I'm in over my head

[a0034d]

We purchased a home in Feb. The balance on the mortgage is 196900, monthly pymts are 1350. I am married; both my & dh's score are considered fair (in the 590's). We've had some late pymts in the past 30,60, & one 90. My dh has always been in charge of the money. Well, he decided it would be better for me to keep up with everything right after we bought the new house. Now I see why. We are in debt up to our eyeballs. I realize I should have paid more attention to this and noticed before now but I didn't. I would like so suggestions on what is the best route to get this debt paid down fast! Here's a breakdown of our debt. Our monthly income is 4920 after 401k, savings, etc.

Mortgage             $196900   $1350       5.5%

Auto Loan             $13,000      $545          16.50% (vehicle)

Store Credit card   $300           $15            20.90% (CC)

Personal Loan #1   $1,267        $115          ? Over 15% (Installment)

Personal Loan #2   $2,046        $125          ? Over 15%  (Installment)

Personal Loan #3   $2,289        $165          ? Over 15% (Installment)

Credit Card #1       $2,000         $80           26.40% (Installment)

Credit Card #2        $300           $20           29.24% (CC)

Credit Card #3        $300           $20           29.74%  (CC)

Credit Card #4        $500           $30           15.40% (CC)

Credit Card #5        $1,600        $50            14.99% (CC)

Applied Bank         $500           $20             23.99% (CC)

Furniture                $1,800         $150          No Interest 12 months

                            $222802      $2685

All CC are at their limits.

I have a few questions.

1. How did we get approved for a house with all this debt?

2. Should/could I try to get a HEL to consolidate all of this to lower the interest rates?

3. Is there any hope of getting the paid off?

Truth is I suspected it but didn't what to know. We only have  $100 in saving, which I just started. We have two children. From my caculations we can stay afloat paying all of this, our mortgage and living expenses. However, if anything happens we are going to be in BIG trouble. Any advice?

TIA

[Anonymous]

Ok looks like your net income is $4920 and obligated expenses are $2685/mo.  This leaves you with $2235, I am assuming living expenses (not obligated debt) further reduces this amount.  What is left will tell you what you should be doing and when. 

If you don't need to eat into your home equity, I wouldn't.  You don't want to be upside down in your loan and be put into a corner where you have to sell you house.  With property values still declining, try and stay away from this.

Try and get your emergency savings fund up to $500.  This will float you by if you need to and it will buy you time to pull out of 401K should you need to (I am not recommending this, but you should look at your entire portfolio and acknowledge your options).

After you sock away the $500, start paying off your debt.  I would start paying the small ones off first.  Just get them out of the way and free up that monthly payment for the bigger ones.  Obviously this is not the most economical way of doing things, leaving the $2k balance @26.4% (paying minimum), but you will see results of your labor sooner and inspire you to keep going.

Things will get better for you and your family so don't get down on yourself.  Keep the course and you will find that two years from now, when you have paid off all your CC's, that things weren't that bad after all.  All it takes is some time, discipline and reflection. 

Message Edited by realworldknowledge on 03-11-2008 11:04 AM

[Anonymous]

Call all your CCCs and ask them for a reduction in the interest rates.

Open the lines of communication with your DH about your household finances.  You need to work as a team to get this cleaned up! 

[Anonymous]

---

a0034d wrote:

We purchased a home in Feb. The balance on the mortgage is 196900, monthly pymts are 1350. I am married; both my & dh's score are considered fair (in the 590's). We've had some late pymts in the past 30,60, & one 90. My dh has always been in charge of the money. Well, he decided it would be better for me to keep up with everything right after we bought the new house. Now I see why. We are in debt up to our eyeballs. I realize I should have paid more attention to this and noticed before now but I didn't. I would like so suggestions on what is the best route to get this debt paid down fast! Here's a breakdown of our debt. Our monthly income is 4920 after 401k, savings, etc.

Mortgage             $196900   $1350       5.5%

Auto Loan             $13,000      $545          16.50% (vehicle)

Store Credit card   $300           $15            20.90% (CC)

Personal Loan #1   $1,267        $115          ? Over 15% (Installment)

Personal Loan #2   $2,046        $125          ? Over 15%  (Installment)

Personal Loan #3   $2,289        $165          ? Over 15% (Installment)

Credit Card #1       $2,000         $80           26.40% (Installment)

Credit Card #2        $300           $20           29.24% (CC)

Credit Card #3        $300           $20           29.74%  (CC)

Credit Card #4        $500           $30           15.40% (CC)

Credit Card #5        $1,600        $50            14.99% (CC)

Applied Bank         $500           $20             23.99% (CC)

Furniture                $1,800         $150          No Interest 12 months

                            $222802      $2685

All CC are at their limits.

