Y’all know by now my answer to most financial debates is that the emotions beat out the math, but there’s one thing that always trumps that which I haven’t been the greatest about voicing. Partly because I thought it was obvious, but also because I forget just how nasty the debt industry can be!
This Q&A I just had with a reader covers it pretty well, so I’m just going to share it here for everyone to see, and so that I also have a place to point people to in future discussions as well.
There IS a caveat to the savings vs debt hierarchy, so hopefully this clears it up a little!
From Johnny*:
Hey J,
One personal finance question that I keeping struggling with is the debt vs savings hierarchy. Your recent posts that cover the concept of emotions vs numbers are making me evaluate this even further.
My general theory with the hierarchy of savings:
- Emergency fund (3-6 months or whatever your school of thought is there)
- Meet your 401k match, if applicable
- Pay down high interest debt
I know the hierarchy continues on, but step 3 will hold me up for a while. This is also where my numbers vs emotions issue arises. The combination of establishing an emergency fund and contributing 6% to my 401k (my firm matches 50% per dollar up to 6% of salary) leaves little excess for paying down my credit cards. At this rate, my emergency fund will be at a solid point within the next 6 months or so.
However… My 13k in credit card debt will continue to bitch slap me until I can tack on emergency savings to my monthly payments. I’m currently putting about $1,000 a month towards savings and 401k, with around $500 to credit cards. $1,500 towards my credit cards would feel so much nicer than only $500.
Emotionally, I want to increase our emergency savings so that my wife and I have stability. Mathematically – and – emotionally, I want to contribute 6% to my 401k. Mathematically, I want to get out of credit card debt as quickly as possible (duh).
A little back story:
- I bought a house with my wife last summer ($1,800 per month)
- I’m a 4th year accountant (yes… I see the irony here)
- Emergency savings goal is around $18k and we are about $10k away from that. We add $1,100 per month ($600 from me and $500 from her)
- I currently lease a Mercedes with a hefty payment, but fortunately this ends in a few months ($718 per month)
- 401k contribution is 6% to a traditional account ($80k salary) and my wife makes about $50k with no retirement account. I had 6% to my Roth but changed it to traditional today, that way I increase my take home a bit
- $13k in my own credit cards (mostly racked up prior to getting married)
Two more critical points:
- My wife is unaware of this debt. We have joint accounts but also some separate accounts – I use my separate accounts to pay towards the cards. When she asked about my credit cards, I panicked and said $3k instead of the actual amount (I think it was 15-18 at the time). Now I can’t bring myself to tell her how I lied in the first place.
- We will likely start trying to have kids this summer (her timeline based on age, not my ideal timeline for obvious financial reasons)
Last critical point – I do not use credit cards any more. They are all in my night stand and have no current use. I have resolved at least 90% of my bad spending habits (bars, restaurants, strip clubs, clothes and shoes) and now consider myself to be quite frugal. My largest expenses are essentially my mortgage and paying off previous mistakes (credit cards and large lease payment).
With all that said, what are your thoughts? How do I battle 20%+ interest against emergency funds for my family and retirement accounts for my family? I understand that this is an extreme situation and I’m not handling it correctly by lying, but I also like the similarities and differences with this vs the couple contemplating paying down their mortgage.
The argument with this case is still math vs emotions, but flipped into a completely different situation. Should I continue to build my emergency fund, contribute to maximize my firm matching, and whittle away at my debt?
Best,
Johnny
*******
And here was my response to him :)
*******
Woahh nelly!
I desperately want you to fess up to your wife about the debt (it’ll make for quite the come back story too!!!) but I know that’s not what you’re asking about with this email, so I’ll jump right into the question at hand ;) And fortunately, I have an easy answer for you:
20% interest trumps everything!!!
Math/emotions/everything!!!
Most times when people are going back and forth it’s because the upside (or downsides) are too similar, thus making it harder to decide and why the *emotional* route then becomes the clear answer (if you’re anything like me, anyways).
But when it comes to one side being drastically different like in the case of 20% debt interest (outrageous!!!), then the tables turn and you do everything in your power to kill that junk once and for all. And even better that you’ve already nixed the habits that got you there in the first place, so you’ll be done with it FOR REAL! (Most people only focus on the *numbers* and not what got them in the hot mess to begin with)
So my personal opinion is to keep putting in the 6% towards 401k since it’s free money and you already love it both emotionally and mathematically, but then direct *all the rest* of your money right to that debt until it’s finally gone once and for all.
Which can be turbocharged even more once that Benz payment goes away as well!! (Or maybe you can use that $$$ for continuing to fill up the E. Fund and win in both areas??)
It’ll suck not doing things “in order” of your hierarchy there – which is also typically how I list them out too – but again – some things trump everything, and 20% interest is ridiculous. Odds are you’ll prob be fine with $8k banked for emergencies anyways, and if not, you can always redirect it from that month forward since nothing is ever permanent!
Anyways, those are my thoughts :)
*HOW* you’d redirect all that money without your wife asking questions I’m not sure, but if there was ever a time to fess up, now would be the perfect time! Especially if you just come out with it as open and honestly as you have with me/us here and just admit you were too ashamed to share the real numbers…
Plus, you’ve CHANGED! And you’re already halfway through the plan of nixing that nonsense once and for all! She’ll still be upset for the lying of course, but at least you’re already taking action and proving you’re serious about it unlike others who continue to kid themselves…
At any rate, I hope this gives you more to think about, and as I like to say – **as long as your money is trending UP in general**, you’re already on the right path and the rest is just amplification.
It’s great to optimize, but try not to get too hard on yourself as you’ve already had quite the nice turnaround… And thanks for making me almost spit out my coffee this morning too with your “strip club” line, haha… Too early for that stuff!
*******
What says the peanut penny gallery? Where would you prioritize the debt in this hierarchy?
