Author Topic: Figuring out how to eliminate our Debt Emergency  (Read 1730 times)

chestnut24

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Figuring out how to eliminate our Debt Emergency
« on: July 24, 2017, 07:31:16 AM »
Hi there.

Bought and rehabbed a triplex near a big city. By many mustachian accounts, this is a great location for us (close to everything, public transit, etc). If it's fully rented, we cash flow while living there.

We are not fully rented right now. Part of the issue is that we need to fix more things in the property, and that costs money and time, but we hope to have tenants in the next month or two. The other thing is that we accumulated some debt to finish the property and we thought we could refi by now, but a lien from an a-hole contractor prevents this. We are working on removing the lien but it's taking time and money. Also we borrowed money from a friend to help finish this property so they are living there free for six months to pay them back. I hope to have a tenant in the other unit again by Sept 1.

I work in another area and am 18 miles from work each way. My job is pretty new still. I could take the train + bus but it will make for a loooong commute. Train + bike seems doable but I'm nervous because it involves some really busy streets no matter how you slice it. Open to radical ideas. We looked at moving closer to work but we would be much further away from the kinds of walkable amenities we love now (we have a 90+ walk score in our current neighborhood, and I work in the suburbs, so we would have fewer amenities if we moved). I have the option of working from home 1 day a week. Mr. Chestnut24 works from home full time.

IRS filing status: Married, filing jointly. I am 32; spouse is 34. We live in the Midwest near a major city.

Gross Salary/Wages: Before any deductions: I make 127,500/yr. base. Husband makes about 50k/yr.

Individual amounts of each Pre-tax deductions: 401k: I put in 4% and receive a match right now. Considering suspending contributions. My husband has a special retirement program where he forfeits 5% of his salary to the retirement plan and receives a 10% match.

Rental income: 1750/mo starting Sept 1. As of March 1, 2018, will be $3500/mo

Adjusted Gross Income: 127,500 (me, base), + 20k (me, bonus) + 50k (husband) + ~ (historically) 18,000 in rental income - 4% of my salary - 5% of his salary = about 207k (before taxes).

Assets: 3-flat building worth $650k with $277k of debt on it

Take home pay after taxes, insurance, and 401k (just putting enough in to get the match - 4%): ~3100 biweekly (me, does not include bonus which was just paid out to those who were here - job is new - and will be somewhere in the neighborhood of 20k next year)
Husband: 2800/mo
Empty apartment, when rented, should fetch $1750 or so. Other apartment is occupied by friends as a way of paying off the debt we owe them (about 10,600)

Liabilities:

Property has a $277k note @ 4.25%, PITI is $2848/mo incl. PMI. Property is probably worth $650k+ when totally finished. Maybe 520k now? We would need to refi to get out of our PMI (about $200/mo). Taxes are about $700/mo. Actual P+I is $1450.
Groceries + eating out: apparently $550. Yeah, I need to get this down. Working on it.
Phones $125/mo - looking into other options, like Republic Wireless...
Car payment $433/mo including extended warranty (remaining: 16k @ 4.99%). We have just the one car.
Utilities: ~$150/mo
Gas - $120/mo
Attorney (see above) - about 1k/mo right now
YMCA - $100/mo

Other debt service:
Student loan - 4% variable - $2900 (50/mo)
Discover card - 0% for 15 mo - $3499 (75/mo)
other Discover card - 0% for 19 mo - $9000 (150/mo)
Personal loan (also accumulated finishing the building) - 3 year term, currently $15k (769/mo) - 6.79%
Chase card - this is the doozy - 20% - $23k (550/mo or so)
Other student loan - 65k @ 6.8% - (841/mo)

We had more debt but got rid of it (!)

1. Should I start taking the train full-time to and from work? If I got a regular monthly pass it'd be $150/mo. I think the bus is free through work or something like that. Will check into it today. I shouldn't be driving in that traffic anyway.
2. I am also open to other ideas/thoughts/etc on how to tackle this debt. We have been paying it down but holy crap, it's a lot still. If we moved, we could probably rent something somewhere for $1100 close to my work, and could rent our apartment for $1800, but I don't know how long we'd want to be there and there might be some other issues and costs tied up in that.
« Last Edit: July 24, 2017, 09:00:27 AM by chestnut24 »

radram

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Re: We made some mistakes. We're trying to fix them. Need help!
« Reply #1 on: July 24, 2017, 07:57:03 AM »
It sounds like you need a pep talk WAY more then help. These numbers look pretty kick ass, but you are right that your debt continues to be a real pain in the ass. Just keep after it, highest interest rate first.

