Archives for August 2011

Your Questions About Pay Off Credit Card Debt Or Save

John asks…

Pay off Credit Card debt or save for Down Payment?

My wife and I have a combined income of about 170k per year. We have not bought a house yet. We have about 20k in credit card debt currently.Oir debt ratio is about 30% of our available credit. The last time we ran our credit our scores were in the 720 range.With all the benefits of first time buyers now. Should we pay off the CC’s or focus on saving for a down? How much cash will I need 3% or more? We do have about 50k in our 401k’s. Should this be used for a down?

richmama answers:

No, don’t touch you 401ks. Let’s get honest here, if you’re making 170K a year you don’t need to ask this question. After taxes you’re making upwards of 9K/month. Pay your bills off and then start savings for a down payment. Again, DO NOT touch your 401k. It will only take a few months of being stingy and you’ll have your bills paid off. Also, look for more like 20% down.

Linda asks…

Pay off Credit Card Debt or Save for Downpayment on Home?


I am a young adult, 3 years out of college and make about $70k. My credit card debt right now is about $4k. I have a carpayment each month of about $500, but dont have any other major expenses (no student loans, etc). With all the opportunities available to buy a house – FHA loans, $8k stimulus, etc …

Should I be saving $$ for a downpayment on a home, or paying off the rest of my credit card debt??

I also worry that a home is only the first step, and buying furniture etc will only increase my credit card debt! I am comfortable renting and slowly paying off my CC debt, but realize this may not be the best decision in this market…

Any advice?
Sorry – does this change things – my APR is 3% on my credit card … so very low!

? thanks again!

richmama answers:

Kudos for at least thinking about the fact that buying a home is barely scraping surface of what you’ll need to pour into it. Pay off your credit card debt since it’s so low. Deal with getting a home when you have $20,000 burning a hole in your pocket that you really want to spend on rugs and furniture and repairs and property taxes or condo fees.

Go with your gut and pay off that small bill. You just need to focus on saving up for a few more years. When you can easily afford to put down 10-15% for a house, then you’re ready for the rest of the expenses. Until then, don’t bog yourself down with that huge commitment.

Thomas asks…

Should I pay off credit card debt first, save for a car, or do both simultaneously?

I am currently finishing up my Bachelor’s degree in English this summer and I’m almost 23 Three weeks ago I got a summer job after being unemployed for almost a year while at school. The job pays fairly well for a summer job ($12/hr) as a cook and now that I finally have a bit of income I am wondering how I should manage it.

I currently do not have a car and live with my mom who also doesn’t have a car. I live within biking distance of my job, but I simply don’t want to walk or rise my bike come winter time. I am looking to spend at least $3000-$5000 on this car as I have spent less than $2000 on my previous three cars and they have all been unsurprisingly terrible and I had to junk my last one recently for like $100.

By June, I will have about $2300 in credit card debt at 10.24% interest, half of which is paying for my summer classes at the community college (I know its best to get an alternative loan but I simply didn’t meet the enrollment in time as I was far away from the school at the time and busy finishing up my senior project).

Right now, I am thinking that if I spent one of four paychecks a month (about $300) on paying down my credit card and the rest on saving vigorously for my car, then I could be creditcard debt free and have about $4000 to spend on a car in about 5 months (in a perfect world). My question is: Based on the above, what do you think is the best approach?
credit card debt free in more like 9 months and save for a car in 5 months*
Well, I’m trying to be optimistic, and without a car it’s near impossible to find a good internship or job interview or at the least decreases my chances and makes it considerably more difficult–especially in a small city.
Sure it can be done, but most, if not all writing/editing jobs in New England are in Massachusetts, about 3 hours south of my location.

richmama answers:

Do you have other options for transportation, like city bus, subway, tram, rail? They may not be the most comfortable option, but they’ll save you money in the long run. Also see if you can make friends with someone at work who lives in your area, so you can get a ride when the weather is bad. Basically what I’m saying is, delay buying a car as long as possible because: it is better to be debt free than pay interest each month and even a $4,000 car is going to require repairs and the regular costs of gasoline, insurance, oil changes, tires, etc.

The previous post was harsh, but it can be difficult to find a good paying job with an English degree. If you absolutely *need* a car to get an internship which will help you gain experience and find a much better paying job, I think you’ve got the right idea by doing both simultaneously. Pick up any extra hours you possibly can so you can earn a little bit more. You can always adjust your plan in a month or two, depending on how you’re tracking to your goals.

Sandra asks…

I’m 26 and am debating whether to pay off credit card debt or save in my roth ira.?

