Please help

[wishes2bfrugal]

My wife and I are one of those couples who bought more house than they could afford last year. We owe $300k on a house worth about $280k. In addition to being upside down, we have a $2,000 interest only monthly payment and an extra $300 a month in utility bills.

My wife had an unexpected surgery and we went from being ok financially with $4k in savings to having all of our credit cards maxed out and $0 in savings. We cut the cable and gym membership out last month. We spend about $400 in groceries between us and the children.

The issue is that I want to sell my house but my wife doesn't. We have a prepayment penalty in our contract of $12,000 (6 months worth of interest) if we payoff the note in the first 3 years (January 2008 will be 1 year). Plus we would have to pay closing costs and realtor fees in addition to the shortage between the selling price and the note. I want to cut our losses now, sell the house for whatever we can get, finance the unpaid balance (we have good credit and I'm sure we can get a signature for the amount owed) then rebuild and try again. We would save $2,500 a month and we could rent the same house we live in for $1300 - $1400 a month that is if we stay in the same neighborhood.

It's not worth it to me to sacrifice so much and take away from the children plus I can't handle the pressure anymore. We can't afford to go anywhere or do anything as a family because all of our money is going into a money pit.

My wife is a stay at home mom and suggested a few months ago just walking away. I don't want to do that because we have good credit. She has this home customer service job she does at night but it pays $100 per week. I also started the home customer service job as well but got burnt out after a couple of weeks.

I am resorting to cutting off putting money into my 401k. I don't have anywhere else to go. My car is paid for but we have another vehicle we owe $16k on but it is only worth $10k. I would get rid of it if I could.

Please feel free to offer suggestions. How can I help convince my wife we should sell our house or am I the misguided one?

[Broken Arrow]

First of all, let me extend my deepest sympathies. Your wife needed surgery, but that also gave way to financial difficulties. Except for the surgery part, my ex and I was the same way in that we bought more house than we could handle. I also wanted to sell it off, she didn't, but ended up selling it anyway because we ended up divorced. So, I can relate, and again, I hope that things turn around for you soon.

As for the house, well, even though I've been in that hot seat before, I don't think that I am qualified to opine as to what to do. When it comes down to it, it really depends on you and your wife.

Having said that, I would do everything possible to keep the financial ship afloat. Yeah, you know what? Even the house and 401k would be an option for me as well. At least until things have stabilized.... Of course, the penalty on the house is pretty hefty....

Again, I don't know, but I really do wish you and your family the best.

[DebbieL]

You need to dump that house pronto (and obviously NEVER get yourself into this situation again). The housing market is nowhere near the bottom yet (just wait until even more people default on all these crap loans when all those ARMs adjust in the next year or two). Get out while you still can with the least loss and rent for a far more reasonable price (why pay $2000 in interest only which gets you nowhere - and loses in a falling market - when you can rent for $1300 and put away the difference in savings).

[terry1156]

You don't mention how much your credit card debt is with all of the cards maxed out, but I assume that this is the area that is going to make it difficult for you to make the monthly mortgage payments.

If the choice is selling now with a big loss or waiting a few months and just walking away, sell now with the loses. It still isn't going to be pretty and you probably will need to downsize a bit for awhile, but I think you will come out much better than defaulting and all the problems that will cause.

I would talk with your mortgage company and try to get the prepayment waived. There is no guarantee, but if you explain that the choice is waiving the prepayment or defaulting on the loan, they should be willing to listen (and at least reduce it). They definitely don't want you to default as they will come out in much worse shape too.

[minnie1928]

With regard to your 401k, if you are in dire need of funds then at the very least cut the 401k contribution back. Is there really any point in investing in your 401k if you are, in effect, paying for that contribution by putting living expenses on a credit card? I say put the 401k on hold for a few months until you are able to get things settled down. At that point you can jump back in.

[wishes2bfrugal]

Thank you for taking the time to respond to my posting. The feedback is encouraging.

[Tree0164]

How about posting your monthly budget-we can see if anything can be tweaked. Bottom line how much is going out vs coming in.

If you wife works one of the customer service jobs like LiveOps and only earning $100 she could be earning alot more than that. Work Place Like Home has some good tips for maximazing her earnings there.

[wishes2bfrugal]

Monthly Expenses

Tree,

Thanks for the help. Here are my details:

Coming In - $4300.00

Going Out
Mortgage - 2000.00
Vehicle #1 - 450.00
Vehicle #2 - 0.00
Gas - 40.00
Electric 250.00
Water 65.00
Phone/DSL - 60.00
Food - 500.00 - 600.00
CC #1 - 200.00, balance 8,300.00, apr 0.00%
CC #2 - 150.00, balance 8,000.00, apr 14%
CC #3 - 200.00, balance 2,500.00, apr 23%
Insurance - 160.00

I canceled my 401k this week so I will have an extra $300 each month to pay towards bills. I also have a credit card with a 0 balance and $6,500 credit limit that is offerening 6.9% APR on balance transfers until 4/08.

I pulled $3000 out of savings and paid down the card with 23% apr so the balance is now at $2,500. The remaining $2,500 will be transfered over to the card with the 6.9% apr. Funny thing is that this card that I am paying off has 0.00% APR on balance transfers so I was thinking of moving the $8,000 at 14% apr over to this card so all of my payment goes to principal. However, there is a $200 balance transfer fee so I was skeptical at first but that is just one months interest so I figure I would still be better off with moving the balance to 0%.