Once you are able to make the house cash flow positive, you will really start to see it pay off. Too bad about the contractor crap. At $1000 per month for the lawyer in new debt, plus inability to get out from under PMI until resolved, when would it be beneficial to pay him off/settle? We would need more info on this one.

Your car @ $433 per month sounds way too high. I would still have a car until you can find something closer, but much cheaper and paid off would be my choice.

Keep us posted!

chestnut24

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Re: Figuring out how to eliminate our Debt Emergency
« Reply #2 on: July 24, 2017, 08:14:44 AM »
Hi @radram.

Thanks for your reply. We are looking into what it would cost to settle, even though we know he's in the wrong here. Just not worth dragging out forever. Hoping to have more information about what that would mean soon. I think if we paid the minimums on everything for a bit we could have the cash to get rid of the lien in somewhere between 3-6 mo. Then we could do a cash out refi, eliminate PMI, and have the same payment without the high-interest debt.

Car is too high. We bought it used and financed the whole thing. It came right as we were paying off another debt so we didn't have the $ to put down and the rate was better than what we would have paid for the other debt, so it was a lesser-of-two-evils situation. The problem right now is that I spend so much time in the car going back and forth to work (18 miles can mean anywhere between 40 minutes and 2 hours in traffic - each way) that it made sense in my lizard brain to get something with really comfortable seats and crazy high safety rating. The previous car (paid off) was t-boned in an accident and totaled. We used the money from the insurance company to pay off the other high interest debt rather than spending it on a car. Right now could sell it and would only be upside-down 2-3k, I'm guessing, though the warranty was $2500, so I don't know if I could charge more for the car because of the warranty. I think about the car issue a lot, obviously, and am looking into other options now.

radram

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Re: Figuring out how to eliminate our Debt Emergency
« Reply #3 on: July 24, 2017, 08:43:23 AM »
Hi @radram.

18 miles can mean anywhere between 40 minutes and 2 hours in traffic - each way

Wholly crap. That could be about 9 miles per hour. The safety rating on a tri-cycle should be enough to survive an accident at that speed :)

Congrats again on taking back control.

snacky

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Re: Figuring out how to eliminate our Debt Emergency
« Reply #4 on: July 24, 2017, 08:53:20 AM »
I wouldn't suspend matched savings while you deal with this. The current situation is temporary. The matched 401k is a long term thing, and that matched money is awesome. Don't pass up free money for your long term savings for something that will, in the long run, be a blip on a spreadsheet.

Fyi, shyster is a racial slur.
Enjoy what comes
Be amazing at everything
Stomp on the hearts of the unworthy

chestnut24

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Re: Figuring out how to eliminate our Debt Emergency
« Reply #5 on: July 24, 2017, 09:00:01 AM »
Hi @snacky. I had no idea, never heard that before. Will change my post.

Thanks for your other advice too. We'll just keep at it, I guess!

chestnut24

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Re: Figuring out how to eliminate our Debt Emergency
« Reply #6 on: July 24, 2017, 09:02:30 AM »


Hi @radram.

18 miles can mean anywhere between 40 minutes and 2 hours in traffic - each way

Wholly crap. That could be about 9 miles per hour. The safety rating on a tri-cycle should be enough to survive an accident at that speed :)

Congrats again on taking back control.

The irony is that it's super dangerous by bike. I wish it was really just 9 mph--I'd be set!

robartsd

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Re: Figuring out how to eliminate our Debt Emergency
« Reply #7 on: July 24, 2017, 10:40:55 AM »
Your numbers look pretty good. I'm reading a current net positive cash flow of about 1200/mo.

I see two options:
  • Focus on credit card debt and let contractor fester (saving monthly atterney expense). Including rental income in September you should have nearly 4000/mo to channel towards debt. By Jan/Feb, you'd have Chase paid off saving ~380/mo in interest and freeing 550 in cash flow. With both units rented your cash flow would then be ~5700/mo. in net cash flow. At some point you should be able to get PMI removed from the loan without refinancing - do you know these details of your mortgage contract? Your interest rate is decent - other than getting PMI removed and having access to equilty, the contractor's lien is not doing any harm in the short term. If you can project that the lien is not really causing you a current problem, the contractor might be more willing to be reasonable in order to get something now rather than waiting for years.
  • Get things settled with contractor as quickly as possible. Is there any way to structure a cash out refinance to directly pay the settlement to clear the lein? With a cash out refinance, you'd be able to clear up all your other high interest loans as well as get out of PMI.

Don't worry about your other spending right now, getting the rental online is a much better use of your time and energy.

robartsd

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Re: Figuring out how to eliminate our Debt Emergency
« Reply #8 on: July 24, 2017, 10:44:48 AM »


Hi @radram.

