I have $68,000 in credit-card debt and $50,000 in a 401(k). How can I dig myself out of this trap on a $55,000 salary?
Dear Quentin,
I do not live extravagantly by any means.
I have $68,000 in credit card debt on four cards, and I'm making the minimum payments. Payments add up to $1,800 per month. My salary is $55,000, and it's about $3,300 a month. This is my only income. At best, I might be able to get my salary up to $70,000 in the next two years. I don't have high income potential. I can not do that; I invest in my savings, of which I have about $75,000, and put more on credit cards each month to pay my bills.
Most read from MarketWatch
I am divorced, 57 years old, and I moved my mother, 95 years old, with me because she was alone. I am her primary caregiver. She has no money and no assets. She has a small Social Security benefit that gives me a few hundred dollars to cover my monthly food and gas bills. I recently qualified for some domestic help during the day, but I work at night and on weekends. This combined with my full-time job took its toll.
I would love to get rid of all this credit card debt through my savings, but that would leave me with almost nothing. Because of a potential emergency involving my mother, my health, my home, or something else unknown, I feel paralyzed at the thought of not having money, so I keep using cards. There is about $225,000 equity in my house, but my interest rate is now 2.85% and my mortgage is $250,000 with 27 years remaining. I only have $50,000 in my 401(k).
I would like to do that. I don't want to come here again. It's all so stressful – it's all I think about. Fortunately, there is light at the end of the tunnel. I am the future beneficiary of a life estate from my father after the death of my stepmother. She is 85 years old. This will be real estate, stock portfolio and other regular income as the current market value of my stake is about $2 million. That is if the economy holds up.
Can I live off my paycheck if I don't have any credit card payments to worry about?
asking for help
Dear researcher,
Let those who have never ordered a package on Amazon AMZN or used a credit card cast the first stone.
But it's also time for some tough love. You borrow from Peter to pay Paul. Or in other words, you're borrowing money from these credit card companies to pay for your groceries and your mortgage. You have a solution in sight. All you have to do is do it. It's time to bite the nettle and pay off your credit card debt. Do whatever it takes. But get rid of it. If you continue the catastrophe, you risk making an already difficult situation impossible.
First, you already have a lot going for you. You and your mother have a roof over your heads, food on the table, earn $7,000 more than the median annual wage in the United States, and have a mortgage rate of 2.85%. And it's very possible that you have a $2 million windfall coming your way. This is much more than many Americans have. Plus, you have a $75,000 war chest for a rainy day. Here's Moneyist's weather forecast: It's raining.
So here's what you do: Pay off your credit cards — all four of them — and cut them up. That will leave you with an emergency fund of $7,000. Prepare a monthly budget for your income and expenses — utilities, property taxes, home insurance, mortgage payments, groceries and gas — and instead of paying $1,800 a month for credit cards that have a 22% interest rate and risk ruining your credit score, save $500 a month. .
Assuming you have a 10% down payment, your current mortgage, excluding property taxes, shouldn't be much more than $1,100 per month. With a net income of $3,300, you should be able to make extra money from the beginning of the month to the end. Your $68,000 in credit card debt has become a monster that seems to embody all your fears and insecurities. It's time to defeat that dragon, and that day is today.
It's time for some soul searching
Your mother is lucky to have you, and I'm sure you are lucky to have her too. If you don't have long-term care insurance, you can look into Medicaid — Keep your accounts separate – State and federal financial assistance as outlined in This guide From AARP, and community support from organizations such as Caregiver Action Network And the National Council on Aging. Family caregivers do this $600 billion a year in unpaid workThis number does not include lost wages.
You also need to do some soul research, as well as a budget. Why did I spend so much money on this plastic, the riskiest type of credit? Did you have a difficult time after your divorce, emotionally and/or financially? What brought you to this state of financial paralysis? Sometimes, if we're used to a messy and difficult love life, that's what we're drawn to. It's time to break that cycle.
It is not my intention to psychoanalyze you, but rather to motivate you to ask these questions and find the answers for yourself so that you can (a) understand how you found yourself in this financial “crisis” and (b) feel empowered to change it, given that you have the necessary means. To do that. Unless we acknowledge that our love lives and our financial lives are interconnected, we are doomed to repeat the same mistakes again.
Christine Wilson, writes at Wellness Blog, Live well and fully, “Chaos addiction refers to a pattern where people often find comfort and familiarity in disorganized or chaotic situations,” he says. “This pattern may arise from past experiences of instability or trauma, leading individuals to unconsciously seek out similar environments later in life.” Unlike traditional addiction, which involves drug use, chaos addiction is more about emotional patterns.
We can have messy relationships with others, and yes, we can also have a messy relationship with money. It can take many forms – everything from an impulsive shopper who uses credit cards to temporarily escape the real world to The gambler who will risk his entire livelihood Roll the dice. Given your home ownership and demonstrated caregiving abilities, it is very likely that there is another underlying issue that has led to the $68,000 in credit card debt.
Here's a great nugget about impulsive shoppers and what they do and why. Their purchases don't have to revolve around luxury items like jewelry or designer clothes; “Shopaholics” can get the same kicks from purchasing everyday items like Clorox or Tide Pods. this studypublished in the Journal of Consumer Research, suggested that the process of shopping (and escaping) can be as exhilarating as that package that comes in the mail.
The complexities of impulse buying
“Consumers who experience a loss of control are more likely to purchase products that are more functional in nature, such as screwdrivers and dish detergent, because they are typically associated with problem solving, which may enhance people's sense of control,” the authors wrote. Another theory: Maybe they're familiar household brands that simply remind them of their childhood. It's not a judgment: we all do it to some degree.
The study found that shopping for even the most boring household items is enough to satisfy compulsive shoppers. In one study, participants were asked to recall a situation in which they felt a heightened sense of control after shopping; They ended up buying more practical products from the supermarket, such as cooking ingredients and household cleaners. You may or may not like this research, but it shows that our psychological relationship with our finances is complex.
She's shown a lot of strength and really come a long way: Believe it or not, not everyone is going to dedicate themselves to taking care of their 95-year-old mom or dad when they're under a lot of financial pressure. We need to reduce the shame and blame around credit card debt and start asking the tough questions: not just how to pay off debt, but also why we got ourselves into debt in the first place.
The good news is that after you use your emergency fund for this emergency, your credit card balance will be zero. We cannot say the same for the average American family, which owes nearly $8,000 in credit card debt, according to the latest data from the US Census Bureau and the Federal Reserve Bank of New York. In fact, there was an estimated $1.12 trillion outstanding on credit card balances in the first quarter of 2024, an increase of 13% from last year.
We are all guilty of spending too much from time to time, but we must confront it and take corrective action if this happens.
More columns from Quentin Fottrell:
