“Can anything be cut?”
Are there any expenses that can be slashed? Do you have a car that you don’t need that carries a payment that’s killing you? Are you paying for something that may have a lot of value for you, but your lender will find questionable? The most common things we see in this category are motorcycles, second homes, time shares, boats and motor homes.
Are you paying something on someone else’s behalf? If you’re carrying someone else’s car payment because they can’t afford it, if you’re making someone else’s house payment (believe it or not, we see this a lot), if you’re paying for your kids’ college tuition, room and board, books, registration fees, lab fees, and beer money, they’re going to have to start pulling more of their own weight. In fact, this may be a great time to apply for financial aid, because your numbers aren’t very good right now.
The other thing that doesn’t help is a gigantic car payment (or two). Lenders really don’t like to see car payments that are half the monthly mortgage amount or more (we see this a LOT). It’s hard for a lender to generate a lot of sympathy for a borrower who has a $980 monthly house payment and a $600 car loan. Americans are positively silly when it comes to the cost of their cars. Let’s just say you have a car payment of $400/month, and your auto insurance is $600 every six months. It costs you $50 to fill the tank, and you have to do that once a week, 50 weeks a year. You change the oil every 4,000 miles, and you half the upkeep that you’re supposed to. You earn the U.S. median income (around $48,000). YOU ARE SPENDING A QUARTER OF YOUR TAKE-HOME INCOME JUST TO OWN AND DRIVE THIS CAR. Is it worth it?
Bottom line, if your car is costing you a significant portion of your income, now would be a good time to look at trading it in, selling it, doing something about this problem.
Scroll down the list of expenses. Can you cut back on the number of miles you’re driving? Can you shop for a cheaper auto insurance policy? Are there changes you can make to your grocery expenses? Is it possible that you don’t need local/long distance and a cell phone? Can the cable bill be cut back?
The truth is, most people are able to cut back on some of their expenses, but if you’ve had a legitimate hardship, you’ve probably already done this. You’ve probably eliminated everything but the necessities. You can only cut so far, and the fact is, it’s really tough to trim the cost of living expenses.
So, the next thing to consider is,