Debt paydown strategy?

[melaniemiller2002]

Point #2: I think some people who can't afford a house really mean they can't afford the house they want (in other words, they aren't willing to buy a starter house).

I guess I should clarify....a starter home in our area runs around $350k. That price I previously quoted was not for an upscale home. It was for a home that is a few blocks away from gang members (just far enough away so we feel "semi-safe"). If we want to live in a starter home in the "safer" part of town, it would run us around $400k. To have a mortgage that is $2500 a month would put us at our limit, and make me feel a bit nervous should anything happen. Right now, we can't even afford a 30 year mortgage..not for a house that would be approved by the VA (my husband is a disabled vet and we will be using his VA loan for a mortgage in the coming years).

And it doesn't make it any easier that we are having to pay thousands of dollars right now to retain custody of my H's kids (we've had them since they were 1 1/2 and 4). That money was what we were saving up for an "emergency" fund so when we purchased a home, we would have that "cushion". So buying a home has just been moved to the distant future. And by that time....well, I won't be surprised if the house prices climb up even farther. You can't even get a mobile home for less than $250k here now.

Melanie

 

[minnie1928]

I've been following this thread and it's been great! As I mentioned before, were trying to follow Dave's advice and paydown our debts (cars), then DVC then mortgage.

Here's my idea...is there a way that we could track our progress (all of us) here on the DIS? That way we could cheer each other on while we go through this. I know that somedays you don't feel like you are getting very far, but perhaps if we could turn to our "support group" for encouragement that would help. I think it would also be a positive thing for us to see that it's working for others too. Any ideas?

 

[peacefulgirl]

This is a great thread! I do not have CC debt, I am the queen of loans! I have loans coming out my *@@$#% !!! For the first time, I have no access to a loan, I am maxed out! Now I am a hurting pup and dont have enough to pay monthly bills, let alone extra!
I am working the numbers and it isn't good. I don't see where I can tackle anything! We already made several changes in services as much as we can, got rid of cable..etc... I did all that stuff, now its down to how do we pay for the Dr's, car repairs, etc ... things that HAVE to be done ... AND pay extra on anything? We dont eat out, we have NO luxury stuff. I have slimmed down all I can.

I am like what am I missing???? I know I can do this! What the heck am I missing??

HELP

 

[minnie1928]

This is a great thread! I do not have CC debt, I am the queen of loans! I have loans coming out my *@@$#% !!! For the first time, I have no access to a loan, I am maxed out! Now I am a hurting pup and dont have enough to pay monthly bills, let alone extra!
I am working the numbers and it isn't good. I don't see where I can tackle anything! We already made several changes in services as much as we can, got rid of cable..etc... I did all that stuff, now its down to how do we pay for the Dr's, car repairs, etc ... things that HAVE to be done ... AND pay extra on anything? We dont eat out, we have NO luxury stuff. I have slimmed down all I can.

I am like what am I missing???? I know I can do this! What the heck am I missing??

HELP

I'm assuming you are married. Is it possible for you or your DH to get a part time job? I know a friend of mine who's husband delivered newspapers in the morning before going to his regular job. It wasn't fun, but it did get some extra cash into the equation without sacrificing his time with the family too much.

There's also the Ebay thing, online surveys. How did you come out on your federal taxes last year? If you got a large refund you could tweak your withholdings so you get more out of your paycheck.

As far as doctors and car repairs, can you make arrangements with them to pay in installments? My mom & dad did this and they weren't charged interest to do it either! They also did it for the dentist, electrician, plumber and lawn guy (parent's couldn't mow due to health reasons). Who knew you could do this? I sure didn't!

Just curious, do you rent or own your home?

Also, I'd highly recommend going to the local library and getting Dave Ramsey's Financial Peace book. In it he discusses situations like yours and how to prioritize debt so you can get out of it. Be warned, you may not like what he says needs to be done and it may damage your credit report score. But in the end, you will be further ahead.

