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Maybe crazy idea to solve my budget issues...

post #1 of 17
Thread Starter 
So I lost my job not long ago, and when my severance payments end in a few weeks we'll be about $1000 short every month. We've already cut back wherever we can but we lived kind of minimally/frugally already so there wasn't much room to cut back. I can't get a new job right now for multiple reasons (& so can't get unemployment either).

Our biggest expenses are health insurance & the mortgage. It looks like we may be eligible for assistance with health insurance, which could save us $500 a month, just don't know for sure yet whether/how that will work. We'd still be an additional $500 short though.

We have a good amount of savings. We are hoping to live off of that for as long as possible, but it's incredibly stressful to me knowing we are falling short by so much. Plus, having that savings is preventing us from getting help from our mortgage company. Our mortgage payment is about HALF of our income, which is just crazy... I'd really like to get that payment down but we are deeply underwater & not eligible through HARP or anything either. There's a "Hardest Hit Fund" that we may be eligible for but we have a bit too much in savings at the moment to qualify.

Sooo... I had a crazy idea... we could pay off our student loans (which I've been wanting to do anyway). This would save us $250 a month (so even without refinancing we'd now only be ~$250 short if we can get the medical help... I might be able to get a very part-time job or DH could maybe do a bit of OT to cover that shortage). This would use up about half or our savings, but would also make us eligible for the Hardest Hit Fund mortgage help. I have no idea what that program will actually do though... anyone have experience or knowledge of it?

I know there is a student loan interest deduction & we could defer the loans if we ultimately had to, so I'm mulling over whether that's a safety net worth keeping. If I don't pay it off now (and don't defer), our student loans would be paid off in less than 5 years. We'd save a little over $1000 in interest by paying it off now. It would cut into our savings by about half -- so we'd still have enough savings left to live off of for a year or two if we continue with our spending freeze and have no major emergencies. I also do have money in a 401k that I could cash out in an emergency (obviously want to avoid that). I'm thinking though, that if we ultimately lost the house and/or had to declare bankruptcy, we'd at least be debt-free if we'd already paid off the student loans, so we could start fresh.

I feel like this is a bit of a gamble but the only option I can see for "getting ahead" and not having this constant stress of being so far short every month which is really making me miserable. I see this as a long-term problem so I'm hoping for a long-term solution. I've always been able to get the numbers to work out somehow, until now. We are just in this gray area of making a couple dollars too much to qualify for food stamps etc. but not enough to live on & no way out of this house & the local economy is really bad.

Not sure if I've even explained this well but... any thoughts?
post #2 of 17
Have you applied for food stamps? That might free up a little space in your budget.
post #3 of 17

Could you get a PT job anyway or have DH work more? I'd leave the student loans alone for now (keep paying monthly). I'm a SAHM but my DH works over 70 hours a week to make that possible. It certainly evens out to what I'd make working part-time (and having to juggle opposite  schedules, childcare, etc). I hear you on the making just a few dollars too many to qualify for assistance. Definitely get setup with health insurance help asap.

post #4 of 17
Can you make extra repayments on your mortgage? And can you the. Draw them back without penalty if you need them? If so I would put all your savings into your mortgage. That will. Oth reduce your repayments and save you a huge amount of interest. Then, if/when you need the money you can transfer what you need back to your everyday account.

That might also help with elegibility for other types of assistance as well as it would no longer count as "savings".
post #5 of 17
Thread Starter 
Well one thing we are hoping to do is reduce our monthly expenses. Since we can't refinance, paying off the student loans is the only way I can think of to do that. If we pay extra on our mortgage it won't reduce our monthly payments. I wish there were a way we could pay extra on the mortgage and then have the payments recalculated!

We don't qualify for food stamps.

Unless we reduce our expenses there's not much point to taking a part-time job -- it would just push us over the income limit to qualify for the medical help and we'd still be falling behind $500+ dollars every month. I have some physical & mental health issues right now that are limiting me from getting a regular job (but probably not enough to qualify me for disability income). DH takes OT when he can get it but that's rare and his schedule is not conducive to him taking a second job.
post #6 of 17

I think I would definitely consider paying off the student loans, IF you think you can bring your finances into the realm of do-able. I would first look into anything else you can do to lower payment/get assistance. I know you said you live frugally, but are there any other areas you can cut back? Cellphones, ditching cable for a digital antenna, cheap internet...? My experience is that if there is not enough income to pay the bills, then I feel like, well, we might as well spend money on xyz, and tend to get in a bigger financial mess. Being 500 short ends up being 1000 short, whereas if I am even just at 0, with no extra, I feel ok with it and can do it. Everyone's different, so that might not be you, but I know it's a heckuva lot harder for me to stick to a budget that's underwater than one that's tight. Especially when there's no end in sight.


