financial distress due to separation-advice please!

[lennygaudy]

Hello everyone,

I recently broke up from a decade-long relationship (not married just co-habitating) and am very concerned that I will not be able to afford the mortgage and bills on my salary alone.

I was hoping to get advice on navigating this situation since I'm not very good with finances. Here is my monthly financial situation right now (let me know if I should provide any other info):

Income: $3550 (take home)
Mortgage: $2453.07 (balance about 270k)
Equity Line: $135 min payment (bal 49k)
Mastercard: $285 min payment (bal $10,221 @ 30%)
Home Depot credit card: $25 min payment (bal $160)
Ikea credit card: $19 min payment ($447.35)
Electric bill: $250-$320 *
Water bill: $33 *
Home Alarm: $35.30 [I'm going to try to get out of the contract though]
Cable: $25.43
Lawn maintenance: $100
Gas: $150 *
Auto Insurance: $98 *
Prescription meds: $85 *
Student Loans: $225 (bal $23,110.54) [requested forbearance-recently granted until 8/11]
Pet food: $55 *
Misc: $330 [my sister and I split our disabled mother's expenses and this is my share]

I've been on my own for several months now and tried my best to stay afloat but after eating through the little savings I had then I had no choice but to start living off my credit card which is why I have over 10k on it now. Since then, the bills marked with an '*' above I have been paying with the Mastercard and sending only minimum payments to the card each month.

Most of the charges on my credit card (aside from the bills marked above) are for food since I have been eating out the past few months rather than cooking at home. I realize the 30% interest on the Mastercard is steep-it used to be much lower before I had a late payment that took me to default rate (more than doubled). I've considered doing a balance transfer to save on the interest but I'm hesitant to close the Mastercard account because I don't think another card will match its credit limit (32k) and I need to have some credit available especially now that I have no savings and am depending on credit to cover so many bills.

Currently I am one month behind on the mortgage. I just made my October payment today and the November payment is already due (due 1st of month). Wells Fargo Mortgage is processing a loan assistance application to see if I'm eligible for one of their programs. I should have an answer about this in about 3-4 weeks so until then I will have to continue regular payments.

I have spoken to a realtor about selling my home but because of the market (and the balance of my equity line) its not likely that I will be able to break even. He told me to do several things to the house to get it ready (painting, etc) so we can put it on the market for both sale and rental and see what happens. He thinks I should be able to get about $2100 as a rental, maybe a little more if I'm lucky.

I am really feeling overwhelmed though and keep thinking about just walking away from it. I would hate to ruin my credit but I don't know if it makes sense to keep throwing money at it and racking up debt to keep the house with no guarantee it will sell for enough in the end. If I just stopped paying the mortgage I would live rent-free until the foreclosure was finalized and could use the money to pay off my debt and re-start savings.

The rental option will alleviate my financial burden but I will still have to pay out-of-pocket to cover the mortgage and I will have to figure out a place to live. I can room with a friend who is looking for a roommate where I would pay $350 monthly and stay very close to work.

I was hoping someone could give me advice. I have a few specific questions (below) but any advice would be greatly appreciated at this point.

1. If house doesn't sell at price high enough to cover mortgage and equity line what are my options? Does the bank work with you at all or is foreclosure the only option?

2. Someone mentioned I could do a 'short sale' but not sure how that is different than foreclosure-anyone know about this?

3. Should I apply for more credit cards now before the late mortgage payment is reported to my credit report? Maybe another Visa or Mastercard and an Amex to use once I get out of this mess-I'm just afraid this is the last chance I have before my credit report gets hammered and I've heard its better for your credit score to have several revolving accounts.

4. How would foreclosure affect my overall credit standing? Is there a chance the credit card company will close my account once the foreclosure is reported to credit agencies? Or is it possible to maintain all my other accounts as-is and only have the mortgage in default/negative standing?

Thanks in advance for taking the time to read this and trying to help out. Again any advice at all will be greatly appreciated

[bjl584]

Without going any further your monthly expenses are coming in at around $4353 with a monthly take home of $3550. You are $803 in the red every month. You need to drastically cut your expenses and raise your income by picking up a second job and/or selling unneeded items.