Keep posting, as I'm sure others will want to help.

 

[justcruisin]

Peacefulgirl,

You should definitely read some of Dave's books and listen to him (www.daveramsey.com). I find when I don't listen to him frequently I start to loose my Gazelle Intensity and hit the drive thru for lunch!

You can call into his show for help. Likely, he'll tell you to sell some stuff (I know that will be hard to hear). He says if you can't pay cash for something then you can't buy it. Your FICO score is irrelevant --- because you don't borrow money. Banks will give mortgates without a FICO score, but they'll need to do true underwriting and finding a bank willing to do some work is slightly more difficult.

Car payments are the killer of the middle class. I can't believe I've always justified spending 500-700 a month on a car because I can afford the easy monthly payments. If you have $1000, then you buy a $1000 car --- save some money --- then next year, sell your $1000 car for $800 and buy a $4000 car. Sell that in a year for $3500 and buy a "better" car.

DH and I, while not at the point we need to sell stuff (though we "should"), we've stopped using credit cards --- and use cash (even instead of a debit card). Opening your wallet and handing over the green stuff HURTS. Try it for a few weeks. Even at the grocery store. Now I go food shopping with $100 cash and actually pay attention to what stuff costs. If I go over, I have them void some items (the checkout people HATE ME!)

Go over your cable and phone bills --- we easily saved $25 a month when we cut out HBO and call waiting. We used to think $25 a month was nothing. Now it is something. We would spend that "nothing of a $25" over and over again to easily add up to hundreds of dollars a week.

I even bought a refillable coffee mug and bring coffee with me ... I keep a case of water in the trunk of my car, stick a yogurt in my purse and I can go a whole day without spending ANY money. I treat myself to a $1 cup of coffee on Friday (the thought of going to a starbucks is insane).

Good luck -- it takes a while to get going and it can seem overwhelming (it IS overwhelming) but you CAN do it.

diana

 

[etwinchester]

This is such a great thread. I already have one of Dave Ramsey's books and yesterday, I just went out and purchased Quicken.

I AM A WOMAN ON A MISSION !!! (my new slogan to keep me on track)

Quicken is so great. I used it years ago but then lost my disk and had to reset my whole computer due to a virus. I'm glad to have it back. Will definately help me keep track of my Mary Kay business as well.

Good luck to everyone...all the advice is great!

 

[Nik's Mom]

I guess I should clarify....a starter home in our area runs around $350k. That price I previously quoted was not for an upscale home. It was for a home that is a few blocks away from gang members (just far enough away so we feel "semi-safe"). If we want to live in a starter home in the "safer" part of town, it would run us around $400k. To have a mortgage that is $2500 a month would put us at our limit, and make me feel a bit nervous should anything happen. Right now, we can't even afford a 30 year mortgage..not for a house that would be approved by the VA (my husband is a disabled vet and we will be using his VA loan for a mortgage in the coming years).


Melanie

That's how it is around here. We paid $157,000 for our 3 bedroom, 1 bath fixer up home in 1998. Similar homes in our area are now going for at least $400,000. I feel sorry for couples just starting out. They don't have a chance with those prices!

By the way, I think it's fantastic that people are chiming in here with solid advise for people. And no one is being judgemental or making someone feel bad. I think it's great! This is one of the best threads ever!

 

[MrsPete]

I guess I should clarify....a starter home in our area runs around $350k. That price I previously quoted was not for an upscale home.

I didn't mean you personally -- I'm sorry if you thought that -- I meant that's a trait that I've seen in some people who claim they can't afford a home, and I gave the example of my friend who personifies this crazy idea. In my area you can buy a starter home for 100 - 120 K. (She also claims she can't afford to save for a house, but she buys a new car every year, buys new clothes literally every week, goes to the tanning bed, and rarely cooks at home -- and she wonders why she has no money!) That amount will either buy a brand-new house with a tiny yard or an older home with a couple acres.

