Need Help With My Debt Vs. Mortgage
I see there are many that have gone through what I am now so thought some advice might help me in the long or short run.
I am 40 years old with about 7K in a Roth IRA. I am a condo owner in Southern California and my place just appraised at 185,000 and I owe 123,000. My problem is, I have about 28,000 in credit card debt from my marriage that is taking me forever to pay off. I put it with a consolidators but the $700 a month was impossible for me to keep up with as work has been AWFUL for me (plus the cards don't seem to be getting smaller much faster this way either)
So, my card payments are now slipping behind and I am faced with a couple choices that I am looking for advice on:
A) I refinance my home (taking a loss of $5,000 right off the bat for a pre payment penalty) and take out the cash to pay off the cards. My new loan would actually be less on a monthly basis than my current one by a couple hundred dollars (I am at 8% but will get about 6.5% on the new one). There are two options, one being a 2 year prepay at 6.5% and the other maybe slightly lower but an interest only loan.
B) Try and get someone to cosign for an equity line of credit (my credit is 553 so cannot get one without a cosigner as the minimum score is 570 for a line) and pay off the cards.
C) leave the mortgage the way it is and just try and work out some direct programs with the credit cards even though I will probably not be able to pay them regularly as my finances are terrible right now.
I was wondering if trying to get "payoff amounts" from the CC companies is a good idea at this stage as my credit score is so low at the moment anyway. It'll be a year or 18 months before it gets back up to a reasonable place regardless.
Any help would be greatly appreciated!
Ranch
Look at both A & C.
A - run the numbers. The questions to ask: How long will it take you to pay off your credit card debt at the current rate? How much interest are you paying? How long will it take you to recoup the $33K ($28K in credit card debt plus $5K penalty) you are refinancing? Compare the two.
Other (perhaps harder) questions: Are you REALLY going to use the money for paying off your credit card debt? Once paid off, will you pay off the charges in whole each month? Or are you delaying the inevitable (bankruptcy) and putting yourself in a position where you'll be broke and without a home. If so, don't refinance. Can you refinance and if so, will you get a competitive rate if there are a couple of late payments on your record and a lower credit score? Are you able to do a quick refi with your existing lender without providing additional documentation and minimizing your refi costs? Also, do you trust your mortgage broker/banker to be honest with you and deliver what they say on a refinance? Most importantly, will you be able to get a lower fixed rate mortgage where you know what your payments will be? I realize ARMs have been low but as we're at the 40 year low for rates, it's more likely that they have no where to go but up (and many ARMs are likely to climb in their first adjustment period). Could you handle the maximum payment? Keep in mind that your interest paid on your mortgage is tax deductible while your credit card debt isn't (unless it's already tied to a home equity line of credit).
Regarding C, whether or not you refinance, you should talk to your credit card companies and get your rates lowered. Explain your circumstances. If you have credit card companies that won't negotiate, you may want to contact one of the others and see about consolidation. If you aren't effective, look at a reputable debt consolidation firm like Consumer Credit Counseling. Make sure you check with your local BBB and state's attorney general to make sure that any debt consolidation firm you work with doesn't have complaints against them. There are plenty that are willing to take your money and not consolidate any of your debt.
Good luck. Progress may be slow but if you're getting rid of your debt, you're moving in the right direction. Don't let anything slow you down and know that you are doing the right thing.
The Ranch Hand,
My god they still have ranches in Valencia, I thought it was nothing but copy cat Spanish Colonial Condos and houses as far as the eye can see. Nice place.
The Foto gives good advice. I suggest in view of your young age, you might like to play a better game.
First of all the only refinance you should consider is with your present lender and you call them direct. Loan Service. You want a reduction in your interest rate and you want it now. Ignore your Fica score.
Just try for the lower interest rate. If not then hold for the time being.
As to the credit cards, forget the credit services. You might like to have a friend handle it for you unless you like to really confront. If you do. You call them and you set a payment rate that you can meet. No not $700 a month. Way way down about maybe $250, I really do not know. You inform them that you are discussing the big BK but you have such a love for them that you want to work it out. You will only do a payment plan and you want them to hold on present balances and no interest if they do not wish to play why you will once again threaten the big BK.