***UPDATE*** Johnny told his wife!! And she popped into the comments section to say a few words :)
——–
PS: This high % card also plays in the other direction too. If you were getting 20%+ guaranteed returns in saving or investing (and key being *guaranteed*), then you’d want to shift your game plan there as well. Which is pretty much why you always see “invest in your 401k” up high on these lists since the matches are not only FREE money, but an incredibly high % of it at that! (Typically around 50 to 100%).
*Name has been changed to not get our “Johnny” in trouble here… Which is an alias I always use for people who were trouble makers back in the day, since I *too* used to use it whenever I knew ahead of time I would be causing some ;) (I went as “Johnny Love” to be exact – hah)
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“Now I can’t bring myself to tell her how I lied in the first place.” Oh yeah there’s a 5 second rule with white lies, this lie is past expiration.
I thoroughly enjoyed J$’s screaming match. 20%>EVERYTHING lol! I love it. He’s so passionate about not paying high interest.
You should tell your wife you felt so tossed over this, you were featured on Budgets are Sexy so don’t get mad haha.
Start trying for a baby doesn’t mean a baby will come immediately so I wouldn’t worry about the timeline to be specific. Thank God those payments for the car are coming down, eeesh that’s high. I would direct money into paying that debt, contributing to retirement and then afterwards a baby + beef up the emergency fund extra.
My emotions have beaten the sh*t out of my cold hard logical maths on reading this. I wanted to add some positive comment here then got three sucker punch, the first while reading being an accountant, the second one, the Mercedes almost done the job, but keeping your debt hidden from your wife… you lost me man. Had to check the date if this is an April 1st post.
First off, you “recently” got married. DONT start a new life with lies. Confess. Man up…
Secondly, both of you need to be onboard with what needs to be done. You are no longer just he and she. Its us, our, we… Both of you decide which is the best route and stick to it.
Now the issue – at least 1k in savings, more is better but at least that. Stop putting $$ into savings/retirement etc. Put your $ towards the bills and knock em out. Get rid of that freaking car payment… Jeez. Find you a cheap gas saver and wear the crap out of it. Let the wheels fall off. Now turn back to savings/retirement and kill it. I like the match but prefer my own directed plan (index funds). The larger percentage you can save in both, the better off youll be down the road. Start off with 10% of your take home pay. Keep bumping it up after working the budget to the point where it almost hurts. Some can only do 10%, others 80%. Either way do it!
When you have the baby(s) things will change. Dont rush it. They are expensive and time consuming. Get your house in order before adding to it.
YES! 100% right –> “You are no longer just he and she. Its us, our, we… Both of you decide which is the best route and stick to it.”
I agree with this, except for the opinion on putting money into retirement (in this situation), and not taking advantage of an employer match in favor of a “do it yourself” plan. I prioritize meeting an employer match over everything else; in this example, he instantly gets a 50% return on the 6% he invests – that’s better than any Vanguard index fund, and higher than any percentage you’ll pay on any credit card…it’s crazy to leave it on the table.
My personal hierarchy*:
1) I make sure to get every employer match dollar I can
2) Max out an IRA with Vanguard (Roth, for me personally, can’t beat untaxed growth)
3) Regular savings, if needed**
4) Max out HSA (or come as close as I can)***
5) Regular after-tax investing (index funds)
*I currently have no debt, having paid off [relatively modest] student loans a few years back
**My personal philosophy is to save for big purchases (such as a car, vacation, etc., but excluding a house), rather than go into debt to buy them, so once I reach about 12 months living expenses (my peace of mind number, though I know that’s a comparatively large amount of cash laying around), I stop “regular” saving unless I know I have a sizeable expense coming up in the next 1-2 years
***Truthfully, the argument could be made to make this #2; it becomes free to use however you want at 65, and if you feel like tracking your medical expenses (and dealing with the IRS potentially questioning you), you can pay for them out of pocket and then reimburse yourself when/if you want to hack your retirement savings with no penalty.
I guess I should add that were I in this situation (since that’s the point of the article after all..), after I got that employer match, I’d put everything into that CC debt….worst case if you have an emergency that your $8k won’t cover, you can use the CC again, but if you don’t, you’ve saved a lot of money in interest.
Excellent hierarchy :)
One question. Can he get a new credit card that doesn’t charge interest for a year or so, and move at least part of his debt there?
When we were new in this country with no credit history, and bought two new cars on high rates of interest, that is what we did. We put our day to day expenses on such cards and paid off the car loans. And then paid off the cards before the 0% period was over.
Yeah that’s what I was thinking as well, especially if he’s trying to hide it.
Hop that credit debt around to some new cards. Intro rate balance transfers at 0% for 12-18 months with 3% or 5% transaction fee. Beats the heck out of 20%. Also, the hierarchy works again, because 6% + 3% match IRA beats 5% credit card debt. Sometimes its hard to get a large credit limit on a new card, which is where not canceling your old cards comes in handy. They’ll want you back and send you those intro rate balance transfer offers, so you just swap the debt back and forth every 12-18 months until paid off.
I am gonna go all Dave Ramsey on you here….tough love time.
Sorry J Money there are other Financial mentors in my life…LOL,
So much of what you said Johnny is a tough and has a lot to do with your own choices.
– That Mercedes has got to go and not come back, even in another form (Lexus, Tesla, you name it). That is way too much car considering your other factors. $718 AND leasing! Leasing is the biggest win……for the dealerships.
– That Credit Card Bill has got to go.
– That’s a lot of mortgage……
The key here will be behavioral change, otherwise the cycle will continue. It is tough to dig out of a hole that is constantly filling back in with sand
I think this is what he should do:
1. Come clean to your wife. She’ll probably be mad (and disappointed), but you owe it to her. Don’t make excuses, yes you panicked at the time, no it wasn’t malicious, but let her come to that conclusion on her own.
