference between the new and the old put in the bank for savings. build up your savings for a bit.

we did a snow ball plan. put a budget together of what your bills are - utilities, mortgage, car payment/gas, groceries, some float for have a little fun, and the minimum payments on all credit cards. then what is left over (say $200) put 1/2 ($100) in savings and the other 1/2 ($100) send toward one credit card (my preference is the one with the smallest balance so you can pay it off quickly and see an impact). if you budget $400 a month for groceries - and you ony use $350 that month. the extra $50 goes to that credit card. when that credit card is paid off you take the minimum that was going to that card, plus the extra $100 and send it to the next debt of yoru choice - so for card #2 your sending in the minimum for that one, + the minimum from Card #1 and the $100 that was going to Card #1. and just start rolling from one ot another until they are all paid off.

each time a card was paid off we'd reward ourselves - take what the min. payment was and the Snowball money and go out to dinner or do a family day trip to celebrate. then go after card #2, and then when that is paid off do a little celebration again. once you get 1 or 2 cards paid off you can decide to take some of the snow ball and split it between savings and card #3...... so that you're still building savings back up - for emergencies - car repairs, appliance repairs etc..... but also snowballing paying off debt.

Maybe a compromise...use half toward the credit card debt, and put half into savings. Once your paychecks start coming in, put some into savings and some toward the debt. Since you already have a home, you won't be applying for a mortage soon, and that's when your credit score is most important. It won't take long at all to build your score back up- the regular payments and the diminishing total debt will boost your score in no time. Meanwhile, you will feel better knowing you have some savings.

I think you have done a great job managing your finances to this point. Good luck with yoru new job.

Do you have a budget - like a real, written out, how much you spend a month one? If not, I'd set one up to get a REALLY clear idea of what your expenses are. Mint.com is great and free. We've been using it a little over a year now and it's been great! After that, I'd say start by splitting the extra cash 50/50 between the cc bills and a safety net. Look into online savings accts (like ING) that offer better interest rates. You might want to write to the Boston Globe's Money makeover thing too. They set you up with financial planner (not sure who pays, but probably the Globe since they write a story about you) that will help you go through everything and figure out how to budget for the long haul. Good luck!

I'm not financially savvy at all (I had gone thru a bankruptcy a few years ago with property issues etc), but I understand your innate need to hold onto some of this money so that you feel somewhat safe.

We also live paycheck to paycheck, but I do some side jobs 1-3 times a year where I get a check that helps pay for a small vacation, or some big item we can't normally afford (like a large appliance or expensive car service).

For the old employers paycheck, I would put a % aside to kickstart your savings account again that will help comfort you in the interim. Once you start getting a few good paychecks, you will be able to relax a little and formulate a plan.

Congratulations on the new job, there are lots of ways to save your money for you and your children's future, good luck with getting the right suggestions!

First, congratulations on the jobs--it really bad out there and that is great news; and extra money on top of that is also HUGE. The first question I have is: how high are the interest rates on the credit cards? I think if I were you and IF I had a low interest rate on the credit cards I might try and squirrel money away into savings. I would also sit down and budget a way of putting money into savings and paying off the credit cards faster. You would probably feel better about not using the money to pay off the credit cards immediately if you had a sense of when you could pay them off completely.

I am not a financial adviser - but you may want to talk to one.
However if it was me I would put the extra pay in a savings account for a rainy day/unexpected expense and start throwing every penny from your salary that you don't need to pay for food or mortgage at your credit cards.
With them being behind and you making minimum payments you are likely racking up more debt than you are paying off. I would work very hard on eliminating that credit card debt ASAP. $8000 can be paid off surprisingly fast and as soon as you are paying it off, you credit can start improving as well.
Trust me, if you do not use the money to pay off your debt, you will likely end up spending a bunch on stuff you don't need, just because it's there...
Good luck!

Get Dave Ramsey's book, 'Total Money Makeover'. It's an awesome book and has helped so many get out of debt.

I think deep down you are really afraid of losing your job again and prefer to save every ounce you get even though you are in credit card debt. My advice would be to save the money, pay the card up to date but not totally off, so that you can continue to make the minimum payments when you are sure you will continue on the new job.

If you begin to see where you can breathe after being on the job for some time, then pay off the credit card of $8000 and get out of debt so that IF you do get laid off again, you won't have that to worry about.

I am sure now that you have the experience of being laid off, you spend very wisely now and it's good that you were able to get a new job. Congratulations.

the general recommendation is that 10% of your net income be put into some sort of savings each month. after combining yours and your husband's income and figuring out what that 10% would amount to, you can always put away more if you feel like you need to. beyond that, i would say definitely try to pay off as much as possible as quickly as possible, because (as i'm sure you know) you'll pay less money the faster you pay it off.

If you have no savings... no emergency fund for when the next Murphy event happens... then you need one. First.
Set aside a minimum of $1,000 as an emergency fund. Then anything after that is done, you can split... Say, for example, that your new employment provides an "excess" above your current expenses (not counting the credit card debt) of $300 per month. Add a percentage (say 25 % ?) to your emergency fund, and send the rest to the credit card debt. Over a few months, you would increase your "emergency" fund to a reasonable amount (many people believe that 3-6 months of expenses is a reasonable amount-- should you get laid off for example, but you may be more comfortable applying more to your debt before saving THAT much in emergency funds)... so, split it by percentages until you have maybe $3,000 as an emergency fund. Then apply all the extra to the debt.

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