The Chandlers
Ages: Tania, 39; Carl, 39
Background: Married with two children, Myles, 5, and Sydney, 3, and living in a suburb of Maryland. She is a school counselor. He is a systems consultant.
New Year's resolutions: The Chandlers wanted to put money into an emergency fund and get out of credit card debt.
Progress thus far: The couple has mostly stuck to a tighter budget. I had them lock up their credit cards and they haven't used them since this challenge began.
They have continued to whittle away at the $14,400 they owed at the beginning of the year on several retail and major credit cards. They have been able to reduce the debt to $12,000, although it could have shrunk further. Some retail purchases should not have been made (furniture and a PlayStation game), and they have shown progress despite two major expenses since the last update. They had to pay $600 for their annual homeowner's association fee and another $1,000 for their water and sewer annual assessment.
But the couple has still managed to save $3,500. Even while you're paying down debt, it's important to continue to save. If you don't, when you're hit with an unplanned expense, you end up taking on more debt. Had the Chandlers not saved any money as I advised them, they would not have had the funds to pay the assessments.
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New Developments: Tania's expanded work schedule brings in an extra net income of $440 a month. Additionally, the Chandlers' son is entering kindergarten this month, reducing their child-care expenses and saving $250 a month.
Carl is studying for an additional certification in his field. He's hoping that the certification and an upcoming raise will boost his gross income by $10,000 a year.
Next Step: The Chandlers need to put money aside in their budget every month for the homeowner's fee and the water and sewer assessment. Since the two fees total $1,600, they should set aside $133.34 every month.
I want them to become much more aggressive in attacking their credit card debt. They've got four credit cards left to pay off. They've promised to make a lump sum payment of $250 this month to finally pay off the balance on a Lowe's credit card.
Remember, the key to getting out of debt is to tackle the smallest ones first. It may seem more logical to go after the debt with the highest interest rates first. But you can get a nice psychological boost if you can pay off some small debts fast.
"I like the idea of paying the smaller bills first," Tania said. "It gives you a sense of accomplishment, sooner."
In total, the Chandlers now have an extra $690 a month. Rather than absorb Tania's additional income and the day-care savings into their budget, I recommended they take $590 of the extra income and use it to knock out their next lowest debt amount, which is $2,800 on a MasterCard.
I suggested that whenever they pay their reduced day-care bill, they should send the difference between the old day-care expense and the new one to the credit card company next on their list. This is one way to ensure the savings is immediately used to pay down debt.
I recommend that they take $100 of the $690 and put it in their emergency fund. I'm still concerned that their rainy-day fund is too low. They are a long way off from having a minimum of three months' living expenses in their emergency fund. With their combined income of $143,000 they should have about $17,900 at a minimum.
Carl needs to take on more side jobs in telecommunications consulting. His job installing and reprogramming the telephone system for a small insurance agency was a great start. The owner of the insurance agency indicated he might be opening up another office. Carl was going to wait to hear from the company.
"I try not to be pushy," he said.
"You can't afford not to be pushy," I said.
He called. The company won't be opening a new site but Carl did ask for referrals.
