Saddled With 2 Mortgages And 8 Credit Accounts
Age: Amber is 37, Trenton is 38.
Background: The couple have been married for three years and live in the District with Amber's 16-year-old son. Trenton is an aircraft mechanic with the Air Force. He has dual status as a civilian and reservist. He currently holds the rank of tech sergeant and has been in the Air Force Reserve for 18 years. He works at Andrews Air Force Base. Amber is a paralegal specialist with the federal government.
Financial situation: The two earn roughly $135,000. Amber earns additional income working part-time as a makeup artist. When on reservist duty, Trenton's income is bumped up. This year he will earn an additional $10,000, he said.
The Holmeses are trying to catch up with their retirement savings, so they have a lot of income going into the federal Thrift Savings Plan. Amber contributes 12 percent of her income; Trenton, 15 percent.
Unfortunately, the rest of their financial picture is very troubling.
First, they have two homes in the District with huge mortgages. Last year, they moved into a new home, deciding to keep the old house. The problem is they couldn't rent the first house for enough money to cover its $2,800 mortgage. After 10 months of the house sitting vacant, they found someone willing to pay $1,800 a month in rent. However, that means they have to ante up $1,000 every month to make that mortgage payment.
On top of that, they have about $20,000 in loans from their Thrift Savings Plan. They owe $12,990 divided among six credit cards and two lines of credit. They owe about $28,220 on a home-equity loan for one of the houses. Amber has about $55,000 in undergraduate student loan debt.
New Year's resolutions: The couple want to get out from under a pile of debt that has devastated their finances and their spirits.
"We do not want to drown in debt," Amber said.
The plan: The Holmeses need to do something fast to avoid a catastrophe.
First, they need to cut their expenses. Every month, they spend $226 on cable and $250 more on cellphones. Although they need to save for retirement, I recommended they cut back on their contributions to their Thrift Savings Plan. Right now the priority has to be throwing as much money at their debts as possible, especially since their net pay isn't covering their expenses.
The plan is to prioritize the debt starting with the accounts with the lowest balances. They have credit cards with just $300 or $400 outstanding whose balances they should just knock out. When you have this kind of debt stretched over multiple accounts, there's a psychological boost to getting rid of as many balances as possible. You see immediate progress, and that helps you stay on track.
Tough love: As with all the challengers this year, the first thing I had them do was destroy every credit card in their possession. They can only spend cash now. At this point, there's no other way for them.
Amber is the spender in the family, so I had her cut up the cards.
Trenton has to let go of some of his favorite activities, such as golfing. He's also attached to his cable sports package. I urged the couple to avoid any unnecessary spending. That means canceling a planned trip to Puerto Rico this fall.
They've got to rein in their spending. They just can't keep going month after month spending more than they bring in.