We live in an area with a relatively low cost of living and — due to help from my mom with a down payment — we were able to buy a house in 2016, which now has a monthly mortgage, insurance and property-tax payment of $1,600 a month. We bought the house for $169,000 and it’s currently worth $300,000.
We have been bringing in $60,000 a year for the last couple years, until this October, when I was laid off. I have $1,500 in a 401(k). I’m 43 and my husband is 35, and this is the only savings we have at the moment (some unexpected major house repairs ate up what we would have been able to save).
I know we’re not in a good spot. We also have $8,000 in credit-card debt and would appreciate any suggestions on the best way to get our savings on track. We were doing a good job at paying the debt down until this happened; right now, we’re making just a bit more than the minimum payments, which I hate.
‘We also have a friend that would like to rent a bedroom room from us for $400 a month.’
I was able to pick up a job immediately after being laid off, but I’m only making $12.50 an hour full-time versus the $20 an hour I was making, which is more than unemployment would have provided. My husband makes the same per hour, but is only able to work 32 hours a week right now. We both work for a hotel.
Currently, we work two miles from home and own both our cars, so insurance and gas costs are low. We also have a friend that would like to rent a bedroom from us for $400 a month, which would also help make up some of the loss from my wages. He wouldn’t be home too often, and we know him well.
My immediate goal is to find another job that pays as much or more than I was earning before, but in the meantime, I need to do something with the 401(k). I’d like to have an account where we can still contribute something each month pretax, but our current employer doesn’t offer any kind of benefits or retirement plan.
Falling Behind
Dear Falling,
Survival first. Career and retirement second.
Picking up another job, any job, was a smart move. You are earning money — you don’t have to put every job on your résumé — and you are looking for other ways to earn passive income. Fidelity Investments suggests you should have double your salary saved for retirement by the time you’re in your 30s and three times by the time you’re in your 40s; these kinds of goals usually freak people out because millions of them are just trying to make it to their next payday.
You don’t have a job with a 401(k) now, but if you get through this rough patch, you will both get to where you need to go if you keep your eye on the ball. It’s tough to strike a balance between planning for retirement and — in part, due to that forward thinking — believing that you are so far behind that you are never going to catch up. But the truth is you are only competing with your own fears and anxieties. Get through this challenging time first.
You will actually be saving money by paying off your $8,000 credit-card debt, as you are losing money with the amount of interest you’re paying. Think about it this way: Annual inflation is currently running at 2.4%, and you are paying probably 22% interest on your credit-card debt. You are, however, carrying a credit-card balance in line with the average American, although that figure varies by state. Americans are carrying $1.14 trillion in credit-card debt.
You would be making a smart move getting a roommate. Use every last dollar and cent from your new lodger to pay off that credit-card debt. You can worry about retirement and worry about what you have and have not done up until now — or you can live in the here and now, and make sure that you can balance your books every month, and end up in the black. Cut back on your cable bill, your streaming services and other subscriptions. Eat grits, if you have to.
Cut back on your cable bill, your streaming services and other subscriptions. Eat grits, if you have to.
You can learn from this couple, who had three children, ate grits and worked several jobs to get rid of $89,000 in credit-card debt on 11 cards, in addition to a personal loan of $17,500. The financing charges alone were double their monthly rent for their home in Richmond, Wisc. The husband took a night job mopping floors and cleaning the bathroom at a supermarket, and slept in his car. If you want to cut your expenses and clean up this debt, you can do it. If they did it, you can, too.
In the meantime, attempt to renegotiate the debt with your credit-card company. “Call your credit-card company and ask to speak with the debt-settlement, loss-mitigation or hardship department,” says Bankrate.com. “A general customer-service representative won’t have the authority to approve your request. Once you’re connected with someone who has the ability to negotiate with you, explain your situation and make your offer. Be polite but firm.”
“Outline your terms,” Bankrate adds. “If you’re considering filing bankruptcy or hiring a professional to help you with your debt, let the card issuer know and mention that you’d rather work things out directly. At this point, be prepared for the card issuer to potentially freeze your credit limit or close your account.” A nonprofit credit-counseling organization like the National Association for Credit Counseling can help. Tread carefully with for-profit debt-settlement companies.
The way you have responded to you losing your job gives me hope that you will both be OK. You’re relatively young; you have more than 25 years to go before retirement and your husband has another 30 years, and you have not reached your peak earning years yet. Keep your cool, pay off that credit-card debt, build your experience and keep your résumé updated. Employers gravitate toward people who can keep their cool when the going gets tough.
You can email The Moneyist with any financial and ethical questions at qfottrell@marketwatch.com, and follow Quentin Fottrell on X, the platform formerly known as Twitter.
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