 

[Nik's Mom]

In my area you can buy a starter home for 100 - 120 K. /QUOTE]

Wow! You can't get anything in Southern California for those prices. Not even in the poorest neighborhoods. Not sure why house prices are so darn high here. We need another bedroom because we want my Mom to move in with us, but we can't afford it! It's crazy here!

 

[MrsPete]

Wow! You can't get anything in Southern California for those prices. Not even in the poorest neighborhoods.

The cost of living is low here (not just housing, but everything else too); the flip side is that wages are considerably lower here. I'm a teacher with 14 years experience, and I make just under 40,000.

 

[Nik's Mom]

That's true. Its always just so shocking when I hear gasoline and house prices in other parts of the country.

 

[dvcgirl]

My only advice would be to avoid pulling money out of your home to pay off your debts. This is a real epidemic occurring in our nation right now. I can't tell you how many friends that I have who are taking out home equity loans to put in expensive new kitchens or pools, for new cars or vacations. It's insane. Great, you've paid off all of your credit card debt, student loans and your car....and now you've got a second mortgage or a bigger first mortgage.

And avoid the tempatation to buy a bigger house. Everyone is upsizing...look at the houses being built today. Do they even build them smaller than 2,000 sq ft anymore? The bigger the house, the more expenses that go with the house. And some of the mortgage packages out there are truly frightening. The "interest only"mortgage is particularly scary. And trust me, it won't be long before 40 year mortgages will be a mainstream borrowing tool.

Read the book Rich Dad Poor Dad sometime. One of the things that the author pounds into your head again and again is that your house is *not* an asset, it's a liability. Your house comes with a whole set of expenses. Mortgage payments (for most), property taxes, utilities, homeowners insurance, association fees, maintenance and upkeep. The bigger the house, the more liabilities you have. Sure, it will appreciate in *value*, but you can't get at the value until you sell the place. If you do dip into it, your payment goes up....more of a liability.

Everyone here has the right attitude though. Pay down your debt, and start saving. It's also really, really important for you to get a grip on how you got into debt in the first place...or it will happen again and again and again.

I worry about where this country will be in 25 years. There's such a sense of entitlement out there in the world now. I mean, even 10 years ago owning a BMW was a sort of a status symbol. Now, they're as common as a Ford Eclipse. I'm a small business owner and travel to people's homes and apartments in Orlando for client meetings. I'm always amazed at the 20 somethings who are renting apartments and driving $40,000 cars. I'm sure that they're all leased, but what a waste of money.

Vacations to Disney World were a pretty rare thing when I was a kid growing up in middle class NJ. Now, I don't know of a family up there with kids who *hasn't* been to WDW...multiple times...regardless of income level. I dunno where I'm going with this...I just find it troubling I guess.

 

[EthansMom]

I worry about where this country will be in 25 years. There's such a sense of entitlement out there in the world now. I mean, even 10 years ago owning a BMW was a sort of a status symbol. Now, they're as common as a Ford Eclipse. I'm a small business owner and travel to people's homes and apartments in Orlando for client meetings. I'm always amazed at the 20 somethings who are renting apartments and driving $40,000 cars. I'm sure that they're all leased, but what a waste of money.

Vacations to Disney World were a pretty rare thing when I was a kid growing up in middle class NJ. Now, I don't know of a family up there with kids who *hasn't* been to WDW...multiple times...regardless of income level. I dunno where I'm going with this...I just find it troubling I guess.

Dvcgirl, I completely agree with the entire sense of entitlement being a problem here in the U.S. Not even 20 years ago, there was something we called "luxury" and a "luxury" was something you only had if you were rich. If you didn't have money, you didn't have a color t.v. or cable or travel by airplane -- those were luxuries.

Now, I can name several "luxuries" that even people living below the poverty level in this country feel they must have: cell phones, big screen t.v.s, dvd players, cable t.v. with premium channels, etc...

