Author Topic: Case Study - $800,000 in debt and where to start?  (Read 22810 times)

tralfamadorian

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Re: Case Study - $800,000 in debt and where to start?
« Reply #50 on: August 30, 2017, 12:35:57 PM »
RENTAL PROPERTIES (Gross Rent)
FMVBALRENTPYMTTERMRATE
DUPLEX$225,000$181,690$1,825$1,540203.25%
CONDO$160,000$95,230$1,650$1,050153.375%
SFH$120,000$69,350$800$670304.125%

I agree with the suggestions above that taking a few hours to figure out how profitable or not your rentals are is important.  If they are not, you can always 1031 into one or more properties that are profitable.  For that reason, I do not recommend including tax benefits or principal pay down in your initial calculation.  Your choices are not solely these particular properties or the stock market. 

As a real estate investor, this is the way I analyze every new property:
Monthly:

Rent

PITI
HOA
Management
Vacancy 10% of rents
CapEx 10% of rents for SFH, 5% for condos if the HOA is responsible for your walls and roof
Maintenance 10% of rents

Then you decide what the minimum profit margin you are willing to take is.  The most common number I hear from experienced investors (and one I use myself) is $200/door. 

It will be tempting to move down the ~35-40% allocated to management, vacancy, capex and maintenance to make the numbers work.  And sure, a well built c.2017 house is going to have lower capex and maintenance than a c.1800 house with deferred maintenance.  So if you can tease your real expenses out of the personal accounts, please do.  However, you'll have years where there are relatively few repairs but eventually it will be time for new windows or a roof or gutters.

Unfortunately, you have under 30 year loans so the chances of these cash flowing as is are null.  So, maybe run a few numbers and figure out what the PITI would be as a 30 year then plug these numbers into above.  Luckily, money is cheap at the moment so you could probably find a low/no closing cost refi somewhere.  If they still come out as cash negative, then as I mentioned above, consider a 1031.  There's no harm in pivoting subpar investment properties for better ones now that you know the difference. 

Goldielocks

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Re: Case Study - $800,000 in debt and where to start?
« Reply #51 on: August 30, 2017, 02:23:52 PM »
The rule of thumb.

IF RENT is...
Duplex    $1,484.00
Condo    $1,528.00
SFH    $800.00  (?? I am not sure how your rent is $4275 per month, something is missing from my numbers)

Is your property value under the following amounts (approximately)?
Duplex is worth no more than:   $148,400 to $250,000?
Condo:    $152,800  to $250,000?
SFH :   $80,000 - $130,000?

If the property value is on the low side of the above, you have a very strong rental property argument.  If it is closer to the higher number, you are definitely relying on capital appreciation to make this pay out, and you need to evaluate if your time and risk is worth it.   (It may be).

If your properties are worth a LOT more than this upper range, it is a strong candidate for selling, without compelling reasons to keep it (such as intending to move into it, exceptionally low inherited property tax, other investors demands,  etc).

$4,275 is gross rent, I pulled out the management fees from the Duplex and Condo.  They gross $1,825 and $1650 respectively.  I should probably put that back in and indicate the management fees separately.   Below is based on the gross...

RENTAL PROPERTIES (Gross Rent)
FMVBALRENTPYMTTERMRATE
DUPLEX$225,000$181,690$1,825$1,540203.25%
CONDO$160,000$95,230$1,650$1,050153.375%
SFH$120,000$69,350$800$670304.125%

Based on this, I would keep the condo and duplex (investigate if you can reduce the monthly costs including management), and look into divesting the SFH or increasing the rent to $1000 or more.

Obviously, the better way is to use the simple accounting formulas from the recommended book / link and determine profitability for yourself directly, but the Rent : FMV suggests that your rentals are profitable or have a lot of potential to be so with the right tenants.

Raenia

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Re: Case Study - $800,000 in debt and where to start?
« Reply #52 on: August 30, 2017, 06:27:44 PM »
Time for some facepunches for your spending, meant in the spirit of friendship :)

-$50/mo on cable TV?  Cancel that and get Netflix.  You are in a hair-on-fire emergency, you don't get cable.
-$45/mo on dry cleaning is crazy high, try to find clothes that don't require dry cleaning, or at least wear those clothes less often.  If you have to wear them, invest in a Dryel kit and wash them at home.
-$400/mo on entertainment?  You have CC debt!  Cut this by a quarter until the debt is paid off, then you are allowed to increase it to a generous 150/mo after that.
-$600/mo on groceries is also very high, even for feeding four people.  How old are your kids?  I think you can get this down to $400/mo with careful shopping and meal planning.
-$86/mo for hair care is too high.  Get cuts less frequently, or at cheaper places.  Best if you learn to do it yourself.
-$100/mo for yardwork is a lot, is this for all of your properties?  See if there is more you can do yourself instead of paying for it.
$250/mo for alcohol/tobacco is for when you're debt-free.  I won't suggest you give it up entirely, but cut back to $50/mo, max.

Put all the extra from your cutbacks toward that 10.7% debt, that interest rate is crazy and you want it paid off as soon as possible.  Snowball the payment to the next highest interest rate until all are paid off.

You've gotten plenty of advice on the real estate, so I'll leave that to the experts.

thebudgetbloggo

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Re: Case Study - $800,000 in debt and where to start?
« Reply #53 on: September 04, 2017, 08:53:15 PM »
I can't say enough about this forum.  The amount and quality of the feedback I've received thus far has been nothing short of amazing, so thank you all.  It really means a lot and I'm taking everything I read to heart. 

Here's what I've done so far, and what I plan to do soon.  Any additional feedback will of course be greatly appreciated.

- I've signed up for both YNAB and Mint, and I am leaning toward Mint a little bit at this point be I find the app easier to use and it imports most transactions automatically...this will save me tons of setup time because I have hundreds of transactions per month.  I can tell either tool will be a great resource to help us visualize our spending.

- I plan to pay off all credit cards immediately.  This is roughly $12,000 in unsecured debt, and will return over $400/mo to our pockets, without expending too much of our cash.

- I'm exploring the sale of rental properties, starting with the SFH.  I am directing some cash toward renovation (needs floors, paint, etc) to maximize it's market value.  My hope is to sell it for $120,000 which would pay off both the first mortgage and home equity loan, leaving me about $40,000 to spare.  What can I do with that money to minimize tax liability?

- We're going to start capping our spending in some of the current out of control categories - this includes dining out and craft beer. :(

EDIT:  We are also going to redirect the $650/mo we currently put into various saving accounts (emergency fund, etc) towards paying down our two personal loans.  Since we've got a good amount of cash to knock these out, we're going to split this evenly and add $325 to each loan payment - to pay them both off within 24 months.  Getting these paid off will free up an additional $770/mo.

Personal Loan 1 - Bal $17,612, pymt $450, 50 pymts to go | add $325/mo, paid off in 26 mos, saving $856 in interest
Personal Loan 2 - Bal $14,233, pymt $320, 53 pymts to go | add $325/mo, paid off in 25 mos, saving $700 in interest

We obviously have a lot to do, but this feels like a good start.

Let me know what you think, and thanks again all!
« Last Edit: September 05, 2017, 02:23:48 PM by thebudgetbloggo »
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Goldielocks

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Re: Case Study - $800,000 in debt and where to start?
« Reply #54 on: September 04, 2017, 09:29:29 PM »
Awesome!  Remember, only ONE credit card for personal expenses, pay off each month.   So much easier.

Raenia

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Re: Case Study - $800,000 in debt and where to start?
« Reply #55 on: September 05, 2017, 05:42:21 AM »
All good steps to start with, good job!  Keep us updated on your progress, we're all cheering you on!

Dicey

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Re: Case Study - $800,000 in debt and where to start?
« Reply #56 on: September 05, 2017, 06:20:58 AM »
Awesome!  Remember, only ONE credit card for personal expenses, pay off each month.   So much easier.
And ONE credit card for expenses related to your rental properties, preferably tied to a sepearate checking account, which naturally you will pay off every month.

You can do this!
I did it! I have a journal!
A Lot Like This
And hell yes, I am still moving confidently in the direction of my dreams...

caracarn

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Re: Case Study - $800,000 in debt and where to start?
« Reply #57 on: September 05, 2017, 07:45:13 AM »
- I've signed up for both YNAB and Mint, and I am leaning toward Mint a little bit at this point be I find the app easier to use and it imports most transactions automatically...this will save me tons of setup time because I have hundreds of transactions per month.  I can tell either tool will be a great resource to help us visualize our spending.

