How Did This Happen

[Njpriceman]

Hello and Thank You for your thoughts,

I don't know how this happened but here it is.

I am 37 years old, married with 3 healthy kids. I work in the medical field earning 170k/year. My wife works part time earning 25k/year.

Here are the details.

Primary mortgage 22 years left 6.4% $198,000
HELOAN 7.4% $51,000

Home appraised at 258k 5 years ago

Total credit card debt $47,000 varying rates from 0-15%
Student Loans $64,000 @ 2.5%
1st car loan $8,000 @ 2%
2nd car loan $18,000 @ 2%

401k $50,000
Roth IRA $55,000

I was told by my primary lender that I didn't qualify for a refinance for both loans. We are completely living paycheck to paycheck. Needless to say we need help.

I truly don't know where to start. Any help would be greatly appreciated.

Thank you

Frank

[Texas Proud]

Wow... just looked for the first time today and your post was only 1 minute old...

The first place to start is to find out WHERE you are spending your money... Your stated income is $195K... find out where all of that went the past 12 months and post it... there are a lot of people who will give you some thoughts on where you can cut...

As for you refi, you have WAY to much borrowed on the house.... it does not matter what it was worth 5 years ago, only what it is worth now... but say it is worth what you say.... that is about $250K debt on a house that is basically worth $250K.... I would not lend you any money because you do not have any equity.... I would want you to put down $50K to do a refi...

[GrayHare]

Sort and add up expenses to find out where the $200k incoming is outgoing, then trim the non-essentials.

[Bestwifeever]

I don't see a single mention in your OP about how much you are spending every month. Until you track that for several months you won't know why you can't live on a very nice income.

[aaronc879]

Could you post the minimum payments on each of your loans? With $195K/yr income there should be plenty of money to go around.

[JOHNNIE36]

I noticed one thing I would look into immediately. Don't know if your company would allow it but when I was still in the workforce, we could borrow from our 401k. The payment required for the loan payback (including interest) went back into your 401k. Try to eliminate that HELOC at 7.4% and then start attacking the remainder of your debt. You have the income but it pales in comparison to your debt.

PS: I've never had $10k in credit card debt my life. It's a killer. Got to start working on that. I used credit cards but pay in full upon receipt of the bill. Never pay that interest.

[Amethyst]

+1, and don't forget to include insurance (health, home, auto) and taxes (income, property) and any paycheck deductions in your "expense" categories. You may be appalled to find out how little is actually left, once the tax and insurance monsters have been fed.

Quote:

Originally Posted by GrayHare Sort and add up expenses to find out where the $200k incoming is outgoing, then trim the non-essentials.

If you want to get out of debt, the usual advice is to throw extra money regularly at the highest-interest debt, typically credit card debt.

There are lots of articles on the Web and threads on the ER Forum about how to cut back and live frugally. I suggest you research those. A healthy (thank goodness) family can have fun without vacations, restaurant meals and fancy duds (not that I'm saying you are spending $ on those; I simply don't know).

Amethyst

[timeasterday]

Quote:

Originally Posted by Njpriceman I was told by my primary lender that I didn't qualify for a refinance for both loans. We are completely living paycheck to paycheck. Needless to say we need help.

Why?? High LTV ratio? High debt to income ratio (I can't imagine that)?

Get that mortgage refinanced ASAP. If you are making your payments and have a good credit score then look into a HARP refinance. We are about ready to close on a HARP refinance going from a 6.375% 30-year to a 3.625% 20-year mortgage. Doesn't save a whole lot per month but that wasn't the point for us. You can really drop the payment going to a 30-year loan. Look into AIM loans or Quicken Loans. We did our with AIM and it was an easy, easy process. Good luck!

[Meadbh]

Welcome Frank. You have a negative net worth and no home equity. If you were 22 and starting your career, that might make sense. As it is, you are about to enter middle age and have little to show for the human capital that you have already spent. I would not lend you money either. It is absolutely urgent that you analyze and get a handle on expenses. With your earnings it should be possible to save enough to pay down the HELOAN within 1-2 years. It is also the highest interest rate borrowing that you have, with the exception of credit cards, which should be paid off in full every month......or cut up, if you can't discipline yourselves to do so.

You may find this website has some helpful tips on getting out of debt:

http://www.gailvazoxlade.com/

[MBAustin]

Welcome, Frank. Kudos for you to decide to do something about your financial situation.

As Amethyst stated, there are lots of threads in this forum and all over the web about managing expenses and getting out of debt. I have several friends who have greatly benefited from Dave Ramsey's Financial Peace University program. You can find out here Financial Peace University - daveramsey.com
when new sessions of the course may be starting in your area. Many of them are sponsored by churches but they are open to the public. Dave can be a little "over the top" in his approach but it definitely gets your attention. Good luck!

[NW-Bound]

Even though the OP has decent income, the high credit card debts show clear signs of trouble.

I can't add anything more to what earlier posters said.

[Lakewood90712]

Welcome to the Forum. As others have stated, we need to see what your mo. budget is. Is your wife on board with a serious austerity programe, at least for a few years ? Where did the credit card debt and heloc money go to ? 2nd house , timeshare etc?

