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| Debt Anything to do with debt including debt reduction, debt concerns, debt consolidation and how to get out of debt |
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07-27-2010, 07:42 PM
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Sell House to Pay Debt?
I am a first time poster and need some thoughtful advice.
I am a husband and father of 2 little boys. I have a LOT of debt (over $100K) from a failed business that I shut down 2 1/2 years ago. Since then we have been living on a very tight budget and have been sending as much as we can to our creditors. It's slow going and while we are making progress, we would obviously like to make more progress. We do not want to file bancruptcy, we want to pay what we owe and we pay all of our bills on time. That wasn't always the case, before we shut down the business, we were behind in everything so that coupled with the massive amount of debt equals very bad credit. We have about $30K of equity in our house meaning, if we sold it, we could make about $30K minus commissions and expenses. We are considering selling the house and renting something that would have similar (or cheaper) monthly payments. The reason is twofold. We can't fix anything if something major in the house breaks and we would use the proceeds to help us pay off our higher interest debt (we have debt ranging from 6% all the way up to 29.99%). My concern is that the only thing we have going for us financially is that we have a house and have some equity in it. Once we get our debt paid down we are hoping to improve our credit and buy another house but we are worried that not owning a house will be a strike against us credit-wise. Any suggestions? 
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07-27-2010, 07:52 PM
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list budget (income and expenses)
list debt (amounts and interest rates)
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07-27-2010, 08:16 PM
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Our total take home is $7500 per month
Expenses Mortgage (taxes, escrow, insurance) - $714.50 Car Payment - $262.75 Car Insurance - $95.75 Gas and Electtric - $84 Water and Sewer - $35.00 Comcast - $94.53 (cable and Internet, necessity for work) Verizon - $23.60 Groceries/Household - $500.00 (includes groceries and all household expenses) Gas - $100.00 Day Care - $1076.80 Debt Loan #1 - 29.99% - $183.06 per month Loan #2 - 8.00% - $1,000.00 per month Loan #3 - 8.00% - $156.68 per month CC #1 - 29.95% - $55.66 per month CC #2 - 27.24% - $214.00 per month CC #3 - 26.58% - $257.44 per month CC #4 - 24.99% - $15.00 per month CC #5 - 24.90% - $27.00 per month CC #6 - 21.99% - $156.00 per month CC #7 - 20.65% - $23.00 per month CC #8 - 19.99% - $22.00 per month CC #9 - 17.95% - $245.00 per month CC #10 - 15.99% - $106.00 per month CC #11 - 14.00% - $28.00 per month CC #12 - 12.75% - $135.00 per month CC #13 - 8.24% - $60.78 per month CC #14 - 6.25% - $340.00 per month CC #15 - 6.00% - $550.00 per month CC #16 - 5.50% - $410.00 per month CC #17 - 0.00% - $250.00 per month CC #18 - 0.00% - $50.00 per month CC #19 - 0.00% - $71.00 per month Those are the minimums, and it totals $4403.95, I budget $4500 a month to debt so I put whatever the different is each month to the highest interest card. Something else to keep in mind, the reason there are so many cards, I was in this business with may parents, it failed terribly and even though we were equal owners, it was my idea and I was the driving force behind it so I have taken on all the debt. That is one reason why I can't file bancruptcy. If I did that, my parents would still have their debt to deal with. Loans #2 and #3 are personal loans with a business associate.
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07-28-2010, 05:45 AM
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thx
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07-28-2010, 05:58 AM
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For Comcast, I'm assuming you mean internet is needed for work, not cable TV. Cancel cable and keep the internet if that is mandatory for your job. That should save you about $60/month. The deal with your parents certainly isn't fair. If you were both "equal" owners, that means that you share in the profits and the losses. I'd sure like to get into a business where I stood to profit if the business did well and had zero risk if the business went under. You need to sit down with them and work out a more equitable division of this JOINT business debt. Normally, I agree with paying debts from highest to lowest interest rates. In your case, I think I would lean more toward the Dave Ramsey method of starting with the smallest balances, at least initially. You have 5 cards with payments of less than $30. I'm assuming they all have pretty small balances. If you could focus your extra cash each month on knocking out a few of those, it would give you some breathing room with your cash flow situation. So maybe look to pay extra on #4, 7, 8 and 11 until those few are gone. That will free up $88/month. Add that to the $262 from not having a car payment and the $60 from not having cable TV and now you've got $410 extra each month on top of the $150 or so extra you already have and then you'd have enough of a surplus to really start making progress on the debt. Combine that with the fact that you will get your parents to start doing their part instead of dumping this whole problem on you and you can get this cleaned up.