2. Pause the emergency saving. I don’t think you said if your goal is 3 or 6 months, but 8k is already a good cushion. In addition to what you’re paying now, take the $1100 you’re putting to the emergency fund each month and put it to the credit card. Put the lease payment towards it too when that ends and you’ll have the CC debt paid off in less than a year. If you can’t bear the thought of putting nothing towards the fund, split the contribution at least.
3. Consider opening a 0% balance transfer card and moving as much of your credit debt to it as you can. There are cards out there with no fee promo transfers, look for those so you’re not adding to your debt. Paying 0% interest on a portion (or all even) of that 13k will save you a lot of money in the long run. The big caveat: Look deep inside and ask yourself if you can be trusted with a new CC. If you think there’s a chance that you’ll open the card, get excited, and start racking up more debt, don’t do it, just eat the interest.
What do 2 and 3 have in common? They both require you to do 1. Your wife will notice the funds going different places in your joint accounts and while you could open a new card behind her back, do you really want to continue down that road? Not to mention you’ll probably get caught eventually anyway. It’s always better to confess and apologize than get found out and apologize.
Hey man. I echo what the others said about lying to your wife. I fact, I may take it a step further. You and you wife should e a financial team. Even if you don’t want joint accounts, you can set up a Mint account with both of your information on it. If one of you is spending while the other is saving, your not getting anywhere. Be an open book with each other.
Your 20% debt is an emergency. IMO that’s what the emergency fund is for. I’m with you on getting the match first. Then I’d apply the rest of the savings to the cc debt. Finally, I’d take a good look at that budget to see what else you can cut. Can you turn the car in early? Share a car with your wife for a while would save you big. Find ways to save and get rid of that cc debt. Then start building up the emergency fund.
Can you get a debt consolidation loan? Discover Card constantly sends me offers to borrow up to $25,000 @ 6-7% interest. They give various options for repayment. The faster you pay it off, the lower the interest rate. If you bought a home last year, I assume you have a decent credit score to qualify for a loan like this. I’d skip anymore contributions to the Emergency Fund, get rid of the crazy leased car payment & that will free up a lot more $$ to pay down this debt. But I’d continue the full 401K contributions as it’s free $$ with the company match. It’s too good to pass up. Too many of us don’t work for a company that offers this so take advantage of it.
Wow I’m also surprised the wife doesn’t know. Maybe she’s not interested in finance and investment.
I agree we should just kill loans with high interests first. They suck money out of our souls. >.<
How could she know? He fessed up to $3k of CC debt, so that explains the payment he’s making toward that each month. She just doesn’t know that he’s not close to paying it off yet because HE LIED TO HER.
Sorry — it’s just super annoying to see someone admit their deceit and somehow the wife is blamed for not being interested in finance.
$718 per month for a Mercedes lease…. I just don’t have words for that. Wow. I just can’t imagine…
Hopefully it’s a sweet ride at least! I love my Lexus – not gonna lie ;)
100% agree J$ – 20% is an EMERGENCY ALREADY
I would also recommend gett a 0% interest balance transfer credit card – there are some with no balance transfer fees and the 0% rate goes for 15 months. as long as you have cut your spending and trust yourself this seems like a good plan
I was just going to suggest a balance transfer of all or some of the amount to a 0% interest card, if he can get it, so he can at least make headway on the principal on his credit card. Still attack the credit card debt though, after contributing to 401K match.
If he tells his wife and she understands, she could possibly be the one concentrating on the emergency funds while he attacks the debt (unless she also has debt). Since it is only going to be used in an emergency, they can still keep their accounts separate while this work is in progress.
To “Johnny,”
I have to echo what Debbie says: Debt consolidation. Back when I carried credit card debt, I was always getting those deals that credit card companies offer: zero percent for 6 months, a year, whatever. Even if it’s closer to the 6 percent that Debbie mentioned, anything is better than 20 percent.
I also echo what others have said: Fess up to your wife. And in the event that, after she kills you, she offers to cosign on the credit in order to get a better interest rate, do not do it. We women love a man who takes responsibility for his own messes (offering an upside to the fessing up part). As for the baby, the timing may not be great, but if people waited till they could afford children to actually have children, Earth would be a very lonely planet. Let your wife take the lead in that decision, since she can do nothing about the $18K debt.
Completely agree with everyone else about coming clean to your wife. It will come out eventually, and it will hurt so much more if you keep it from her longer.
Also agree that the 20% interest makes this an emergency and that you guys should decide together what you want to do. It sounds like you manage your finances separately. Another upside to telling her is she may have even more money that could be used to knock the card out quickly.
I’d get rid of your car immediately because that payment is insane. Then, I’d take the emergency fund down to $3k-5k for now, which sounds like it would be about a month’s worth of expenses. Keeping such a large emergency fund when you have debt at such a high interest rate is essentially borrowing $13k at 20% interest to have it sit in a bank to make 1% interest. No bueno. I’d also stop your retirement contributions temporarily while you pay this off.
Then, I’d use all your extra money to attack your debt as fast as possible. Once it’s gone the extra can be redirected to build up your emergency fund and you can restart retirement savings.
Good luck!
I would also try calling the cc company and see if they would work with you on lowering the interest rate.
Good idea – totally missed that and it’s a super fast (and easy) first course of action! Even if they just drop it a few % points it’ll save tons over time. (And if they say no it only wasted 3 mins of your time! But also make sure to ask for a manager too if you get a “no” at first – that ups the success rate.)
My bestie’s husband did something like this and she nearly divorced him when she found out at 12 weeks pregnant. Like its been about 20 months now and she only recently started trusting him again. And she wasn’t extremely pissed because of his $11,000 of car debt and $19,000 of credit card debt…it was because he lied and didn’t even tell her until she got pregnant (his idea based on his age timeline… he was 37 at the time) and had to admit that they couldn’t afford for her to be a stay at home mom the following year like she had told him she truly wanted if she was going to get pregnant at age 30-31 instead of 33-34.
