Pay Dirt is Slate’s money advice column. Have a question? Send it to Lillian, Athena, and Elizabeth here. (It’s anonymous!)
Dear Pay Dirt,
I need help knowing if I should be worried about $20,000 in credit card debt, or if it really isn’t a big deal. Due to generational wealth gifts and some luck with market timing, my husband and I own three homes (two rentals and the one where we live), which have appreciated over time. He makes pretty good money (low six figures), but due to illness, I dropped out of the workforce. This is a big blow because I used to pull in a six-figure salary.
The thing is that even when I was working, we were racking up debt. Most of it was the result of expensive medical procedures, but we also like the finer things of life, like traveling and eating at nice restaurants. While we’ve cut back, we still often meet or exceed our monthly budget without paying down our debt.
He says because we have such a high net wealth (about $750,000) carrying that debt doesn’t really matter, and it’s more important to enjoy our lives. I feel like all of our wealth is tied up in our houses, so that doesn’t really count. Generally, any amount of debt scares me, probably because I’ve been food insecure before. Is it true that this amount of debt isn’t really a big deal? How seriously do we need to focus on paying it off?
—House Rich, Money Poor
Dear House Rich,
I understand the fear of having too much debt, especially if you’ve experienced food insecurity in the past. And you’re right to be wary of wasting money on credit card interest. I’d also look into creating a more diverse portfolio by looking into other investments besides real estate.
But to answer your question, it depends on your debt-to-income ratio and whether you want to continue wasting your money on credit card interest and fees.
To find out if you have too much debt, you need to compare it to your income, not your net worth. Your debt-to-income ratio is one of the factors that lenders look at when it comes to approving you for a financial product or service. First, add up all of your monthly debt payments, including your mortgage, along with credit cards. Then, divide this by your gross income for the month. This will give you your debt-to-income percentage. Anything less than 36 percent tends to be considered acceptable. Lenders will still consider you if your ratio is higher, but once you hit over 43 percent, they’ll most likely write you off.
Run your numbers and find a budgeting method you can stick to. But pay the debt down. The key is to cut back in small ways to make your changes stick.
Dear Pay Dirt,
A while back (about seven years), I discovered my love language is gift-giving. I just didn’t have the money before—most people in my family don’t. If I find something I like or I think would benefit a family member, I buy it for them because the ones I buy for can use what I have to give. It’s never anything large or even moderately expensive, usually just vitamins or maybe a comfy bathrobe. I don’t do this often, except for my aunt.
This aunt helped raise me and I helped raise her three girls. Everything was OK until right before I recently turned a very big (0) birthday. She told me about bragging to her girlfriend, “If I ever want anything, I just mention it to my niece, and she sends it to me.” She’s right, I did. Well, the big birthday came and went with nothing but texts from anyone but my brother. My feelings were so hurt because I have listened for years about the Christmas, Easter, birthday, etc. gifts she gives her kids. Not one thing for me? And to top it off, two of her kids just bought half-million dollar homes while she is struggling to live on her social security. I feel like a schmuck for financing her and her kids. I also know she would never ask for a penny from her kids, she’s made that clear. How can I reconcile my giving impulse when I know there will be no reciprocation and I just want a little something that says: I love you too?
—I Just Sent Her an Xmas Present, I Can’t Stop
Dear I Can’t Stop,
Everyone has a different love language, so while yours may be gift-giving (mine is too), it may not be your aunt’s. Still, that was a bold statement on your aunt’s behalf to her friend; to me, it’s a red flag. While you even admit it’s true, it reeks of knowing she can take advantage of you, which it sounds like she does. Impulsively gift-giving may be a way you try to get love from others. I have bad news: It always backfires.
So how can you reconcile your gift-giving impulse? Work on ways to show yourself love so that you don’t feel like you need to buy it from others. Practice self-care and try talking to a therapist. Find healthy ways to gain excitement instead of shopping for other people. And set a money goal to put cash toward every time you find yourself wanting to spend money on a random gift for someone. You might actually find yourself more motivated to cut back if you have a trip to look forward to or another major financial goal instead. If your aunt notices, you can tell her that you’re cutting back for a while because you have other financial priorities. This way, she’ll be aware that funding her vitamin and robe collection is no longer one of them.
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Dear Pay Dirt,
I am a newlywed. My husband has a daughter. I don’t have any children. When we first met we both lived in two different rural towns each 45 minutes away from the nearest big city. When his daughter stayed with him, they had to drive 45 minutes to school, but she was coming to an age where her social life demanded they move closer to the big city. I, on the other hand, was happy in my little town. I lived within walking distance from my job.