[Lakewood90712]

On the home, what is the current value, and what does a comp. rental in the same area cost ?

[Katsmeow]

You have posted on a subject near and dear to my heart. At one time, DH and I were in more debt than you are in with income a bit higher than your debt. The good news is that we did work our way out of debt but it took a few years to work out of it.

We did this in stages. Stage 1 was to realize we were in a hole and quit digging. That is, to quit going more into debt. This was hard to do as we were used to putting emergencies on the credit card and we always had emergencies. Some were very legitimate (child related) while others were just frivolous and, well, not a good use of money.

The good news was that we got to a point where we weren't increasing our debt. The bad news was that we had so much debt that we couldn't make much headway since our debt load was so heavy. We could make ends meet but had no extra money to throw at debt. We needed to make a radical change in order to get more money that we could throw at debt. In our case we had a house with equity so we sold the house and used some of the equity to pay part of the debt (I realize you don't have the equity to do this). The other big part of it was that we rented a house for awhile vastly cutting our committed expenses which made it easier for us to create a debt snowball and throw money at the highest interest rate debt. However, even without equity in your house there is a lot you can do.

In no particular order:

1. If you don't track your spending, start tracking your spending. For someone trying to get out of debt I particularly recommend a program called YNAB - which is short for You Need A Budget. If you do the program properly it will teach you how to budget each month only the money that you have and how to allocate your spending so you don't go further into debt.

2. Once you know your spending (you may know it now -- when we were in debt we did track spending), then you need to look radically at your budget and cut expenses. At the time, I thought we couldn't cut our expenses any more during the first year of debt payment. Looking back on it there were huge amounts of "wants" in our budget that really weren't necessary at all. You might post your current spending and get feedback.

But even if you don't go through the budget and really figure out what things are necessary and what aren't. Obviously this varies from person to person. I am not saying that you can't have any discretionary spending while in debt payoff mode. We had some but we were careful with it and recognized that every "fun" thing we spent money on, every "luxury", every indulgence for our children, etc. was taking away from debt payment. The more you cut the quicker you get out of debt.

3. Make getting out of debt your priority. Again, I realize there are legitimate expenses that some people have that others don't. And everyone will want some discretionary spending. But once I was paying off debt I really made getting out of debt my first priority and realized every time I was doing some that would slow it down I was choosing to do it. Don't live like someone making $200,000 a year. Live like someone making a third of that and you can pay off debt much more quickly.

4. If you have a 401(k), don't raid it to pay off debt. Far too many people do that and end up running up the debt again. The vast majority of people with your debt and income level have a spending problem. You have to cure the spending problem first because if you don't you will get back in debt.

5. Look for any sources of income that might give you more money to throw at debt. Can you sell your house and move somewhere cheaper? Can you sell anything? Can your wife work more hours? Can you do some extra work and make more money? You probably recoil from all these ideas but they can be a major jumpstart to getting out of debt.

[pb4uski]

Welcome Frank. I'm guessing that you are living pretty well if you are living paycheck to paycheck at your level of earnings, but the good news is that you can probably get back in control with some belt tightening.

As others have suggested, the first thing you need to do is go through an analysis of your bank statements, credit card statements, etc and get a sense of where your money is going and then where you might be able to cut back.

There are numerous threads on this forum with ideas on how to live frugally. Once you can get to the point that there is something left after every paycheck, you can start to paydown your high interest debt.

[FreeAtLast]

I was in a similar situation about ten years go. A credit card company gave the name of a not for profit debt counciling company. They really helped me. I cut up all credit cards and just used my debit card. I eventually got credit cards again but they are paid in full every month.

[obgyn65]

+1

Quote:

Originally Posted by NW-Bound I can't add anything more to what earlier posters said.

[Njpriceman]

I can't Thank everyone enough for you responses and support. Today I will sit down and track everything for the past year. I know this will be a daunting task but a necessity.
Off to work I go.
Thanks again.

Frank

[Gumby]

Tracking your spending is an excellent start. As you fight this battle, remember that you didn't get in this position overnight and you won't get out of it overnight. So, be patient and don't lose heart. Calculate your net worth regularly and take positive reinforcement from small improvements. Tell yourself every day that you want to be debt free, do something every day, however slight, directed toward that goal, and eventually you will get there.

Losing debt is like losing weight -- slow and steady wins the race. Both debt reduction and weight reduction generally require lifestyle changes that can only become habit over time.

[Parr0thead98]

Quote:

Originally Posted by Njpriceman I was told by my primary lender that I didn't qualify for a refinance for both loans. We are completely living paycheck to paycheck. Needless to say we need help. I truly don't know where to start. Any help would be greatly appreciated. Thank you Frank

Frank, go to Dave Ramsey Homepage - daveramsey.com and get his book The Total Money Makeover (or see if your library has it for free!). His advice is as straight forward as it gets. Not everyone agrees with all his points, but for you, that doesn't matter right now, you looking for help and he's helped many in your situation. Trust me on this one.