Seriously, be honest with your spouse. Step 1. More important than everything else unless you want to be single again. We’ve all been embarrassed and tried to back pedal on something in life, but every day you put off telling her is an extra day she is going to hold against you subconsciously.
Then yeah…20% interest debt is an emergency. So is a car lease payment that adds up to what my husband and I pay per month for two super low interest car payments (a 2013 Honda Fit at 0.9% and a 2017 Toyota Prius at 0%). Dump the lease, use a huge chunk of the emergency fund, and get rid of that high interest debt ASAP.
Good luck. Tell your wife today.
Ouch :(
I agree that this is a major trust violation in the relationship and it will most likely take time for his wife to trust him again. Johnny should be prepared to be a 100% open book financially with his wife for quite a while. Driving a beater car will also be an atonement and show that he has changed.
Johnny – if you reverse the roles, what would you want your wife to do/share?
Shame is a really powerful and uncomfortable emotion. Shame combined with probably a worry of being judged by your wife is what led you to lie. It makes me wonder if you feel fully secure and accepted in the relationship. If not, that’s another topic to ponder.
Kudos to you for not being in denial and seeking J’s advice. Sending you and your wife a big hug while you work through a major challenge. The good news is that your relationship will be stronger once you have worked your way through all of this.
I agree with the person who said “show her this post”. It would be the best way to show ALL the thoughts and actions you’ve had regarding this.
And the reality is, if you are going to switch your extra income from emergency savings to CC debt, you MUST tell her. You can’t just suddenly have $600 vanish into thin air without her wondering where it’s going.
Once you stop paying for the Mercedes lease, you’ll still have to have a car. So make sure you make a wise decision about the next vehicle…I’m guessing it’ll be another lease since you don’t talk about a down payment for a replacement.
(and as a complete aside….I continually forget people do things like lease $700 luxury cars. I just presume people have way more money then me when I see them driving cars like that. Not so.)
I like that idea of showing her this post!! But first admitting to it one-on-one and *then* sharing it or else she’ll be doubly pissed if she finds out here – hah. What I do like about this idea though is that it also shows he’s serious about fixing this mess and even went as far as reaching out to a person and asking for help!
100%.
I think the post shows all the emotion he has about it. Regret for lying, past changes, concern, future ideas. Unless she doesn’t know about the big lease payment, lol. j/k
If his wife hasn’t been involved in getting into the debt, the least he could do is have her weigh in on which solution. It would be totally understandable for her to continue to contribute to the E-fund and him divert all his to his debt. There’s a middle ground that doesn’t include all or none to the choices…and she should get to chime in.
I honestly believe you coming clean to your wife is the best move of all. One thing that is true is that if you love someone and they’re also human they’re going to somehow hurt you or disappoint you at some time. Can’t imagine the stress of carrying this burden around, be done with this. Your wife’s eventual grace will allow you both to heal.
The $$$
I felt my blood pressure rise at mention of the Mercedes “fleece” payment. Good riddance!
I would still continue to do the 6% match.
As far as the Emergency fund I would say your wife’s $500 A month contribution continues.
Your $600 a month contribution to “Emergency” fund be directed to the “quite present 20% Interest Emergency “. You made this mess, now you clean it up! Sell something, or alot of somethings. Get a side hustle and yes I would look at balance transfers. I’m concerned with how many cards are in your nightstand. Last but not least fix your remaining 10% of poor spending habits.
You’ll be stronger on the other side of this, hang in there.
Stand in YOUR truth….you need to sit down with your wife and do a flow chart like Account 101 of where your money comes in and where your money goes out. First point….show all balances with the correct amount! You are playing with fire here with your “financial affair”! No relationship can grow if it is based on lies.
First time commenting on this site.
Dear Johnny,
Step One. Man up and talk to your wife. Now. Tell her she looks beautiful, tell her you love her, then tell her the truth. Stop reading now and talk to her.
Step Two. I said, stop reading. Return to Step One.
Step Three. After you wipe the blood off of your lip, and pick yourself off of the floor, tell her you love her even more.
Step Four. You have enough in your emergency fund now. Stop it and move on to the next step.
Step Five. Only invest in your 401k UP TO THE POINT where the company match ends. Do not invest a penny more w/out being matched.
Step Six. Immediately put what you WOULD have saved in your emergency fund towards debt reduction. If Step Five resulted in lowering your 401k amount, put THIS amount towards debut reduction, too. Pay off the lowest balance first, then move on to the next lowest balance. THEN CLOSE THESE ACCOUNTS AS YOU PAY THEM OFF.
Step Seven. Johnny m’ boy, get rid of that Mercedes. Four year accountant? Who the hell do you think you are? A mature man will act in financially mature ways. A SEVEN HUNDRED DOLLAR CAR PAYMENT IS NOT ACTING MATURE. We’re been driving Kia’s around since my boys entered Catholic high school. After they graduated high school, they moved on to college. My youngest has only two years left. My Toyota Tundra is 13 years old. You have to ask yourself — do I love my wife/family more than a status symbol, or vice versa.
Step Eight. Tell her you love her AGAIN, that you will grow up, and act like the mature adult that you were meant to be.
Step Nine. Re-evaluate all of the other things that you were too embarrassed to write about, and be the man you were meant to be.
It’s tough love, Johnny-Boy, but once you take control of your life, and let the status symbols go by the wayside, you’ll find that your marriage is the best thing going, and just think of the retirement savings balances once all of this unnecessary debut is paid off. You’ll be happy because SHE’LL be happy.
Good luck. And oh yeah — GO TALK TO YOUR WIFE!
I love this! Especially Step Nine.
Actually, the ‘fessing up and coming clean part is the trump card. I would suggest doing that in the presence of a disinterested third party who has relationship counseling skill and is agreeable to both of you. In the course of that conversation, the math part can be laid out as the financial solution. This is a great opportunity to clear the relationship, which itself is a potentially huge financial risk. My wife always said “therapy is cheaper than divorce.” She was right. Personal finance is more personal than financial. Numbers don’t lie, people do.
