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Low on Emergency Funds And Baby No. 2 on the Way

Tarek and Evibeth Bathiche look over their credit reports at their home in Fort Meade. They spent the past year trying to pay down $22,000 in credit card debt.
Tarek and Evibeth Bathiche look over their credit reports at their home in Fort Meade. They spent the past year trying to pay down $22,000 in credit card debt. (By Juana Arias For The Washington Post)
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Profiles by Michelle Singletary with contributions by research assistant Charity Brown
Sunday, February 17, 2008

Age: Both Tarek and Evibeth are 24.

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Background: The Bathiches are both Army sergeants and are stationed at Fort Meade. Both have served about six years. They have a 2-year-old son, Anthony, and Evibeth is expecting their second child, a girl, in June.

Financial situation: Together the couple earn about $65,000 a year. They are doing well with saving for retirement. They invest a good percentage of their income in the federal Thrift Savings Plan. Evibeth contributes 10 percent of her annual salary; Tarek, 9 percent.

Here's my concern for this couple: They have only $1,500 in emergency savings and owe about $27,600 on six credit cards.

The Bathiches admit that they spend too much, in part because much of their housing expense is covered by the military's basic housing allowance, which, by the way, is tax-free. Like other military personnel, the couple also receive a basic allowance for food, also tax-free. Because the military helps greatly with their largest expense -- rent -- they've been lulled into thinking they have more to spend than they do.

"A lot of people mistake 'military' for 'millionaire,' " Tarek said.

They spent the past year trying to pay down $22,000 in credit card debt. Tarek's father generously offered to allow them to consolidate all of that debt onto his credit card with a low interest rate. The couple then began paying about $1,100 a month on the debt. They have gotten the balance down to $14,900.

However, with their own credit cards cleared of charges, the Bathiches got right back into trouble. They charged $12,700 on top of the $14,900 they already owed. The couple's credit card debt payments almost equal the monthly rent for their military-provided apartment.

New Year's resolutions: The Bathiches want to get rid of all their credit card debt and begin saving more of their income. They also want to start a college fund for their children.

The plan: With a fair amount of job security, I'm not so worried about the Bathiches having an emergency fund right now or even saving for their children's college education.

Instead, I want them to concentrate on getting rid of their stifling credit card debt. Fortunately, with their housing allowance, they have more than enough cash every month to tackle the debt. With some other budget cuts, such as reducing their $180 monthly cellphone bill, they could free up at least $2,000 a month to pay down the debt.

However, to get rid of the debt by year's end, they will have to faithfully stick to their budget.


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