[FrugalFish]

I would also sell the house and take the 32,000 loss (20K on the house, 12K prepayment), and here's my logic:

If it's stressing you, it's not good for you. You're working too hard for a house that is giving you nothing more than if you were renting. It may have been different when prices were climbing, but now that they are dropping, you are losing more and more money each month. The longer you wait, the more trapped you will feel. Don't let a house end up making you physically sick.

If you sell the house and rent for $1300/month, that will be $700 less than your payments at present. Using that $700, you can break even on your $32K loss within 4 years. Home ownership may be appealing, but renting is not without its high points too.

If your gut is telling you to get out while the getting is good enough, then do it.

Good luck to you.

[Ima saver]

I agree with the others, you need to sell the house an soon as possible. I am so sorry for all the stress this must be causing you.

[Tree0164]

If you listed everything in your budget it comes to $4,165 which while not great is less than what you are taking home.

A few things stand out:
1. Your food budget- I don't know how many kids you have but I have 3 boys family of 5 and spend no more than $400 a month. Are you eating out at all? Or is that from the grocery store. If your wife is at home, she should be trying to cook from starch as much as possible. This site has a ton of ways to really cut down your food budget.
2. Electricity seems high -make sure lights. tv are not on when not in use.
3. That car payment is high if you sold the car could you get an older car and have a much smaller car payment.
4. Pay the balance transfer game with the credit cards-take advantage of that 0% interest.
5. As suggested before make sure you wife is really taking advantage of the work at home c/s job. While it maybe stressful, you make want to take advantage of it since you are an operator.
6. Pick up Dave Ramsey's book from the library.

I really don't think that this is all hopeless. I would give it another 3-4 months before making any decisions.

Good luck

[minnie1928]

If you listed everything in your budget it comes to $4,165 which while not great is less than what you are taking home.

A few things stand out:
1. Your food budget- I don't know how many kids you have but I have 3 boys family of 5 and spend no more than $400 a month. Are you eating out at all? Or is that from the grocery store. If your wife is at home, she should be trying to cook from starch as much as possible. This site has a ton of ways to really cut down your food budget.
2. Electricity seems high -make sure lights. tv are not on when not in use.
3. That car payment is high if you sold the car could you get an older car and have a much smaller car payment.
4. Pay the balance transfer game with the credit cards-take advantage of that 0% interest.
5. As suggested before make sure you wife is really taking advantage of the work at home c/s job. While it maybe stressful, you make want to take advantage of it since you are an operator.
6. Pick up Dave Ramsey's book from the library.

I really don't think that this is all hopeless. I would give it another 3-4 months before making any decisions.

Good luck

Some great comments there. To add to those:
1. Groceries are usually an easy place to cut some expenses. Really price shop, use coupons if they are a good deal.
2. I also agree that the electric bill seems high. Plug things like TVs, VCR, etc into a power strip and turn the strip off when you are done using them. If an item has one of those big clunky black boxes on the plug, unplug it as soon as you are done using/charging the item. Those boxes continue to draw power even if you are not using the item at the moment. Same thing for items that have a clock (like my coffeemaker), it's drawing power to run the clock 24/7.
3. Cheaper car may have cheaper insurance. Look for one that gets good gas mileage too.
4. Definately! Keep notes when various rates/terms will expire. Also, make sure that you pay EVERY card before the due date. Many of these offers have a clause in them that allows them to jack the rate up if you are late on ANY of your cards.
6. Dave did wonders for us, I'm sure it'll work for you too!

Best of luck!

[LuckyRobin]

I'd sell the paid for car. If your wife is a SAHM you only need one car. (I'm a SAHM and we lived for years with one car). On the occassions when one of the kids needs to go to the doctor or dentist she can drive you to work that day and keep the car. You can use the money to pay some on your debt. Your insurance should go down as well.

I'd also look into the electric. Make sure your hot water heater is not turned up to high and get a timer for it so that it isn't heating during the night when no one needs hot water. Proper hot water tank management can drop a bill 30% according to my electric company. I'd also suggest not using the dryer. Hang up an old fashioned clothes line or use drying racks. Not using a dryer can drop $20 to 30 a month off your electric bill. Does your heater/A.C. have a programmable option so that you aren't heating or cooling for 24 hours during the hours of the day or night when the need isn't there?

I don't know if your food budget is high or not since I don't know your family size or the ages of kids, obviously teens will eat more than a six year old. But it is a place to check. Look into less expensive meats, dark meat chicken, turkey legs, etc. Use meat more as an ingredient then a main dish. Eat a lot of potatoes and rice and whole wheat bread to fill you up. Shop at scratch and dent, grocery outlets, Big Lots, Kmart and WalMart for what you can use. Even the ones without super centers have grocery sections these days. If it is cheaper to buy milk at the gas station buy it there.

Have your wife check out the Complete Tightwad Gazette from the library to learn ways to cut the grocery budget easily. And read it yourself. You'll pick up tons of helpful money-saving tips in a format that won't bore you senseless.