It's difficult to be frugal when your friends ask, "Why don't you have a cell phone?" and relatives who come to visit say, "You don't have cable!" But we've got just 1 year left and we'll be down to just the house mortgage for debt. It is totally worth it!

I'm very excited to see all of the folks on this thread who are making a commitment to healthy finances. Way to go!

 

[dvcgirl]

Ethans Mom...yes, this thread gives me hope for our country. I love to hear people thinking and talking about this stuff. My DH and were lucky, well lucky in that he worked for a software company when stock options were a good thing. Unlike most of our friends, we got out when the getting was good. The few friends who did cash out, well, they're all back in debt because their spending continued to increase right along with their incomes.

"Living above one's means" seems to be the norm these days rather than the exception. These boards are a testament to that fact. And I don't want to be flamed either. And it's none of my business, but I'm quite sure that there are a whole lotta people planning trips to Disney World around here who simply do not have the finances to do so.

We've certainly made some mistakes and learned some lessons along the way, but eight years later, we're so much wiser (and I'm happy to report wealthier). Initially we bought a 4,000 sf house and a BMW to go along with it. We both grew up in middle class families, and well, we had the money and could afford it....that's what you're supposed to do right?

We learned that you are who you are....the big house, well it was too big. Even though we could afford the expenses that went with it, well, we thought it was stupid to be paying $15,000 a year on property taxes, and thousands more to maintain it. We had a cleaning lady, a lawn guy and a pool guy...and none of it felt like "us". We realized we were happier when we had less "stuff" and less "staff"...to deal with....less to take care of.....less to worry about.

So a few years later we ditched the big house, made a nice profit on it and moved to Orlando...mostly because we grew weary of those NJ winters. We could have bought twice the house here that we had in NJ. Instead we paid cash for a nice 2,800 sq ft house...in an older neighborhood...still pretty big, but way smaller than what we had. Our expenses are literally 65% less here than they were in NJ. Our cars are paid for...an older SUV and a newer SUV that we bought used. We will never buy a new car again and will probably keep the ones we have until they die. The new car smell only lasts so long. We cut our own lawn. We take care of our pool. We clean our own home. Keep in mind that we could easily afford to have people do all of this for us...but we learned...it's not us. And it's just wasted money. Anything we can do ourselves......we do.

We take one nice vacation a year and do a few weekends away somewhere close. But we don't spend loads of money on travel. When we do, we look for clean, reasonable accomodations. We're Disney fans and years ago (before our enlightenment) we paid up to $2500 for a week's accomoations at a Deluxe resort. And then six years ago we purchased DVC. We bought 250 points and rented out 150 per year. We used the other 100 ourselves to stay in a studio during low season. So essentially our maintenance fees and tickets were covered each year. We just sold it and made a 20% profit on our initial layout. So...we got wise.

So yeah, it worries me to see those 20-somethings driving those 528 BMWs when they're living in an apartment complex. My house is paid for, my retirement savings is robust and I have not one penny of debt, and I'm pulling into that same parking lot in my 1997 SUV.

And you're right, think of all the expenses that people are carrying now that they didn't have years ago. Cell phone, high end cable packages, broadband internet....on and on and on. The froth in the real estate market worries me as well. People are buying houses that they simply can't afford. The income to loan ratio is simply ridiculous. And yet I understand that people are fearful to *not* buy...that it will go even higher, and interest rates will rise.

I sure don't have all the answers, but I do know that big houses, fancy cars, expensive clothes and vacations...well, none of it will make you any happier. And having lots of credit card debt along with it, well, it's just a road to nowhere fast.

 

[EthansMom]

but I do know that big houses, fancy cars, expensive clothes and vacations...well, none of it will make you any happier. And having lots of credit card debt along with it, well, it's just a road to nowhere fast.

