Sometimes it doesn't matter how much you work. Your money just doesn't keep up with expenses. That's the boat that Cindi Rella (yes, it's her real name), a single mother of two, was in when shee-mailed me recently.
I'll say. Four jobs and two sons to care for? Cindi needed help. So I connected her with financial planner Joe Pitzl. Tara McCarthy, executive director of Financial Rehabilitation Inc., also helped. The Minneapolis-based nonprofit specializes in helping people negotiate with creditors and manage their bills.
Cindi, 36, works as a business analyst, a pull-tab auditor, a consultant, and soda and candy peddler at her son's hockey games. This, plus child support, brings her pretax income to about $80,000.
Problem is, her expenses are high. She stretched to buy a house in the suburbs and pays $2,000 per month for her first and second mortgages. She also has about $12,000 in credit-card debt, an $8,000 personal loan, and a loan for a camper she describes as "an impulse decision that was bad."
She says most of her debt comes from "the darn unforeseens" -- higher-than-expected heating bills, a truck repair, a trip to the vet for Rex the dog. As for the camper, she's trying to sell it. Once she pays the bills, there's never more than $200 left over for groceries, entertainment or household items.
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"It would really be nice to hit 40 and be credit-card-debt-free and have a savings account and be able to do some of the stuff I want to," Cindi said.
* Get organized. The first thing Joe did was ask Cindi to gather all of her financial information. He says it's common for clients to forget about insurance policies "or the information they have registered in their mind is outdated now."
Digging through the files paid off. Cindi found an IRA worth about $4,000 that she hopes to roll over into her workplace retirement plan. But the jackpot was a couple of life insurance policies she knew nothing about. Turns out Cindi was overinsured, with about $800,000 in insurance to support her 16- and 10-year-old sons in the event that something happened to her.
* Less insurance, more cushion. Cindi wants life insurance to cover her sons' college and give them a head start. So Pitzl suggested Cindi cancel the $175,000 term insurance policy and surrender the whole life insurance policy, since "$250,000 per kid is more than enough." However, Pitzl advised her to ask her insurance agent about tax implications before canceling the whole-life policy.
That policy has a surrender value of nearly $3,000, perfect seed money to start an emergency savings account. The $75 she was paying monthly to the insurance company also should be redirected to the emergency account as well. "Make sure you can cover three months of expenses," Pitzl said.
* Concentrate on debt. Cindi is saving by putting 3 percent of her salary into her 401(k) -- enough for her to receive her employer's matching money. Though Pitzl would like to see her increase that amount later, he told her to concentrate on the debt first. "Keep in mind that paying down debt is a form of saving," he said.
* Negotiate with creditors. Until Cindi met with McCarthy, "I was trying to pay too much out of one check." McCarthy helped her to change her bill due dates to better jive with her paychecks. She also negotiated with Cindi's creditors, who dropped the interest rates on her two cards from the mid-20s to 4.25 percent and 10 percent. It shouldn't hurt to call creditors to ask about internal programs for customers having difficulty paying their bills.
That lowered her monthly credit-card payments from $450 per month to $230. With her new payments, Cindi's on track to be debt-free in five years. But she's already feeling the effects of her new plan. Before, "it was constant, daily stress," she said. "Now my kids can tell that there's an attitude change because I'm not so stressed-out from my finances."
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Kara McGuire writes about personal finance for McClatchy Newspapers. Write to her at kara@startribune.com .
