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Kansascity.com has an article that features a couple in debt. This one is a little different from most that I read because this couple moved from a higher cost of living area (in California) and moved to a lower cost of living area, Kansas City.
Heather (26) and John Franklin (24) will shortly be making about $65,000 a year (they recently had some job changes). This amount reflects what they will make after retirement contributions and employee benefits. Even with that income, they need an additional $4,500 a year to meet their required debt payments.
Here’s how their debt is spread out:
Credit Cards - $15,830
Other Personal Loans - $5,715
Medical Bills - $3,150
Auto Loans - $23,000
Student Loans - $34,500
Mortgage - $126,230Via KansasCity.com
The Franklins received some help from Ann Case, a Certified Financial Planner. A few of the key points she told the Franklins to work on was to lower their withholding amounts increase their withholding allowances so they have more money to work with throughout the year versus a large refund at the end and to cut their expenses.
I wish the article went into a little more detail about what the Franklins will be doing to reduce their expenses and pay their debt. It would be nice if there was a follow-up on them a year later to see how they are doing. Sort of like how Oprah has done before with her Debt Diet series. In any case, I wish the Franklins well. It’s a long and difficult road but from what I hear (and what I believe), it will be worth it.
Hat Tip to Boston Gal’s Open Wallet for the story.
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Posted: August 21st, 2007 at 10:02 am
They need to sell whatever cars they are driving around in and drive some old clunkers. $23k in car loans making $60k a year when you’re $60k in debt not including the mortgage…crazy!
Posted: August 21st, 2007 at 12:37 pm
As soon as I saw the listing of the debts, my first thought was how crazy the car loans are. It looks like Chris had exactly the same idea. I have never had a car loan, and I don’t ever plan to. My car is 16 years old, and we bought it with cash ($2300 that we saved up over nearly a year) four years ago. I will drive it until fixing it becomes more expensive than the car, and then we’ll buy another vehicle that’s at least 10 years old.
Posted: August 21st, 2007 at 12:47 pm
I think you have the withholding backwards. If they increase their withholding allowances it will reduce the amount of money taken out for taxes. They need to spread out that 4k refund into monthly income so they can use the extra to help cover their expenses.
They have too much car, too much stuff, and a lot of debt. That’s the American way, right? The auto loan has to go because the payment on a 23k loan has got to be high, basing this idea on their 28-30% APR. A cheaper car they could afford/own will help free up a monthly payment that could be applied to credit card debt. Cutting expenses also helps. Good article.
Posted: August 21st, 2007 at 1:24 pm
I’ve been contemplating doing the numbers on whether it may be a good idea for people in debt to move to a HIGHER cost city. Reasoning: if you live in the middle of nowhere, and you make $30K, and you have $20K in debt, that’s an intimidating, maybe even impossible debt to pay off. If you got the same job in, say, San Francisco, where they will pay you $70K for the same work, you’re debt has essentially decreased. It seems like it might be a horrible idea for a person with large debt to move to an area with a lower cost of living…
Posted: August 21st, 2007 at 1:28 pm
Wish I could find a mortgage for $126K!
Posted: August 21st, 2007 at 7:18 pm
I agree with several commenter’s - get rid of the high car loans. My goodness, what are they driving and do they need it when they’re that much in debt? The answer, of course, is ‘no’. Seems to me this is where they need to start. Sell the cars & buy an inexpensive, reliable used car that will last several years.
About 7 years ago, shortly after I paid off my car note, a friend asked when I was buying a new car. My brain literally started screaming at me “Does not computer. Does not compute.” I asked her why I would want to incur a new car note when I just paid off a note on a perfectly fine car? She had no answer. My car is 13 years old & still going strong. Of course there are minor wear & tear issues, but nothing major. I plan on driving it until it dies.
Posted: August 21st, 2007 at 8:27 pm
I have a friend like Maria’s. He buys a new car and as soon as it is finally paid for, trades it in (at a huge loss) and buys another new car. This is the same friend who always complains that he can never afford to take a vacation.