Personal Finance

Hooville · Joined: 06 Dec 2007 Posts: 1

My wife and I are in our early 40s and we are living pay check to pay check, despite the fact that we make a combined gross family income of $140,000. This is embarrassing to admit and we realize that we need to make some drastic lifestyle changes.

A few years ago we took out a home equity line of credit, which we tapped into for some home improvements as well as to consolidate credit debt. The line of credit was also used as overdraft protection for our checking account, which was a big mistake. Essentially, our line of credit ended up being a seemingly bottomless ATM machine.

Today our line of credit is maxed out at $106,000 with a monthly payment of $800. The balance on our mortgage is $236,700 with a monthly payment of $1700. Other debts include a MC with a balance of $20,000; three cars loans with balances of $23,000 (payoff Oct. 2011), $6,800 (payoff May 2011), and $2,000 (payoff in June 2008); a line of credit balance of $7,400; and a couple of department store credit cards with a combined balance of $2,000.

We have two children, ages 15 and 10, for whom we intend to fund college. While we have been investing in a 529 savings plan, we know we are not setting aside nearly enough to meet future financial obligations. Same is true for our retirement savings. Personal savings is nil.

My feeling is that we are so far in over our heads that it would be prudent to sell our biggest asset – our house – and use the proceeds to get out of debt. We could rent a comparable house in the same area for about $1,500 a month. In today’s real estate market, our house should sell for about $420,000, which would result in a profit of $77,300 after paying off the mortgage and home equity line of credit. Less a 6% realty commission and capital gains taxes, I believe we would be left with about $37,000, which could be used to knock out all of our outstanding credit debt except for the car loans. We would then sell our third car that has a balance of $6,800,resulting in our only debt being one car loan.

At this point, I feel that we would be in a position to be able to put aside significant savings for our children’s college fund, a future house down payment, our retirement, and an emergency fund.

Does this make any sense at all or am I missing something?

Rook · Joined: 06 Apr 2008 Posts: 4

There are two things you need to address:

1. Have you realized your past mistakes and are you really ready to understand that what you've been doing in the past does not work?

2. You cannot afford the house. IF you have really come to grips with the fact that you MUST CHANGE YOUR LIFESTYLE, you need to sell (it's only a house and there are millions of them), get your money in order and realize that you guys make so much more than the average American that it should be almost 'easy' to get straightened out. IF you realize point #1!!

Rook's Money Blog
http://rookandpawnshop.wordpress.com/

Johansen8 · Joined: 06 Oct 2008 Posts: 8

A house is not considered bad debt. You don't say how much debt or what sort that you have. You can always take an equity loan providing you have equity in the home which it seems that you do. Refinancing the mortgage and including credit debt in it is often a good way to get out from under. The real estate market is awful right now so selling is probably not a good idea at all at this time. Look into refinancing and consolidating. I think that may be your best bet.

	Personal Finance Forum Index -> Financial Planning	All times are GMT
Page 1 of 1