seeking advice - how to dig out of a mess

[EastCoast432]

Hi, I’m trying to get our family out of a financial mess and looking for opinions and options. Basically, we refinanced our house several times during the last 10 years to consolidate debt, but we continued to incur debt (had a series of unexpected major home and auto repairs, plus significant medical/legal expenses, plus not paying attention to debt/finance until it was out of control) and now we have a large mortgage PLUS large credit card bills. We’ve reduced our spending and basically no longer use credit cards, but it’s very slow going digging out of this much debt. I feel like something more drastic needs to happen for us to get back on a path toward savings before it's too late.
A few bits of information:
My rough estimate of our house’s current value is about $575K - $600K
We’re 48 and 38 years old, with a 6 year old child
We owe about $500K on the house
We owe about $45K in credit card debt (unfortunately all at high rates, 20% and up. the companies said no to my requests to reduce the rates, and we have too much debt for a new lower interest rate card to take it on)
We have about $80K in a 401K, but basically no other savings (just around $2K that we dip into occasionally)
Our combined (gross) family income is a little over $200K
As I see it, our options are:
· Status quo: Continue struggling like we are and sending thousands of dollars a month to high interest credit cards, taking years to dig out of debt
· I can get a 2nd job and dedicate the 2nd income to debt -- but at a high emotional/family cost.
· Sell the house, pay off the credit cards with the small profit we’d make, move into a rental and start over
· Try to consolidate our bills and mortgage one last time to bring the payments down, rent our house out so a renter could cover the mortgage and we could try to rebuild some equity in the house. We could then move to a rental in a neighborhood closer to our daughter’s school (which would be an extra benefit) for a few years to save some money without losing the house and equity. However, in that scenario we would not have an immediate chunk of money to wipe out the debt.
What are your thoughts? I’m so reluctant to give up on the house, but maybe that’s the best thing to do in our situation? I just don’t know.
Thanks in advance for any thoughts,
Worried on the East Coast

[riverwed070707]

You're looking for a quick fix to a long term problem. It took you years to accumulate this debt and it's going to take you years to get out of it.

That said, it can be done. I think the last option should not be an option. You don't want to further consolidate as that's only delaying the problem. You make decent money and with some strict budgeting and planning you can tackle this. Can you start by posting a budget and see if any of us have suggestions for freeing up some extra cash flow before we decide what the best way to proceed is?

[LivingAlmostLarge]

$200k and you owe $500k on the house? You can afford it, but you probably need to cut your budget. So what does the budget look like?

[frugalgirl]

Do you have a budget? Where is that 200k going?

With an income as high as yours, you should be able to dig out of this credit card debt pretty quickly. That will require cutting back on all of your expenses. Just because the mortgage is your biggest expense doesn't mean you aren't wasting a lot of money in other areas.
That's money that could be used to pay down that high interest credit card debt or go to retirement savings or to the mortgage (or down payment on a less expensive house).

I'd sell the house. Then I'd pay off my debts and rent something that would allow me to save enough to have an emergency savings fund and then save a down payment for the next house.

If you are 48, are used to living on 200k, and only have 80k in retirement savings (not to mention no emergency savings), you better start pumping money into your retirement accounts ASAP or you are going to be living like a pauper by comparison when you retire.

[Hector]

I might not take second job because by doing this I wont able to spend any time with my family at all. But if you are not willing to stat living under your means, you will have no choice, but to do so and still you wont go far because income is not your issue. Spending is.

45k in CC at 20% is insane. I would sell the house and start renting a place big enough for my need and not want near daughter's school. Seems like you have 75-100k in equity. even after all cost associated with selling house, you should have more than 45k to pay of cc debt. Put rest in your EF id you dont have one already. Forget about equity in house. I doubt that you will build enough equity to compensate the interest that you are paying on credit card. Also you are 48 yrs old and you should downsize to face the reality and live under your means. By selling and renting a place just big enough for your need, you will save a lot in CC interest and you will have enough cash flow to accelerate your retirement savings.

you are struggling with 200k income. Imagine how bad things will be when you will stop getting paycheck and you wont have enough money in your retirement to pay your bills. if I were you, I would act right now.

[Petunia 100]

I don't see that you have the ability to do another cash out refi. You can't go more than 80% LTV on a cash out refi. If your house appraises at 600k, your new loan can be a max of 480k. You owe 500k now, so there is no room to borrow.

Where is all of your money going each month? You make far more than most people. Live on 155k for one year and your 45k credit card debt is gone.

I couldn't agree more that you need to get a handle on your spending NOW. The maximum SS benefit is approximately 26k per year. Your 80k of retirement savings should more than double before retirement. If it doubles twice, you will have a nest egg of 320k. That will provide 12k per year assuming a 4% less expenses withdrawal rate. That's 38k per year. You're having trouble staying out of debt on 200k per year now. If living on 38k per year doesn't sound appealing, the time to do something is RIGHT NOW.

If you don't know where your money is going, it is time to figure it out. You need a budget. Personally, I like mint.com. The method you choose doesn't matter.

Good luck to you!