Brainstorming....Could you pay off enough of the mortgage to enable you to refinance, if you're not at a great interest rate already. Have you called your mortgage company to see if they will work with you in any way? Would it help in any way to look into selling/short-sale/foreclosure? Renting the place you're in and finding a cheaper place to live?  What about babysitting for some extra cash money?

Anyways, I would look at everything on paper, get all the information I could get, talk to everyone I could talk to, and line it all up, and IF I could make a budget work without a shortfall by paying off the student loan debt, I'd do it.

post #7 of 17

Personally, I think that if I were in your shoes, I would do it...you're going to have to pay off the student loans sooner or later, and it seems kind of pointless to keep money in savings for future student loan payments, if you know what I mean.  We paid off our student loans as quickly as we could early on in our marriage, keeping only a modest emergency fund, and it has paid off hugely for us in peace of mind and financial flexibility.

 

Nevertheless, you also need to be working at boosting your incomes, and I would make this a higher priority than looking for government money (which is at best a short term solution).

 

Since you would still have a fair amount of savings, are there any high-deductible health insurance plans available to you?  It might or might not make sense for you, depending on how much health care you use--usually the high-deductible plans are best for the very healthy or the very ill.  

post #8 of 17

I would think about putting the student loans into forbearance. We had DH's loans in forbearance while I was in school and it wasn't hard to get... you can just call your lender and ask. Interest does pile up, though. idk how much is in your emergency fund and how long you expect to need said emergency fund for, so maybe paying them off would make more sense than forbearance.

post #9 of 17

Personally, I think your house is too much than you can afford. Half of you income going to your house seems like too much. If I were you, I'd be looking at every possible way to get out of that situation (if possible).

 

Second, what about your cars? That's often a good place to save money. Do you have car payments? One or two cars? If you're making car payments, consider selling the car and buying a cheaper, older car with cash. That will free up cash flow and save you on insurance and plate fees.

 

If you can pay off your student loans with money you already have, I think that's a great idea ASSUMING you do not have high interest credit card debt. If you have credit card debt you need to pay off that first. With all that being said, I don't think you should pay off the student loans until you have a concrete plan as to how you'll cover the shortage between your bills and income. Just assuming you'll get some sort of help with less in savings doesn't seem like enough to me. You don't want to pay down your student loans only to keep losing $500 a month because you can make your bills and then end up putting everything on plastic.
 

post #10 of 17

I would definitely, definitely pay off the student loans. $250 a month is not chump change, and if you have a big enough emergency fund to cover your shortfall for a YEAR or two after paying them off, you've got plenty of savings! (Then again, I am also a big Dave Ramsey person, and it's what Dave would do! winky.gif) I know spending savings is painful - I hate it, even when we're spending it for exactly what we saved it for - car insurance, midwife fees, etc, but you will have the complete elation of not having debt hanging over your head. I know this personally, too - dh and I paid off $8,000+ in student loans in a little over a year, and it was so exciting to be FREE of that. For us, it was our only debt. It sounds like, other than your house, that's your situation, too. We don't have a house, so we don't have that debt, but we also don't have that asset (or lack thereof, as it sounds like in your case). But it was nice to know that, other than our lease, we didn't owe anybody anything. We were free. Yeah, things would get crazy if dh lost his job, or a lot of other things happened, and breaking a lease is definitely not a good thing (not as bad as foreclosure, which is your equivalent in this case, but certainly bad), but other than that ugliness, no one would be after us for anything. We could decide to ditch all our possessions and move to the jungles of Africa and not be fugitives on the run from our creditors. No, we wouldn't ever do that, but it was exhilarating knowing we could. Anyway, psychology aside, I don't think it makes sense to be paying interest, even fairly small amounts, on loans you could get rid of and not totally lose your safety net. That's just my 2cents.gif.

post #11 of 17

If you were let go, which I'm assuming based upon you getting a severance, why are you unable to get any type of job right now?  You don't have to answer, but it seems important to ask.  How long are you planning on not working?  If this is a long-term decision because you truly cannot work, are you eligible for disability?  Also, are you guaranteed assistance through "Hardest Hit Fund"?  I don't know much about it, but a cursory search indicates you may have to have employment for that or be eligible for unemployment.  Have you looked into HARP 2?

