$50,000 In Debt...Advice Needed

[Fishindude77]

The cold hard facts are that you are carrying way too much debt. $80K Sounds like a good income and it is, but taxes get taken out and you are supporting four on it. That isn't enough income to comfortably afford $200,000 houses and a couple of new cars. Don't forget about the insurance and upkeep of these items also.

You need to make big scale Dave Ramsey / rice & beans type changes that make you uncomfortable for a while. Consider selling the house and one car then just rent for awhile or buy a cheap $100K house and a $5K paid for car for one of you.

Using the equity from your house sale, and eliminating one car payment you should be able to address the $50K problem very quickly. If you don't make some serious lifestyle changes that everyone in the family feels, I predict you will spend the wife's new income and compound your problem.

[scfr]

Boy, there is a lot I would like to say, but I am going to bite my tongue and just focus on what I see as some math problems.

1. Amount of Credit Card Debt: If the amount you owe right now is $50K, the amount that you will have paid over the course of 2 years, by the time it is all paid off if all goes smoothly and according to your plan, is NOT $50K. Won't it be more like $60-$65K once all of the interest charges are added on? If so, then your plan needs to be one based on paying off $60-65K in total (current cc debt plus future interest).

2. Net From House Sale: Let's say best case scenario you net $28K from the sale of your current home. What will you actually have left in the bank after you have paid overlap costs of owning 2 homes (I have yet to make a move where I didn't end up with double payments for at least a week or two, and sometimes more), required repairs following home inspection, moving costs (even if you DIY you probably have to pay to rent a truck and buy supplies), hookup and deposit fees for all of the utilities and services at the new home, buy-in fee for the neighborhood association. And what about your increased costs while your house is on the market? (It's past the kid's dinnertime and a realtor calls with 5 minute warning about a showing ... Guess what? You are going out to eat whether you want to or not.)

[creditcardfree]

I appreciate all of the comments. It is not relevant for now the reasons we got into so much CC debt. Fact is we are in debt and are already living almost check to check (we have $2000 in emergency savings). We rarely go out to eat (1-2 times a month) and I rarely go out to lunch for work. Bottom line is that we are already at the point where we are spending minimal amount per month so cutting back is not an option.

Actually it is relevant, if your credit card debt is primarily from overspending (or gambling) than your behavior that got you into that debt needs to change. Have you changed those behaviors? We don't know you, but those of us here have watched others in your situation succeed or fail based on how they behave with their money and spending.

You are definitely making assumptions about your plan and you are assuming those WILL go as planned. You are not taking into account if things don't pan out they way you want. That is what many are pointing out.

I looked back at your original post. You are forgetting the closing costs that you have to pay out of pocket. It's not just the down payment that will come from your home proceeds. It is honestly hard to tell you specifically what you are missing when you are not specific in your financial picture.

[msomnipotent]

If the reason why you are in debt has been corrected, you might want to look into an equity loan instead of selling. If you go this route, you might want to contact each credit card and ask to negotiate a payoff, but it will affect your credit score. Do you know what your credit score is? Have you looked up the selling prices (not the list price) of comparable homes? Would renting after selling instead of buying another house be cheaper in the long run?

[Starry436]

I think you're forgetting about closing costs for the new house and potentially the house you sell, because the buyer can ask you to pay closing which will cut into your profit. There's also inspection costs, costs to fix issues, costs to move, costs to refurnish the new house, etc.. And if you don't have control of your spending habits then the "profit" could be ate up before you apply the full amount to your debt.

The plan might sound good on paper to you because you're in a distressed time where you just want out of debt, but don't let that cloud your judgment of seeing the full picture. I would just say to not jump the gun too quickly, spend a couple more months doing research on your options, pulling all the numbers, all the potential outcomes then make a decision. Rushing and making decisions like this during a time of distress rarely turn out well.

On the other hand, it kind of seems like you have made up your mind about selling your home to be the answer to pay off debt. So what information are you looking to get out of this post? I don't think any of us are against completely what your idea is, we just don't necessarily have enough information into the picture to accurately provide guidance.

[Benderz]

As someone who has climbed a mountain similar to yours and is now several years on the other side... All I can say is keep chipping away at it. Stick to your budget, be smart with all income, and focus on a the long term strategy. I agree with all the others, unless you want to sell the house for other reasons, this one seem to fit within your limits. Since you have moved a couple of times you know that moving is a pain and makes you take your eye off the ball.

If the house didn't fit within your limits, then I would suggest to sell it, rent, pay off all your debt with cash flow. Then save for emergency fund and a large down payment for the next house while debt free.

[HockeyDad3223]

Opinions

I appreciate all of the opinions. Some added information from me might have helped with some responses. First off we have not used credit cards for 2-3 years now after spending our way into so much debt (partly due to medical reasons, partly due to thinking income will cover CC's and spending over our heads). TRUST ME we have learned our lesson and know how to spend/save properly now.

We have looked at comparable houses and actually have a realtor coming over Thursday to give us an official "Here is what I should be able sell your house for". For those who say "How do you know you will be able to sell your house" you are right we don't know for sure but it will cost us almost nothing monetarily to list the house and see if we can get what we want. I don't want a home equity loan because that is MORE DEBT that I will have to pay off. We will NOT buy a new house until ours is sold so no double mortgage there. Worst case is we can rent something and get storage until we find the right house for us. Moving does suck and does cost some money but it would 100% be worth it if we got the house profit we believe we will get.

