Working on The Debt Diet but Hit By Food

Sunday, June 8, 2008

The Bathiche Family

Age: Tarek and Evibeth are both 24.

Background: The Bathiches are in the Army, stationed at Fort Meade. Evibeth is a sergeant, and Tarek was just promoted to staff sergeant. They have two children: Anthony, 2, and Sophia, a newborn. Together, the couple earns about $67,000 a year.

Goal: Pay down credit card debt, build up savings and create college funds for their children.

Being in the military has many benefits. For instance, the military covers basic housing and food expenses through allowances, which are tax-free. In the past, these benefits gave the Bathiches a false sense of security and led to them to spend too much.

Progress: At the start of the challenge, the Bathiches owed about $27,600 on six credit cards.

Budgeting has helped them curtail their spending. They reduced their cellphone bill by $65 a month, saving about $800 a year. With all their credit cards cut up and tossed in the trash in February, the couple have maintained their debt diet and embraced their cash-and-debit-card-only lifestyle.

New developments: The Bathiches welcomed a baby girl, Sophia Jade, on May 27.

Both Tarek and Evibeth re-enlisted in the Army and will be reassigned to a base in Hawaii in December. Tarek received a lump-sum re-enlistment bonus of $16,000. After taxes, he netted $11,360. As I recommended, the couple put $10,000 toward debt and the rest in savings.

The couple wanted to put all of the bonus toward their debt. However, even while paying down debt, you have to build a cash cushion for emergencies. If you don't, you will have to resort to credit to bail yourself out in the event of an unplanned expense.

In the Bathiches' case, they didn't realize they would owe $1,800 for terminating their lease early on their old apartment. They are now living in a military-provided apartment, where they don't have to pay utilities.

Tarek immediately added the debt to the couple's payoff plan, which follows the strategy of paying off the debt with the lowest balances first. Once you pay off that debt, you move to your next lowest balance, working your way to the larger amounts. This gives debtors psychological momentum as they see debts being paid off in full.

Their challenge: Their next assignment is to limit spending on food. During Evibeth's pregnancy, their eating out got a little out of control. But if they get back on track, stick to their budget and keep paying down debt, they'll definitely get rid of their debt before the end of the year.

Next step: Overall, I'm very pleased with their progress.

For now, the Bathiches should stay the course and continue paying off their credit card debt. Starting a college fund should be put on hold. Once they are out of debt, however, they definitely should begin saving for their children's education.

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