Your mortgage and HELOC are killing you. Can you refinance, sell, or rent out a room?

Lawn maintence is $100 a month? You can buy a decent lawnmower for that and cut your own grass or pay a kid down the street half as much to do it for you.

Cable is a luxury. Cancel it.

You should be able to refinance the student loans. Have you looked into this?

You have to stop using the Credit cars ASAP. Cut back on expenses, get current on bills, then start chipping away at the balances.

[disneysteve]

Income: $3550 (take home)
Mortgage: $2453.07

This is really the only part of your post that matters. You can not spend 69% of your income on housing. You need to get rid of this house as soon as possible. If it isn't already on the market, you need to get it up for sale tomorrow. Renting it out at a loss of hundreds of dollars per month might buy you a little bit of time but will only delay the inevitable need to dump the house. I would suggest finding a roommate but even that won't really help because you can't even afford half of the mortgage payment (34.5% of income). I'm guessing your ex-partner was the primary wage earner. Whose name is on the loan? If it is you alone, how did you qualify? Did you formerly earn a lot more money?

As for your specific questions:

1 and 2. If the house doesn't sell for enough to cover the loans, that is a short sale and you have to negotiate with the lender to accept that as payment. That is one step better than foreclosure though still trashes your credit.

3. Absolutely not. Why would you possibly need more credit cards at this point? You need to clean up your debt, not find a way to rack up more.

4. Foreclosure or a short sale will wreck your credit rating. Short sale is a little better than foreclosure but not by much. I don't think that will affect your other accounts but I could be wrong about that. Besides, based on the 30% CC rate, your credit must not be all that great now. Stop worrying about your FICO score and start worrying about cleaning up this mess.

A couple of other comments: You mention trying to get out of the alarm contract but don't say anything about canceling cable or letting go the landscaper. I'd also be looking for a good home for the pet. And I'd have a long talk with your sister and mother and explain that right now, you are struggling to support yourself and can't possibly continue to afford to support your mother. I'd also be looking for any additional work I could find - delivering pizzas or papers or some other part-time work to supplement my income.

Good luck to you.

[jIM_Ohio]

Focus on 3 things

1) short term cut out all expenses which are not needed- mother's care, security system etc... you need to cut $800 off expenses immediately.

2) increase income- whether from a renter or similar. If you get a tax return, change withholdings so more comes home, you are shooting to get $800/mo more.

The total of #1 plus #2 needs to be about $900/mo- add $500/mo in income, subtract $400/mo in expenses, or subtract $700/mo in expenses and add $200/mo in income.
I would put house on market and get a second job immediately.

3) the bigger picture are any solutions not related to #1 and #2. For example I see lots of debt payments which add up to 600/mo

Equity Line: $135 min payment (bal 49k)
Mastercard: $285 min payment (bal $10,221 @ 30%)
Home Depot credit card: $25 min payment (bal $160)
Ikea credit card: $19 min payment ($447.35)
Home Alarm: $35.30 [I'm going to try to get out of the contract though]
Auto Insurance: $98 *
Student Loans: $225 (bal $23,110.54) [requested forbearance-recently granted until 8/11]

If you can work a second job which does the following:

1) takes home $900/mo to cover deficit immediately

2) then also gives $100/mo or more extra, you will be able to reduce budget by $600/mo once the quoted expenses are removed from the budget


mid term, you need that debt gone, it will save you $600/mo.

If you get a second job, add a renter (or two or three) and also reduce expenses, you should be able to fix this within 18 months, and probably 12 months.

[MonkeyMama]

What is your gross pay? Net check can be affected by a variety of factors. Are you putting money into a 401k or other retirement plan? The fact is that you may be due a huge tax refund (that mortgage interest is tax deductible) and that you may be able to increase your take-home with appropriate tax withholding.

I agree with getting renters, getting another job, and cutting out the crap you don't need (cable? gardener?)

That said, I don't think it is likely you can keep the house. But, doing all the above may help you hang on until you can get it sold or decide to walk away. Maybe you could keep the house, but not sure why you would want to. The cost is just insane compared to your income.

