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Hummin
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Debt Plan  Reply with quote  

Not sure where to start as this is my first post at this site. Any help with my situation is very much appreciated in advance.

My details:

Family - married 9 year with 3 kids (8, 3, 2)

Debt -
House: (not sure how to explain my loan structure which is to say I shouldn't have purchased the house to begin with)

7 years owned
1st loan:
Loan Type Conventional
Product Type Interest Only
Original Closing Date 05/13/2005
Maturity Date 06/01/2035
Current Interest Rate 3.2500%
Original Principal Balance $81,200.00
Current Principal Balance $73,561.46
Escrow Balance $1,353.30
Next Payment Breakdown
Principal and Interest $379.71
Escrow $219.25
Total Payment $598.96

2nd loan:
Unpaid Principal Balance: $19,353.32
Original Principal Balance: $20,300.00
Length of the Loan (Months): 360
Origination Date: 05/13/2005
Maturity Date: 06/01/2020
Interest Rate (%): 10.875

I believe the second one has a balloon payment I thought in 2015, but maybe at looking at this it might be 2020.

Credit Card -
1st card:
2000 limit, has about $400 on it; no interest for 18 months
2nd card:
7000 Limit; $6280 balance; 16.99%
3rd card:
3000 Limit; $2466 balance; 22.9%

Other Debt
Student Loans: 9652
Car: 12997

Available Assets:
Savings: $4500
Checking: $4000
Salary: $58000 annual

Credit Score: roughly 610 to 620 at last check (6 months ago) Mainly due to our debt ratio, 1 late doctor payment and an august Student Loan 180 day late payment.

Questions and Concerns:

Not only are our loans bad for the house, but the house is not large enough for our family. This doesn't include the quality of neighborhood or school system. We are currently working with city programs for grants to help our aging house both inside and out.

We were misguided when we first purchased this house thinking we wouldn't stay as long as we have and that it would be easier to leave when we wanted to. Our latest hope was to be gone in the spring of 2014 to something better for our family.

Taking the 2014 goal out of the equation and just focusing on the right thing to do to correct our situation what should we focus on first and what plan should we move forward with given our need for better housing?

My estimate:
Use savings and checking to pay off biggest credit card leaving $2k as buffer for possible maintence issues with house/car (then double pay smaller credit card with goal of 2014 pay off)

Refinance now or Jan 2013 (hopefully reduction of $6k in debt will improve credit score enough) reason for waiting until Jan 2013 is for income tax money covering closing costs

Then the game will be to see what will be the cost of selling/purchasing a new house and moving from there.

I know this was long, and might not have been the best way to get to the ultimate question of what do I do with my money, but if there is more info needed to make an educated guess of where to go from here let me know.

In the mean time I'll keep trolling the boards and seeing if there is anyone with a situation like mine.

Thanks,
hummin
Post Mon Jul 23, 2012 7:49 pm
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littleroc02us
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Currently your home is only 16% of your monthly payments. That is great. The problem I see is that your debt is 32k and you make 58k. As for you house do you not have enough bedrooms for everyone or are you wanting to just update to be in a better neighborhood. As for the current home you mentioned on the second mortgage the loan agent sold you a bill of goods, what happened there? Before you make any house moves I would start by immediately taking you savings down to 1k for emergencies and pay off the first two credit cards. Then I would take 4k from your checking and almost pay off the 3rd card. At this point things should start loosening up and you can finish the 3rd car and then go for the student loan and lastly the car. Should all be gone within a year or two not knowing exactly what all of your payments are.

Risk comes from not knowing what you're doing. (Warren Buffet)
Post Mon Jul 23, 2012 9:10 pm
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Hummin
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Thanks for the response.

The cause for the move is both for neighborhood and rooms. Currently 3 bedroom house with 5 living in the home.

The cause for the loans was back when 80/20 were a viable option for getting a home (keep in mind we bought this home when I made 26k and we know know without my new job we would have been a statistic.)

Current payments:
car 330 a month with 4 yr remaining on loan
sl 110 a month (about 60 something to principle)
Post Mon Jul 23, 2012 10:52 pm
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oldguy
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Your situation not too serious - the $58k income in a LCOL area is your saviour. But you are living way ahead of your income stream, ie you have spent money that you won't be earning until 6 months in the future. And you are paying 23% for the use of some of those advances.

It would be better to be patient, allow your income stream to catch up with your spending. For one thing, the house is big enough - there are only 2 kinds of kids - girls & boys - and you have two bedrooms other than your own. (BTW, we had a family of 5 in a 400 foot one-bedroom cottage for 8 years - I don't recomment it but it's doable).

And one major downfall of young families are late-model cars. They depreciate at about $4000/yr whether you drive them or park them. Your car payment is about $4000/yr, if you could sell the car and get that stopped that $4000/yr could go for necessities. Look for about a 7 or 8 yr old Japanese car with only about 80,000 miles on it, then drive it to 200,000. Have you read the articles that millionaires drive older cars? There is a reason for that, lol.

The balloon on the 2nd will be about $17,000 with 15 years remaining so don't let that sneak up on you. Do something about it a couple yrs ahead of time, you don't want to learn at the last minute that all loans are 17% (that happened in the Jimmy Carter yrs). I once had a balloon on one of our rental houses, I had to sell my truck & camper that year - a lesson learned. We've bought several rental houses since but we've never had another balloon loan. BTW, I like your IO loan, they work well for rental houses - so don't beat yourself over that one.
Post Tue Jul 24, 2012 4:11 am
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littleroc02us
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quote:
Originally posted by Hummin


The cause for the loans was back when 80/20 were a viable option for getting a home (keep in mind we bought this home when I made 26k and we know know without my new job we would have been a statistic.)