We obviously have a lot to do, but this feels like a good start.

Let me know what you think, and thanks again all!
You appear from your location to be US based, so US financial  institutions, therefore YNAB will also import transactions automatically. 

One of the big differences from a budgeting standpoint is the categorization and ease of moving when you need to.  Mint has improved their interface for categorizing, but they still are not as powerful in a workable budget as YNAB.  I'd encourage you to make sure you watched the videos on YNAB on how to apply the four rules.  Without that, I'd agree that it it not intuitive but to give them both a fair chance I'd suggest that.  There's also a Whiteboard Wednesday series from YNAB that can help you learn how to better us the program and you can search those for the rules etc.

thebudgetbloggo

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Re: Case Study - $800,000 in debt and where to start?
« Reply #58 on: September 05, 2017, 03:52:10 PM »
In Addition:

We are also going to redirect the $650/mo we currently put into various saving accounts (emergency fund, etc) towards paying down our two personal loans.  Since we've got a good amount of cash to knock these out, we're going to split this evenly and add $325 to each loan payment - to pay them both off within about 24 months.  Getting these paid off will free up an additional $770/mo.

Personal Loan 1 - Bal $17,612, pymt $450, 50 pymts to go | add $325/mo, paid off in 26 mos, saving $856 in interest
Personal Loan 2 - Bal $14,233, pymt $320, 53 pymts to go | add $325/mo, paid off in 25 mos, saving $700 in interest
Please don't mistake my ignorance for arrogance -thebloggo

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thebudgetbloggo

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Re: Case Study - $800,000 in debt and where to start?
« Reply #59 on: September 05, 2017, 03:57:04 PM »
Does anyone else invest in Lending Club or other P2P lending platform?  I'm curious if it would be worth winding down that account to pay off debt faster?  Right now I roll all the payments back in, but would get about $476/mo out of that for as many as it took to drain the account...right now it would be about 23 months.  Thoughts?
Please don't mistake my ignorance for arrogance -thebloggo

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Laura33

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Re: Case Study - $800,000 in debt and where to start?
« Reply #60 on: September 05, 2017, 06:39:39 PM »
Does anyone else invest in Lending Club or other P2P lending platform?  I'm curious if it would be worth winding down that account to pay off debt faster?  Right now I roll all the payments back in, but would get about $476/mo out of that for as many as it took to drain the account...right now it would be about 23 months.  Thoughts?

Generally, I view P2P lending as an "extra" -- something you do for fun/to try to do good after you have all of your other ducks in a row.  You don't yet have all your ducks in a row (though you're taking a lot of steps in the right direction!).  So, yes, I'd say cash that out as it comes due and throw that money at your highest-interest debt.

I know you didn't ask, but I'd also recommend tweaking your various loan repayment plans slightly to approach it somewhat more methodically.  If you want to minimize the money you pay in interest (and maximize what you keep in your pocket), you should throw all of your extra money at the highest-interest loan, and pay only the minimums on the remainder.  Then once the highest is fully paid, throw all the extra plus what you just freed up from the first loan towards the second-highest loan.  Etc.

This is the approach with the best math.  But in your case, I am recommending it for psychological reasons as well:  my impression from what you have written is that you are sort of flying off in a number of different directions, based on what seems like a good idea, without a lot of math or analysis.  I think approaching the "fix" methodically may help build mental habits that will serve you well once you get all the debt paid off and are ready to throw all that free cash towards your future.  Investing is really not hard; you just need to learn to tolerate the relative boredom* and rein in the tendency to chase after a good story or cool new idea.

*As I mentioned before, I am totally lazy, so VTSAX suits me perfectly.  DH, though, is very easily bored; he used to love picking individual stocks, and just for fun he once spent months building a model that would allow him to predict good stock buys (yeah, you can guess how that turned out).  We ultimately compromised by agreeing on VTSAX for our normal savings, and then giving him a little pot of money he could play around and invest in whatever the hell he wanted.  The idea is not to suck the fun out of everything -- it's to find a way that allows you to chase what you enjoy, but only after you have your family's needs covered.
Laugh while you can, monkey-boy

thebudgetbloggo

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Re: Case Study - $800,000 in debt and where to start?
« Reply #61 on: September 05, 2017, 07:43:22 PM »
I know you didn't ask, but I'd also recommend tweaking your various loan repayment plans slightly to approach it somewhat more methodically.  If you want to minimize the money you pay in interest (and maximize what you keep in your pocket), you should throw all of your extra money at the highest-interest loan, and pay only the minimums on the remainder.  Then once the highest is fully paid, throw all the extra plus what you just freed up from the first loan towards the second-highest loan.  Etc.

I understand the psychological aspect of needing to approach it this way, but putting all $650 extra toward the 10.75% loan with a bal of $17650 pays that off in 18 months, then moving all $1100 to the next one means the 7.5% loan with a bal of $14,200 is paid off in 11 months...for a total of 29 months - at least 3 months later than paying them both down at the same time.  Granted there are interest savings (as you mentioned) by paying the high rate, high balance loan down first, but the snowball approach does extend the pain a few more months as well.  It's a good challenge either way, and I'm excited to share my progress.

I'm the meantime, I'm going to switch off that reinvestment at Lending Club - that extra cash will certainly help accelerate things.
Please don't mistake my ignorance for arrogance -thebloggo

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Trinitysmom

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Re: Case Study - $800,000 in debt and where to start?
« Reply #62 on: September 06, 2017, 10:43:24 AM »
I think your math is off on the last post. I think you are calculating the balance being the same in 18 months on the $14 000 instead of subtracting 18 months worth of payments and then see how long the new payment would take. I could be wrong I have only had one coffee today.

thebudgetbloggo

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Re: Case Study - $800,000 in debt and where to start?
« Reply #63 on: September 06, 2017, 12:08:28 PM »
I think your math is off on the last post. I think you are calculating the balance being the same in 18 months on the $14 000 instead of subtracting 18 months worth of payments and then see how long the new payment would take. I could be wrong I have only had one coffee today.

I used a debt repayment calculator to determine the original term vs. the accelerated term here:  http://www.youcandealwithit.com/borrowers/calculators-and-resources/calculators/debt-repayment-calculator.shtml

Please don't mistake my ignorance for arrogance -thebloggo

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Trinitysmom

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Re: Case Study - $800,000 in debt and where to start?
« Reply #64 on: September 06, 2017, 01:13:22 PM »
personal loan 1 - $17612 payment $450 + 650 =paid off  18 months
personal loan 2 - $14233 - 18 months regular payments =approximately $9915 then add $1100 extra payment and balance is paid in full 8 months later. So 26 months total.
I agree with you that it makes very little difference which way you go. Does my math make sense? I am now posting this more to confirm I'm calculating correctly.

Laura33

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Re: Case Study - $800,000 in debt and where to start?
« Reply #65 on: September 06, 2017, 01:15:27 PM »
Yeah, I think we have math issues.  I can't find a good calculator in the time available that lets you play around with different combinations, but this is what I found from one calculator (https://financialmentor.com/calculator/debt-snowball-calculator):

Current (from original study): 

A = $17,612 owed, 10.75%, paying $425/mo
B = $14,233 owed, 7.5%, paying $321/mo.

Calculator says this will pay off both loans in 53 months, with about $7K in interest.

Your proposed plan would be to add $325 to each of those.  When I plug those in, I get loan A being paid off in 27 mos. and loan B in 24 mos., with a total of about $3400 interest.

So then I plugged in adding $650 to loan A, which gave me 18 more payments and a total of $1520 in interest.  Then I took the full $1075 you were paying towards A and added it to the $321 to B, which gave me 11 payments and $520 interest.  But that doesn't consider that you would be paying down B at a rate of $321/mo for the year and a half you are focusing on A.

So then the real question is what will be the remaining principal on B in 18 mos., once you finish paying A?  I can't find a calculator that tells me exactly how much principal you are repaying on your current schedule (I can't quite get the numbers to match your current payments), but it looks like the principal component is on the order of $200/mo.  So if you assume that during the first 18 months when you are focusing on A, you are also paying $200/mo principal on B, that means that by the time you start to throw all your money at B, the principal would be down to about $10,600.  And then when I plug in $10,600 owed and $1396 payments ($321 + original $425 from A + extra $650), it gives me 8 additional months and under $300 in interest.  So the grand total for my proposed option would be 26 months and about $1800 in interest. 