I have $5400 in credit card debt at 3% which is a teaser rate till Jan 09. I make payments on the card of about $130 a month. I also contribute $209 a month to my roth ira. (I have a 401k to get the match and small position in a taxable account, not part of the question but gives more insight.)
Should I take that $209 a month going to the ira and pay off the credit card debt sooner? (One reason I am a little hesitant is the market sucks and I could potentially be buying up cheap shares that I don’t want to miss out on, but I really want to move towards being debt free.)
OR Should I keep paying $130 on the card a month and look for another low balance transfer in Jan and continue to fund my ira?

richmama answers:

Pay off your debt first. Always be debt free if possible

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Creating & Sticking To Family Budgets

Sticking to Family Budgets

Creating a family budget sounds about as much fun as cleaning the bathroom. Money is tight for many families these days, resulting in many people looking for ways to save it.  Family budgets are a tried and true way to help prevent unnecessary spending and maybe leave a little extra cash to put into a savings account at the end of the month.  Family budgets only require a little bit of time to prepare and can help families hold onto their cash.

Building Family Budgets

Constructing family budgets will require a little time, but it is relatively simple. It will be helpful to have recent pay stubs, bank statements, and receipts handy to figure out spending.  First, one should outline how much money comes into the household each month, then figure out how much is being spent.  The family will need to figure out how much they spend in different areas, such as groceries, household bills, eating out, and more.

Family Budgets – Making Choices Together

The next step is to figure out where spending can be cut back.  For example, if one is eating out several times a week, they may want to consider cutting back to once a week, then putting the excess cash towards paying off their mortgage or into a vacation fund.

If planning family budgets seems to overwhelming or time consuming, one can consider making an appointment with a financial planner or similar professional that can help them create their plan.  There are many books available with tips.  The Internet has a number of resources for family budgets planning, including articles and interactive tools that can be useful.

Once family budgets are created, it is important that all family members with spending power are satisfied and aware of the changes.  It is important to follow up each month to make sure that the family is sticking to the budget.  If the budget is consistently broken, more or different changes may need to be made, either in the spending plan itself or the family’s spending habits while they shop.  Family budgets really are the key to financial peace of mind.

Your Questions About How To Pay Off Debt With No Money

Linda asks…

I’m trying to figure out the best way to start investing money and paying off my high debt amount I have.?

I’m 23 years old, I’m trying to gain structure in my finically life. I’m learning the younger you start investing, the better chance to the road of success you will have. My debt adds up to around 13,000 dollars. This is just credit cards, medical bills, a small loan from a relative. My debts and interest rates are as the following: 6000 credit card with no interest untill April of 08. 2200 medical no interest at all making $50 month payment. 2400 to a apartment complex for moving out early, no interest making 100 payment a month. 2200 to a relative who says to take care of other debt then I can repay them. I’m paying the minium on everything except my credit card with 6000balance. I pay the most I can each month to it. How should I go about paying these debts off? Also, i’m curious to what the best way to start investing are with minimal amount to invest? My job offers 401k and match but I don’t know what percent. Should I start with roth ira or what method? Thanks again

richmama answers:

Let’s break it down:

BILLS: Start off by paying as much as you can toward the one bill that has the highest interest rate, even if you’re not presently being charged interest on it. After that bill is paid off, DO NOT reduce the amount of money you’re throwing at the bills — take that extra and put it toward the next bill. Looks like most of your bills have no interest, so pay off the one with the lowest balance first. When that bill is paid off, move on to the next bill with the lowest balance. As you pay the bills off, keep paying the same amount every month toward your bills until they’re all paid off.

INVESTING: Find out about the 401(k) plan your job offers. Some companies match your contributions dollar-for-dollar up to a certain percent (6 percent is the highest I’ve seen) and other companies invest one dollar for every two dollars you contribute up to a certain percent, so once you figure that out set up an allotment from your pay to contribute only enough to have your company contribute the maximum. For example, if your company matches dollar-for-dollar up to 5 percent, have the company allot 5 percent of your income to the 401(k). If you have any money left over that you can invest, put it into a Roth IRA. There are advantages to both, but the biggest advantage to the 401(k) is the fact that employers match funds, so you get more bang for your buck.

Steven asks…

Can we pay off our debt when we have millions of illegal aliens pouring into our country with no jobs for them?

They don’t have jobs and Americans don’t have jobs which means all of these people are going to need more entitlement programs. With companies going to other countries looking for cheaper labor. Where are we going to get the money to pay for all of these new entitlements?

Many of these people are coming here with kids at the same time that people with kids are getting laid off. How are we going to pay this debt?

richmama answers:

The idea is for the illegals to become the next generation of tax payers to fund the entitlement ponzi schemes,

Charles asks…

How pay off all debt in 11 years with no extra $?

There is a mortgage co. in my town that says they can show people with a mortgage and debt how to do this, how to pay off their house and debts with no additional money in 11 years. How do you think they do it?

richmama answers:

Go to their seminar and see. I would imagine that they want you to take out an equity loan to pay off current debt, then advise you to stop using credit. If you pay your mortgage in bi-weekly installments, you’ll pay it down a bit quicker…and of course, they didn’t say it was a 30 year mortgage to begin with. If you had a 15 year mortgage and sold in 11 when the market was high, you’d be able to pay off your mortgage AND make a profit.