18 miles can mean anywhere between 40 minutes and 2 hours in traffic - each way

Wholly crap. That could be about 9 miles per hour. The safety rating on a tri-cycle should be enough to survive an accident at that speed :)

Congrats again on taking back control.

The irony is that it's super dangerous by bike. I wish it was really just 9 mph--I'd be set!
Average of 9 mph is very different than constant 9 mph! Still people who aren't used to cycling in traffic often overestimate the dangers. Is there a good source of urban cycling training in your area that could help you develop the skills and confidence needed to make cycle commuting a reality? Also, you might consider an electric bike, with the power to accellerate more like a car, dealing with traffic should be easier.

chestnut24

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Re: Figuring out how to eliminate our Debt Emergency
« Reply #9 on: July 24, 2017, 11:03:09 AM »
Hi @robartsd.

With respect to the cycling, unfortunately, I'm really hard pressed to find something safe. The main issue is that at some point I will be in six lanes of traffic in order to get over an interstate overpass. There is no other option. I will look at bicycling from the train to work, but even if I do, that will be 8-9 miles, and I will still have to get across the overpass, where there is no sidewalk and traffic is going as fast as 40-60 mph getting on or off the interstate across six lanes of traffic. Fun. Maybe I'll try taking the bus from the train first and see how that works.

Regarding the lien, we've tried everything, but I think the smartest thing may be to get rid of the lien and then go forward from there. We can't do a cash out refi subject to the lien--don't want to pay the full amount of the lien if we can help it. Thanks for your advice/comments.

robartsd

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Re: Figuring out how to eliminate our Debt Emergency
« Reply #10 on: July 24, 2017, 12:05:19 PM »
With respect to the cycling, unfortunately, I'm really hard pressed to find something safe. The main issue is that at some point I will be in six lanes of traffic in order to get over an interstate overpass. There is no other option. I will look at bicycling from the train to work, but even if I do, that will be 8-9 miles, and I will still have to get across the overpass, where there is no sidewalk and traffic is going as fast as 40-60 mph getting on or off the interstate across six lanes of traffic. Fun. Maybe I'll try taking the bus from the train first and see how that works.
Interstates and similar highways certainly do make troublesome parts of the road system for cyclists. An otherwise perfectly bikeable road, can cross a restricted use highway and create a very difficult obstacle (often even difficult to cross as a pedestrian). In many areas pedestrian crossings across highways are provided, but they are often placed deep within residential subdivisions with winding streets making them quite a bit out of the away. Fortunately for me, my cycle commute only crosses such highways near enough to downtown that the highway is generally elevated above the street grid and traffic signals provide control where the on/off ramps are located. While, you can develop the necissary assertiveness as a cyclist to take the lane when needed to cross such obstacles (I occasionally do so myself), I doubt I would continue to choose cycling as my commute mode if I had to face such obstacles daily.

Blonde Lawyer

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Re: Figuring out how to eliminate our Debt Emergency
« Reply #11 on: July 24, 2017, 12:32:39 PM »
For the lien, can you look into if your state would allow you to post a bond instead? Basically, you show that you have the money set aside to pay him if he wins but the property itself isn't attached anymore.  Some states allow this, some states don't, and there will be fees for the bond.  You could do a cost/benefit analysis though.

On the Chase credit card debt, how about a refinance? The link in my signature talks about me refinancing my student loans with SoFi.  They do personal loans too for just this sort of thing for financially savvy people with high income.  You just might get approved.  I have a link to the personal loan stuff in my post too.

Alternatively, what about getting a new credit card with a 0% introductory rate.  I can't imagine the rate after that would be higher than 20%! That's absurd!  You can usually get low rates on cards that don't accumulate points.

chestnut24

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Re: Figuring out how to eliminate our Debt Emergency
« Reply #12 on: July 24, 2017, 12:47:53 PM »
@blondelawyer, amusingly we tried Sofi and were rejected a while ago.

Will def. look into more 0% cards if we can. Thanks. Any suggestions?

We could post a bond but in our state that money is a lot more than the amount of the lien, so I don't think it's worth it right now.

oldladystache

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Re: Figuring out how to eliminate our Debt Emergency
« Reply #13 on: July 24, 2017, 02:11:08 PM »

Fyi, shyster is a racial slur.

Shylock was a character in a play. He was a bad guy, and a Jew.
Therefore, some people consider Shylock a racial slur.
Shyster sounds a lot like Shylock, Therefore some people consider it a racial slur

chestnut24

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Re: Figuring out how to eliminate our Debt Emergency
« Reply #14 on: July 24, 2017, 07:02:19 PM »
ok, but I'm Jewish, and have not previously made the connection....

In any case, I edited the post.