So my option:  first loan paid off in 18 mos; second in 26 mos.; $1800 interest.
Split option:    first loan paid off in 24 mos.; second in 27 mos.; $3400 interest.

Caveat that I am not the spreadsheet queen, so all numbers should be checked for accuracy.
« Last Edit: September 06, 2017, 01:26:06 PM by Laura33 »
Laugh while you can, monkey-boy

Trinitysmom

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Re: Case Study - $800,000 in debt and where to start?
« Reply #66 on: September 06, 2017, 01:24:55 PM »
Thanks Laura33 I started to doubt my numbers but  $1600 is worth saving. I change my comment about it not making much difference. 

zoe2dot

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Re: Case Study - $800,000 in debt and where to start?
« Reply #67 on: September 06, 2017, 02:22:47 PM »
This is an AMAZING thread.

How are the wife and kiddos taking this new approach to finances? 
What is on your to-do list this week?  For example, did you decide to cancel cable and if so did you do it?

Re: groceries and planning to cook.  I did the Whole30 diet/cooking approach in March of this year and it revolutionized my approach to meal planning and therein grocery shopping.  It was amazing to know what I was going to eat a week out.  It cut down on waste, encouraged me to eat at home and gave me a tangible way to moderate my grocery bill (for example, if I'm only going to use one bell pepper in a week it doesn't make sense to buy them in bulk at Costco that week). 

I've been thinking of posting a similar post since I earn a good salary but sometimes feel underwater since I'm also paying for a house for a parent, have a lot of travel to weddings this year, replaced a car, etc.

Really enjoying the thoughtful replies and hope to see updates periodically, and maybe get punched in my own face some day soon!

:)


thebudgetbloggo

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Re: Case Study - $800,000 in debt and where to start?
« Reply #68 on: September 07, 2017, 08:51:39 PM »
This is an AMAZING thread.

How are the wife and kiddos taking this new approach to finances? 
What is on your to-do list this week?  For example, did you decide to cancel cable and if so did you do it?

Re: groceries and planning to cook.  I did the Whole30 diet/cooking approach in March of this year and it revolutionized my approach to meal planning and therein grocery shopping.  It was amazing to know what I was going to eat a week out.  It cut down on waste, encouraged me to eat at home and gave me a tangible way to moderate my grocery bill (for example, if I'm only going to use one bell pepper in a week it doesn't make sense to buy them in bulk at Costco that week). 

I've been thinking of posting a similar post since I earn a good salary but sometimes feel underwater since I'm also paying for a house for a parent, have a lot of travel to weddings this year, replaced a car, etc.

Really enjoying the thoughtful replies and hope to see updates periodically, and maybe get punched in my own face some day soon!

:)

I'm not sure we're quite at the level of needing to cancel cable...besides, we are in a two year commit with AT&T @ $125/mo, which isn't horrible.  Ont he docket this week, was paying off credit card debt (done) and stopping the automatic reinvestment in Lending club (also done).  I also installed new floors in the SFH, and once the paint is complete, I'll be getting an appraisal to determine the selling price for that unit.

Groceries and eating our are definitely categories we need to pay some massive attention to...I'm going to start posting budget number directly from Mint since it seems to do a really good job at categorizing spending...we are at about $2,000 for August at this point, and I haven't even added all accounts yet.

I never thought I could make so much money and be so stressed about money at the same time.  Wake up call for sure.
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thebudgetbloggo

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Re: Case Study - $800,000 in debt and where to start?
« Reply #69 on: September 07, 2017, 08:53:16 PM »
Yeah, I think we have math issues.  I can't find a good calculator in the time available that lets you play around with different combinations, but this is what I found from one calculator (https://financialmentor.com/calculator/debt-snowball-calculator):

Current (from original study): 

A = $17,612 owed, 10.75%, paying $425/mo
B = $14,233 owed, 7.5%, paying $321/mo.

Calculator says this will pay off both loans in 53 months, with about $7K in interest.

Your proposed plan would be to add $325 to each of those.  When I plug those in, I get loan A being paid off in 27 mos. and loan B in 24 mos., with a total of about $3400 interest.

So then I plugged in adding $650 to loan A, which gave me 18 more payments and a total of $1520 in interest.  Then I took the full $1075 you were paying towards A and added it to the $321 to B, which gave me 11 payments and $520 interest.  But that doesn't consider that you would be paying down B at a rate of $321/mo for the year and a half you are focusing on A.

So then the real question is what will be the remaining principal on B in 18 mos., once you finish paying A?  I can't find a calculator that tells me exactly how much principal you are repaying on your current schedule (I can't quite get the numbers to match your current payments), but it looks like the principal component is on the order of $200/mo.  So if you assume that during the first 18 months when you are focusing on A, you are also paying $200/mo principal on B, that means that by the time you start to throw all your money at B, the principal would be down to about $10,600.  And then when I plug in $10,600 owed and $1396 payments ($321 + original $425 from A + extra $650), it gives me 8 additional months and under $300 in interest.  So the grand total for my proposed option would be 26 months and about $1800 in interest. 

So my option:  first loan paid off in 18 mos; second in 26 mos.; $1800 interest.
Split option:    first loan paid off in 24 mos.; second in 27 mos.; $3400 interest.

Caveat that I am not the spreadsheet queen, so all numbers should be checked for accuracy.

Now this makes sense; I hasdn't consider the continued payments on loan b/2 while loan a/1 was being paid down.  Clearly the snowball is the best approach.  First payment will be made this month.  :)
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Meesh

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Re: Case Study - $800,000 in debt and where to start?
« Reply #70 on: September 08, 2017, 10:56:35 AM »
1. Great job at killing your credit card debt. Now freeze those suckers in a block of ice... no really that's where mine are. From your posts you seem to be over spending from lack of tracking and while I know you are now working on tracking through mint, it's easy to back slide, so not having them around makes things just simpler. Make sure to unconnect them to things like Amazon and Paypal.

Consider using a second account for discretionary spending and just auto transferring over from you main account (where your pay your bills and mortgages) weekly or monthly. This debit card should be the only one you use. Make sure that there is no overdrafting abilities, when its gone its gone, denied. Over time you will adjust and every month or two lower the auto transfers as you become more efficient with your money.

2. I agree that you seem to just be spending whatever's in the bank account, part of why I suggested a separate account for discretionary, so I'd max your 401k ASAP. This will almost force you to lower you discretionary and make you do some hard choices just from have 1500 less a month. No pain no gain. Plus lower taxes...so yay.

3. Can we talk about your crazy cars? What do you have? Look into their blue book value vs their debt. Sell those puppies and get some used cars paid in full. Now if you can or maybe after a few months of cutting the low hanging fruit. I think you can get some decent cars for 5k each (my 2001 camry drives like a dream at 1k value if that lol) but you can definitely get something for 10k a piece. Without those car loans your debt is lowered and you can roll what you were paying on them further into your debt emergency, say your personal loans.

https://www.mrmoneymustache.com/2011/04/19/how-to-come-out-way-ahead-when-buying-a-used-car/

http://www.mrmoneymustache.com/2012/03/19/top-10-cars-for-smart-people/

thebudgetbloggo

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Re: Case Study - $800,000 in debt and where to start?
« Reply #71 on: September 12, 2017, 08:20:42 AM »
1. Great job at killing your credit card debt. Now freeze those suckers in a block of ice... no really that's where mine are. From your posts you seem to be over spending from lack of tracking and while I know you are now working on tracking through mint, it's easy to back slide, so not having them around makes things just simpler. Make sure to unconnect them to things like Amazon and Paypal.

Consider using a second account for discretionary spending and just auto transferring over from you main account (where your pay your bills and mortgages) weekly or monthly. This debit card should be the only one you use. Make sure that there is no overdrafting abilities, when its gone its gone, denied. Over time you will adjust and every month or two lower the auto transfers as you become more efficient with your money.

2. I agree that you seem to just be spending whatever's in the bank account, part of why I suggested a separate account for discretionary, so I'd max your 401k ASAP. This will almost force you to lower you discretionary and make you do some hard choices just from have 1500 less a month. No pain no gain. Plus lower taxes...so yay.