I have a few questions.

1. How did we get approved for a house with all this debt?

2. Should/could I try to get a HEL to consolidate all of this to lower the interest rates?

3. Is there any hope of getting the paid off?

Truth is I suspected it but didn't what to know. We only have  $100 in saving, which I just started. We have two children. From my caculations we can stay afloat paying all of this, our mortgage and living expenses. However, if anything happens we are going to be in BIG trouble. Any advice?

TIA

---

Welcome.

What I would do first would be to pay the credit cards first.  They are small amounts so it wont take long to pay off. Try not to use them unless a emergency arises or atleast you knock of some of the other debt down.  Assuming your gonna get the 1200 stimilus fed check, I would apply that to per loan #1.  Doing just this will save you 200.00 a month.  Not knowing your schedule It might be a good idea for either one of you to either request ot at your job if available or get a 2nd one even if its only for 3-4 months will help.  Although your scores are not high enough to get a conventional pers loan I would go to a place like American General Finance and consolidate the other 2 remaining loans.  While the interest rate sucks it should cut your payment down quite a bit

[Anonymous]

---

steelfan wrote:

... Although your scores are not high enough to get a conventional pers loan I would go to a place like American General Finance and consolidate the other 2 remaining loans.  While the interest rate sucks it should cut your payment down quite a bit

---

It only makes sense to do this is the new loan has a lower interest rate than the loans it is replacing.

[a0034d]

Thanks for the suggestions everyone. I guess I just freaked out b/c I'm not used to juggling all of this. I have tried talking to my dh. I made a monthly budget for our family. We agreed we would stick to it until everything is paid off. We only have about $150 extra a month after we pay for the utilities, child care, groceries, & gas. I'm guessing it's going to take a very long time to get this all paid off.

One more question, as I pay the cc's of should I close the account?

Thanks!

[Anonymous]

Don't close the accounts, just don't use them unless absolutely necessary.  Ice them.  Every few months (4-6) buy a pack of gum to keep them active. 

[Anonymous]

Do not panic.  You will get through this in a relatively short time, but you need to be flexible and determined.

1.  Do NOT be late on your mortgage or car payment.

2.  Do NOT be late on payments to your other debt and make at least the minimum payment; being late on this debt will cause your interest rates to rise and will cause you to incure late payment fees which will put you over the limit and then you'll have over-the-limit fees.

3.  You have $2,235 each month in "disposable" income, meaning income that's not earmarked for payment of debt.  Take a significant portion of this income and set it aside for paying off debt and then use the rest to take care of your utilities, car insurance, child care, groceries, etc.  The easiest way to save money is through cutting out eating out, entertainment costs, and groceries.  You may have to eat a lot of macaroni & cheese or hamburger helper the next few months, but that's ok.  It won't last forever.  For the sake of this example, let's say that you set aside $100 each month for savings and $300 each month for paying off debt, for a total of $400 a month.  This leaves you $1,835 to pay the rest of your household's bills.  Take the cumulative debt payment reductions listed below and put them in savings as they accrue each month -- as a supplement to the $100 you are putting directly into savings each month).  We are going to concentrate on paying off the credit card debt because that's the fastest way to increase your FICO scores AS LONG AS YOU AREN'T LATE ON ANY OF THE OTHER PAYMENTS.  Take the $1200 stimulus check and put it in savings.  Another important point:  stop using your credit cards.  Don't cancel them and don't tear them up, but don't use them.

4.  April 2008 - take the $300 and payoff CC#3 (monthly debt payment reduced $20).

5.  May 2008 - take the $300 and payoff CC#2 (cumulative monthly debt payment reduced $40).

6.  June 2008 - take the $300 and payoff Store CC (cumulative monthly debt payment reduced $55).

7.  July 2008 - take the $300 and pay down Applied Bank (cumulative monthly debt payment reduced $55).

8.  August 2008 - take the $300 and pay off Applied Bank ($200) and pay down CC#4 ($100) (cumulative monthly debt payment reduced by $75).

9.  September 2008 - take the $300 and pay off CC#4 ($200) and pay down CC#5 ($100) (cumulative monthly debt payment reduced by $105).

10.  October 2008 through February 2009 - take the $300 and pay down CC#5 (after February 2009, cumulative monthly debt payment reduced by $155).

