Success in Cutting Bills, Socking Away Savings

The Holmes Family

Age: Trenton is 39, Amber is 38.

Background: The Holmeses live in the District where Amber is a federal paralegal specialist and a part-time makeup artist. Trenton is a tech sergeant and aircraft mechanic at Andrews Air Force Base. He's served 18 years in the military. The couple earns about $135,000 a year.

Where They Started: At the beginning of the Military Challenge, they owed $12,990 divided among six credit cards and two lines of credit.

The main financial obstacle is a second home. The Holmeses were able to rent the house, but they couldn't get enough to cover the mortgage and taxes. Each month, they had to put up $1,000 in addition to the $1,800 provided by renters to satisfy the mortgage.

Amber has about $55,000 in deferred student-loan debt, and the couple has a home-equity loan balance of about $27,000.

Goal: Pay off consumer debt, cut expenses and stick to a budget.

Progress: The Holmeses have paid off roughly $12,100 in debt.

They still have the second home but are awaiting approval for a short sale from their lender. "I'm just ready for it to be over with," Trent said.

Challenge Highlights: The couple's accomplishments include saving almost $7,000 in both their emergency and life-happens funds. I'm also proud of the way the Holmeses reduced their expenses. They cut their cable bill by $121 and reduced their cellphone bill by $150.

"We have done pretty good with working within a new frame of thought regarding credit, so we won't be running out getting more credit," Amber said.

After Financial Boot Camp: The Holmeses should pay off the remaining consumer debt continuing to concentrate on the debt with the lowest balance. They definitely need to consult a tax professional if the short sale is accepted. They'll need to begin saving for the hefty tax bill they may face next spring.

Under the Mortgage Forgiveness Debt Relief Act, borrowers can exclude from their income certain canceled home-loan debt on their principal residence. However, only canceled debt used to buy, build or improve a principal residence or refinance debt incurred for those purposes qualifies for this exclusion. If the short sale is approved, the couple will likely face a tax debt on the $125,000 mortgage amount that would be forgiven.

If they don't have enough money to pay the bill they may be able to negotiate an installment payment plan with the IRS.

Once the tax situation is taken care of, they should tackle the home-equity line of credit. After that they should work on Amber's student loans.

"We will still be paying off debt, so just because the challenge is over does not mean that we are free to do what we want money-wise," Amber said. "We will have to continue to plan for purchases and really question our wants versus needs."