3. Can we talk about your crazy cars? What do you have? Look into their blue book value vs their debt. Sell those puppies and get some used cars paid in full. Now if you can or maybe after a few months of cutting the low hanging fruit. I think you can get some decent cars for 5k each (my 2001 camry drives like a dream at 1k value if that lol) but you can definitely get something for 10k a piece. Without those car loans your debt is lowered and you can roll what you were paying on them further into your debt emergency, say your personal loans.

https://www.mrmoneymustache.com/2011/04/19/how-to-come-out-way-ahead-when-buying-a-used-car/

http://www.mrmoneymustache.com/2012/03/19/top-10-cars-for-smart-people/

1.  Thank you!  I actually have a separate business credit card account, which I'll start focusing on actually using for business expenses.
2.  Taking all extra cash at the moment ans directing it towards paying down the personal loans, at the recommendation of many.
3.  I didn't think the cars were that crazy considering we gross over $200k - it's a 2015 Dodge Durango and 2010 Buick Lacrosse, nothing excessive really.  While I do realize it's $900+/mo, I really wanted the wife/kids in something reliable (which we also use for family travel).  I kinda got hosed on the Buick, so getting rid of it now would just lock in losses, since it worth quite a bit less than what I owe.   
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researcher1

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Re: Case Study - $800,000 in debt and where to start?
« Reply #72 on: September 12, 2017, 10:57:47 AM »
thebudgetbloggo -

I just stumbled across this thread, and haven't read every response, but I'm curious why you created so much complexity in your life.  By my count, you have...
- 4 credit card balances, 4 mortgages, 2 personal loans, 2 cars loans, 2 retirement account loans, 1 home equity loan

In addition to keeping track of all this debt, you...
- work a full-time job, deal with 3 rental properties, deal with your personal residence, deal with Lending Club/P2P lending accounts

I personally think you are going about trying to build wealth and attain FIRE all wrong. Simplify. Simplify. Simplify.
- Get rid of all of these debts, get rid of most of your real estate holdings, start investing in index funds.

The fact that your are asking this question tells me that you are incapable of seeing the forest for the trees...
"Does anyone else invest in Lending Club?  Would it be worth winding down that account to pay off debt faster?"
For the love of God, YES, get rid of this account (and anything like it) pay off your debts. 

How can you possibly have any quality time to spend with your wife and kids?
What is the purpose of having such a shit storm of complexity in your life?

caracarn

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Re: Case Study - $800,000 in debt and where to start?
« Reply #73 on: September 12, 2017, 05:17:33 PM »
3.  I didn't think the cars were that crazy considering we gross over $200k - it's a 2015 Dodge Durango and 2010 Buick Lacrosse, nothing excessive really.  While I do realize it's $900+/mo, I really wanted the wife/kids in something reliable (which we also use for family travel).  I kinda got hosed on the Buick, so getting rid of it now would just lock in losses, since it worth quite a bit less than what I owe.


OK, you are not on LifeStyleoftheRichandFamous.com or ItsOKMyLifestyleFitsMyIncome.com.  You are on MMM and as such these ideas, especially the highlighted ones are deserving of a facepunch.  A big one.  Hence the image.  Hope you like it.

The key difference here, and why I think this thread has gone to crickets from responses is that you have crossed over into "but I deserve it" mode.  There's not a lot of patience or help available for those who just want to justify why things that are not OK, if you are serious about increasing your savings, getting a grip on your spending and other things you said you wanted to do, are OK.  That's what this car explanation does.

In MMM forum land your income is not a dictator of how expensive your cars should be.  Your income is not a dictator of how expensive ANYTHING you do or have should be.  The goal is to optimize.  You can have safety and reliability for your wife and kids without two SUVs.  IF you must have an SUV for travel or collecting all the stuff from the hardware store or friends for all the DIY work you are doing around the house, then one can work.  We also make $200K but we got rid of having two big cars as it was a giant money suck.  Insurance, costlier to insure.  Fuel, less MPG.  Maintenance those bigger tires cost more.  So does those brake calipers and rotors because your vehicle is heavier.  The big engine needs a more expensive battery.  So face punch on the "nothing excessive really".  Really!?  Do I have to punch you again?

You do realize that not going into convulsions when you type "When I do realize it's $900+/mo" is a problem, right?  For a lot of people that is more than their rent/mortgage payment.  For something they live their lives in, raise their kids in, have sex with their spouse/significant other in, and do a whole lot more in.  Not something they lay back and drive down the interstate in. 

So you need to disentangle your budget targets from your income for everything.  Figure out the purpose of the need in your life.  Then get what is needed to fulfill that purpose and nothing more, and most importantly when you are stopping in for a case study and wanting places to save so you can save, don't ignore the big items and try to make a dent in your life with little things and then say, "I tried.  Knew it was not possible."  Not saying you're being quite that crass, but I'd venture a guess that most have given up knocking on your skull yelling, "Wake up!" because it does appear that you are likely not too make some of the bigger changes that will really help. 

I good, safe, and reliable Honda Accord will fit your family and save you some money.  Or many other well rated reliable cars that last forever but are not SUVs.  Pick one of those tanks and trade it in. 

And don't EVER again say "didn't think ______ were that crazy considering we gross over $200K", at least not unless you want to post it on WhyIllNeverRetireEarly.com.

Bracken_Joy

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Re: Case Study - $800,000 in debt and where to start?
« Reply #74 on: September 12, 2017, 05:35:44 PM »
You didn't cancel cable because $125/month is "not bad". Your $900/mon cars aren't too bad because you make $200k.

Seriously?

On the one hand, good on you for the things you HAVE been paying off. But on the other hand, please recognize the MASSIVE GAPING HOLES of inefficiency in your spending. $900/month for cars is obscene, full stop. There is no such thing as "locking in" your loss. You already lost! You're suffering from sunk cost fallacy, and that will keep you in debt forever.
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SwordGuy

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Re: Case Study - $800,000 in debt and where to start?
« Reply #75 on: September 12, 2017, 08:36:11 PM »
You can buy perfectly good, safe, reliable, nice low-mileage used cars for about $10,000 or less if you set your mind to it.
If your credit is good you can cut your monthly payments in half.

Don't let Tiny Details Exaggeration Syndrome get in the way of cutting those expenses.  An extra $450 to $500 a month would be an awesome way to pay this debt down faster.

Meesh

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Re: Case Study - $800,000 in debt and where to start?
« Reply #76 on: September 12, 2017, 09:18:33 PM »
This site is dedicated to spending your money efficiently. A car is a tool to get you from point a to point b and it's an expensive one no matter what way you cut it. You are thinking in percentages of your income (btw they are about 20% and 12% at original prices! still crazy) but with that perspective, your money will never be optimized. Spending less on necessities is how you get the bigger shovel to dig out of the hole. After that you'll be able to use that money to invest, giving you true financial freedom to do the things that make you and your family happy without stress or worry.

Things like cars, aside from a small blip for a few months after you buy, do not make you happy. Things are not a good way to spend your money, experiences and sharing passions with people you care about are. That's why you'll get a lot of people to tell you to cut the spending down, since it doesn't up your quality of life and it actually hinders your freedom. 900/m is a lot of money. That's 10800 a year, much of that could go towards paying off your debt. After which, imagine what you could do with that kind of money annually with your family. That could be one heck of an annual vacation. Or better yet invest it and FI sooner then travel all over, live all over even... These are just examples, I have no idea what speaks to you about what you would want to do with your money (maybe its to be a chef or write idk) but that's the beauty of it. It gives you freedom.
« Last Edit: September 12, 2017, 09:20:26 PM by Meesh »

Laura33

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Re: Case Study - $800,000 in debt and where to start?
« Reply #77 on: September 13, 2017, 07:48:00 AM »
3.  I didn't think the cars were that crazy considering we gross over $200k - it's a 2015 Dodge Durango and 2010 Buick Lacrosse, nothing excessive really.  While I do realize it's $900+/mo, I really wanted the wife/kids in something reliable (which we also use for family travel).  I kinda got hosed on the Buick, so getting rid of it now would just lock in losses, since it worth quite a bit less than what I owe.

Holy shit.  To risk a 15-yard unsportsmanlike penalty for piling on:

1.  We gross more than you, have no debt except a mortgage under 3%, had three vehicles at one time (and currently have two un-mustachian ones) and still have never had $900/mo. in car payments in our lives.