I'm confused by this statement after reading it a couple of times. So are you saying you bought the house using an 80/20 loan and you knew that you couldn't afford it making 26k?

Risk comes from not knowing what you're doing. (Warren Buffet)
Post Tue Jul 24, 2012 1:21 pm
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Hummin
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quote:
Originally posted by littleroc02us
quote:
Originally posted by Hummin


The cause for the loans was back when 80/20 were a viable option for getting a home (keep in mind we bought this home when I made 26k and we know know without my new job we would have been a statistic.)




I'm confused by this statement after reading it a couple of times. So are you saying you bought the house using an 80/20 loan and you knew that you couldn't afford it making 26k?


sorry for the confusion. When we bought the house we had no idea that we couldn't afford the house, plus the fact that after 7 years we would have so little equity built up.

This purchase was right before the housing crash and with us not doing our homework we jumped the gun into home ownership. Thankfully I have a better income so I didn't ruin our future as bad as if I remained with my old company.

This time around we are doing things like this, talking to numerous credit, debt specialists, etc so that we don't make the same mistake twice.

We are in a position financialy that we can make an impact and I want to make sure I understand the options and make the right choice.

Thanks again for the help.
Post Tue Jul 24, 2012 1:50 pm
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littleroc02us
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You said that when you bought the house you didn't know you couldn't afford it. Why is that? Are your interest rates adjustable and they went up? That shouldn't be the case since rates are at an all time low. The promissary note you signed, did it state how much your monthly payment would be? I got an 80/20 loan in 2006 (which I regret) but I knew I could afford it because I knew what my income was and I knew what the payments were, so please help me understand why you didn't know you couldn't afford it. Laughing

Risk comes from not knowing what you're doing. (Warren Buffet)
Post Tue Jul 24, 2012 3:11 pm
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oldguy
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quote:
This time around we are doing things like this, talking to numerous credit, debt specialists, etc so that we don't make the same mistake twice.


Humm, you say this - but you don't seem to be following your own advice. Your mistake was over-buying/over-borrowing too soon - too much house, too much car. Yet you appear to be repeating that exact pattern?

Your consumer debt is $400, $6280, $2466, $9652, $12997. That's $32,000.
Use the $8500 cash to cut it to $23,000. Sell the car to get that $4000/yr payment stopped (stop the bleeding) - that cuts your debt to about $12,000. (of which most is the $9650 SL, is that a low interets longterm loan?)
Buy an affordable used car.

Then start using your extra $4000/yr plus the previous CC payments to pay the consumer debts. And hunker down for about a decade - give your house appreciate by $50k or $60k. Then refi it, get a single 30 yr fixed rate loan, clear the two existing loans, maybe draw out an extra $20k of cash. And re-evaluate your desires/needs/wants..
Post Tue Jul 24, 2012 5:24 pm
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fast
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Re: Debt Plan  Reply with quote  

quote:
Originally posted by Hummin
Credit Score: roughly 610 to 620 at last check (6 months ago) Mainly due to our debt ratio, 1 late doctor payment and an august Student Loan 180 day late payment.


If you got your credit card balances down to less than 10% of their respective credit lines, you might see a decent credit score increase. Why are you late in making the student loan payments?
Post Tue Jul 24, 2012 11:56 pm
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Max G
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As somebody mentioned before, use whatever cash you have available to pay off high interest credit cards. If you somehow run into trouble like car repairs or medical bills you can put it on a card again. At least you will save on interest in the mean time. Also your car might be too expensive for your financial situation do consider downgrading.
Post Fri Jul 27, 2012 4:19 pm
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clydewolf
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Re: Debt Plan  Reply with quote  

quote:
Originally posted by Hummin

reason for waiting until Jan 2013 is for income tax money covering closing costs



Another idea to increase your cash flow/take home pay would be to reduce your income tax withholding.
Now may be a good time to submit a revised W-4 Form to your payroll department.

Here are calculators to help you determine what is the right withholding:
- This one from Paycheck City: http://www.paycheckcity.com/copcctransition/w4instruction.asp
- This one from the IRS: http://www.irs.gov/uac/IRS-Withholding-Calculator-Can-Help-Figure-Your-Tax

More money in your pocket will help you pay down your debts faster.
Post Mon Jan 21, 2013 7:45 pm
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tim_toronto
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Honestly, it may be hard to tackle this situation by yourself. Especially if you are paying all of that interest every month.

Have you ever considered debt consolidation? It might be better to bundle everything together with a lower interest rate until your able to save and pay off your debts completely. Here's a complete guide on debt consolidation loans http://www.debt.ca/debt-consolidation -- it sure helped me.
Post Sat Feb 09, 2013 9:39 pm
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autoprt
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good discussion.
Post Sun Feb 10, 2013 3:36 pm
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hewiesidney
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Microsoft Money Plus is a popular personal finance software program available to consumers. The program allows consumers to keep track of all of their financial accounts in one place. Once a consumer has set up all of his credit and debt accounts, he can then choose to implement a debt reduction plan.
Post Mon Mar 04, 2013 11:41 am
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