Remember this is Calif. the land of those who play wild and wooly games. First lets see if you are good enough to have them hold at present balances and no more interest. Nada nothing.You say about $23,000 ok $250 is fine thats 92 payments thats less then 7 years. Also who knows you might pick up a buck or two extra on your second job or from the income of the lovely girl you are now going to date. Things happen. Maybe you will settle down in the wilds of Valencia and start flip/floping and use some of that money to pay off the cards. But dont you dare pay it off at full price, even without interest you bargain again for a reduced price.
Thats the story. I just finished up with one of my Actor friends, actor, my god he failed the part of Rin Tin Tin in a just produced Doggy Movie. But we just got him paid off including the discount on the diamond ring his girlfriend insisted on.
You live in a great area. The forcl rate is just starting up like a bomb. You can do well in Real Estate. You can clean your act up in at least 8 years and if you play the game I bet on about 3 years.
So pick up the phone and away you go. Remember, Credit Card Companies are money lenders, you do not have to be nice. Look at the interest rates they charge. Go for them. As to your mortgage rate at 8% much too high should be at least 6 and no prepayment penalties. Forget about your Fico score if you need an equity loan some time in the future, I will show you how to do it and with your score and probably from you own little bank where you have I hope a bank account and a Debt Card.
Cheers Lucius
The Ranch Hand,
My god they still have ranches in Valencia, I thought it was nothing but copy cat Spanish Colonial Condos and houses as far as the eye can see. Nice place.
The Foto gives good advice. I suggest in view of your young age, you might like to play a better game.
First of all the only refinance you should consider is with your present lender and you call them direct. Loan Service. You want a reduction in your interest rate and you want it now. Ignore your Fica score.
Just try for the lower interest rate. If not then hold for the time being.
As to the credit cards, forget the credit services. You might like to have a friend handle it for you unless you like to really confront. If you do. You call them and you set a payment rate that you can meet. No not $700 a month. Way way down about maybe $250, I really do not know. You inform them that you are discussing the big BK but you have such a love for them that you want to work it out. You will only do a payment plan and you want them to hold on present balances and no interest if they do not wish to play why you will once again threaten the big BK.
Remember this is Calif. the land of those who play wild and wooly games. First lets see if you are good enough to have them hold at present balances and no more interest. Nada nothing.You say about $23,000 ok $250 is fine thats 92 payments thats less then 7 years. Also who knows you might pick up a buck or two extra on your second job or from the income of the lovely girl you are now going to date. Things happen. Maybe you will settle down in the wilds of Valencia and start flip/floping and use some of that money to pay off the cards. But dont you dare pay it off at full price, even without interest you bargain again for a reduced price.
Thats the story. I just finished up with one of my Actor friends, actor, my god he failed the part of Rin Tin Tin in a just produced Doggy Movie. But we just got him paid off including the discount on the diamond ring his girlfriend insisted on.
You live in a great area. The forcl rate is just starting up like a bomb. You can do well in Real Estate. You can clean your act up in at least 8 years and if you play the game I bet on about 3 years.
So pick up the phone and away you go. Remember, Credit Card Companies are money lenders, you do not have to be nice. Look at the interest rates they charge. Go for them. As to your mortgage rate at 8% much too high should be at least 6 and no prepayment penalties. Forget about your Fico score if you need an equity loan some time in the future, I will show you how to do it and with your score and probably from you own little bank where you have I hope a bank account and a Debt Card.
Cheers Lucius
The Ranch Hand,
My god they still have ranches in Valencia, I thought it was nothing but copy cat Spanish Colonial Condos and houses as far as the eye can see. Nice place.
The Foto gives good advice. I suggest in view of your young age, you might like to play a better game.
First of all the only refinance you should consider is with your present lender and you call them direct. Loan Service. You want a reduction in your interest rate and you want it now. Ignore your Fica score.
Just try for the lower interest rate. If not then hold for the time being.
As to the credit cards, forget the credit services. You might like to have a friend handle it for you unless you like to really confront. If you do. You call them and you set a payment rate that you can meet. No not $700 a month. Way way down about maybe $250, I really do not know. You inform them that you are discussing the big BK but you have such a love for them that you want to work it out. You will only do a payment plan and you want them to hold on present balances and no interest if they do not wish to play why you will once again threaten the big BK.