Why not transfer the 13k to a no interest credit card for 12-18 months and take the looming horrid 20% off over your head and really commit to paying that down? If you are contributing $1.1k a month you could easily pay that down within the time frame of 12-18 months. Add in the $781 a month and it’ll go faster.
Other thought, do the cc transfer to the 0% interest card, pay the minimum payment on that card and sock the money away in a high yield savings account until it’s due in full and pay it off before the interest hits. This way you’ll make money on the interest of the savings and stop the clock on interest.
I did this with my 10.75% student loan and it’ll be due December this year. I put the money in synchrony and have the funds to pay it off but won’t until it’s due so I can gain some interest.
I echo what everyone else said, but have this to add.
If you can’t open another CC with a 0% transfer offer, consider looking into MMI. It is a .org and they go through your entire money relationship, make suggestions on what you can change. If you decide to work with them, they negotiate your rate down with your CC companies, but NOT what you owe, and they put you on a payment plan. My now-ex-husband and I paid off ~$32k in 4 years. My coworker and her husband paid down $96k in 4 years.
In the vast majority of cases, your credit score is not affected with MMI because you are paying what you owe. My score was not. My ex’s credit report had a note on it that said something about the program we were in, I can’t remember what it said exactly, but his score didn’t go down. I know many people have a lot of warnings and negative things to say about companies like this, and I get it, but it was the right move for us at the time. Not all these kinds of companies are created the same. My experience with MMI was positive.
Thanks for the tip, Jody – you guys killed an amazing amount in only 4 years!
It is great that there are so many readers willing to share their stories and ask for advice. Even better is that there is so much actual great advice here. It would have been better to tell your wife about your debt before you were married, but many marriages have far worse secrets than owing more than your original admission. You definitely need to tell your wife. Explain to her that you were embarrassed and did not want her to think bad of you or reject you because of the debt, but that you are devoted to her and to paying it off as quickly as possible.
Provided that you are both gainfully employed with no possible chance of losing your jobs, you have plenty in your current emergency fund. With the exception of losing your job, I cannot think of anything that would cost $5,000 to cover. A new heating and air conditioner could cost $3,000, but is yours likely to go out? You will need some cash to buy a used car when your lease is due, but you could take part of that emergency fund and pay cash for a reliable car and still have plenty saved for the eventual rainy day.
My advice is to continue investing in your 401k with enough to get the company match and any extra should go toward paying off the credit card debt. You should be able to knock it out in no time once your lease is up, you are driving a more reasonable and conservative car, and everything is going toward debt. Keep thinking about how happy you both will be when you no longer have any credit card debt and that should keep you going.
One more thing you can do is create a Net Worth spreadsheet. Use Google Sheets if you do not have Excel. List out all your assets and liabilities and track it on a monthly basis. Explain to your wife that you want to spend the rest of your life with her and that you want to plan for the future and grow your net worth together. We found it incredibly empowering to see the debt go down and the cash, investments, and equity in our home go up! Besides, this gives you an open forum to discuss future financial planning with your wife where everything is out in the open and you can both decide your future together. I have a feeling that you will do just fine. Once you have the credit card debt send an email out to J$ and let him know how you are doing so he can share your follow-up story with us.
+1 on the tracking of net worth – one of the best things I ever did for our money!!
Damn, that’s a tough situation you put yourself into. I’m with everyone here. Come clean to your wife. You’re a team and you need to face the problem together. You’d better do this before having a baby. Try to get lower interest if you can.
Good luck…
Once upon a time I bought a new car. I remember to this day what I paid: $11,622 advertised, $13,106 after taxes and title and extended warranty and everything. Five year loan at $242/month. MSRP was $14,849 so I felt like a daggum thief. Leather seats, stickshift, fog lights, alloys, factory-installed Kenwood CD/MP3 player… that thing was the jam!
Fourteen years later it’s dinged up, the driver’s seat upholstery is shameful, the stereo has failed and been replaced twice over, I’ve dropped collision/comprehensive coverage, and just yesterday it got a new battery… but the cost of ownership (less insurance and gasoline) has averaged well below $2k a year.
$718 for a leased Mercedes strikes me as pure 21st century consumer madness. :(
PIC PLEASE!!! :)
While my car purchase was a bit more expensive ($33k purchase price, ~$36k with all of the charges; 6% APR or something, but paid off in under 1.5 years), it’s been just over 10 years now and my beautiful front leather seats are torn up and I don’t have the desire or money to get them all fixed up nice. I really should get some seat covers at some point. No other major dings on it thankfully, but not too worried at this point. I’ll be driving her around for the long haul.
Pretty good you got paid off so quickly tough! I rocked ripped leather seats for a handful of years myself… Was a sad day when I had to give ‘er up.
Emotional and mathematical – I would get rid of the high interest (20%). You’ll feel better.
I wouldn’t tell your wife right away. Tell her when you’re already fighting about something else – because she will already be pissed off and you might as well spill then. If you tell her when she’s happy you’ll ruin her day.
And tell her right AFTER sex, because you probably won’t be getting any for awhile. By the time you guys are ready to *bump uglies* again she she should be over it.
Or not – good luck
B
You are too much, haha…
Whoa!
First I think we should all give him kudos for coming clean. Now we all know he has to do this with his wife but I’m not going to harp on that.
J is right, the 20% has to go. It’s like someone tied a cement shoe on your leg and gave you a push in the lake. I agree with some of the posters that said try and find a CC that has 0% interest for an extended time and move the debt to that one. Usually there is about a 3% charge.
I don’t know what your credit score is though and if it’s not good you might try this: Borrow against your 401k if you can. Now I know lots of people don’t like that but the interest that you pay would be less than what you’re paying and you’re paying it back into your own account. The problem here is that most would not be disciplined to do so. If you default you then have to pay the 20% early penalty withdrawal and tax on the distribution. Being an accountant I’d think you could keep track of that.