2.  If you want reliability and safety for your family, wtf are you doing with a Dodge Durango and a Buick Lacrosse?  And how could both of those even add up to $900/mo?

The issue here is your thought process.  You can't "afford" $900/mo in car payments, even on a $200K+ income, when that income is already more than fully accounted for by all of the other things that you bought on credit and are still paying off.  It's what you keep that matters, not what you make -- the bottom line, not the top one. 

Fundamentally, past you bought a lot more shit than he could afford, leaving current you holding the bag.  So current you is going to have to suck it up and act like you're poor for a while, because, umm, you are. 
Laugh while you can, monkey-boy

Raenia

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Re: Case Study - $800,000 in debt and where to start?
« Reply #78 on: September 13, 2017, 08:29:10 AM »
I'm not sure we're quite at the level of needing to cancel cable...besides, we are in a two year commit with AT&T @ $125/mo, which isn't horrible.  Ont he docket this week, was paying off credit card debt (done) and stopping the automatic reinvestment in Lending club (also done).  I also installed new floors in the SFH, and once the paint is complete, I'll be getting an appraisal to determine the selling price for that unit.

$125/mo for cable absolutely is horrible.  I really, really hope that number is for your cable tv, internet, and phone lines, because that's an insane amount of money on TV.  Your initial budget post says $50/mo cable, is that not accurate?  Even assuming it's all included, you can do much better.  You're still in debt, you are at the level of needing to cut everything that doesn't add irretrievable value to your life.  Don't get complacent just because you paid off the credit cards.

Your car spending is absolutely insane.  It has nothing to do with how much you gross, it has only to do with how much you have left at the end of the month.  The answer to that question is, yes, the cars are that crazy and that excessive.  Locking in losses on the Buick is better than continuing to pay interest on it.  You can easily get a good car for <$10k, cash.

thebudgetbloggo

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Re: Case Study - $800,000 in debt and where to start?
« Reply #79 on: September 13, 2017, 09:15:01 AM »
I'm not sure we're quite at the level of needing to cancel cable...besides, we are in a two year commit with AT&T @ $125/mo, which isn't horrible.  Ont he docket this week, was paying off credit card debt (done) and stopping the automatic reinvestment in Lending club (also done).  I also installed new floors in the SFH, and once the paint is complete, I'll be getting an appraisal to determine the selling price for that unit.

$125/mo for cable absolutely is horrible.  I really, really hope that number is for your cable tv, internet, and phone lines, because that's an insane amount of money on TV.  Your initial budget post says $50/mo cable, is that not accurate?  Even assuming it's all included, you can do much better.  You're still in debt, you are at the level of needing to cut everything that doesn't add irretrievable value to your life.  Don't get complacent just because you paid off the credit cards.

Your car spending is absolutely insane.  It has nothing to do with how much you gross, it has only to do with how much you have left at the end of the month.  The answer to that question is, yes, the cars are that crazy and that excessive.  Locking in losses on the Buick is better than continuing to pay interest on it.  You can easily get a good car for <$10k, cash.

Yes, the $125/mo is for cable/internet/phone bundled.
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thebudgetbloggo

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Re: Case Study - $800,000 in debt and where to start?
« Reply #80 on: September 13, 2017, 09:58:33 AM »
Man, my face hurts.  LOL.  Thank you all!

Look, obviously my flawed line of thinking is what got us here in the first place.  I know it needs to change, and that's why I'm here.  No amount of face punching is going to scare me away, but it may help push me to make the difficult changes we need to in order to realize FI. 

The cars seem to be getting a lot of attention.  I know I overpaid for both of them, and here is the current situation:

Car Loans:Orig. Prin.TermCurr. Prin.Avg. TradeYrs leftRate
2015 Dodge Durango$40,1276$26,483$27,35042.490%
2010 Buick LaCrosse$24,1496$17,055$8,55043.490%

I'd really eat it by trading in the Buick right now...would lose at least $9,000 - more than its even worth.  The average retail is only $12,000 - still a loss of over $5,000.  I'm not saying I can't do it, but is that a good idea given how upside down it is?  It does have an extended warranty on it until 100,000 miles, that may boost the trade value or at least keep it on the road longer.

Honestly everyone, I really do appreciate the feedback, both positive and negative.  Please don't mistake my ignorance for arrogance.  Clearly it's a miracle I've made it this far with no discernible strategy or budget, and I'd still be exactly where I was if not for all of you.  Thank you again.
« Last Edit: September 13, 2017, 10:35:16 AM by thebudgetbloggo »
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Basenji

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Re: Case Study - $800,000 in debt and where to start?
« Reply #81 on: September 13, 2017, 10:10:20 AM »
Following. And just want to say you are handling the facepunches really well. Keep up the good work!

caracarn

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Re: Case Study - $800,000 in debt and where to start?
« Reply #82 on: September 13, 2017, 11:00:10 AM »
OK, so yeah, not in a great spot on either vehicle.  If I figured the numbers right you are at a $372.35 payment on the LaCrosse.  Also looking at your loan, you bought this thing used for $25K and financed it for 6 years?  Obviously 2 years into that loan I'm guessing you did not find a dealer sitting on an old 2010 in 2015 and buy it new then, but just checking.  I'm assuming you rolled the extended warranty into the financing, which is part of what inflated this sucker to the insane amount.  5 year old LaCrosse should have been under $15K, so not sure how you got squeezed for $25K.

I think the issue is that a used car financed it always going to be upside down.  Even selling it private party you are going to get maybe $12K for it (no idea on the mileage, but assuming about 80K and not sure it will swing it that much) tops and that is stretching it. 

I'm not sure what I'd do in your case.  It all depends on how fast you want to free up that $350/mo but it does not seem like you can do it in a way that won't still be digging a bigger hole.  If you get rid of it and then buy a $10K used car like a Kia Forte or something you're looking at coming up with $18K which will take you 4 years to break even with the cash lost, but that $372 can be invested and grow so it closes the gap a bit.  You then have savings on all the other expenses but that may amount to $1-$2K/year so you shrink that window down several months for a positive return.  I would however in no way go to a dealer and roll this into another loan.  I'd find a CarMax and see what they offer you to buy it if you do not want to deal with selling it on your own.  You will still own the difference, but it gets you out of that payment.  Or you can just pay the thing off and keep it as in the end you will run through about the same amount of cash, but at least you have the cash flow freed up and you should be able to invest and make more than 3.5%.

Goldielocks

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Re: Case Study - $800,000 in debt and where to start?
« Reply #83 on: September 13, 2017, 11:05:28 AM »
Man, my face hurts.  LOL.  Thank you all!

Look, obviously my flawed line of thinking is what got us here in the first place.  I know it needs to change, and that's why I'm here.  No amount of face punching is going to scare me away, but it may help push me to make the difficult changes we need to in order to realize FI. 

The cars seem to be getting a lot of attention.  I know I overpaid for both of them, and here is the current situation:

Car Loans:Orig. Prin.TermCurr. Prin.Avg. TradeYrs leftRate
2015 Dodge Durango$40,1276$26,483$27,35042.490%
2010 Buick LaCrosse$24,1496$17,055$8,55043.490%

I'd really eat it by trading in the Buick right now...would lose at least $9,000 - more than its even worth.  The average retail is only $12,000 - still a loss of over $5,000.  I'm not saying I can't do it, but is that a good idea given how upside down it is?  It does have an extended warranty on it until 100,000 miles, that may boost the trade value or at least keep it on the road longer.

Honestly everyone, I really do appreciate the feedback, both positive and negative.  Please don't mistake my ignorance for arrogance.  Clearly it's a miracle I've made it this far with no discernible strategy or budget, and I'd still be exactly where I was if not for all of you.  Thank you again.

You need to think of it like this -- how can I lower my monthly costs?

Durango -- It has a high value and a high loan.  if you sell this, you can buy something for $8k that will work well for you, and decrease your loan immediately.
 
Buick -- don't look at how much negative you are, think of the $9k "under water" amount as a personal loan that you owe someone to pay off, regardless of the car.  The question is, can you switch out of the Buick and buy a cheaper car than the $8.5k that would work just as well for your needs?   Good chance that you would only save a few thousand, at the very most, unless you could get rid of a second car altogether, in which case, sell it.   

