Surviving Debt - Part 2: "...The One Car Family..."

If you didn't catch Part 1 of this series check it out here

If you recall from Part 1, we have just started our Total Money Makeover.  It is June 2009, we are flat broke spending somewhere between $600-$1000 per month more than our income and somewhere in the neighborhood of $50,000 in debt.  Let me rephrase that just to make sure you didn't miss anything here, financially we are up a creek without a paddle.  This is no ordinary creek either, it's a Mississippi River sized creek with a whole lot more pp's in it than you see at first glance.

We had just acquired a pair of golden handcuffs as I borrowed $9,000 on my 401(k) in an attempt to borrow our way out of debt.  Everyone knows the best time to go into debt is when you're in a financial crunch.   And when you're in a financial crunch that's the absolute best time to essentially lock yourself into your job or face a large loan payment being due, or a heavy tax bill for early withdraw on retirement.   Oh, I digress, we were there and I can't change that now.

A funny thing happened at this point, we stopped for a moment and decided we should plan out how we were going to best utilize the 401k loan.  As a moment of full disclosure, if you asked me today if you should borrow on retirement, or if I would do the same thing again, I would say, "Absolutely not!" Without hesitation, I would recommend you not travel this path.  Had I the clarity then that I do now, we would not have cashed the 401k loan check, we would have sent it back and canceled the loan.  Again, I digress, we cashed that check, and in our situation it probably worked out better than it should have.

We needed a vehicle, pronto.  I was now an expert on beaters, you know, a garage sale car.  I had read Dave's book and listened to him on the radio and seriously, aren't all cars less than about 3 grand a piece of junk anyway?  So, we quickly located and found a car that seemed like it would work.  We got a STEAL of a deal.  And by steal I mean, we were stolen from.  Not really, but eventually that's the way it felt.  On July 12, 2009, we bought our beater, a 1998 Volvo V70 station wagon with 209,234 miles.  We paid $2000 cash, literally cash, for the car.  I didn't mind driving it, but it certainly wasn't a head-turner.  Here, have a look.

The big mistake we made is we didn't have it checked out first.  So, for the next 4 months we watched it slowly fall apart.  First, one of the back windows wouldn't roll down.  Next the other back door wouldn't open from the inside.  Then, it needed the coolant filled at least once on a roundtrip to work.  Then, I don't know, make something up, it doesn't matter, over the Thanksgiving weekend in a puff of white smoke, literally, the head gasket blew and she was done for.  We held onto that car for another 2 months and sold it January 17, 2010 to a local body shop to use for parts.  We got $500 for it when we sold it.

Think about that.  We bought the beater for $2000 and sold it for $500 after driving it for 4 months.  That's $1500 for 4 months.  While it isn't exactly a nice car or great deal, $375/month is essentially a car payment so it wasn't a totally bad deal, and it kept us from continuing to accumulate miles on the VW Passat that was coming due on it's lease.  In October we had turned in the Passat, and with the mileage overages we had accumulated, we owed $5232.26 at lease termination.

That Thanksgiving marked the start of a totally new era for us, the era of having a single car.  Another full disclosure here, I also owned, and by owned I mean had a loan on, a motorcycle.  So while we really did only have one car, I did use the motorcycle for my work commute when the weather was acceptable.

How to you operate a family of 4 on a single car?  Easy,  the same way my parents did.  You carpool, plan your schedule, communicate on who needs to go where and when.  Was it a challenge?  Sure.  Was it easy?  Nope.  Is it possible?  Absolutely!   Suzanne and I lived the single car family life for 3 years and don't regret it, not one bit.

Damn, we still need a car...  The lease on our Acura TL was coming due in March.  With our Total Money Makeover well underway we were forced with a dilema.  What do we do about a car?  We had a really bad taste in our mouth about getting a beater (again), but had committed to quit borrowing money.   By March 2010 our credit was so far gone borrowing wasn't even really a choice.  However; we had managed to clear a LOT of debt so we had income to cover the bills.  With this in mind, we borrowed a few thousand dollars from an individual and moved them to the top of our repayment list.  That vehicle was a little more than a beater, for $7750 we purchased our 2007 Saturn Vue with 91,325 miles on it on March 8, 2010.  This vehicle was paid for in a combination of cash and direct bank transfer.  Again, no lien on the title, but we did have a unsecured personal loan with an individual.

This ends the saga of our vehicles during our Total Money Makeover.   I didn't expect this post to be entirely about cars, but once headed that road, I figured I might as well continue.  In Part 3 of Surviving Debt I will back track a little bit and take you on the road with us as we started our Total Money Makeover and started attacking our debts and getting our financial life back in order.

Surviving Debt - Part 1: From the Depths of Debt and Despair

Just six weeks ago we welcomed into the world our precious son.  If you have children you likely know that "top of the world" feeling of that special day.  But how on earth did I end up here?  Today started like any other Monday, we woke up got ready for work and got our three and a half year old daughter ready for daycare.  The baby was clothed and fed and we headed out the door.  The difference here was that we didn't go to work on this Monday, after dropping our daughter off at daycare we headed to an attorney's office.

