Meet RD… Fixing my mess (Part II)

Once poker was kicked it was time to start paying my debts off… or so I thought.

A slow start

The massive debt accumulating mechanism in my life was gone, YEAH!  However, my wife’s (and my) credit cards were still adding on more debt, but at a much slower pace.  Most of this debt came from the expenses associated with a wedding, and our moving into a new apartment and the accompanying expenses of getting our life together started.  I will say that very little of what we accumulated was frivolous, but it was still probably not debt from necessity.  About a year ago we finally got our act together and realized that we needed to buckle down and really work on fixing our mess.  We got our budgets together and have been steadily chipping away at it.  We have also found it harder than anticipated, especially since our first child was born in November.

The best of times and the worst of times

Children are expensive, Mr. H makes most other children look cheap by comparison, although there were extenuating circumstances with him.  The 20 week ultrasound revealed that Mr. H had a condition called gastroschisis.  His intestines had not pulled into the stomach cavity but were hanging out of a hole in his abdomen, all this while he was still in the womb.  The next 16 weeks till he was born was filled with weekly doctors visits for monitoring.  The good part is that his condition is relatively common (yeah, shocked me to hear that too since I had never heard of it before), and that it was completely repairable.  Mr. H was born on November 10th 2008 (the same day as the Marine Corps Birthday!) and immediately went into the NICU.  We were told we could be looking at anywhere from two to seven months of him being in the NICU.  They actually tucked his organs back into the stomach cavity and closed the hole two days after he was born, the long time span possible was in order to ensure his organs were able to function correctly and get nourishment for him because the trauma of the condition causes some children’s intestines to require time to… well, warm up is the best way to put it.  We ended up being very lucky that Mr. H was only in the NICU for one month.  The day we brought him home was wonderful.

So how does Mr. H relate to debt?  Probably not how you think… Both my wife and Mr. H were double covered for insurance, so after we navigated the administrative gridlock that is the insurance industry, we did not have to pay anything for their care.  This is very good because both my wife and Mr. H would have maxed out our out of pocket co-pays, which would have meant we would have had to pay $5k for each of them.  How we did rack up more debt was just in the process of spending all our time traveling too and from the NICU, and the associated costs of not being home for meals and such.  We bought a lot of food and gas that month, A LOT.  I think we ate at home maybe twice that whole time.  Our debt did not skyrocket, but it certainly did not get paid down at all during that time and we added about $1k to it.  Then of course we also added more in the month or so leading up to Mr. H’s birth and afterward for the baby essentials.  Diapers: we chose to go the cloth reusable route ($400 per set), which is a lot of up front cost but saves money in the end.  The nursery furniture including the crib were handed down to us from a friend which saved a lot, but there were the bottles and the toys and the cloths and the list could go for ever.  So, children are expensive… Mr. H has probably cost over $100k in his first seven months of life.  Although he is the best thing to ever happen for me and I would pay any amount for him.

Details, details.

And after all that long explanation, here we are.  Now we get to the nitty gritty.  Rather than try to narrate our current debts I will just lay out or income and expenses.  You are a financially literate group, you can probably pick up on it all pretty easily.  I will say, that we have been very diligent in trying to pay down our debt despite all the unexpected expenses that arise which a child.  We have also been very fortunate to have two very heft tax returns in the past two years.  2007 return gave us $9k and 2008 saw a $15k return.  We closed on our first joint house together in October of 2008 (yes, in the month right before Mr. H was born) so qualified for that $7500 interest free government return/loan.  Both of those returns went towards paying down cards.  Between January of 2008 and now we have managed to kill $20k in debt… and that takes into account the periods of increased debt due to our lovely baby boy.  So here is the balance sheet:

Income

• Salary – Me – $3050ish take home
• Salary – Wife- $2700ish take home
• Rent on my first house – $3000 per month

Debt

• Mortgage, rental house – $2600 per month ($409k balance)
• Mortgage, home – $2000 per month ($253k balance)
• HELOC, rental house – $38158.26
• Credit card 1, me – $10090.47
• Credit card 2, me – $4944.10
• Credit card 3, me – $0 (yeah!)
• Credit card, wife – $10kish
• Credit card, both – $5500; we had new windows installed on our house just last week.  This was the cost of the windows.  The house was in disparate need as the old ones were not safe for our son (would come crashing down at unexpected times.  A couple were propped closed with boards) and leaked air like a sieve which caused us very high energy bills.  These qualify for the recent energy efficient tax credit so we will end up getting $1500 back at the end of the year and savings in energy bills will be pronounced.  This is no interest no payments for 12 months as well.
• Personal Loan, my parents – $56k, this was the loan they made to me to purchase my first home which is now a rental property.  I pay them $400 a month to pay the interest that they pay (they used there HELOC to get me this) and to pay down the principle as well.
• Personal Loan, wife’s parents – $10k, they bought us new carpet for the whole house when we moved in, the previous carpet was just plain nasty and it looked like the foreclosed owners intentionally destroyed it.  My wife’s parents said we did not have to pay them back, but we want to because it was too generous a gift, we pay $100 a month now and the amount will increase once credit cards are paid off.

The way forward

My wife and I are not by any means poor or scraping buy.  If we were not aggressively paying off debt (about $1k per month above minimum payments) we would have a lot more flexibility and be able to indulge a lot more… even with this debt hanging over our heads.  However, neither of us likes the debt hanging there and we both understand the economic concept of opportunity costs that we incur by holding the debt.

After this epic, two-part, introduction, I look forward to sharing my financial recovery with the debtkid.com community.

~RD