In fact, that may be the best solution, here.  Keep the Buick (an $8.5k value) as your only car.   Pay off both car loans as fast as possible, then save $5k to $10k and buy a second car with cash.   With over $200k income, you should be able to do this very quickly -- about 6 months, perhaps, to save / pay off a total of $25k.  Start fresh, and never take out a car loan again.


Raenia

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Re: Case Study - $800,000 in debt and where to start?
« Reply #84 on: September 13, 2017, 11:10:03 AM »
Wow, yeah, that is not a good position.  Is there any chance at all that you could be a 1 car family for a while, and switch to biking/public transit?  I don't remember seeing a discussion on that front, but I may have just missed it.  If you could possibly swing it, I'd sell the Durango and put the payments toward paying off the LaCrosse as fast as possible.  That way you won't need to come up with the cash to pay off the underwater loan, and you'll have freed up a larger amount of monthly cashflow.  It's not a great option, but keeping both cars isn't a great option either, unfortunately.

Good job on taking all the facepunches and sticking with it.  However the details shake out, as long as you stay committed to cutting expenses where you can, you'll eventually make it out of the hole.

Rufus.T.Firefly

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Re: Case Study - $800,000 in debt and where to start?
« Reply #85 on: September 13, 2017, 11:36:46 AM »
Man, my face hurts.  LOL.  Thank you all!

Look, obviously my flawed line of thinking is what got us here in the first place.  I know it needs to change, and that's why I'm here.  No amount of face punching is going to scare me away, but it may help push me to make the difficult changes we need to in order to realize FI. 

The cars seem to be getting a lot of attention.  I know I overpaid for both of them, and here is the current situation:

Car Loans:Orig. Prin.TermCurr. Prin.Avg. TradeYrs leftRate
2015 Dodge Durango$40,1276$26,483$27,35042.490%
2010 Buick LaCrosse$24,1496$17,055$8,55043.490%

I'd really eat it by trading in the Buick right now...would lose at least $9,000 - more than its even worth.  The average retail is only $12,000 - still a loss of over $5,000.  I'm not saying I can't do it, but is that a good idea given how upside down it is?  It does have an extended warranty on it until 100,000 miles, that may boost the trade value or at least keep it on the road longer.

Honestly everyone, I really do appreciate the feedback, both positive and negative.  Please don't mistake my ignorance for arrogance.  Clearly it's a miracle I've made it this far with no discernible strategy or budget, and I'd still be exactly where I was if not for all of you.  Thank you again.

Awesome job so far. Way to go on getting your credit cards paid off! I keep checking on this thread because you're actually sifting through the advice and taking action. I'm sure that's why you're getting a lot of responses and encouragement from others too (even if it's face punch encouragement).

The problem with the cars is that they're probably the largest piece of low-hanging fruit in your un-optimized spending. Cars are one of the most expensive items in your life and so they always deserve a significant amount of attention. And unlike homes and health, they're relatively easy to address in a speedy manner.

There are plenty of reliable vehicles under 10K. We're a two car household and both cars are +10 years old with +130K mileage. Yet neither have reliability issues. Check out the reliability scores in Consumer Reports before you go used car shopping so you understand precisely which years/models you want. I only go with vehicles that regularly score 4-5 stars over a significant period of time.

As others have pointed out, $900/month is a lot of money over the course of time - in two years you could buy both of my cars and pay for the gas!

One word of caution: I would not completely empty out an emergency fund trying to make this happen in the next 2 weeks. That would be a needless, unnecessary risk. Instead, I would take a month to research and plan the best route, trying to have a temporary solution in place by the end of this year and a permanent solution in place by the end of next year (i.e. different cars, loans paid off, etc).
« Last Edit: September 13, 2017, 01:18:21 PM by Rufus.T.Firefly »
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thebudgetbloggo

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Re: Case Study - $800,000 in debt and where to start?
« Reply #86 on: September 13, 2017, 11:50:41 AM »
The Durango is used mainly to get my wife to work, ferry our two kids around, and take family trip.  Out of the two cars, it would be more difficult to get rid of that one (or something equivalent to it room wise).   We don't NEED an SUV, but we do pack it full when we go on vacations. 

Getting rid of the Buick is definitely a possibility, just not sure any of the options make sense.

I think the worse option is to roll the the losses into something else at a dealer - makes a bad situation worse, right? 

1.  Sell Buick outright and take out a $5k personal loan that will almost surely have an interest rate higher than 3.49%.  That loan would eat up any interest saved by paying off the current loan, right? 

2.  Sell Buick, pray it gets $12k, and use cash to cover the difference.  Then buy a used car around $10k.   Does paying the difference with cash that could be used to pay down a higher interest rate (7-11%) personal loan make sense though?

3.  Sell the Durango.  Like I said, we don't need an SUV, and since it's not in a bad spot equity-wise, we could find a used car or SUV at around $10 - $12k and used that saved money to pay down the Buick.

3.  Keep and pay off both cars.  Maybe the second worst option it seems.  I could punch myself in the face for getting into this mess, continue to focus on paying off my $34,000 in personal loans (target 22 months) then snowball that extra cash into paying off these cars.

*sigh*
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Re: Case Study - $800,000 in debt and where to start?
« Reply #87 on: September 13, 2017, 12:00:53 PM »
1.  Ignore the Buick for now.  Ditch the Durango.  That will free up $600 per month.  That is a metric shit-ton of money when you are as underwater as you are.

2.  Realize you are not paying $600/mo. for the Durango.  You are paying $600/mo, plus the interest rate on your highest-interest debt, because if you didn't have the stupid Durango payment, you'd have $600 more every month to throw at that loan.  You are effectively paying double interest on that car.

3.  Do not divert the savings to the Buick.  Send it to your highest-interest debt and watch that snowball speed up.
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caracarn

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Re: Case Study - $800,000 in debt and where to start?
« Reply #88 on: September 13, 2017, 12:09:49 PM »
The Durango is used mainly to get my wife to work, ferry our two kids around, and take family trip.  Out of the two cars, it would be more difficult to get rid of that one (or something equivalent to it room wise).   We don't NEED an SUV, but we do pack it full when we go on vacations. 

Getting rid of the Buick is definitely a possibility, just not sure any of the options make sense.

I think the worse option is to roll the the losses into something else at a dealer - makes a bad situation worse, right? 

1.  Sell Buick outright and take out a $5k personal loan that will almost surely have an interest rate higher than 3.49%.  That loan would eat up any interest saved by paying off the current loan, right? 

2.  Sell Buick, pray it gets $12k, and use cash to cover the difference.  Then buy a used car around $10k.   Does paying the difference with cash that could be used to pay down a higher interest rate (7-11%) personal loan make sense though?

3.  Sell the Durango.  Like I said, we don't need an SUV, and since it's not in a bad spot equity-wise, we could find a used car or SUV at around $10 - $12k and used that saved money to pay down the Buick.

3.  Keep and pay off both cars.  Maybe the second worst option it seems.  I could punch myself in the face for getting into this mess, continue to focus on paying off my $34,000 in personal loans (target 22 months) then snowball that extra cash into paying off these cars.

*sigh*
Yes, do NOT roll it into another loan.

The biggest thing is to get a plan together that you follow, but don't do it with other loans.  You've got a lot of free cash flow for investing (if I recall like $4,000/month) so just do not invest that for a few months and that gives you cash in hand to make some choices.  As others have said you do not need to clear this up in a couple weeks, just work on a plan as a whole.  So yes, none of your options is perfect.  1 is terrible.  Do not plan on taking out another loan.  This is like loan consolidation.  Just pay them.  You can redirect that investing money to pay down the Buick for example instead for a few months and get it to the point of being able to turn it in and not owe anything and do that after you've saved up enough to buy the replacement in cash. 

You need to remember you are in an enviable position compared to many.  You "free to invest" cash each month exceeds what someone on another case study has as net pay for the whole month.  So in the excitement to improve don't create new problems when trying to solve the old.  You did not get yourself into this situation in a couple days (well maybe you did) and you are not going to get out fast either.  Intelligent measured steps.

The key was the you acknowledge the cars as a problem in need of a solution.  However you have bigger fish to fry in your high interest debt.  Take all available money and stop that fire and then that is done, have a plan in place on what you will do with the cars.  It seems like the Durango has utility for your family, so you would at least need to replace it with a like kind (capability wise) vehicle.  You can certainly do so for less money than you still owe on the Durango but I would do it once you've got the money for a replacement.  Depending on how long it takes to kill of the CC loans and other debt you are probably looking at end of next year before you have those and the cars dealt with in a way that gives you some more options.