I’m guessing you can’t get out of the lease without a hefty penalty. Downsize with a used car. Start planning for that in three months time. I live in a city in southern CA where it seems every fifth person is driving a Tesla X (the $100k+ model). As I drive my almost 18 year old Lexus I wonder what their payments are.
The two of you have enough income to support the mortgage payments. Not sure where you live but if it’s anywhere like where I am that’s really not bad. When I got my place my payments were in the $1,900’s. Refi’d to low $1800’s a month after a divorce. Paid off over a $400k loan in 7 years. This after paying out over $100k for a divorce. How?
Start analyzing all your spending. Do a spreadsheet. You’d be surprised what is wasteful. Then put it all towards your debt.
I’m debt free and reached FIRE several years ago when I turned 51.
Good luck.
Congrats, Professor!
And yes – Johnny def. deserves some credit for at least coming clean to US here and being open about things, it’s the right step forward!
Hey Johnny,
We all make mistakes, but rarely get the chance to fix them. That being said, the first thing you should do is talk to your wife. When you consider the alternatives, telling her now is truly the best option. Also, understand that your wife most likely will not instantly forgive you for deceiving her. You may have to earn back that trust and respect. Be prepared for that.
From there, read through the comments section of this post WITH HER and pick out the pieces of advice that seem to work best for your situation. You’re going to have to be willing to be uncomfortable (i.e. not get offended at the tone of some of these posts), but it’ll help. Make a financial plan WITH HER and stick with it. No more surprises!
Good luck, and don’t let this mistake define your financial relationship with your wife. Repair it and move forward together!
Hey Johnny, Just send her link to this blog once she reads it, fess up.
Thanks for your openness, I know it can’t have been easy. As you mention, finances are a hugely impacted by emotions, and opennes and transparency are key to good financial health. When you tell your wife, offering to merge accounts and give her your login information would be a great way to keep yourself accountable for 1) repaying the debt and 2) keeping yourself from slipping back into bad spending habits and 3) keeping her in the loop on your finances. This also could also be a great way to demonstrate you’re making a good faith effort to regain her trust.
Please tell your wife soon and certainly before you start trying for kids. That’s a big decision and it’s not fair to her to have to make it on false information.
It isn’t easy to admit you’re wrong, even to internet strangers, but don’t stop there. It takes a lot of humility and courage to admit to a spouse you’ve screwed up, but it’s a real character-builder and marriage-strengthener.
Thanks for being so positive and encouraging, Elise :) And yes – great idea on the sharing of login info! Hard to do at first for sure, but I agree it’ll def. keep everyone open and honest – even if the other person never logs in.
Dear Johnny,
This is my first time I’ve ever commented, but your honesty intrigued me
FIRST: CONGRATS ON WHAT YOU’VE ALREADY DONE ON YOUR DEBT!!! That’s AWESOME. Shame is a HORRIFIC destroyer of, well, everything.
Now, I’m a female and I can tell you, OWN UP!!! You get everything together to show her. You can use a program or just a spreadsheet. Plan on sitting down monthly do assess your budget and debt pay off and work towards your future together and investments and family planning….TOGETHER!
Owning up: do this on a Friday or so- do NOT do this the night before some big meeting or presentation she has! You plan a quite night in. You tell her you need to talk. You sit down at your table, you take her hand, look in her eyes and tell her you LOVE HER but you must tell her something very important and lay it out. First you just dump the big stuff in a few sentences. Then you let her respond and yell- whatever- and you tell her what headway you’ve made so far and what options there are and that you want to discuss them with HER. Apologize, apologize, apologize. (Don’t do this before eating- being hangry won’t help the situation). The first thing she will think is you’ve sexually cheated on her and your real confession MAY be slightly offset by this. But she will (probably) see the pain, shame, and hurt in your eyes and face if you’re honest and look her directly in the eyes. You lay it ALL on the line! If you have ANYTHING ELSE you have not told her, you do that NOW (if you’re frequenting strip clubs still- any discussion there will be up to you. But every $5 you put down a girls thong she’s going to see as coming STRAIGHT out of your future children’s mouth- that’s the reality of it). She will still feel betrayed (because she was), but you opening up and feeling you can talk to her about this will start you on a HUGE path toward being a very strong team.
You be VERY honest about it all. You tell her why you did not tell her to begin with, where you’re at in the plan, and ask her what HER view/input is on this. Say you realize she may need some time, but that you love her and want to be completely honest.
If she knows you have that Mercedes lease she probably won’t be completely surprised- she still married you- she possibly has some debt herself YOU may not know about if you have separate accounts. I’m also thinking her parent’s helped cosign the mortgage for you…so careful how you word things- your debt:income ratio doesn’t completely add up for your loan.
Make sure you use the WE, TEAM, TOGETHER language- you seem to be honest there. BUT- make sure she knows you’re a team- if you really are.
Babies will happen, and I’d be careful about asking her to wait (you will never be ready). Let her make the major decision there- at least that’s what I would say. Lying is a HUGE deal, but this can be the first major hurdle you two jump through TOGETHER. Don’t delay kids due to debt if you’ve not been honest and she has a timeline in mind. That’s a quick way to destroy a marriage.
In everything else, I would mirror what others say:
STOP SAVING, in fact, I’d call the CC company NOW and ask to speak to surpervisor about working on a payment plan. Then you keep $5000, and take the rest, pay a lump sum, then keep contributing to the “emergency money”. You can ALWAYS use the credit card again in an emergency (EMERGENCY ONLY!!!). Start looking around the house on things you do not use. Start selling on CL extra chair’s in your garage that you’re not “sure where to put”, that ninja juicer you got as a wedding gift that’s been sitting there after two initial uses- Ebay that! Call your internet provider, ask them to honor the new deal package for new customers, cut out cable, pack lunches, grown some damn tomatoes and radishes for food, whatever. But you just hustle. You’ll get there!!!
