Pay minimum on credit cards or walk away from home?

[dasani_one]

I have about $85K in CC debt with about 7% average interest rate for all cards. It once topped $110K and I have since paid $25K down in 1.5 years. If I continue to pay about $1700 a month like I’m currently doing, I should be able to pay off my CC debt in 5 years. The min payment for all my cc total would be about $1300 a month. If I reduce my mthly payment to $1300, then that would extend it to 2 more years to pay off my CC debt.

Recently, my income has reduced and I am now negative $3-500 a month if I pay all my expenses including the $1700 cc. My mortgage payment is about $1800 a month. If I just pay min on my cc, I would be still poor but I’m still able to afford my mortgage barely. I bought my house at $270K, now worth probably less than $200K due to all the foreclosures around my area. I want to move out badly, but I can’t sell my home. I have also put around $30K into remodeling my home. It’s hard to let it go, but I know it will take at least 10-20 years for my house to break even now. I know that I am living in an overpriced home that I can barely afford.

I hate to tarnish my credit since I worked so hard to make it look good, but then again a credit report can only go so far. To me it would make more economic sense to just walk away from my home and live in an apartment for now.

[disneysteve]

Welcome. Post your income and all expenses for review. Do you have any savings or investments?

How did you rack up 110K in CC debt? What was all of that money spent on? Is there anything you could sell to raise money to repay debt?

Why did your income drop? Is there anything you can do to boost income - work overtime or extra shifts or pick up a second job?

[dasani_one]

We don’t have any savings accounts, but we do have 401k, IRAs and pensions totaling about $60K for the both of us. We are in our early 30’s and have a one year old. I’d like to keep our contributions to our 401k due to employer matching 100% of first 5% and tax reasons.

CC debts were spent on stupid things. Our income dropped due to pay and benefit cuts and brother moving out of home, so we are no longer receiving rental income. I would not consider having anyone else but family living with us.

Our mortgage is interest only and we have only one year left on it. After that, the rates will change. If the rates stay low as they are now, we might still be ok, but of course I don’t want to be dependent on rates.

Here are my expenses before and after paying min on CC and reducing some other expenses such as Netflix and cell phone:

My mthly income after taxes 3,060.00
Spouse's income after taxes 3,325.00

Spouse mthly 401k contribution (225.00)
My mthly 401k contribution (160.00)

Mastercard (350.00)
Chase (500.00)
Capital One (350.00)
Capital One 2 (170.00)
Schwab (300.00)

Auto loan (456.24)
Car Insurance (151.54)
Student Loan (211.72)
Mortgage (1,431.25)
2nd mortgage (280.18)
Electric Bill (150.00)
Term Life Insurance Spouse (56.40)
Term Life Insurance Me (23.84)
City Trash (21.00)
Heat (100.00)
Cable Bill/Internet (58.96)
City water/sewage (30.00)
Culligan water bottling (26.25)
Childcare (540.00)
Netflix (15.00)
Groceries (400.00)
Baby (150.00)
Personal Items (70.00)
Dining/Entertainment (75.00)
Gas (280.00)
cell phone (130.00)

Monthly $ (327.38)


AFTER
My mthly income after taxes 3,060.00
Spouse's income after taxes 3,325.00

Spouse mthly 401k contribution (225.00)
My mthly 401k contribution (160.00)

Mastercard (330.00)
Chase CC (200.00)
Capital One (320.00)
Capital One 2 (150.00)
Schwab CC (295.00)

Auto loan (456.24)
Car Insurance (151.54)
Student Loan (211.72)
Mortgage (1,431.25)
2nd mortgage (280.18)
Electric Bill (150.00)
Term Life Insurance Spouse (56.40)
Term Life Insurance Me (23.84)
City Trash (21.00)
Heat (100.00)
Cable Bill/Internet (58.96)
City water/sewage (30.00)
Culligan water bottling (26.25)
Childcare (540.00)

Groceries (400.00)
Baby (150.00)
Personal Items (70.00)
Dining/Entertainment
Gas (280.00)
cell phone (50.00)

Monthly $ 217.62




I have thought about the goods and bads of shortselling or foreclosing on our home.

Good
Save about $500-700 a month, $6K per year or $30K for 5 years
Pay off all debts in 5 years including cc, car loan and student loans

Bad
-Credit score
-Possible judgment liens against us from bank. Can they come after our retirement savings?
-The field I am studying for (finance) requires that I have no more than one judgment lien and bankruptcies.
-If I want to find a new job, credit might affect me. I suppose I could always explain if they really want me, but then again at the rate things are going, I won’t find a new job anyway.

The bank won’t work with us unless we are in default. All I want is to refinance it even at the same full mortgage price, just at a more affordable interest rate and plan. They won’t be making as much money off of us, but at least they won’t have to go through foreclosure.

[dasani_one]

We just bought our car in March 2010 brand new. Yes, another stupid move. I don't even know why I did it besides miscalculation of our income/expenses. Bought it for $33K, now probably worth $25K. Love our car, but what a loss. If we sell our car, we'll have to take out $10K from retirement to pay off car loan and then another $5K to buy a used car. $15K loss right there.

[disneysteve]

Can you post the outstanding balances for each debt?

I can tell you that looking at what you've posted so far, I see no reason for you to be considering walking away from your home. You guys make plenty of money. Your mortgage, even counting the second mortgage, is within reason for your income. Counting the 401k contributions, you earn $6,770/month and your two mortgages add up to $1,711/month which is about 25% of income.

Your problem isn't the house, it is all the other stuff.

Where did all the CC debt come from? Where did you spend $110,000? You said, "CC debts were spent on stupid things." Was any of it spent on stuff, things, clothing, gadgets, etc.? If so, I would sell as many of those things as you possibly can. You'll only recover a fraction of what you spent, but every bit counts toward debt repayment.

I say slash the spending to the bare minimum which you haven't done yet. Sell everything that isn't nailed down. Get second jobs and attack the debt.

[disneysteve]

Besides, if it really came down to it, I'd default on an unsecured debt (credit card) before I defaulted on a secured debt (house, car).