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Steve * Despite the high cost of living, it remains very popular. * Why should I pay for my daughter's education when she already knows everything? * There are no shortcuts to anywhere worth going.
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07-28-2010, 06:10 AM
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Sure, it feels a little odd putting all this sensitive information online but I pasted it below. I hope this site is secure and anonymous
 Loan #1 - $4,607.43 Loan #2 - $27,510.15 Loan #3 - $940.15 Loan #4 - $31,863.98 (when I typed up my list of debts, I miscategorized this one, this is a 0% loan from a family member. Loan #2 and #3 are loans from a business associate. In my last post, I had this loan down as CC #18 but it is really a loan, not a credit card) CC #1 - $1,215.61 CC #2 - $6,171.74 CC #3 - $8,499.98 CC #4 - $141.82 CC #5 - $933.15 CC #6 - $7,213.61 CC #7 - $810.12 CC #8 - $662.49 CC #9 - $12,482.08 CC #10 - $4,083.40 CC #11 - $1,251.57 CC #12 - $6,432.39 CC #13 - $3,624.58 CC #14 - $8,668.37 CC #15 - $3,569.23 CC #16 - $11,142.17 CC #17 - $11,346.00 CC #19 - $3,399.29 A few other things to note, some of the payments are negotiated and and for every card that is over 14% I call every 3 months and try to get the interest down. Many have accommodated, but you can see a bunch are still really high. In the 2.5 years we have been paying off debt, we have eliminated about $52K. We were over $200K when we started My plan is to eliminate all cards under $500 first to get rid of the little payments and then attack the rest from highest interest first. As mentioned, I am only able to pay about $100 more than what my minimums are so it's slow going. However, some of the minimums are negotiated minimums so they are flat amounts that are much higher than what a normal credit card minimum would be. My reasoning for thinking about selling the house is that I could wipe out $20K in debt or so and that would free up more money to concentrate on the debt that is left behind. I would continue to pay the same amount ($4500) every month to get rid of it.
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07-28-2010, 06:16 AM
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@disneysteve selling the car isn't an option, I owe slightly more than I could get for it.
Yeah, it's not fair and there is a lot more to it than what I have time to put down here but it is what it is. I can't change it at this point so having them help isn't an option.
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07-28-2010, 06:45 AM
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Wow,I can understand your concern in this situation. 100% of business' that fail are built on debt. But I am proud of you for honoring your debts and not taking the low road to a bankruptcy. Personally I would sell your car and take a loan to cover the difference. Buy a cheap used car. Also, I would sell the house and use the remainder to help pay a huge chunk of the debt. You will get out. I paid off 50k in 4 years myself by buckling down and sacrificing. Nothing good is ever easy.
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07-28-2010, 07:56 AM
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A few other things that are involved in this decision is on the house, we are going to need a new furnace and roof in the next couple of years and we need new gutters. The gutters I can do myself and would need to do them before we sell but I really don't wan to spend the money (mainly because I don't have it) on a furnace or roof.
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07-28-2010, 08:09 AM
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If you clear $30k from the sale - use 500-1000 as moving expenses/security deposit/etc. leaving est. 29k Then I pay off in this order: Loan #1, then CC's 1-6. Then however much is left I put on CC#7. Then start attacking the credit cards 7-13. Then just keep going by highest interest rate being charged at that time. I'd treat the personal loan from family as though it was charging 6, 7, or 8%. In that case, there are other factors at play other than just interest savings.
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07-28-2010, 08:45 AM
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As for the house, that additional info is important. You aren't just selling the house to pay off debt. You are selling the house because you really can't afford to keep it if you don't have the money to properly maintain it. Sell the house. Sell the car. Cancel the cable. Trim the $500/month in household expenses. Set aside a small emergency fund and put every other spare penny toward debt reduction. You've paid off 50K in 2.5 years which is great. In another 2-3 years, you could be debt-free. Just keep plugging away.
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Steve * Despite the high cost of living, it remains very popular. * Why should I pay for my daughter's education when she already knows everything? * There are no shortcuts to anywhere worth going.
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07-28-2010, 09:11 AM
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Okay, that makes sense, hadn't thought of that. Thanks for all the suggestions guys. If I do manage to eliminate the rest of it in 2 - 3 years, do you think no owning a house or major asset will make it harder for me to rebuild my credit and get a new house when we can afford it again?
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07-28-2010, 09:40 AM
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__________________
Steve * Despite the high cost of living, it remains very popular. * Why should I pay for my daughter's education when she already knows everything? * There are no shortcuts to anywhere worth going.
