Sell House to Pay Debt?

[GiantRobo]

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?

[jIM_Ohio]

list budget (income and expenses)
list debt (amounts and interest rates)

[GiantRobo]

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.

[jIM_Ohio]

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

Can you list the balances on each debt please?

thx

[disneysteve]

Our total take home is $7500 per month

Car Payment - $262.75

Comcast - $94.53 (cable and Internet, necessity for work)

I put whatever the different is each month to the highest interest card.

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.

Sell the car. Buy a beater with cash to replace it.

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.

[GiantRobo]

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.

[GiantRobo]

@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.

[littleroc02us]

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.

[EconoMutt]

If you are able to find a good place to rent for a decent monthly rent payment, I'd sell the house. Then pay off the high interest cards.

[GiantRobo]

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.

[jpg7n16]

If you are able to find a good place to rent for a decent monthly rent payment, I'd sell the house. Then pay off the high interest cards.

Agreed. If your family can handle the move (obviously it's not ideal), it would save your family thousands in interest. Literal not exaggerated.

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.

[disneysteve]

@disneysteve selling the car isn't an option, I owe slightly more than I could get for it.

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.

Just because you are upside down on the car loan is no reason to keep it. Sell it. Borrow the difference and replace it with something cheap. You'll still owe money, but not nearly as much.

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.

[GiantRobo]

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?

[disneysteve]

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?

I don't think owning a home really has any bearing on your credit. If you pay your bills on time and aren't over-extended, your FICO will improve. Once you have everything cleaned up, you can start saving for a 20% down payment. By the time that happens, your FICO will probably be far better than it is today.

[jIM_Ohio]

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?

Is it better to have a credit score of 800 and $300,000 in debt, or no debt and a lower credit score?

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.