[bjl584]

Hi, I’m trying to get our family out of a financial mess and looking for opinions and options. Basically, we refinanced our house several times during the last 10 years to consolidate debt, but we continued to incur debt (had a series of unexpected major home and auto repairs, plus significant medical/legal expenses, plus not paying attention to debt/finance until it was out of control) and now we have a large mortgage PLUS large credit card bills. We’ve reduced our spending and basically no longer use credit cards, but it’s very slow going digging out of this much debt. I feel like something more drastic needs to happen for us to get back on a path toward savings before it's too late.
A few bits of information:
My rough estimate of our house’s current value is about $575K - $600K
We’re 48 and 38 years old, with a 6 year old child
We owe about $500K on the house
We owe about $45K in credit card debt (unfortunately all at high rates, 20% and up. the companies said no to my requests to reduce the rates, and we have too much debt for a new lower interest rate card to take it on)
We have about $80K in a 401K, but basically no other savings (just around $2K that we dip into occasionally)
Our combined (gross) family income is a little over $200K
As I see it, our options are:
· Status quo: Continue struggling like we are and sending thousands of dollars a month to high interest credit cards, taking years to dig out of debt
· I can get a 2nd job and dedicate the 2nd income to debt -- but at a high emotional/family cost.
· Sell the house, pay off the credit cards with the small profit we’d make, move into a rental and start over
· Try to consolidate our bills and mortgage one last time to bring the payments down, rent our house out so a renter could cover the mortgage and we could try to rebuild some equity in the house. We could then move to a rental in a neighborhood closer to our daughter’s school (which would be an extra benefit) for a few years to save some money without losing the house and equity. However, in that scenario we would not have an immediate chunk of money to wipe out the debt.
What are your thoughts? I’m so reluctant to give up on the house, but maybe that’s the best thing to do in our situation? I just don’t know.
Thanks in advance for any thoughts,
Worried on the East Coast

Please post your budget. Earning 200K and not having anything to show for it can only mean that you are hemorrhaging money all over the place. There has to be someplace that you can cut down on your expenses. 45K in CC debt is not alot with your incomes. You should be able to have it paid off very quickly, but you will need to cut back in other places. Post as detailed a list as you can as to where all the money goes in a typical month.

[dawnwes]

I am going to come right out and say this.

MOST people I know who consolodate loans into a 2nd mortgage or refi aren't truely committed to staying out of debt.

Time after time I have seen people refi only to go out within a month and get a new car loan or worse.

If you truely are committed to gettting out of debt and staying out of debt, you need to make some hard mental changes to your lifestyle.

1. Take a long hard look at your budget and cut out ALL unnecessary spending. This may include eating out, cable, downsizing your cell phone bills, etc....It may even mean selling a car and downgrading or selling your home and downgrading. I truely don't know as I don't know your current budget.

2. Get a PLAN in mind and on paper.....how much extra can you come up with each month if you cut out or cut drastically on the above?

3. Call the CC companies and ask for lower interest rates again!

4. Now look at all your necessary spending: Shelter, Food, Clothing, Transporation......where can you cut back or change there? Can you eat grilled chicken instead of salmon? Can you coupon? Can you make from scratch instead of buying pre-made? Can you thrift store shop for clothing or go without new clothing for a while?

You CAN do this!

Dawn

[Hector]

Please post your budget. Earning 200K and not having anything to show for it can only mean that you are hemorrhaging money all over the place. There has to be someplace that you can cut down on your expenses. 45K in CC debt is not alot with your incomes. You should be able to have it paid off very quickly, but you will need to cut back in other places. Post as detailed a list as you can as to where all the money goes in a typical month.

I think 45k in cc debt is a lot with income of 200k. regardless income, to come up/save 25% cash of gross income is a lot.
its like coming up with 25k if you income is 100k or coming up with 12.5k if you income is 50k. I think its a lot.

[uRabbit]

Something tells me there's no budget.

[adstalker]

definitely call the CC companies and try to negotiate the debt. Instead of selling your house perhaps you can consider renting out a couple of rooms to renters?

[LivingAlmostLarge]

Everyone says sell house and pay off debt. I think that's the worse thing to do. The person learns nothing. They don't even learn how to pay off debt. They take the easy way out. And I bet when they "buy"another house it won't even help because how will they save the DP?

It may cost more in the long run, but sometimes it's better to actually pay off debt.

[bjl584]

I think 45k in cc debt is a lot with income of 200k. regardless income, to come up/save 25% cash of gross income is a lot.
its like coming up with 25k if you income is 100k or coming up with 12.5k if you income is 50k. I think its a lot.

It's alot, but it's not overwhelming, and it's not anyhting that can't be managed and taken care of with proper budgeting and disipline.

About 10 years ago my Mom got in trouble with credit cards. She racked up $45,000 in CC debt on an income of $50,000. Now that was a lot.

[Frugal]

I agree that it takes years to get out of a problem as big as this one.

[disneysteve]

Someone earning 200K should have no trouble paying off the CC debt within a year. The problem, as others have said, is probably lack of a budget. Post your expenses and we'll show you where the problems lie.