When we got married we decided that since she needed to be closer to school, we should make the move to the big city. Well, now I am 45 minutes away from my job and I am not happy about my almost two-hour drive every day. I’m getting tired of it. But mostly, I am resenting the fact that my gas expense has gone from $0 to $300. I love my husband and I love coming home to him but I don’t think he is appreciating the sacrifice that I am making. I am trying to think of ways in which we can compromise and I was hoping you could help me.
What comes to mind is the possibility that he absorbs the full cost of the rent—he is capable of doing this as he just got a good job and makes three times what I make. He was going to make the move even before we thought of marriage, he was planning to do this for his daughter anyway, and he would have gotten the same size apartment we are in now (two bedrooms, two baths). This arrangement would help me to pay for gas and save money that would allow me to pay for self-care services. Do you think I’m asking for too much? Do I sound out of line? How can I negotiate with my husband?
Dear Long Drive,
I would be resentful, too, if I had a $300 expense in my budget that wasn’t there before, along with a new two-hour commute. Since your husband makes three times the amount of money you do, ask if you can split your living expenses by your income. This is a common way for couples to split living costs, especially when there’s a drastic difference in your paychecks.
Be honest with him about why you think this is a fair arrangement, based on your income and new expenses because of the move, along with needing more money for self-care. He’ll most likely agree, and if not, you can remind him that while you did agree to the move, you did not realize that your income would not keep up with the additional expenses of living there, and you would like some additional support to help you be your best self. If he suggests you change your job, then we have different issues to think about.
Dear Pay Dirt,
I’m a single New York City renter in a high-cost-of-living neighborhood; my rent just increased by 27 percent and my landlord was not willing to negotiate that amount. For a variety of reasons, I’ve decided to re-sign this lease for one more year and am able to do so because of a recent promotion at work (about 35 percent more, putting me a bit over $100,000 annually). This drastic increase has made me think about saving for a down payment to buy instead of renting, but I’m not sure if that’s even a reasonable or realistic goal for me.
My overall financial health is good: sufficient emergency fund, maxing out my workplace retirement contributions and my Roth IRA annually, student loans are fully paid off, and I carry no other debt besides a credit card balance that I pay in full each month. I also put a small amount of money into an ETF each month—an amount I’d been planning on increasing before I started thinking about saving for a down payment. I’m also very fortunate to have about $20,000 promised by my parents as a gift for a down payment or similar significant life expenses.
I feel like I’ve done a pretty good job with financial planning, but I don’t even know how to start thinking about saving to buy a place; or even if that’s something that makes sense for me. Buying in my current, beloved neighborhood would probably be a stretch, but something I could save up for in time. Is this a worthwhile use of my savings planning? Should I be thinking about other ways to put my money to work that can benefit this goal in the future with or without a spouse to also contribute?
—Time to Buy?
Dear Time To Buy,
Buying a piece of real estate in your dream neighborhood is a great way to put your money to work to benefit you in the future. While I usually err on the side of caution with telling people to buy a house or not, I think if you buy a house anywhere, it should be somewhere like New York City. I’ve never heard of real estate decreasing there; I’ve only heard of rising costs, especially rent. If you purchase a place, you’ll have a locked-in mortgage payment so that you’ll no longer be subjected to random rent increases of 27 percent.
You have no debt, are maxing out your retirement contributions, and have a sufficient emergency fund, so start looking at how much you’ll need to save for a down payment. It’s recommended to put anywhere from 10 to 20 percent down to show lenders you’re a responsible risk as a borrower, plus a 20 percent down payment will help you avoid paying for private mortgage insurance. However, different types of mortgage loans don’t require you to put 20 percent down in order to qualify for your home loan. Conventional fixed-rate mortgages may approve you for as little as 3 percent down. With this in mind, home ownership becomes a lot more attainable. You might even look into the possibility of an FHA loan.
Along with saving for a down payment, ensure you know the amount you can realistically afford to pay toward homeownership costs. With your mortgage, plan on paying property taxes, possible HOA fees, and maintenance costs when things break. Experts recommend you spend 30 percent of your income on housing, but it’s outdated and doesn’t consider other factors, like living in New York City. I would be mindful and make sure you leave enough room to cover all of your other expenses and still have some money toward hobbies and fun, and then put aside a small amount of money to cover miscellaneous expenses that pop up.
I got married in September, and then in February I found out my husband had kept a longtime girlfriend from me. It was all very traumatic and awful. Now we are getting divorced, and all I am concerned about is staying afloat during this difficult time. His mother and my mother keep asking about the thank-you notes for our wedding gifts.