Do keep paying into retirement UP TO ONLY the exact amount your company matches.
And REALLY start thinking about your next PURCHASED used car. Have that as part of the plan. One of the general surgeons I trained with was always made fun of for the minivan he drives (he has no kids). Well, he turns 40 this year and is retiring December 31st. Guess he’s having the last laugh. And his advice to people who now ask him financial advice? ALWAYS BE HONEST WITH YOUR WIFE!!! And save, save, save while investing, investing, investing intelligently.
ONE LAST THING: I can GUARANTEE you won’t be having sex ANYTIME soon if you tell her right AFTER you have sex- even if you are trying to become pregnant. That’s a not-respectful Trump/Weinstein 60 yo M talking- your wife is not just a vagina. You tell her THIS WEEK, piling it on after a horrible day will NOT help you!!! “B” is thinking of himself (the male) in all his advice, NOT of your wife.
You’ll do great! Good luck and know that we are sending you hugs! You have the makings of a GREAT husband and father- but honesty has to be the foundation.
And you won’t BELIEVE the sex you will be having when you and your wife are both more comfortable having dealt with this, you being honest, and working TOGETHER towards your future and your family. There is NOTHING more sexually stimulating to a female than feeling loved, cared for, attractive, supported, and RESPECTED.
Thanks for the positive, insightful, comment Paulina! I’m glad you came out of hiding to share! :)
It sounds like Johnny has changed for the better in a big way, and that’s great. Quitting those money sink habits is a major good. More important than anything now is for you to be honest with your wife. You’re about to try starting a family. This is a pivotal time, and it’s worthy of a new beginning of complete accountability in your relationship. Certainly your wife deserves to know the full story from her husband and the man who will be father to her children.
As for the emergency fund vs. credit card pay-off, a very popular debt reduction strategy (Dave Ramsey’s) is to start with a mini emergency fund of about $1,000. Once all debt besides the mortgage is paid off, that’s the time to build the big emergency fund. Also, it would be a really smart move not to lease a high-end car. All the best to you, Johnny. You’re not the first person to be caught by debt – and you’re not the first to feel ashamed of it either. You’re taking ownership of your mistakes and making big changes already. A few more steps and it will be a transformation – of way more than just money.
I don’t know if anyone watches Dave Ramsey Youtube videos, but he also says stop all 401K contributions to first have an emergency fund, and second to pay off debt. It is a temporary thing, once you pay your debt off, you can go back to setting aside 401K. Also your money will not be flying out the window at the rate of 20% on debt payment, just to get a 6% match. So although stopping 401K may seem like a no no, but once it comes down to being interest payment poor vs having a 401K, you need to get that interest payment out of your life and set up an emergency fund. Then go back to having a 401K once the credit card company is out of your life. This way your rate of savings will go through the roof.
That car got to go too and NOT be replaced with anything remotely as expensive. Not even a van just because you will have a child. When I see expensive cars pull up to the red light next to me, I only see a huge car payment written on the hood. Very few people can own luxury cars bumper to bumper outright. The funny part is that people who can afford luxury cars outright, usually don’t buy them as they know better. I assume luxury car owners probably look at me in my dinky little Nissan Versa and possibly feel superior for the few moments that the red light lasts, while leaving me behind in their dust as the light turns green. I paid cash, 11K, for my little Nissan (went to work with it as a doctor, parking in the space next to one of the front office employees who drove a Lexus and spent many lunch hours on the phone negotiating credit card rates and balance transfers with the credit card companies). I retired financially independent at 39 years old. No part of my life shows my financial facts. Not my home, not my car, not how I dress. I can certainly afford 11K cash on a pile of metal that I will drive for many years to come. Not saying everyone has to buy a brand new car or an 11K car. Just my choice based on my needs and habits and finances. I drove my last car for 19 years and then donated it and got a $700 tax credit for it too (I had purchased that car for 9K in cash brand new and it just didn’t start one morning 19 years later). The Nissan will have a similar future. So that goes to say what my mentality is on cars: money draining, ego boosting engines on wheels. Just a pile of metal that we have assigned value to. The value of things is all in our minds. As Dave Ramsey says, “We buy things we don’t need, with money with don’t have, to impress people we don’t like”, and if I may add to this: to then have to cover up the debt from people that we do like and possibly love.
About not telling the truth to your wife, I would try telling her soon, possibly before you try having kids this summer as you had mentioned. It is not so easy to tell a pregnant lady that she was not told the truth previously, once her baby bump starts showing. Emotions might be all over the place and I feel it is simply not fair to her to go through such news while carrying your child.
On the up side, I really think you can dig yourself out of this fairly quickly. You guys have good incomes, and bad habits of spending are gone as you had mentioned. Cut the 401K for a little while, dump the money drain on wheels, and make that debt paying shovel a bit larger with bigger monthly payments and then close the door on lenders and be done. Best of luck to you.
Johnny, my man, let’s get to the positives first. It’s great that you have recognized that you need to pay down your credit card debt and changing your lifestyle to be more frugal really helps even more in better managing your finances.
Alright, let’s get down to it. First talk to your wife about this credit card debt both of you are in. It may be hard to do but it’s better to let her know than for her to not know at all. There maybe some hard feelings when/if you two discuss it but she may help you out pay it down.
Second, see if you can transfer that credit card balance to a no-interest credit card so you don’t have to worry about paying the enormous interest on top of the principle amount you currently have.
Third, after you transferred your CC balance to a no-interest one, pay it down as much as you can while contributing to your 401K and lower your emergency fund contribution for now so that money can go towards your CC payment. Or keep the plan you have now with your CC, 401K and emergency fund contributions but find a high interest savings account for your emergency fund so can get some interest on that fund and thus use it pay your CC.
All the best Johnny!