I had spent the previous Thursday night filling out what seemed to be an endless questionare in preparation for our Monday morning appointment.  As we sat in the lobby of the office with our six week old son, we read over the framed posters on the wall that displayed the names of numerous celebraties and famous persons that had also traveled the path we were on.  Finally after an eternity of sitting in shame, we were called back to discuss our bankruptcy case with a paralegal.

I'll be honest, I don't remember much from the appointment other than feeling like a complete and total failure.  I kept wondering, how did we get here?  How could I have been so stupid?  Looking back on this, the answers to my questions were simple.  It came down to simple math.  We spent way more than we made, and we did that for a long time.  Walking out of that office we felt defeated, but at least we came to grips with the seriousness of our situation.


At the time we weren't behind on any bills, but we would be soon and very soon.  All our credit cards and lines of credit were maxed out, there was no money left for us to borrow.  For the first time we actually wrote out our expenses and compared them with our income.  Come to find out that we were spending about $1600 per month more than we made.  No wonder we were in the spot we were in.


About a week after our meeting we received the quote for the cost to file our Chapter 7 bankruptcy.  It was only going to cost us $2939 to free ourselves from the debt we'd acquired.  At the time, we were thinking we were in about $50,000 worth of debt.  For just under $3K that would be discharged, we'd keep the house, both leased cars, and my motorcycle.  This seemed like a plan, but we were still in trouble.  Later that month, we missed our first of several payments.

This was November of 2008.  We stopped making payments on nearly all of our unsecured debt and this resulted in about $1000 less in expenses per month.  Now we still had a $600 per month burn rate.  I'm not sure what happened or how we survived, but we did.  We cruised along trying to figure out a way to obtain $3000 to file bankruptcy and get out of this mess.

In March of 2009 I received my annual bonus which was a net take home of $4100.  Yes!  This was it, we could finally afford to file Chapter 7!  First things first, vacation time.  See, my dad had been battling cancer and we hadn't seen him in awhile, and he had never met his only grandson, our now six month old son.  So we traveled to Texas and visited with friends and family.  If you think we'd obtained the discipline at this point to budget a trip and not spend too much, well you are wrong.  So we spent that bonus money down below the $3000 we needed for our filing.

And the hits just keep on coming.  We were back in the mode of trying to save a few bucks, or a few hundred.  But, life doesn't wait, nor does death.  About a month after our visit to Texas my Grandfather passed away, so we headed back to Texas again.  This last trip pretty much cleared us out and we were again broke.  Bankruptcy seemed like a far fetched dream at this point.

And when it couldn't get any worse.  Life, or death rather, comes around again.  Another month had passed and my Grandmother passed away.  We were too broke to attend the service.  This was really a breaking point in our life, May 2009.  For another month, we lived in limbo.  I had been listening, off and on, to The Clark Howard Show on my local AM station, but they had recently replaced it with a show called, The Dave Ramsey Show.  I was upset because I enjoyed listening to Clark teach me how to "Save more, spend less, and avoid getting ripped-off".  Eventually this Dave character started making some sense.  I liked what he was saying and heard mention of his book several times.  So, in June I ordered Dave Ramsey's My Total Money Makeover from Amazon and started reading.  

I loved the plan, I loved the ideas,  it was like he stole them straight from my grandparents!  Spend less than you make, save up and pay cash for things, and basically don't be stupid.  I was excited.

The financial goal at this point was to try to arrange transportation.  We had about 4 months left on one car lease and 9 months left on the other.  We had already taken a 401k loan on my retirement so we were about to have some liquid assets to purchase a car.   But then I decided that silly ole' Dave's plan was probably better than ours.  I mean, how well had our plans been working?  Really.

Husbands, don't do the following, I was lucky, and I don't think your result will be similar.  Suzanne and I were talking about the cars and what to do when I said something like, "Naw, we should use the money to buy a beater, like a $2000 car."  "What?!?! Are you crazy!?!? We can't go from driving an Acura TL and a Volkswagen Passat to a $2000 beater!"  (ok, those weren't her words, but that's what I heard).

From there is was a little blurry, but it was essentially me tossing the Total Money Makeover book on the floor in front of her, she was already sitting on the floor, and declaring this book to be the source of my madness.  "Talk to me again after you've read this! (or at least through Chapter 4 (or whatever the chapter on getting out of debt is))"  And so it was...

Over the next couple of days, she read.  I waited.  I waited some more, and then gently asked, "so?"  And I waited some more.  Ok, it was probably only a couple days until she reached a point we could have a conversation of mutual understanding.  We figured what the heck, what have we got to loose?

June 2009, we started our Total Money Makeover.

... Stay tuned for part 2 as we start the baby steps ...

What was the point at which you realized the pain of the same was more than that of the pain of change?  In other words, what was your "I've had it!" moment?