Goldielocks

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Re: Case Study - $800,000 in debt and where to start?
« Reply #89 on: September 13, 2017, 12:14:19 PM »
Sell the Durango.

Drive one car, the Buick, for now.

Save up cash to buy another second car / SUV, used, FOR CASH, for less than $10k, before next summer when you want to take trips, or just rent for a week if you aren't there yet by the time family vacation rolls around.

thebudgetbloggo

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Re: Case Study - $800,000 in debt and where to start?
« Reply #90 on: September 13, 2017, 12:18:37 PM »
1.  Ignore the Buick for now.  Ditch the Durango.  That will free up $600 per month.  That is a metric shit-ton of money when you are as underwater as you are.

2.  Realize you are not paying $600/mo. for the Durango.  You are paying $600/mo, plus the interest rate on your highest-interest debt, because if you didn't have the stupid Durango payment, you'd have $600 more every month to throw at that loan.  You are effectively paying double interest on that car.

3.  Do not divert the savings to the Buick.  Send it to your highest-interest debt and watch that snowball speed up.

I assume you mean ditch the Durango and buy something cheaper?  We both work and live in the suburbs.  I'm not sure there is a realistic way for us to downsize to one car in our current situation.  I travel to Michigan and Wisconsin, among other places like downtown Chicago.  While I'm gone, the wife really needs a car to get to work and to get the kids around to babysitter (grandma), dance, etc.  She typically gets home much earlier than I do, like 3-4 PM compared to my 6-7 PM.  Public transportation isn't an option, though I could probably rent cars (not sure that makes sense). 

So it's not really freeing up $600/mo if we still need two cars, even if one is significantly cheaper.  Saving $300/mo might be more realistic if we can get something in the $10-12k range to replace the Durango.

I want to make the difficult decisions and hard changes, but they can't be so drastic that they jeopardize our ability to work; one thing we definitely cant afford is to lose one of our jobs.

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Goldielocks

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Re: Case Study - $800,000 in debt and where to start?
« Reply #91 on: September 13, 2017, 12:51:14 PM »
Hi -- I lost the track of all the loans, so I am reposting here... recap of the loans -- do I have the PMT amount (voluntary + minimums) right?  Also I believe tb has used cash to pay off some CC loans...or have I missed anything?

Credit Cards    RATES?  Paid off?   
1    $10,828.00
2    $1,734.00
3    $572.00
4    $255.00


Additional Loans:   Orig. $   PMT   Term    Owing$   Yrs left   Rate
Car 1                   $40,127   $602       6   $26,483   4             2.490%
Car 2                   $24,149   $383       6   $17,031   4           3.490%
HEL                       $18,664   $148       20   $10,498   8            7.240%
401k Loan               $35,000   $694      5    $31,082   5             .000%
TSP Loan               $15,000   $266       5   $13,627   5               .000%
Personal Loan 1      $16,000    $321      5   $14,233   5         7.500%
Personal Loan 2        $25,000     $425     7   $17,612   7         10.750%

Mortgage                $340,000     $1950      20     $329,935   19             3.375%   (itemized deductions)
 
Total Committed Payments made to non-business Loans: $2839/mo + cc's if not paid in full + $1950/mo for Mortgage
   = $4789 per month

Total Loan value to be paid off in 5-7 years:   $130,566 +$13,389 cc's ? +$1950/mo mortgage + interest on loans as they accrue.

Okay -- I have to ask -- why did you take out $90k in loans in the past year?  (401k, tsp, hel, personal loans)...   Was this to pay off cc's or SL?  Renovations? My original thought was that you were buying another rental, or even a down payment for your current home?

Reference only:  "BUSINESS LOANS" -- evaluated on a business income - expenses basis, not included above.
RENTAL PROPERTIES (Gross Rent)
                  FMV       BAL           RENT   PYMT   TERM   RATE
DUPLEX   $225,000   $181,690   $1,825   $1,540   20   3.25%
CONDO   $160,000   $95,230   $1,650   $1,050   15   3.375%
SFH           $120,000   $69,350   $800            $670   30   4.125%
« Last Edit: September 13, 2017, 01:11:23 PM by Goldielocks »

thebudgetbloggo

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Re: Case Study - $800,000 in debt and where to start?
« Reply #92 on: September 13, 2017, 01:19:39 PM »
Hi -- I lost the track of all the loans, so I am reposting here... recap of the loans -- do I have the PMT amount (voluntary + minimums) right?  Also I believe tb has used cash to pay off some CC loans...or have I missed anything?

Credit Cards    RATES?  Paid off?   
1    $10,828.00
2    $1,734.00
3    $572.00
4    $255.00


Additional Loans:   Orig. $   PMT   Term    Owing$   Yrs left   Rate
Car 1                   $40,127   $602       6   $26,483   4             2.490%
Car 2                   $24,149   $383       6   $17,031   4           3.490%
HEL                       $18,664   $148       20   $10,498   8            7.240%
401k Loan               $35,000   $694      5    $31,082   5             .000%
TSP Loan               $15,000   $266       5   $13,627   5               .000%
Personal Loan 1      $16,000    $321      5   $14,233   5         7.500%
Personal Loan 2        $25,000     $425     7   $17,612   7         10.750%

Mortgage                $340,000     $1950      20     $329,935   19             3.375%   (itemized deductions)
 
Total Committed Payments made to non-business Loans: $2839/mo + cc's if not paid in full + $1950/mo for Mortgage
   = $4789 per month

Total Loan value to be paid off in 5-7 years:   $130,566 +$13,389 cc's ? +$1950/mo mortgage + interest on loans as they accrue.

Okay -- I have to ask -- why did you take out $90k in loans in the past year?  (401k, tsp, personal loans)...   Was this to buy a rental property or pay off cc's?  My original thought was that you were buying another rental, or even a down payment for your current home?


Reference only:  "BUSINESS LOANS" -- evaluated on a business income - expenses basis, not included above.
RENTAL PROPERTIES (Gross Rent)
                  FMV       BAL           RENT   PYMT   TERM   RATE
DUPLEX   $225,000   $181,690   $1,825   $1,540   20   3.25%
CONDO   $160,000   $95,230   $1,650   $1,050   15   3.375%
SFH           $120,000   $69,350   $800            $670   30   4.125%


Current Credit Card Balances below - I've started using cash to pay these down, remainder will be paid off by end of this month.

1    $10,828.00 > $71
2    $1,734.00 > $1879
3    $572.00  > $572
4    $255.00  > $20

Regarding the loans; the first two (401k/TSP, total $50k) were used to invest in a startup business.  The second two look new, but they are actually just refinanced personal loans that had much higher rates.

Additional Loans:   Orig. $   PMT   Term    Owing$   Yrs left   Rate
401k Loan               $35,000   $694      5    $31,082   5           .000%
TSP Loan               $15,000   $266       5   $13,627   5             .000%
Personal Loan 1      $16,000    $321      5   $14,233   5         7.500%
Personal Loan 2        $25,000     $425     7   $17,612   7         10.750%

Please don't mistake my ignorance for arrogance -thebloggo

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caracarn

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Re: Case Study - $800,000 in debt and where to start?
« Reply #93 on: September 13, 2017, 01:24:54 PM »


I assume you mean ditch the Durango and buy something cheaper?  We both work and live in the suburbs.  I'm not sure there is a realistic way for us to downsize to one car in our current situation.  I travel to Michigan and Wisconsin, among other places like downtown Chicago.  While I'm gone, the wife really needs a car to get to work and to get the kids around to babysitter (grandma), dance, etc.  She typically gets home much earlier than I do, like 3-4 PM compared to my 6-7 PM.  Public transportation isn't an option, though I could probably rent cars (not sure that makes sense). 


