Family debt question

[Seeker]

Really? Maybe you are single? For two people 2k goes pretty fast. Wife and I spend about $3000/month oustide of house payment and I consider ourselves extremely frugal. I don't know how any couple could live on 2k.

I think the problem for this couple is just not enough income.

Well, Snodog, I think location has a lot to do with this.

My husband and I do spend quite a bit less than 2k a month on bills outside of mortgage and HOA fees. Even with HOA fees, we do not come close to 2k.

[Seeker]

For us, sans "housing" means:

Property taxes & contents insurance: $300/month
Auto/Life ins: $250/month
House Util: gas $20/month, water/power $45 (billed $90 every odd month), DSL/home & two cell phones $120
Food: $450
Donations:$100 or so.
auto maint/gasoline: $250 month

I count HOA fees as part of housing, but even with HOA fees lumped in, our monthly needs would not total out to 2k per month.

DH and I have no children, so no tuition nor education costs remaining nor to save for. As far as our automobiles, if we had to replace we could buy outright (we have a rather large EF now, just in case).

And California does not have a lot of other states' harsh winters, so our heating costs are very minimal. In fact, our "gas" bill is spent for water heater, oven, and gas clothes dryer; as our air heater was never turned back on after the facilities were tented (for termites) in the '90s.

So yes, outside of housing, we don't spent a lot of money in the whole scheme of things.

Many people in this state hurt because housing is their MAJOR expense taking 30% (or more) of their income. "Housing" is way overpriced in this state even now; nor is renting much different.

[Seeker]

I guess what I'm trying to say here, is that this In-laws family has a mortgage of less than 8% of their income.

If they do a house consolidation loan and are paying more than 2k a month on current expenses (excluding credit cards), how in the world does anyone expect them to be able to pay more income back to the second mortgage, HELOC or whatever route is best for their situation? Especially since they plan on retiring in 4 years.

Their cc debts are 23k... their housing debt is 16k... so 39k owed total.

If they don't touch the first loan (and keep the low payment of $150/month) and choose to go with a 30k HELOC for 15 years at like 8% (the going rate for HELOCs) this payment would be like almost $300/month.

Can they cover both the first and the HELOC under Social Security payments AND their regular expenses (whatever those would be)?

I agree that they do not have a great income, but at this stage of the game (4 years before retiring), they should not be looking at risking their home.

Their expenses and budget needs to be looked at very closely. And "retirement" will probably need to be postponed.

[jIM_Ohio]

Another way to look at this problem is to do a retirement "check up".

If they take home $2200/month, and spend it all, that is $26400 of expenses per year.

To retire on that comfortably, they would need
26400*25=$660,000 in retirement accounts, SS or pension.
If they know SS will pay them $X, redo the math.


For example if SS is a payment of $1250 per month, then the math is
$1250*12=$15,000

26400-15000=11400
11400*25=$285,000

So if they are not counting on SS, they need $660k saved
If they have a modest SS check, then its possible they need less than half of that.

When they retire, they will need a checklist...
house paid for (for example)
a plan to replace cars
a plan for house repairs
a plan for house improvements

most of this can be done with budgeting, so I go back to other comments- what are they spending the $2200/mo on currently?

For retirement, add in some line items to the budget:

1) add in a house repair budget of $1000 per year.
2) add in a house improvements budget of $200 per year (allows for 1 room to be painted or redecorated per year)
3) add in a car replacement fund of $4000 per year. Every 6 years they can spend $24,000 on a car (for example)

The $5200 per year I added in here means they need $130,000 in retirement accounts just to account for these expenses in retirement.

All of the issues mentioned by others can be planned for, its just a matter of how much planning and number crunching someone can take.
3)

[wincrasher]

I would not recommend changing unsecured debt for secured debt. Especially against their home.

Better to formulate a payoff plan to address their unsecured debt as quickly as possible. A little pain along the way may serve a greater purpose.

Retirement may be possible, but I suspect, like most, the eventual medical expenses will wipe out their home equity. But at least they would have it when that day comes.