We need a follow up on this story! Did he fess up? What did they decide to do?
it’s only a day old! haha…
but yes – I’ll do an update as soon as I have one :)
First, he should refinance his credit card debt to a lower rate. Lots of options out there. Don’t forget to check with your local credit union. That is the first emergency – stop bleeding money. Close behind is coming clean and begging forgiveness.
I was going to say, first, Johnny should refinance his credit card debt to a lower rate. Lots of options out there. Don’t forget to check with your local credit union. That seemed to me to be the first emergency – stop bleeding money and then tell your wife. But having read the previous comments, I agree that Johnny should not delay any longer than absolutely necessary in telling his wife. The fact that he wants to refinance to reduce the interest rate should be part of the discussion they have about what to do about the problem AFTER he begs for forgiveness.
1. Tell your wife
2. Keep the 401k contributions for the match – that’s free money, don’t give that and compound interest up.
3. Refinance that CC debt if at all possible. If no 0% interest CCs are available for balance transfer, then maybe SoFi for a personal loan which has interest around 6% or so. Still expensive but better than this rate!
1. Come clean with your wife. She is going to be mad but having already made changes will shorten the time she is mad (probably).
2. Keep the 401k.
3. Don’t take from the emergency fund but pause it and use that $1,500 a month all on credit card. Plus money from lease payment when that’s over.
4. Continue emergency fund after cc debt is gone.
5. Never lease a car again! Seriously, why are people still doing this?
Your advice #1 isn’t what he asked but is the best advice. If he holds out and she finds out on her own, that’s more potential trouble than the 20% cards! You handled that much more gently than I might have.
The rest of your advice is sound. He didn’t really say how many cards (unless I missed it) and the interest rate.
Maybe he knows about the 2 popular debt reductions strategies (snowball vs. avalanche) maybe he doesn’t. Either way, I totally agree with getting rid of that nasty card debt. That’s both mathematically and emotionally sound.
Coming clean with your spouse though is the most emotionally sound thing he can do.
Well done, J., as always.
Fred
*Tips hat*
I agree with everyone else. Tell your wife. $13K in the grand scheme of things is really not that much. But the desire to change and take hold of your finances is HUGE! Focus on that. apologize for lying but also show her the path that you’ve taken so far and what you’ve already accomplished.
This is your go big or go home moment. It’s time to quit spreading yourself so thin. I would divert 100% to that credit card until it’s completely gone. That 3% company match is making you $2,400. The $13K in credit cards is costing you $2,600 in interest. Find a way to pay off that credit card in ONE YEAR and you’ve just saved yourself $200. Find that laser focus and GET IT DONE. After the card is 100% paid off, focus on killing your lease. There may be options to end it early. If not, ride it out until the end and find yourself a cheap $3,000 car with low miles. Then you can go back to your other plans that you had, probably with about twice the expendable income! They’re great plans but they have distracted you from killing that credit card.
Great advice! It’s important to be on top of those finances, and coming clean about the whole thing is a good first step. And every little bit you put toward that debt helps!
Hey everyone,
An update on our situation:
He came clean to me tonight, followed by showing me this post. I read through it, and I read through all of your comments. Thank you for the positive feedback and advice. Many of you share my thoughts/have similar ideas of how to take care of this situation. It is comforting to see these thoughts because I am a bit ignorant when it comes to financial things (I’m an elementary teacher). I know the basics, and I’m pretty good with my money but don’t know much about tracking and keeping solid financial records like some of you were mentioning. Luckily I have no debt of my own, so we will be able to just focus on solving the situation at hand.
My husband has made significant lifestyle changes, and now it makes sense as to why he was so insistent about it. I know that he and I will come out of this situation stronger and DEBT FREE.
Thanks again for all of your advice and encouragement. Sometimes it just takes enough people saying it to give you the courage to make the jump.
Sincerely,
The Wife (:
Heyyy you!!!! I’m so glad to see this!! He told you! YES!!!! And you seem so supportive and encouraging about it all – so beautiful :) Really wishing the best for both of you over the years and I hope you’ll keep us updated. Thank you so very much for popping in and sharing with us!
@Johnny’s Wife – Thank you for sharing your update and beginning of your journey together. We all wish you the very best and this story has helped me look at the ways that I can be more transparent and trusting on my relationships (money or otherwise).
Hi Johnny’s Wife :)
I just wanted to let you know that I have been through something very similar recently with my husband – and I wish I’d had access to something as amazingly positive as this (and your incredible response!) when I was looking at how to deal with it.
All I found online about financial infidelity was from professionals/counsellors and nothing from REAL people going through it – it was really disheartening. After it all calmed down I actually sat and wrote a blog post about my experience as a way to “get it all out” and to hopefully help any others out there struggling with the same thing.
You guys are in a fantastic position, generally speaking, to move forward quickly and relatively painlessly, especially if you’re taking some of the great advice from the awesome peeps commenting here. You don’t have children yet, you both earn great money, you have good savings, and now you are both on the same page.
What’s more – your husband actually wants to change and has taken care of the biggest issue by himself, his spending habits. (Johnny, did you really spend a bunch of cash on strip-clubs?!?!?! Shame on you, with such an amazing woman at home!)
If you want to, you can find my post here: https://www.coloursofyourtruth.com/single-post/When-Times-Get-Tough-Hold-On-Tight
(Hope it’s ok to link here, J$?)
What’s most inspiring to me is that MY HUSBAND emailed me J’s latest email all about your situation, and suggested I pop in here and share! So I’m pretty stoked about that. We are lucky to have such great men by our sides. Not perfect, but pretty darn amazing. And ultimately, they do stupid things like lying to us because they just want to protect us and make us happy, right? They can’t help it they don’t have the superior mental abilities us women do ;p
Bless you both on your journey together, and remember to have fun along the way too!
Lots of love to you both,
Tam x x
Love hearing this, Tam – thanks so much for popping in!