So growing up in Chicago and starting my career there, why is public transportation not an option to downtown Chicago.  Most of the Metra lines run out to most suburbs in all directions and would give you a much shorter drive or perhaps open up a bike to the train stations vibe. I used to live all over the north and northwest suburbs and regularly took Metra, CTA, PACE and RTA options in combination.  Yes it took time in some cases (when I went to college it took three hours to get to DePaul downtown from Arlington Heights area because I took a Pace bus from Woodfield Mall to Ohare Metra station in Rosemont, then took that in to either Metra line or  CTA changovers in the loop to get back up to Lincoln Park).   Only cost me about $150/month for all the passes and I was saving to $20-$30/day for parking in the Loop so more than paid for itself.  I know they've gone up but it might be worth looking at those options (or how over time you bring them into play by moving).  Chicago is awesome where you can live in the suburbs for cheap (Gurnee or Crystal Lake for us eventually) and use public transportation to get nearly anywhere.  Just need to be creative.  You can then use the time to get work done (or school work if studying for degrees later) and amazing how much more you can get done when you are not driving the car, but just riding along able to repurpose your time.  If you travel for work, will they not let you rent a car for those times you need to drive to other states?
« Last Edit: September 13, 2017, 01:27:44 PM by caracarn »

Laura33

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Re: Case Study - $800,000 in debt and where to start?
« Reply #94 on: September 13, 2017, 01:27:13 PM »
1.  Ignore the Buick for now.  Ditch the Durango.  That will free up $600 per month.  That is a metric shit-ton of money when you are as underwater as you are.

2.  Realize you are not paying $600/mo. for the Durango.  You are paying $600/mo, plus the interest rate on your highest-interest debt, because if you didn't have the stupid Durango payment, you'd have $600 more every month to throw at that loan.  You are effectively paying double interest on that car.

3.  Do not divert the savings to the Buick.  Send it to your highest-interest debt and watch that snowball speed up.
I assume you mean ditch the Durango and buy something cheaper?  We both work and live in the suburbs.  I'm not sure there is a realistic way for us to downsize to one car in our current situation.  I travel to Michigan and Wisconsin, among other places like downtown Chicago.  While I'm gone, the wife really needs a car to get to work and to get the kids around to babysitter (grandma), dance, etc.  She typically gets home much earlier than I do, like 3-4 PM compared to my 6-7 PM.  Public transportation isn't an option, though I could probably rent cars (not sure that makes sense). 

So it's not really freeing up $600/mo if we still need two cars, even if one is significantly cheaper.  Saving $300/mo might be more realistic if we can get something in the $10-12k range to replace the Durango.

I want to make the difficult decisions and hard changes, but they can't be so drastic that they jeopardize our ability to work; one thing we definitely cant afford is to lose one of our jobs.

Correct:  I meant ditch the Durango and buy something cheaper.  But NOT with a loan -- you do not need any more loans! 

This is the same mental challenge, btw:  you need to retrain yourself so that your automatic reaction is not "ok, I'll get a loan for that."  You don't use debt to buy things you can't afford, period. 

I do, however, hereby give you permission to take one month's excess cash from your initial budget and buy a reliable used vehicle for no more than $4500. :-)

I know, I know, this isn't what you want, it isn't big enough, it isn't status-ey enough, etc.  Consider it a "bridge" car -- something you will suck it up and drive for a couple of years until you get the debt paid off.  This is you recognizing that you have a bad habit of relying on credit, and voluntarily assuming a hardship to retrain your thinking.  Then, once you are even again and have an EF, if you still want a $10-12K used SUV, you can save up and pay cash for one.
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Rufus.T.Firefly

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Re: Case Study - $800,000 in debt and where to start?
« Reply #95 on: September 13, 2017, 01:29:26 PM »
My household also needs 2 cars to ferry passengers to their well-paying jobs. This is a justifiable expense.

However, it sounds like to me that 99% of your Durango trips could also be accomplished by a Civic. It's a consumer trap to imagine the most extravagant personal transportation task (big family vacation) and then purchase a vehicle that will meet that need. The reality is that most vehicles carry one person around on their work commute.

You could always rent a Durango for a week every year for your family vacation.
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caracarn

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Re: Case Study - $800,000 in debt and where to start?
« Reply #96 on: September 13, 2017, 01:33:32 PM »
if you still want a $10-12K used SUV, you can save up and pay cash for one.
+1

This will be the things you want to aspire to.  As you do without, you start to realize you can do without forever, and then your savings start to get massive. 

It's retraining yourself from the conumer sukka mentatlity, like I mentioned above of, "public transportation is not an option", for example.  In a city like Chicago that is rarely the case.  We had people buy $1-$2K beaters that they left parked at the Metra station near where they worked to drive the 4-5 miles form the station when they got off for example.  That way no danger of the car getting stolen, as no one would want it, but it served the purpose.  Everything we're suggesting is the easy stuff (though I get it's hard initially).  Where you really can get badass is when you think beyond the easy and figure out how you can maximize the fact that you live in one of the most transportation rich cities in the country (second maybe only to NYC) to lower your overall transportation costs by a magnitude of 20-50. 

caracarn

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Re: Case Study - $800,000 in debt and where to start?
« Reply #97 on: September 13, 2017, 01:39:40 PM »
However, it sounds like to me that 99% of your Durango trips could also be accomplished by a Civic. It's a consumer trap to imagine the most extravagant personal transportation task (big family vacation) and then purchase a vehicle that will meet that need. The reality is that most vehicles carry one person around on their work commute.

You could always rent a Durango for a week every year for your family vacation.
+1

This was like when I use to drive a 3/4 ton van to work every day that was purchased to tow our travel trailer that we used for a two week vacation once a year.  It would have been less expensive for me to rent a trailer than drive the van and get 8, yes freakin' EIGHT miles to the gallon, every other day that I went to work by myself.   I figured I was being frugal because we had inexpensive camping vacations but the amount that we spent for this "benefit" was way more than we achieved.

thebudgetbloggo

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Re: Case Study - $800,000 in debt and where to start?
« Reply #98 on: September 13, 2017, 01:45:59 PM »

So growing up in Chicago and starting my career there, why is public transportation not an option to downtown Chicago.  Most of the Metra lines run out to most suburbs in all directions and would give you a much shorter drive or perhaps open up a bike to the train stations vibe. I used to live all over the north and northwest suburbs and regularly took Metra, CTA, PACE and RTA options in combination.  Yes it took time in some cases (when I went to college it took three hours to get to DePaul downtown from Arlington Heights area because I took a Pace bus from Woodfield Mall to Ohare Metra station in Rosemont, then took that in to either Metra line or  CTA changovers in the loop to get back up to Lincoln Park).   Only cost me about $150/month for all the passes and I was saving to $20-$30/day for parking in the Loop so more than paid for itself.  I know they've gone up but it might be worth looking at those options (or how over time you bring them into play by moving).  Chicago is awesome where you can live in the suburbs for cheap (Gurnee or Crystal Lake for us eventually) and use public transportation to get nearly anywhere.  Just need to be creative.  You can then use the time to get work done (or school work if studying for degrees later) and amazing how much more you can get done when you are not driving the car, but just riding along able to repurpose your time.  If you travel for work, will they not let you rent a car for those times you need to drive to other states?

I live in the far southwest burbs.  This "is" an option, though once adding the cost of Metra, CTA, and Divvy plus the cost of renting cars for the rest of the trips to Wisconsin and Michigan, I'm not sure I'd come out ahead.  Just 10 days of car rental alone at local economy rates of $43/day would be $430/mo.

All excuses, I know they are.  Maybe they are good ones, maybe not.  Where there's a will, there's a way, and no doubt these things can be done, even if they are very difficult and life changing (or maybe just life altering) decisions.  I'm just scared to do anything so different that it rocks the whole boat. 

I've received a lot of good advice here - I think it's time to start thinking and pick a balanced way forward.
« Last Edit: September 13, 2017, 01:51:59 PM by thebudgetbloggo »
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thebudgetbloggo

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Re: Case Study - $800,000 in debt and where to start?
« Reply #99 on: September 13, 2017, 01:49:18 PM »
My household also needs 2 cars to ferry passengers to their well-paying jobs. This is a justifiable expense.

However, it sounds like to me that 99% of your Durango trips could also be accomplished by a Civic. It's a consumer trap to imagine the most extravagant personal transportation task (big family vacation) and then purchase a vehicle that will meet that need. The reality is that most vehicles carry one person around on their work commute.

You could always rent a Durango for a week every year for your family vacation.

I appreciate this real world example and perspective; it makes a lot of sense. 

Now...any strategies on how to convince my wife that her truck needs to go and she has to start driving the Buick?  LOL 
« Last Edit: September 13, 2017, 01:54:38 PM by thebudgetbloggo »
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