Have you ever felt stressed out about money? Has it gotten to the point that you can’t pay the monthly payments on your debt?
If so, you’re not alone. You’re in good company.
Money is the number one stressor in America, according to the ABC News, beating out stress over work, family responsibilities, and even health concerns.
It’s no wonder why money is stressful, Student Loan Hero reported that 11% of borrowers are delinquent on their student loans.
Millions of people can’t pay the monthly payments on their student loans.
It’s tough, and money is such a taboo topic. That’s why, I created Ask Carly.
Ask Carly is a way for us to stay connected and support one another on our journey to gaining financial independence. It’s a judgement-free place to get some solid advice, because, you don’t need to figure this money stuff out on your own. You can submit your question about life and money here.
Someone recently wrote in with a dilemma:
“Hi Carly, I recently heard you speak. I envy your logical and strategic approach to finance. Money has always made me extremely anxious. Even now, writing this, I’m nervous.
One question I was dying to ask, though I would never have the courage to do so in a public setting, is what about if I can’t even afford my minimum payments?
I left a decent paying job for a lesser paying job with better accolades and a better future. While I’m much happier at work, my personal life is now seriously deteriorating–I can’t afford anything! I’m behind on every bill–car insurance, student loans, cell phone… all of them. I am moving to a cheaper, older apartment in January to help with some of the costs and am also attempting to sell my car (no luck). So now I’m reaching out to you. I can’t afford my minimum payments, my savings is depleted. Now what?”
First, I wanted to say that this was very courageous to write in.
In life, things happen, and as Stephan Covey, best-selling author of Seven Habits of Highly Effective People, states that highly effective people are proactive. He defines that as taking responsibility, or response-ability. The ability to choose how you respond to a circumstance.
This reader is taking responsibility, so congrats, on being proactive about where you stand with money and wanting to take steps to improve your current situation.
Now, let’s dig deep and come up with a plan.
Here’s a closer look at exactly where this reader stands with their income and fixed expenses:
Current Take-Home Pay: $2,400
Rent: $1,005
Electricity: $57
Car and Rental Insurance: $136
Cell Phone: $115
Internet: $40
Cable: $35
Car Payment: $197
Credit Card Minimum: $46
Student Loan A: $314
Student Loan B: $384.68
Debt from Lawsuit: $100
Total Debt: $76,992
Using the tools from when I do money coaching sessions, I’ve put together a plan so they can get out of debt within 36 months.
Right now, for the reader, it seems impossible to pay the minimums each month, much less to pay extra towards debt.
Anything is possible with a little education and a plan, but that doesn’t mean it’ll be easy.
They’re already planning on moving to reduce their rent to $830, and switch to a lower cell plan to cost only $40, and they’ve brought in a side income with dog walking, but it hasn’t been consistent.
It’s quite amazing, that they’re staying afloat, because their total fixed expenses come to $2,429.68, which is higher than their take-home pay. Currently, they have no wiggle room for flex expenses like groceries, and gas for commuting, which are necessities.
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Here’s the play-by-play of what I’d do, if I were in their shoes.
***Warning, this plan is like ripping a Band-Aid off.
The plan requires intense big life changes, that in all honesty, most people aren’t willing to do.
If, the reader does take my advice, and makes huge sacrifices for a defined period of time, they’ll be able to get out of debt.
Otherwise, paying off debt will be like taking a Band-Aid off very very slowly, and in the end, cause a lot more pain, and agony.
The reader is going to have to dramatically increase their revenue and cut their expenses.
You can make a million little changes to save, but it’s easiest to save the most, where you spend the most: your rent.
A rule of thumb is to spend less than 25% of your take-home on your rent or mortgage. Right now, their rent is 42% of their pay, which explains why things feel tight.
The move as planned to have rent at $830, will provide some relief, but not enough.
The Austin housing market is expensive, but with a quick Craigslist search, I found a 3-bedroom for $1,460, split three-ways, is $486.67 per month. Or a two-bedroom apartment is available for $1,161, or $580.50 with one roommate.
The move to having a roommate, (which one can be found on roommate.com), will also cut in half their electricity, internet, and cable.
We’ll also allocate a set amount for flex expenses: $400, to cover groceries, gas, medical, car maintenance, etc., each month.
Lowering the rent and getting a roommate alone, will allow the reader to pay each debt monthly, plus an extra $116 towards the highest interest debt. We won’t stop there, we’re ripping that Band-Aid off!
I challenge the reader to make an extra $1,035 per month.
According to The New York Times, the average person spends five hours a day watching, I encourage the reader to look at how and where they’re spending their time already, and find a way to make money doing that.
If they watch tv, they can work at a gyms check-in counter and watch tv while working! Or if they want to be around people, they can work as a bartender, or server. By getting a steady part-time job working around 20 hours a week, they can make over a grand extra monthly.
To get out of debt within 36 months, their basic monthly budget will look like this:
Current Take-Home Pay: $2,400
Part-time Work: $1,035
Rent: $600
Electricity: $28.50 (split)
Car and Rental Insurance: $136
Cell Phone: $40 (new plan)
Internet: $20 (split)
Cable: $17.50 (split)
Extra Monthly towards Debt: $1,150
Car Payment: $197
Credit Card Minimum: $46
Student Loan A: $314
Student Loan B: $384.68
Debt from Lawsuit: $100
Monthly Flex: $400
In summary, I hope the reader continues to be proactive and remember you have the ability to choose how you respond with your finances.
By having a roommate, and taking on a steady part-time job, you can get out of debt, and have a fresh start. This plan shows that it is possible to pay off over $76,000 in 36 months!
You’ll hit barriers, but continually respond and adjust your plan. You’ve got this.
P.S. Want a plan to get out debt? Get focused and organized with money. Check out how to setup a money coaching session and see how fast you can get out of debt.
