Six Month Debt Update

[Bob B.]

I've been giving 6 month updates on my debt repayment progress in this forum. It's time to give another update. First, some background:
> Mort 1 is a house we previously lived in. It is currently rented out. It is a 30 year motgage.
> Mort 2 is the money we borrowed from family for the house we currently live in. According to the original agreement, we will secure a commercial mortgage, and pay our family members when the Mort 1 house sells.
> The monthly payments I've listed after each debt total below is the minimum payment required by the creditor, not necessarily what is paid each month.
> The CC 2 balance was transferred to CC5 at 0% for 6 months in Aug. APR spikes up to 20.99 in Feb.
> CC's 1, 3, and 4 are closed out at creditor's request. Thus, I cannot transfer any debt into those accounts.
> All bills (CC, mort., electric, heating, insurance, phone, internet, etc.) are up to date - nothing past due.
> During the past 6 months, we have saved $5,100 for a new roof. The roof wil be completed next month. Most of that saving came from our income tax refund. Tax withholdings have been changed so refund won't be as big in 2012.
> Our household income is about $68K per year. Wife is a SAHM with some freelance income.

April 2011 Debt
Mort 1 - $105,500 $738/mo. 6.25%
Mort 2 - $70,000 $0/mo. 0.00%
CC 1 - $8,934 $183/mo. 12.90%
CC2 -$2,848 $68.50/mo 16.99%
CC3 - $3,595 $140/mo. 5.25%
CC4 - $3,336 $195/mo. 5.32%
Van Loan - $7,894 $210/mo. 4.02%

Oct 2011 Debt
Mort 1 - $104,360 $738/mo. 6.25%
Mort 2 - $70,000 $0/mo. 0.00%
CC 1 - $8,034 $166/mo. 8.90%
CC2 - Balance transferred to CC5 @ 3% balance transfer fee.
CC3 - $2,836 $140/mo. 5.25%
CC4 - $2,272 $195/mo. 5.32%
CC5 - $1,975 $60/mo. 0.00% through Jan. 2012
Van Loan - $6,738 $210/mo. 4.02%

During the past six months, we have:
Reduced total debt by $5,892
Reduced mortgage debt by $1,140
Reduced CC debt by $3,596 (18.9%)
Reduced total debt by an average of $987 per month

Goals for the next 6 months
1. Establish $1,000 EF. Roof project will wipe out savings.
2. Pay $140/mo. toward Mort 2 after above.
4. Pay off CC5 - $160/mo. Nov. - Jan. $430/mo. Feb. - May. (OK, so it's a bit beyond my 6 mo. timeframe.)

Longer term goal - retire all CC debt by July 2013.

I know it's a long, dense post. Your comments and questions are welcome.

[artwest]

Good job!

Keep grinding and stick with a plan. You'll be out of debt before you know it and then you won't believe how good it feels!

[JoshuaHeckathorn]

Good work getting rid of a nice size chunk of your high-interest credit card debt. I'm curious though- why are you putting extra cash towards Mort 2 at 0% when you could be putting that all towards your credit card debt?

[bjl584]

Originally Posted by Bob B.

I've been giving 6 month updates on my debt repayment progress in this forum. It's time to give another update. First, some background:
> Mort 1 is a house we previously lived in. It is currently rented out. It is a 30 year motgage.
> Mort 2 is the money we borrowed from family for the house we currently live in. According to the original agreement, we will secure a commercial mortgage, and pay our family members when the Mort 1 house sells.
> The monthly payments I've listed after each debt total below is the minimum payment required by the creditor, not necessarily what is paid each month.
> The CC 2 balance was transferred to CC5 at 0% for 6 months in Aug. APR spikes up to 20.99 in Feb.
> CC's 1, 3, and 4 are closed out at creditor's request. Thus, I cannot transfer any debt into those accounts.
> All bills (CC, mort., electric, heating, insurance, phone, internet, etc.) are up to date - nothing past due.
> During the past 6 months, we have saved $5,100 for a new roof. The roof wil be completed next month. Most of that saving came from our income tax refund. Tax withholdings have been changed so refund won't be as big in 2012.
> Our household income is about $68K per year. Wife is a SAHM with some freelance income.