Remember this is Calif. the land of those who play wild and wooly games. First lets see if you are good enough to have them hold at present balances and no more interest. Nada nothing.You say about $23,000 ok $250 is fine thats 92 payments thats less then 7 years. Also who knows you might pick up a buck or two extra on your second job or from the income of the lovely girl you are now going to date. Things happen. Maybe you will settle down in the wilds of Valencia and start flip/floping and use some of that money to pay off the cards. But dont you dare pay it off at full price, even without interest you bargain again for a reduced price.
Thats the story. I just finished up with one of my Actor friends, actor, my god he failed the part of Rin Tin Tin in a just produced Doggy Movie. But we just got him paid off including the discount on the diamond ring his girlfriend insisted on.
You live in a great area. The forcl rate is just starting up like a bomb. You can do well in Real Estate. You can clean your act up in at least 8 years and if you play the game I bet on about 3 years.
So pick up the phone and away you go. Remember, Credit Card Companies are money lenders, you do not have to be nice. Look at the interest rates they charge. Go for them. As to your mortgage rate at 8% much too high should be at least 6 and no prepayment penalties. Forget about your Fico score if you need an equity loan some time in the future, I will show you how to do it and with your score and probably from you own little bank where you have I hope a bank account and a Debt Card.
Cheers Lucius 8-) 8-)
Lucius, you're repeating yourself. I hope you're not entering your dotage!
. And a final step would be to determine whether making payments, promising to make payments or even acknowledging the existence of the debt tolls or re-starts entirely the statute of limitations. If not, and you've been behind for a while (and the statute is short), the statute date may already be approaching on these debts!
Bad credit is already a fact. But there is substantial equity in the home. I have no idea what California allows as a bankruptcy exemption for a home, but Florida, for instance, has an unlimited one, so in Florida one would never be well-advised to replace unsecured debt with secured debt, meaning no equity loans to pay down credit cards.
Now another step to take would be to check local courthouse records to see whether any of the credit card lenders yu're up against are frequent litigants. If they don't sue much, other avenues of dealing with this debt become available. A third step would be to ascertain the California statute of limitations for credit card debt ("open accounts"
California's laws are known to be kind to debtors, and unkind to creditors.
Nobody should just walk away from their debts; but hardly anybody is able to do everything they should do. Everyone has circumstances in their lives, and while you are not the only person able to evaluate yours, we certainly are in no position to judge you.
That being said, you need more specialized and detailed help than you can get on this board. Here are some important links:
http://www.creditinfocenter.com/debt/settle_debts.shtml
www.budhibbs.com
www.creditnet.com
www.crediboards.com
www.artofcredit.com
http://debt-consolidation-credit-repair-service.com
P.S. - The reason for checking the bankruptcy exemption is that if it is near to or more than the equity in the home, you won't be forced to sell your home.
Thus, in the unlikely event that lawsuits start hitting you, bankruptcy can be used to wipe out those judgments ... but chances are, the lawsuits will never come. Creditors evaluate how much equity they think you've got, and any that's "under" the exemption amount is not considered reachable. They typically only sue those with assets that can be reached. Not alwasy ... some like Cap 1 just sue if they're owed as little as $1,200. But typically.
If the lawsuits do come, just declare bankruptcy. Some folks wait to declare until something happens that is making life difficult, like a garnishment or asset seizure. There are good books out on personal bankruptcy, including one or two in the "dummies" series. www.dummies.com
Well, currently I own more in my equity and my IRA (about 65K and 7K) than I owe on my debt (28K) so I going by what you said, I would be a good candidate to come after.
What I wonder is, if I can get the majority of the cards to give me a pay off amount (say the total is 18K instead of 28K) then maybe it would be really worth getting some sort of equity line or something to just get rid of them).
A big concern is if I just leave the bills alone (and I am not trying to do that it is just I have reached an end of my rope in being able to keep up with them) and the collections come after me, I'll just be slitting my own credit throat and unable to get into another condo or home over the next few years.
Actually there is some good advice in these posts for you. But, I believe I have a better solution for you.
