Hello fellow Mustachians! Just discovered MMM this past weekend and it's exactly what I've been looking for. Inspired to hear your stories and get started on mine!
Life Situation: Single male, 43, recently divorced, with one dependent age 12 whom I can claim on my taxes every other year, 2018 included. The divorce left me with a lot of credit card debt as listed below.
One year ago (Oct. 2017) I purchased a 3Bed/2Bath 1300s.f. house for $189,000 now valued at $215,000. (Some have suggested I downsize to a smaller house, but 1 bedroom is for me, 1 for my child, and third is for my home office which I believe needs to be a dedicated room for tax deduction purposes for my side business. Plus it's just much more convenient to have my office work in a room with a door that can close, as opposed to in my living room.) I live outside a small town in a very rural area, at the top of a very steep mountain that gets lots of snow and ice in the winters, which in the list below plays into why I have a 4WD vehicle, but after reading MMM I understand I may not actually need it. My commute is 86 miles round trip, 5 days a week. Bad, I know, but I’m not willing to move closer to work because my child lives with me half the week and I want to be close to her and her school. And there are no similar jobs for me closer to where I live. Also my current income is very high compared to most jobs in the area, so I have few if any alternatives for other jobs.
Currently working as an architect for a small firm and recently started my own architecture business (LLC) on the side for extra money, with plans to become self-employed full time in the next couple years hopefully, and work from home, leveraging the internet to work on projects anywhere in the country, while eliminating commuting. I also have the skills to renovate the house to increase its value over the next few years.
It’s important to note that in approximately 6-7 years (2024 or 2025), after my child graduates from high school, I’m going to move from the East Coast back home to the West Coast. This significant move should be factored into all my financial decisions. By that time I want to have all my debt, except mortgage, paid off, and be well on my way to FIRE. I plan to sell the house at that time, unless there’s a better reason to sell sooner.
Gross Salary/Wages: $83,000
Individual amounts of each Pre-tax deductions: IRA with only $4,700, half of which I owe to my ex-wife. I’m waiting for her to set up her own IRA so I can transfer half without paying the tax penalty. I had several old 401k’s from previous employers and consolidated them all into one IRA a few years ago when I changed to my current job that doesn’t offer any retirement plan. Have not paid any additional amount into it after consolidating, in order to pay off my debts.
Other Ordinary Income: Approximately $7,000 from side business this year. This could easily double or triple next year as I develop my new business.
Qualified Dividends & Long Term Capital Gains: N/A
Rental Income, Actual Expenses, and Depreciation: N/A
Adjusted Gross Income: $90,000
Current expenses:
Mortgage: Principal: $247.14
Interest: $695.44
Escrow: $212.69 (Includes Annual Real Estate Tax: $1,801.22, part of escrow)
Sub-Total:$1,155.27
Car: Loan payment: $353.59
Insurance: $71.01
Gas: $250.00
Property Tax: $37.07
Maintenance: $40.00
Sub-Total: $751.67
Child Support: $600.00
Groceries: $416.00
Credit card bill min.: $388.00
Life Insurance: $58.19
Disability Insurance: $165.75
Cell phone: $68.10
Internet/home phone: $86.17
Netflix: $9.99
Pandora: $4.99
Home Warranty: $48.17
Amazon Prime: $12.99
Home Insurance: $71.01
Home supplies $225.00
Dining Out: $134.48
Miscellaneous: $300.00
Sub-Total: $2,588.84
Grand Total: $4,495.78
(Update regarding the Home Warranty: I renewed the home warranty that came with the house when I bought it because my heat pump was 12 years old and making really terrible death sounds, so I figured its end was near. It just died recently and the warranty company replaced it and I paid only $141.56 (for the service call fee and a few minor things that weren't covered.) The same heat pump online costs around $1,700 and I figure the labor would have been at least $300, so rough estimate it was at least $2,000 to replace it. If I were to cancel the warranty now, the contract requires me to essentially pay them back for the cost of their replacement and repairs, so I'll just keep paying the remainder of the contract (full year premium is $578) and still come out ahead.)
Assets:
Home: purchased Oct. 2017 for $189,00. Current market value is $215,000.
Car: 2010 Toyota 4Runner SR5, 172,000 miles, current market value $13,000-14,000.
Liabilities:
Home loan: $183,330.00 original loan amount, 4.625% APR, 30-year fixed, $180,437.23 remaining balance.
Credit Card: $12,940.56, 0.99% APR (FIXED RATE FOREVER, thru my credit union), min. monthly payment: $388.00, I've been paying $500 or more each month to pay down faster.
Car Loan: $18,614.97 original loan amount, 3.69%, 5 year term, remaining balance: $13,129.90, min. Payment: $353.59, Begin date: 01/15/2017, End date:01/14/2022. I've been paying $500 per month to pay down faster.
Specific Question(s):
Since I'm new here, my questions are pretty broad:
What are the smartest moves I can be making to pay off my debt as soon as possible?
Since my car is my second largest expense, but I don’t have any cash in savings, does it make sense to sell the 4Runner and get a smaller loan (less than $10,000) for a fuel-efficient car? I’m especially interested in a hybrid or electric, given my long commute.
Does it make sense to sell my house and move down off the mountain to the lowlands where the snow is less of an issue, so that I don't need the 4WD vehicle? Keep in mind I just bought the house 1 year ago though, so capital gains is an issue, I believe. Or am I better off to keep it for the next 6-7 years until I move to the West Coast and let it appreciate in value as much as possible? I already have about $26,000 in equity from day one just by getting a good deal.
What the best approach to handling my home loan, given that I'm going to sell it and move across the country in 6-7 years? Stay as-is and make minimum payments? Refinance to a lower interest rate if I can find one? Renovate it in whichever ways will bring the most return when I sell?
I'm thinking I should probably cancel the disability insurance. And maybe the life insurance, although it seems relatively cheap to me for $500,000 of coverage, so maybe worth keeping. Thoughts?