For those saying it is a convoluted plan I don't see how? If we don't sell the house for the amount we need to considering all selling fees (realtor/taxes/other) then we will not sell the house and look to other debt options. I am not being difficult I just don't see how that is convoluted?
I used one of the many online house selling calculators where you input the sale of your house, realtor fee %, state lived in, etc. and if my house sells for what comparables sell for in my neighborhood then I will literally profit $42,000. Again, assuming I am pre-approved for a FHA loan with 3.5% down (that is one of the main benefits of a FHA loan) on a new $150,000-$200,000 (at the most) house then that leaves me with $33,000-$35,000 after down payment. Again, not convoluted in my opinion...we either get approved for FHA or not and we rent for a short while. I have $3000 or so in savings now that I can use for any unknown new house expenses.

So if I sell my house for my required asking price (or close) and get a FHA loan then I can pay off $35k from CC's right away. The rest I can (mostly) pay off over the next 6-18 months with my "extra" income that I am not using anymore for the paid off CC's and whatever income my wife will be bringing in, even if it is retail level income.

I appreciate all of the advice but I am surprised not one person seemed to consider the merits of my plan...paying off big CC debt right away and the rest relatively soon after?

My wife and I are 100% on the same page and committed to paying off all of our CC debt. We do not owe any money on our 2007 and 2011 cars so aside from the mortgage and CC debt and utilities (which are at a minimum) there is not much to cut back. We both feel that unless there is something obvious this is the best plan for us right now if we don't want to spend the next 10 years paying off CC debt and living almost check to check.

So bottom line is: We are committed to paying off debt, committed to using all our extra income after (if) we sell our house to pay off remaining debt, and most importantly committed to getting rid of all CC's (except a low limit one for online purchases) and only living off what we have in the bank.

[HockeyDad3223]

Options

I hope I am not coming off as difficult or hard headed. I don't want to say my mind is made up but I don't really see any good alternatives to paying off a lot of my debt soon?
As far as closing costs go, again I used an online calculator and I also read that in general if you take 92.5% of the amount you sell your house for that should be your approximate profit.

Some of you have said I am painting an incomplete picture...what other information can I provide that will help with any advice for my plan or some other viable quick debt payoff alternative?

[disneysteve]

what other information can I provide that will help with any advice for my plan

Posting your current budget would be very helpful.

[disneysteve]

No matter what, I’d say no to your plan for one reason alone. You shouldn’t buy a house with only 3.5% down.

[HockeyDad3223]

3.5% Down

Aside from having just about zero equity in a new house with only 3.5% down, what other reasons are bad with that low of a down payment. I know we will pay PMI so that would be one? Any other reasons?

[Starry436]

Aside from having just about zero equity in a new house with only 3.5% down, what other reasons are bad with that low of a down payment. I know we will pay PMI so that would be one? Any other reasons?

I think on an FHA loan, you will pay PMI for the life of the loan and also there are restrictions on what type of home they'll let you buy. I'm not certain on this, but definitely do your research on an FHA loan.

[Gailete]

Aside from having just about zero equity in a new house with only 3.5% down, what other reasons are bad with that low of a down payment. I know we will pay PMI so that would be one? Any other reasons?

I suspect that if you do the math for the interest you will pay for the 3.5% down loan plus the pmi, you will find that it would have been much cheaper to pay on those credit cards and forget about selling your house and immediately buying another one.

Or sell your house, pay of the cc and then rent the cheapest place you can get for the next 2-4 years while you save up for a 20% downpayment on a new house. The interest you pay on loans is a fascinating thing to look at the numbers. This past year I have been making extra principal payments on our rental property. While doing our taxes today, I noted that this year we paid half of the interest that we had the year before. We also just paid off one of the loans and the other one sould be paid off within a few weeks. Not slated to have been paid off until September. As 3.5% downpayment loan, unless you buy a super cheap house, is going to be all interest and PMI for years.

[creditcardfree]

I suspect that if you do the math for the interest you will pay for the 3.5% down loan plus the pmi, you will find that it would have been much cheaper to pay on those credit cards and forget about selling your house and immediately buying another one.

Yep, this is the other reason you are not seeing and we clearly weren't explaining well. You are shifting the debt in the form of a housing loan. Yes, you paid off the credit cards or most of them. But you now have a housing loan that is with nearly limited equity and you are now paying interest on more debt (a housing loan) Yes, the interest is likely cheaper than the credit cards. But over 30 years that ends up being a lot of money. Whether it's more or less is a math problem you need to look into.

It sort of seems that you are looking to get rid of the high credit card payments and shift to a lower payment where that debt is included in your loan. If you only look at the payments you pay each month you are missing the whole picture.

If it were me, I'd shift the debt to a current loan equity loan because yes, lower interest IS a good thing on debt. I'd pay off the credit cards with the loan proceeds. I would put my focus on paying off the home equity loan as soon as possible. Seems so much easier and cheaper in the long run than moving...and I'm an expert mover (military, it's a big pain).

I will grant you that you have not provided your current house value, mortgage payment and interest. So maybe you are shifting down in value. But without actual numbers we cannot tell you that it is wise. And by providing more information on your take home pay, and expenses we might be able to give you more specific advice on other options than the one you are proposing.

[msomnipotent]

I read that you used a calculator to determine the value of your current home, but did you calculate how much this new home is going to cost? Even if it is cheaper than your current home, the monthly payment might be higher than it is now due to PMI and the low down payment. If you don't want the equity loan, I would rent for a while until you had a better down payment.