FIRST
Convert your entire home loan with as much equity as the lender (Discount Mortgage Broker) will allow you to have to a INTEREST ONLY LOAN of at least 5 years but try for 7 or more (EVEN 30 YEARS). Take whatever equity you get and pay off as much on those credit cards as you possibly can. (Try to keep an extra house payment in a savings account though.)
SECOND
Set up am automatic draft to your savings account (IRA/401K) for up to 10% of your income (Start out as 5%).
THIRD
Set up am automatic payment draft of your mortgage payment from your checking account.
FOURTH
Find real estate property to flip or buy and get some cash flow going. Since your credit is probably not real good now, try to find one of us real estate investors to loan you the money by buying their property and have them carry your mortgage. Then Lease the property out as a Lease Option for someone like yourself who needs the house. (Note - advertise for Lease Option candidates up front and then find a home that fits/matches their needs.) Once you have a 1 or 2 year lease on the property, go to your mortgage broker to get an interest only loan on that property to payoff your Investor Special. (Note, with Interest Only Mortgage Loans, your payments are much smaller & your Leasee's payments are much larger creating more profit!!!
FIFTH
Send me an e-mail, letting me know how you did! LOL! Good-Luck!
RLT7024 on hotmail
Ray
Thanks for the straight shooting!
What are the advantages and disadvantages of an Interest Only Loan and why try to stretch it for more than 5 years?
Also, can you pay more than the Interest, in other words can I voluntarily pay principle or do they prevent you from it?
And if combining all these debts into a secure loan from my mortgage I am ending up with a smaller monthly that is manageable, is this still a better idea than keeping them seperate and trying to just wheel and deal with the creditors until the cards are finally handeled (even though my credit will sink deeper along the way)?
Thanks!
If you've declared your home homestead, then you are exempt $75k of equity for a married person, don't remember what it is for single person. So you don't have enough equity to force a sale by your creditors, not including mortgage holder (current mortgage + homestead) Disclosure not legal advise.
Also are you trying to refi thru your current mortgage holder? Most will waive prepays if you refi thru them again. If you are not able to refi thru them again or choose not to, any prepay penalties are tax deductible, check tax advisor, so technically you can get the money back.
If I understand your post correctly, if you refi and cash out to pay off your creditors, your mortgage payments will actually be lower than it currently is. If that is correct, then you options are:
1. pay current mortgage payments + lower credit card bills (if able to work out a repayment w/ creditors)
2. refi and payoff creditors. Mortgage pymnts will be lower each month + no credit card bills to pay + interest now becomes tax deductible
3. file for bankruptcy, might be able to do ch7 and wipe all your credit card bills and pay current mortgage payments but will have bankruptcy on your credit or go w/ ch13, bankruptcy will still report on credit + still pay current mortgage + whatever workout payment is w/ creditors.
I might be a little biased because of my profession, but if you become more financially disciplined and not run up your credit cards again once paid off, I like option #2. But on the side of caution, bank statistics show that a person who cashes out equity of home to pay off debts, increases their chances of eventually defaulting on their mortgage loan because they usually run up their debts again and no longer have equity in their prop to pay off the debts when they get over their heads again. [ Edited by jmBROKEr on Date 03/26/2004 ]
You know, I think #2 might be best as well in that:
I have tax deductable payments over the year as opposed to payments that aren't.
My payments are actually less (and manageable) than they are now (about $1200 as opposed to 2000 as is with mortgage, HOAs and CC debt).
I mean, I hate the idea of using up my equity but then again, in another sense I owe it so what can I say....
I understand the idea of the fear of running up more credit after the equity pay out, but I have not really used credit cards (save for one with a 500 max) since the debt was run up during my marriage 2 years ago. I don't think I would be tempted (okay...tempted, but won't) to use credit cards much as I have not used them in two years to really speak of.
As for my pre pay, that is good to know about it being tax deductable, but my original loan got sold within two months to my current owner and they say that they can not do anything about it now since they bought the pre pay. Not sure if that is just an excuse or really true. But, I want to make my decission in the next week so all this help is really giving me direction....
You asked some good questions!!!
An INTEREST ONLY mortgage loan will be much less than your existing mortgage loan, and even more savings when considering both your existing mortgage loan and your credit cards.