April 2011 Debt
Mort 1 - $105,500 $738/mo. 6.25%
Mort 2 - $70,000 $0/mo. 0.00%
CC 1 - $8,934 $183/mo. 12.90%
CC2 -$2,848 $68.50/mo 16.99%
CC3 - $3,595 $140/mo. 5.25%
CC4 - $3,336 $195/mo. 5.32%
Van Loan - $7,894 $210/mo. 4.02%

Oct 2011 Debt
Mort 1 - $104,360 $738/mo. 6.25%
Mort 2 - $70,000 $0/mo. 0.00%
CC 1 - $8,034 $166/mo. 8.90%
CC2 - Balance transferred to CC5 @ 3% balance transfer fee.
CC3 - $2,836 $140/mo. 5.25%
CC4 - $2,272 $195/mo. 5.32%
CC5 - $1,975 $60/mo. 0.00% through Jan. 2012
Van Loan - $6,738 $210/mo. 4.02%

During the past six months, we have:
Reduced total debt by $5,892
Reduced mortgage debt by $1,140
Reduced CC debt by $3,596 (18.9%)
Reduced total debt by an average of $987 per month

Goals for the next 6 months
1. Establish $1,000 EF. Roof project will wipe out savings.
2. Pay $140/mo. toward Mort 2 after above.
4. Pay off CC5 - $160/mo. Nov. - Jan. $430/mo. Feb. - May. (OK, so it's a bit beyond my 6 mo. timeframe.)

Longer term goal - retire all CC debt by July 2013.

I know it's a long, dense post. Your comments and questions are welcome.

good job so far, however, I would probably focus on CC1 due to its higher interest rate.

[Bob B.]

Originally Posted by JoshuaHeckathorn

I'm curious though- why are you putting extra cash towards Mort 2 at 0% when you could be putting that all towards your credit card debt?

That has to do strictly with the fact that it is family borrowing. It's a pride thing. A year ago we were in a black hole financially. Once our roof is completed, and we have a $1,000 EF established, I want to start making progress on this inter-family loan.

[Bob B.]

Originally Posted by bjl584

good job so far, however, I would probably focus on CC1 due to its higher interest rate.

The reason I want to shift to CC5 is that the interest will be balooning to 20.99% in February. I want to minimize the time and amount that we pay 20.99% APR.

[JoshuaHeckathorn]

Originally Posted by Bob B.

That has to do strictly with the fact that it is family borrowing. It's a pride thing. A year ago we were in a black hole financially. Once our roof is completed, and we have a $1,000 EF established, I want to start making progress on this inter-family loan.

That's what I figured- totally understand.

[jpg7n16]

Originally Posted by Bob B.

That has to do strictly with the fact that it is family borrowing. It's a pride thing. A year ago we were in a black hole financially. Once our roof is completed, and we have a $1,000 EF established, I want to start making progress on this inter-family loan.

What reason did they give you for loaning you that amount of money interest free?

My assumption would be - to help you get into a new home and save money on interest in the meantime. They could have loaned to you AND charged interest, but they didn't. They're wanting you to save money on interest.


Unless their intention has changed, or they are asking for payments, I would pay towards the CC debt 1st - to keep in line with their original intention on loaning you the money. And Jan 12 is coming up pretty soon - at a rate 3-5x higher than your other debts. I'd probably pay that one 1st.


And I'd make sure I'm doing whatever I can to make house #1 sell.


If they're asking for payments, then scratch my whole scenario. Family first.

[Bob B.]

Originally Posted by jpg7n16

What reason did they give you for loaning you that amount of money interest free?

My assumption would be - to help you get into a new home and save money on interest in the meantime. They could have loaned to you AND charged interest, but they didn't. They're wanting you to save money on interest.


Unless their intention has changed, or they are asking for payments, I would pay towards the CC debt 1st - to keep in line with their original intention on loaning you the money. And Jan 12 is coming up pretty soon - at a rate 3-5x higher than your other debts. I'd probably pay that one 1st.


And I'd make sure I'm doing whatever I can to make house #1 sell.


If they're asking for payments, then scratch my whole scenario. Family first.

No, they're not asking for payments. We are definitely trying to sell the house. Their intentions have not changed.

BUT, if house #1 sold next month, we would not have 20% equity to get a commercial loan against house #2. We will make nothing on house #1. In fact, we will need to bring some money to the closing table. I'm sure.

So, I guess the real reason I'd like to start making some progress on Mort 2 is so we can work toward 20% equity, so that when house #1 sells, we can borrow close to enough to pay our family members back, per the original agreement.

We owe $70,000. According to our latest tax bill, the State Equalized Value is $36,000, or the county assessor figures the house is worth $72,000. (At least that's how it's done in Michigan. Is this method common in other states?) I'm not sure what it would appriase for, but we certainly don't have 20% equity. I'd like to start working toward that.

[jpg7n16]

If that's your goal, then why not instead pay extra on mort1?

(Proceeds from sale) - (mortgage #1) = cash in your pocket

The smaller mort 1 is, the more cash in your pocket to pay on mort 2. And it saves some interest, where mort 2 is free.

Is home 1 upside down?

[paul_btam]

Wow, great progress! Try the "debt snowball method" if you're not already, it might help even more. Search in Google for it, there are tons of articles about. You probably would find mention of it in this forum as well.

[Bob B.]

Originally Posted by jpg7n16

Is home 1 upside down?

Yes home 1 is upside down - $20-30K.

[Eric80]

well done you have been doing really well! I just wanted to know whether you saw a debt advisor or whether you were doing this all on your own?