You really need good legal advice. Your best route is to probably find a good realtor who knows the ins and outs of foreclosures and short sales in your state. I wouldn't take any legal advice online. The laws vary from state to state, situation by situation, so well meaning people will just give you useless advice.

[skydivingchic]

The others have given you good advice. Working your way out of this mess won't be fun, but they are totally right about what needs to happen.

A few more questions:
Whose name is on the mortgage - only you or both you and the ex?
How is the house titled - joint tenants, tenants in common, etc?
If tenants in common, was there a written Tenants in Common agreement in place? What does it say about the house in the event of a breakup?

[myc2004]

I'm assuming since you're living by yourself, you have one or maybe two spare bedrooms in your house. With that said, why can't you rent out one or two of your rooms of the individual rooms while you live in your house. I've rented out two rooms from my townhouse and used the rental income to pay for graduate school and I'm currently paying off my mortgage debt with the rental income. If you would like mroe income. Let me know. I also started a blog to discuss topics related to renting out rooms.

The bottom line is that you need to raise your income to pay off your consumer debt. Obviously, you can't cut out important monthly expenses. Once you rent out a room, you'll have an extra $400-$600 in your budget. Think of how much relief that can bring month after month. That's $400-$600 from just one room, if you rented out two rooms you would be essentially doubling that amount and on your way to financial freedom.

[littleroc02us]

It will never work when your mortgage is 70% of your income. That would be insane to even try. Who is on the lending papers? Both of you or just you? I would sell that property tomorrow and rent for a while until you get back on your feet.

1 and 2 Try to find a buyer for your house and then work with the bank to sell it as a short sale with no recourse, which means the bank can't come after you for what the sale doesn't bring. A foreclosure is a last resort where you stop paying the mortgage and eventually they take your house after 6 months. Both will trash your credit but in my opinion is better than paying this huge mortgage payment.

3. NO!! That's a trap. Credit cards are the last thing you need.

* By the way, what is your ex's responsibility with the debt?

[muexm]

This statement really sticks out to me "I recently broke up from a decade-long relationship (not married just co-habitating)". How do you co-habitate and have a long distance relationship?

[disneysteve]

This statement really sticks out to me "I recently broke up from a decade-long relationship (not married just co-habitating)". How do you co-habitate and have a long distance relationship?

He didn't say long-distance. He just said long.

[wincrasher]

You are in quite a pickle.

If you want to save your credit, the best thing you can do is get one or two (or more if you have room) room-mates. You could do this in a week or two if you advertise right.

Selling your house on a short sale doesn't solve your immediate problem. That can take many months - and you still have to pay your mortgage.

If you decide the foreclosure route, that can take 6 months to a year. You wouldn't have to make the mortgage payment during that time. But you will devastate your credit - most likely down to the low 600's on your FICO. Not much better with a short sale either. It will take 7 years to come off your credit. With late payments showing, any interest rates you have can go to default rates.

Please stop going out to eat and charging bills to your credit card. You are just digging the hole deeper. You also can't afford to help your mom, as much as you want to.

Slash any expenses you can. Do the yard work yourself.

Good luck!

[cschin4]

Income: $3550 (take home)
Mortgage: $2453.07 (balance about 270k)

WOW! You need to sell ASAP. I hope you didn't let sig other just move out scot free! As for "breaking even", people need to get over that. Sorry, you might lose money. But, better to owe a little on a house you no longer have than owe a lot trying to keep a home you can no longer afford. Sell, sell, sell.

[cschin4]

Trying to rent this out would be a HUGE mistake at your debt level. Not just a small mistake but a HUGE mistake that will ultimately sink you. Don't buy into the "just rent it out" mantra as if that is somehow a magic bullet. That will be very detrimental to you and your situation. You are way overextended. The only other option I can see is finding someone to live with you and pay rent but do not move out and rent.

[littleroc02us]

The risk in renting is not having a renter, which means your paying the mortgage. Sell!

[Carl73]

Sell the house

You won't like it, but I think living in a house alone, while in a huge debt is foolish. You can't afford the place. I would suggest that you either go for a foreclosure or sell it to a willing buyer. Giving up the house and moving to a cheaper place can't be pleasant, but you will feel better once your debt disappears.