--- Christmas 2008 - when family asks you what you want for Christmas, tell them to get you something practical like a gift certificate to a home improvement store or even WalMart so that you can buy something you really need.  Or ask them to give you gift certificates to the multiplex cinema so that you can treat yourself and the kids to a movie.  And if your extended family exchanges gifts, ask if you can draw names so that you only have to get one gift instead of many.  Christmas expenditures should come out of your disposable income or, at worst, from your savings.  Do not charge anything to your credit cards. --

11.  March 2009 - August 2009 - take the $300 and pay down CC#1 (cumulative monthly debt payment reduced by $155).

      Note:  April 2009 - Personal Loan #1 will be paid off (freeing up $115 a month)

                 and Furniture will be close to being paid off (freeing up $150 a month)

      Note:  July 2009 - Personal Loan #2 will be paid off (freeing up $125 a month)

      Note:  August 2009 - Personal Loan #3 will be paid off (freeing up $165 a month)

      Use the savings from not having to pay these debts to fund school clothes and supplies.

12.  September 2009 - take the $300 and pay off CC#1 ($200) and pay down any remaining debt (furniture or personal loan- $100) (cumulative monthly debt payment reduced by $235).

13.  October 2009 - pay off remaining debt (furniture or personal loans) if any exist (most should be paid off by now through your regular monthly payments).

So you see, there's a real chance that you can be relatively debt free (except for house and car) before Halloween 2009  -- that's only 18 months away.

AND you'll have a substantial sum set aside in savings

    (regular savings, $100 x 18 = $1,800 + $1,200 stimulus = $3,000 + average

     monthly cumulative debt savings of $100 x 18 = $1,800 = $4,800)

and you will have freed up

    $775 per month that you previously spent on minimum debt payments + $300 that

     you were using to pay down debt = $1,075 extra per month = $12,900 per year.

What are you going to do with all that extra money?  SAVE IT!  INVEST IT!

And you'll have a killer FICO score (maybe you can get your mortgage refinanced at a lower cost?)

You CAN do this. 

Message Edited by hopeful on 03-11-2008 12:20 PM

Message Edited by hopeful on 03-11-2008 02:29 PM

[Anonymous]

I want to make a couple of suggestions that may differ here.  First like masdeocho said, call your CC companies and ask for a reduction in rate, they may say no but any break you can get there is like free money.  Don't get too specific about your financial straits and don't let them pull your credit, just give them some excuse about competition for your business.  Don't feel bad about getting rejected, we still love you!

Your lack of savings will be a killer in an emergency situation, but you do have a 401k you can probably tap in a dire emergency and at a lower interest rate than you would pay on a temporary hard money loan (last resort).  I don't see any point in consolidating your personal loans, with your score you aren't going to get a better rate from anyone (especially Am Gen) at this point.  Even if you wanted, you couldn't get a HELOC either with your score so that is out.  And forget about your score for the next year, by the time you get your head above water your utilization will be rounding out into good shape and your score will improve dramatically.  You have a fantastic mortgage rate, if it is a 30yr fixed never touch that again.  If it is an ARM, pay attention to when it expires and that is when you need your score maxed out (above 720 for best rates).

OK, you have $150 left over each month.  Start saving for future items now (x-mas, b-days, family nights, etc.) by putting $30-50/month or whatever into a fund for those things, think of it as a layaway plan.  Maybe for 1 or 2 months place the rest into general savings (say $100) and then use that money to start pounding away at the CC with the highest rate.  After that is paid use that money and the old min payment (20+100) and pound out the next highest rate card and so on.  Start diverting a little of that money into general savings, but for the most part keep most of the money flowing to those high rate cards.  For extra cash you may also consider reducing your 401k participation temporarily but you need to increase it higher when you get to a leveling off point (ex. currently 8%, down to 4%, then back up to 12%).  The reason is you will get more bang for your buck by paying off your large interest rates (15%+) than you will in the stock market over the next year (10% return if you're lucky).  Just make sure not to drop below your max company match if you have one.  That money is only for debt payments though, not a night out at Applebee's.  Even if you don't reduce participation, when you start reaping the rewards of more disposable income it is time to increase that 401k % (like 2%/yr)

In a year, revisit your score.  By then you should be able to focus on balances/limits to get a good utilization and your score up in the high 600's.  Then it is time to refinance that auto loan and think about consolidating those personal loans for a better rate (maybe a small HELOC if you have good equity).  Also look at your home/auto insurance as you could qualify for better rates with improved credit.

There are some good suggestions for you in this thread, so now you can choose the right path for you and your family, good luck.  Come back and let us know your plan and progress....

[Anonymous]

There are lots of great suggestions here.  Don't get overwhelmed! Just figure out what works best for you.

Two schools of thought about debt repayment are represented in the threads here:

1.  Pay the smallest balances first, irrespective of interest rate.  Benefit:  the psychological boost of getting rid of a credit card bill quickly.  Downside:  You will pay more in interest in the long term.  

2.  Pay the bills with the highest interest rates first.  Benefit:  this is the least expensive route.  Downside:  It may seem like it is taking forever.