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Level 3

Featured Discussion: Common Reasons You May Be in Debt

I currently owe about 73,000 on mortgage but have about 40,000 in cc debt, unsecured loans through my credit union and a few medical bills.   Our house is valued at 230,000.   Should I refi and pay off all debt?  My interest rate would probably go up from the rate it is now which is 3.87% and we have about 11 years left on mortgage.  Thanks

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Level 15

Featured Discussion: Common Reasons You May Be in Debt

This is my opinion, and my opinion only. I'm not saying it's best for you. I'm saying it's what I would do were I in your situation and decided at that point I wanted to get out of debt. (I've been debt free for about 10 years now.)

Lets say your CU loans and medical bills are $25K just for the purposes of "my opinion". 🙂

With $73K owed on the house, $40K in CC debt and $25K for the other stuff, that comes to $138K. I'd look at a few numbers first.

Whats the total of all my payments each month, including the house? Y0u need that "magic number" which you can get quite easily.

Once I've got that number then I'd want to look at doing a refi on the house for "no more" than $140K and I would require of myself that it be a 15 year mortgage at the absolute longest.  The shorter period on the mortgage will get me a lower rate than a 30 year mortgage will. Additionally, payments on a $140K mortgage at 15 years will be damn close to (maybe less? maybe a bit more?) than my current payments on the 30 year mortgage I now how. But I'm not looking at "just" the mortgage payment I'm making now. I'm looking at the total of all payments I make each month; mortgage, CC payments, CU loan payments, medical bill payments; the whole nine yards.

Now I did a bit of work with the intrate excel program.

If I refi the house for $140K for 15 years with a 4.5% fixed interest rate, my payments (not including escrow) will be $1,070.99 a month. When you figure in escrow for the property taxes and insurance, where I live that would be about another $200 a month, absolute tops. My last property tax bill was $1,100 and my last insurance bill for the year was $857. So that's roughly $2K for the year. Figure that into escrow for 12 equal payments a month and that comes to an additional $163.10 a month added to the payment for escrow. So I'd be looking at monthly mortgage payments of $1234.09 per month. I'll play it safe and round it up to $1300 a month, since my intrate excel spreadsheet isn't perfect with a margin of error of less than 1% (which adds up fast on longer loan terms). Then knowing that property taxes do get adjusted every year, I can pretty much figure I'll have the house paid off (or close to it) before the taxes and insurance would cause my escrow payments to rise above $200 a month.

So I've got my figure of $1300 a month which is the "highest" I would expect to pay over the 15 year loan term. Now lets look at the total of all the payments I'm making now. If it's more than $1300 a month, I'm gonna do the refi with the intention of "never" getting myself into this kind of crap again. Not. Ever.

Once the re-fi is done and all the debts are paid, I'm going to spend however long it takes to use my "savings" realized from lower payments on all that debt I paid off,  to build myself an emergency fund of no less than three months of living expenses. Generally though, I recommend anywhere between 3 and 6 months of living expenses. That way, if you lose your job or end up unable to work for "any" reason, you've got a bit of breathing room while you seek other sources of income.

Level 2

Featured Discussion: Common Reasons You May Be in Debt

Looking for software to help budget bills and improve credit score
Level 6

Featured Discussion: Common Reasons You May Be in Debt

I am a firm believer of using a common composition book in which I create 4 columns to track my budget. I use the margin to list incoming finances, tithes/offering, savings, auto debited “bills” then leave a few spaces and list the manually debited ones.

Within the 1st column are the absolute necessities ie.. mortgage, electric, gas, water, sewage, care note, credit card, savings, household shopping/groceries ...
2nd column miscellaneous items ie. fast food, movies, traveling beyond work (extra gas expense), cleaners, extra grocery store trips), gifts...
3rd column I carry over the total of unnecessary money that was spent for accountability and awareness...know where it went to and why...
4th column for my other account that I use for the kids college/allowance, mother, family, car insurance, credit card...

I do have two credit cards but I have my sons in one since they are in Grad school and undergrad school for consolidation of their exspenses then I may deduct it from their college fund in which we still put into each month or make payments on the card which builds their credit as well; but it’s only for their schooling, travel, car repairs if they need it.

My other card is for my truck repairs, medical items/bills, and travels so that I don’t deplete my savings but never shopping.

Accountability and responsibility is necessary when having credit cards but they aren’t the devil...use wisely and account for your money 🙏🏽🙌🏽💞
Level 6

Featured Discussion: Common Reasons You May Be in Debt

@wiredjack, in reading your post it seemed to relay your frustrations. You and your wife seem to be in a financially blessed position with the one income. I am in a position where a recent medical event has unemployed my husband who was also the spender of the house. I am more disciplined and it has put me in a great position to take care of every financial need with MY oldest in Graduate school and MY youngest son in College. Yes mine, because with or without my spouse me and their father are the responsible party.