 

[Chicago526]

My other issue is the wedding. Not the wedding itself, that's actually quite cheap for the area ($12,000 for 100 guests, that includes my wedding dress to the wedding cake and everything in between). We'll be paying cash for that, mostly. My concern is the honeymoon. We decided on the GF for 7 nights, before we got serious about paying down our debt. The honey moon will be about $4000, and we'll have to charge it. I'm hoping we "net" enough in cash gifts for the wedding to pay for most of it! We should, my parents gave my brother a signifigant cash gift when he got married, so that will cover most of the honeymoon.

We can still change it, we aren't locked in, but DFi gets mad everytime I bring it up! Oh well, we should still be on track to be debt free in about 12 months after we get married, my budget didn't include DFi's overtime, so that can pay for any left over wedding bills/honeymoon expenses we can't pre-pay. Our current debt payoff shouldn't be effected much, if at all.

But we MUST be debt free by fall of '06. DFi's needs his knees re-done, he is in so much pain from them. He'll be out of work 6 weeks, and his disability insurance only pays 2/3 his pay. If we don't have any credit card debt and a few thousand in savings, it won't effect us at all. But if we have that hanging around our necks, it could be a bumpy ride!

 

[poohj80]

My concern is the honeymoon. We decided on the GF for 7 nights, before we got serious about paying down our debt.

You only get to honeymoon once in your life (if you're lucky) so this is the time to splurge in my mind. Of course, we also honeymooned at the GF and it was just completely WONDERFUL! I wouldn't trade it for anything! We received quite a bit of money as wedding gifts which helped to make the trip more affordable.

 

[Chicago526]

You only get to honeymoon once in your life (if you're lucky) so this is the time to splurge in my mind. Of course, we also honeymooned at the GF and it was just completely WONDERFUL! I wouldn't trade it for anything! We received quite a bit of money as wedding gifts which helped to make the trip more affordable.

A girl after my own heart! I just hate the thought of adding to our debt, but I've crunched the numbers and even with a little bit of the wedding left over, when should be debt free (except house and truck) in 12 months, with or without the wedding/honeymoon. I was just hoping DFi's OT could get us to Vegas for a long weekend next winter, but I don't think that's going to happen, unless we really rake it in on wedding gifts!

 

[ksoehrlein]

My concern is the honeymoon. We decided on the GF for 7 nights, before we got serious about paying down our debt. The honey moon will be about $4000, and we'll have to charge it. I'm hoping we "net" enough in cash gifts for the wedding to pay for most of it! We should, my parents gave my brother a signifigant cash gift when he got married, so that will cover most of the honeymoon.

If people in your area tend to give cash gifts at weddings, you should be fine with your GF honeymoon. I'm glad you're more realistic than my friend, who had hoped to recoup the entire amount of her wedding. Boy, was she in for a disappointing shock!

The cash we received at our wedding went into savings and one year later, it was a major part of the down payment for our first house.

I noticed in an earlier post that you plan to go from a condo to a house. One thing to keep in mind when setting up your budget is the expenses you'll have with a house that you might not have now. A lawnmower may be in your future. Landscaping supplies as well. Lowe's and/or Home Depot may become line items in your monthly budget. I'm bringing this up because my friend (see first paragraph) thought she would save money once she owned a house instead of renting. Being an older house, it has needed some work, which their budget was not prepared for. (I think I need to refer my friend to the DIS Budget Board, what do you think?)

 

[nowellsl]

I noticed in an earlier post that you plan to go from a condo to a house. One thing to keep in mind when setting up your budget is the expenses you'll have with a house that you might not have now. A lawnmower may be in your future. Landscaping supplies as well. Lowe's and/or Home Depot may become line items in your monthly budget. I'm bringing this up because my friend (see first paragraph) thought she would save money once she owned a house instead of renting. Being an older house, it has needed some work, which their budget was not prepared for. (I think I need to refer my friend to the DIS Budget Board, what do you think?)

Don't forget taxes go up, insurance goes up, utilities go up (mine did anyway).