James asks…

Creditor threatens to send my account to an Attorney to pay off debt?

I got a letter today from Midland Credit Management, asking for a debt in the amount of $1,181.56. The Debt is from Aspire Visa, a card I used to have .. I could not pay it all off since I lost my job and i’m having trouble finding a new one. I can’t pay off this debt in this amount .. it originally was NOT over $1,000, it was $630. They added on all these late fees / interest when I could not pay over a amount of time. I tried to make small payments, but obviously they didn’t help, it just got larger and larger. The account has been in collections for a while and so, it doesn’t matter how much I pay, it’s still not enough.

They sent me a letter saying:

“This letter is to inform you that Midland Credit Mangement, Inc. Is Considering forwarding this account to an attorney with the intent to initate legal action to settle the debt.

Please call our office immediately at 800-939-2353 to make arrangements to pay this debt and prevent any legal action on your account”

What do I do?? I cannot afford this .. I have absolutely no funds, and there no point in calling telling them that because well, what are they gonna do?

I’ve told them that I can pay it when I get a job, which I am currently looking for, but if the case goes to an attorney, what are they gonna do? even if I will have to go to court, that’s still not going to get them money .. because I don’t have it. I also have no assets, no car, no house, or anything. So what can they do?

I’m really worried. I am still trying to find any job I can, but even if I do, it will take me a while to save up that much money.

Thanks for your help.
oh, and if you’re wondering, i’m posting this from my aunt’s house, I cannot even afford my own internet. LOL
CAN they take me to court though, over this debt??

richmama answers:

Yes, of course they can take you to court over this.

What does that mean? Well, it means you need to go to court and try to work out a payment plan with them. Do NOT just not show up. That is the worst thing you can do.

You can also try to settle this out of court.

You can also demand that they validate the debt.

You can do many things. Research this topic and the topic of credit repair. You do have rights and it will make it a lot easier on you if you know your rights!

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Your Questions About Family Budget Example

Mary asks…

Building a family budget?

when building a family budget (2 adults, 2 children), what percentage of our income should each expense? For example, how much should we allow for a home, cars, utilities, childcare, groceries, savings, etc?

richmama answers:

There are several websites that give you percentage recommendations. (CNN-Money,, etc.) But you need to find what works best for your family.

I use the following for my budget. (All net %)

Home – 20%
Car/Gas – 5% (Cars are paid off)
Utilites – 5%
Chidlcare – 11%
Food – 7%
Savings – 5%
Donations – 7%
Medical – 4%
Personal – 9%
Debt Reduction – The rest (I want to be debt free)

I track all income and spending with an Excel spreadsheet.

Hope this helps.

Helen asks…

Gift for a family during Christmas, any ideas, $15-20 budget for 10-12 people?

Every year I need to give gifts for Xmas for a family of 10-12 teenage/college girls and 2 boys (in high-school). But my budget 15-20 bucks/person and hopefully should be kinda the same for everyone..

For example last year, I got personalized towels with their names, then I got movie tickets for everyone. I want to stay away from the GiftCards aspect and focus on a particular thing. Thank you for your time and ideas!

richmama answers:

You could do a theme gift for something they can all do together like giving each person something different out of the categories:
– popcorn & bags to put the popcorn in, movie candy, movie tickets/gift card, DVD(s), soda
– group tickets to the zoo and then animal themed things such as stuffed animals, key chains, other little stuff
– scrapbooks, scrapbooking supplies such as paper and stuff, different decorations for the book, Polaroids or film, or pictures you have of them all together, photo albums
– beach towels, beach bags/buckets, toys for the sand, “summer read” books, magazines or magazine subscriptions, sunglasses, sun hats, sunscreen, gift certificate for something you can get on the beach such as ice cream
– cooking supplies, recipe books, ingredients for some sort of dessert, certificate for cooking lessons, aprons, chef hats

Thomas asks…

Living Expenses/Budget…. Help me understand!?


Can we make a list of what the average living expense categories are and how much you pay per month… please add whatever necessary… I am trying to design a family budget. Thanks!


Food – $xxx per person per month
Clothing – $xxx per person per month
Car insurance

richmama answers:

You can learn about household budgets from the following sites, some with illustrations or spreadsheets.

John asks…

Why do people say that money cant buy happiness,also family is more important than money and when they see a?

Rich single man that lives alone and has barley family and his budget for christmas is $100,000 and your then asking how can you raise money for christmas to help out your family also the guy drives a 1 million dollar car and he has A TON of expensive stuff in this bad economy,the person that said that money doesn’t buy happiness and that family is more important than money Gets SOOO jealous and mad at the rich single guy with no family?This is just a example

richmama answers:

I have no idea what you’re even talking about.

But it’s always better to be happy. Rich or poor shouldn’t be what determines your happiness.

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