I implore you to “write the vision and make it plain.” I do it every month with a .50 composition book and I cringe when I see how much money is/has been misused...I get back on track and create moments until the vacation is a reality. I wish you all well and you have the discipline to reign it in...🙏🏽🙌🏽👍🏽
Level 3

Featured Discussion: Common Reasons You May Be in Debt

I can soooo relate! I'm a dancer & musician/music producer that also has a visual art background.

Level 2

Featured Discussion: Common Reasons You May Be in Debt

Started using common sense and took all priorities and put them in order and the end of the list was eliminated and paying off debt became a big priority. Started living below my means. Once debt was paid off stayed out of debt and made the priority to save.

Level 2

Featured Discussion: Common Reasons You May Be in Debt

This may not be the way for everyone, but it worked for me.

We were over $95K in credit card debt, and life was not good.

I purchased a tape program explaining how to get out from under the card debt, and I followed it to the letter.

I quit paying the cards.

Approx. 90-120 days later the calls started coming.

I told not to call after 8 PM, and I was always polite (they're just doing their jobs), but I made sure they didn't harass me.

After a while they started to make offers of reduced payoffs.  I made counter offers (I was very lucky that I had someone that I could turn to that fronted me the money at no interest), and it was amazing what cc companies would accept or the collection agencies.

In the end, I paid off all debt for less than $40K.

Our credit score went down to 500-600, and credit reports were dinged for almost seven years.

We changed our lifestyle, our credit reports are super clean, and our scores are 820+.

Recommend that you do this yourself since companies would rather deal with you than an outside source that will charge the hell out you to do what you can do.

Level 2

Featured Discussion: Common Reasons You May Be in Debt

When my wife and I were first becoming established as adults we had racked a decent amount of student loan debt. As time when on neither of us had well paying jobs and we found ourselves relying on credit cards and credit lines from our credit union to make ends meet. Of course we often found that we couldn't make all these payments as scheduled and took many dings on our credit reports because of 30/60/90 day late pays. In 2010 my wife and I decided we were had progressed in our careers far enough we could afford a house payment. 

 

We visited with a mortgage company and were denied because of bad credit, both of us being in the 500s, mostly because of high usage on credit cards and late pays. Armed with this information we made a concerted effort to pay all of our credit payments on time and to not use our credit cards. In a year we had successfully payed our balances down enough to get us into approval range. 

 

Around the time we bought our first house we still had quite a lot of credit card, student loan, and auto loan debt and struggled to keep track of where our money was going. I stumbled across Mint, signed up, and added all my accounts. Armed with this holistic view of our finances we were able to make smarter decisions about what we buy and even started budgeting to a certain extent. I will admit that we still don't budget as well but I've been trying to utilize what's available in Mint for budgeting with some success. 

 

Because of the better overall view of our finances we were finally able to start saving some money and over the next several years had a pretty decent nest egg in a saving account earning little to no interest. In 2016 I read a blog posting by Dave Ramsey about his "7 Baby Steps" to reducing debt. Again, I'll admit I don't follow them to the T, but we used the bulk of our saving to pay off our remaining student loans. This freed up several hundred dollars a month in income that had previously been loan payments. Using the "debt snowball" we made much larger payments against our existing credit debt. Because we continue to buy cars ever couple of years and it seems like something expensive is happening to a house, car, or medically, we are still debt snowballing, however even with this debt we are continuing to make headway against our debt and every year we have less and less. Additionally, because of this, we are in a much better place to make our payments and both of us now have 800+ credit scores. 

 

In summary, watch what you are spending and reduce unneeded expenses. Track your incoming and outgoing income with something like Mint. Budgeting was hard for me because I like buying expensive electronics but I realized that we were overspending on thing we didn't need. When you can, using Dave Ramsey's baby steps are a great guideline for paying down existing debt. Finally, don't expect changes overnight, we've been working on it for 8 years at this point. I'm an impatient person so this was one of the hardest parts. Things started off really slow but the changes are incremental and good habits will eventually pay off. 

Level 4

Featured Discussion: Common Reasons You May Be in Debt

I chose to go into debt with a vehicle loan to buy a vehicle I absolutely love. Otherwise it's careful planning and budgeting and hope I don't forget something in the process! 

 

I do have some money squirreled away as a last resort and emergency. My 401K and Vested Benefits also are a priority. One step at a time. I'll get there!