You have equity in your home and you need to get your act together financially. There are a lot of memebers in that club!!! So the reason for 7 years on the Interest Only is to buy you time to get things straight. (Remember I told you to invest some money too!!!) You need to turn your life around and this could be your success path if you want it!
As an extra thought for you, once you have the Interest Only Loan for as much as they will allow, you could in turn lease the property out as a Lease-Option and season the loan for a broker to provide a loan for your prospective buyer. Meanwhile, you make money from the difference in your Lease Option Rent collection and your Interest Only mortgage payment. (ie - Say you live in this house for 4 more years and then decide to move. You have 3 years of room to work on getting a buyer to meet your requirements in the form of Lease-Options.)
You did ask about paying extra to reduce your principal balance!
Most Interest Only loans allow for this! Some even advertise it! (See Quicken Loans web site.) But you have to ask yourself some key questions here. Would you rather have CASH or HOME Equity? Of course the longer you have the property the more equity you have over the loan amount anyway. Unless you plan on keeping the house forever, then equity payments really don't help you. And if you plan on keeping it for 30 yrs, you could still out perform the mortgage equity with your savings on the difference in payments. (BTW, look at an amortization schedule - after 7 years on a normal 30 yr mortgage loan, only 4% of the principal is paid. Of course almost full payment has been made in that same interval (at least 65%). That is money wasted to build tall bank buildings!
Ray
Does the $5k prepayment penalty apply in the case of a move?
Have you lived in the condo 2 years?
If the answer to the former is "no" and the latter is "yes" ... consider moving. Your equity comes out tax-free (as in total, complete nonrecognition), and you can find a different place ... There is always a dwelling on the market at a distress price someplace nearby. The key is to have a broker who is watching the MLS scope for them so that you can jump on one quickly.
I try to move and take my tax-free equity out every two years on the button: Lather, rinse, repeat. [ Edited by flacorps on Date 03/26/2004 ]
Well folks, that is a whole new twist.
I will have been in here two years as of next month and it is a soft pre-pay so if I sold, I would not lose the $5000. I actually considered this but have been concerned only because of the cost of buying a new place (the So Cal market is insane) and having a larger monthly all over again (I got this at $135 and doubt I can get anything under $235 now) and that my credit score would likely get me a so so rate anyway. But, then again, maybe an Interest Only loan on a new place with maybe 10% down may still come in less than what I am paying now....
I was also hoping to hang on and try and accumulate some rental property by maybe eventually renting this out and buying another place next year maybe when my finances are better. I have always liked the idea of having a couple properties. I guess "security"....
But, if I sold, I could probably walk away with about 65 to 70K and then just have to find another place to live (though I do want to move to Santa Monica...)
As for the Interest Only loan refinance, I am considering this as a possability as even on regular loans I always try and pay an extra $50 to $100 on the principal anyway.
hmmmmmmm...well, at least I am having possabilities, huh?
Maybe there's more work for you and a more affordable housing market elsewhere?
Well, I do have a base monthly amount that seemed to work pretty good with me as far as payments went. It was just the extra $700 a month through everything off after about a year or so.
If this second loan WITH the cash out turns out to be as much as my current loan I may just do it as I have been able to afford the $1400 monthly mortgage/HOAs. So in that case, I may be paying less (even though I tie my CCs in with my loan) for the same thing and get a tax write off.
.nullThe BIG If with this is that the cash out thet are allowing me may not cover my entire debt? I think I owe about 28K and the cash out is only about 23 to 24K. Any suggestions on that?
Also, I checked with my CPA and the $5000 IS TAX DEDUCTABLE...so that would be a good thing for the next year and makes me feel better about the loss.
My only other option I am exploring....and not sure if it is smart or really dumb... Is to leave my loan alone (even though it is 8% right now) and just sweat the cards out for awhile. See if 6 months from now with no payments they are willing to cut a deal that I can actually pay off.
My credit will be shot, but I may have been able to save enough at that point to make some better cash out payments. I haven't really thought that one through too much and it is probably not the most ethical thing to do considering I technically have the money to pay some of the cards down. But the one thing throwing me is if I do the whole re finance and only have some of the cash to pay the cards down, I feel like it was not a %100 success. Like maybe I should just sell the place and use cash in bank to work out a better deal later....