 

I'm not really able to give my opinion on this because it really depends how long you will be without a job.  I know it's probably not what you want to hear, but if you're able to get a PT job, get one.  If you do, I would pay off the student loans and apply for any refinancing programs you can.

post #12 of 17

Yep, simplify. Pay off the student loan. And if you have savings to last you a year, well, you've got a year to find a new job. (When I lost my job several years ago, I did drop health insurance; as far as Im concerned 750+ cobra payments is not part of a honed down budget for  one without income (so goes it in this country).

post #13 of 17
Thread Starter 
TY for all the feedback!

Yes, aside from the mortgage, the student loans are our only debt. We have scaled back the budget as much as possible already... And because I have health problems I can't really go without health insurance (and we get it through DH now, it covers a lot at least). Yes, the mortgage is way more than we could afford, we could afford it when we bought but the local economy has gone so far downhill and DH lost his job for over a year and finally had to take one making only half of his old salary and then I got laid off not long after he finally started working again. Bottom line, we can't afford it, but we aren't eligible for refinancing -- our loan isn't held by Frannie Mae or Freddie Mac (which is a requirement of HARP) and we are very much underwater (house is worth about half of what we bought it for) and every third house in our neighborhood is either for sale or foreclosed so selling isn't really an option. We got our mortgage through the state housing counseling agency but for some reason they don't seem able to do much for us because we aren't behind on payments (yet) and still have substantial savings. I have come to terms with the possibility that we could eventually lose the house, which is part of the reason paying off the student loans appeals to me (then we could start fresh if we lost the house, no debts at all).

As far as work, I can't say how long I'll be out of work. I am going through some issues that make it virtually impossible for me to work now (medical/mental) but they are kind of just bad enough to prevent me from working but probably not quite enough to qualify me for disability. I am hoping that within 6mos-1year I can get the mental issues under control at least, and that might be enough to allow me to work part-time if I'm just dealing with the medical issues. There are very few jobs around here though so who knows if I'll even be able to find one when I'm ready. As far as why I could work my old job -- it was part-time, from home, I'd been working the same job for 6 years, it was super flexible, we weren't very busy over the last year or so (hence why I got laid off!), and it paid a decent amount and provided benefits -- so relatively low-stress (physically & mentally) and kept us afloat financially. It's very unlikely that I could find something similar right now, and even that relatively low-stress job really exacerbated my issues to the point that I nearly required hospitalization (and I almost had to quit but they beat me to it!) The few jobs around here that I might be able to handle right now wouldn't even pay enough for me to pay for the gas etc. necessary to get there, nevermind daycare... I'm not happy with having a thousand-dollar shortfall every month, and even less happy with being not able to partake in financially supporting my family, but really it's my reality right now, so I'm trying to find creative ways to address it.
post #14 of 17

If you anticipate being out a year or two only, I would definitely pay off the student loans and apply for any housing program(s) you can and see how things go from there.  In terms of employment, you may have luck with companies like Leap Force.  Even if you aren't able to handle it right now, keep it in mind for when you are able to handle it.

 

Best of luck.

 

Edited to add that my advice is based on what I think I would do in your situation.  I have always been a fan of paying down debt over having a huge emergency fund.  That is what works for me.

post #15 of 17

My friend lost her job and eventually ended up with one paying half as much, and she did lose her house... I think it ended up being a short sale, but the upshot of it was that she lived there for months and months before it sold, paying only utilities, because it's better from the bank's standpoint to have someone living there and taking care of the house. I'm questioning, if you are going to lose your house eventually, is it worth continuing to pay mortgage? I don't know much about this but is it worth investigating?

post #16 of 17

Even if you don't qualify for food stamps, you may qualify for other things such as energy assistance.  Check out LIHEAP, and your state energy assistance programs.  Also, look into things like research studies, pet sitting/dog-walking, and donating plasma.

post #17 of 17

Crunchy, how old is DS? If he's under 5 you may qualify for WIC if not food stamps, and that could help some.

 

Other than that, I'm having a hard time coming up with a good reason why you shouldn't pay off your school loans, other than to consider how badly you need to save that $1000 in interest. After all, if you're going to use your savings to pay them off, why not just pull from savings every month to make that payment anyway? If you can find a higher-interest account to put your money in (maybe even invest some of it that you won't need right away) then you can earn interest on the money before you pay it out. (Of course, you'd need to do the math (which I'm terrible at) and figure out if you can earn enough interest on what's left of savings over the course of time v. how much interest you're paying on the loans....)

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