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07-28-2010, 10:56 AM
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I would not worry about credit score until debt is paid off, then once you are down to last 2-3 debts, I would look to rebuild credit score with good use of credit.
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07-28-2010, 11:06 AM
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If you have $4500/mo going to debt repayment, I would look at every debt less than $4500 and see if you can pay it off in full in one month, then pay minimums on the other debts. If the minimums are too high, do the following: 1) pay off balances of the low bills (loan 3, cc 4-5-7-8) 2) document with photo copies of the checks you paid the balance in full 3) call the creditors up of every other card. Tell them you want your interest rate locked and are willing to discuss a repayment plan. If they do not meet your terms, move them to bottom of the list. Continue focusing on the low balance debts each month. 4) Call the other creditors back and try again to lower interest rate- tell them you will only pay the debt back if they lock in interest rate, and because you have 23 debts, the creditors which lock in first get their money first. Play hardball and remind them you are not obligated to pay them back, and your credit is already shot, they cannot do anything to you that you have not already done to yourself. Tell them you are even selling your house so there is no house to take away. **note** if you are delinquent the creditors might start writing off your debt, meaning if you owe them $10,000 and you pay then $5000, they might have already written the $10k off, so its very possible they will work with you if they know they will get something. They key is if they give you a hard time, just stop paying that debt for 2-3 months (get their attention) and pay off other debts (not just the minimums, make it a point to pay one debt in full each month and document you did so, and show this to the creditors, or tell them on the phone when they call you). Remind them if you move, you might not give them your new phone number, so its in their best interest to work with you now, cut you a break and they will get their money.
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07-28-2010, 01:17 PM
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I agree with DS to cut the cable altogether. Do it now because you will be doing it anyway when you move. Many programs are available on-line nowadays. My girls like to watch Phineas & Ferb on Youtube before it even gets on the Disney Channel. Sometimes they even watch it in French or Spanish because apparently, those counties air the shows sooner. Lol. We did not install cable at our new house. Between Netflix ($9) and internet ($29.95) we have MORE programing that we have time to watch. Netflix has a ton of free instant streaming programing and if we really needed to tighten our belts further, that would get canceled. How much longer on your car loan and what kind of insurance is currently on it? I would do research on getting that 2nd hand car to replace it to see if it make sense. It may not totally on the car side. BUT you may find out that it might on the insurance side. If you can buy the car in full, you can just carry liability insurance which may be a substantial difference. Again, I would work the numbers and see. I would even check car dealerships if they will take your current car as a trade-in for a used car. If the savings were minimal and your loan length isn't that much longer AND your car is reliable, I, personally, may suck it up and keep it. Only because my fear would be that I would have to sink $ into the beater car for repairs that would negate any savings I got for trading down. Now if you already have an unreliable car that needs frequent work then like the house, trade it down for sure. If your can't afford to keep maintaining your house, definitely try to sell it. Whether or not you CAN sell it, is the question. Prepare to do it anyway asap but be prepared that it may take a while. Start DECLUTTERING your house now. Sell, donate, or use up everything now. It may generate some extra $ to throw at the debt. It will definitely help the house show better. Also, it will cut the costs of the move, once you do sell. Eat up everything in your pantry, use up all stock piled toiletries. If you aren't going to eat or use them now then you never will and it is time to purge. I wish you the BEST of luck. You can and will do it. Wishing that this happens for you sooner rather than later!!
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07-28-2010, 02:42 PM
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Quick question to those of you streaming your TV from the Internet. We tried the basic Netflix account so we could stream stuff, the problem is, they don't stream it with subtitles. My wife is partially deaf and needs the subtitles to watch most things. Are subtitles an option on Internet streaming?
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07-28-2010, 04:13 PM
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__________________
Steve * Despite the high cost of living, it remains very popular. * Why should I pay for my daughter's education when she already knows everything? * There are no shortcuts to anywhere worth going.
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07-28-2010, 05:18 PM
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I'll be a contrary voice in this crowd.
I doubt you will find a decent place for you and your young boys to live for less than the $700 that your mortgage is. They will also probably run a credit check that you will not impress them. Also, it sounds like everyone is a higher priority than your boys. In the end, everyone will get their money plus lots of interest and you'll have nothing saved for their futures. I'd consider defaulting on the loans to relatives and business assoicates. They chose to invest in your business, but have borne no risk. If not default, I would defer until you get your other affairs in order. Bankruptcy is also an option. You would have to go Chapter 11 since you have income, but you'd get a re-org plan with payment to most. The damage is great, but it's not forever - you can go FHA on a new home in about 3 years.
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