Author Topic: Debt repayment question - priorities  (Read 2568 times)

UnleashHell

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Debt repayment question - priorities
« on: August 29, 2014, 04:16:58 AM »
So we are going to aim for FI - or the option within a couple of years (47 with 2 kids)
worst thing that ever happened to me was that the company I worked for made me pay into a pension plan when I was 18 - The company went under a few years later but I was able to get the (small) sum out and invest it in a tax deterred account.
It also put me in the mindset of putting money into enough money into retirement every month to at least get the max from the company (hey! free money!!!). Plus I couldn't spend it - which was good because I could spend like a champion. Especially with 3 kids and the vacations we deserved (ha!) and trip back to see the Family (OK these were worth it - they all live in England so that's a good thing).

Anyhow - roll forward - I lose my job at the very beginning of 2011 (Happy New Year!!!).
Had just embarked on debt repayment and chopped 25k off the credit cards in 2011. 2012 was supposed to be get rid of all non-mortgage debt and refi that.

Ended up scrapping that as I spent 5 months without work. Finally found another job - 1,400 miles away so we moved to Florida. House is worth less than the mortage. ok Mortgages. End up short selling but as the banks wouldn't talk to me while my accounts were up to date I ended up not paying them.
By mid 2013 I was in a rented house in florida. Owned house finally sells and I at least get the mortgages written off. then the house I,m renting gets foreclosed on!!  so we have to find somewhere else.
Area I'm in has gone a bit nuts and investment firms are buying sight unseen so buying a house is tough but I can't carry on renting forever.
I manage to find a place that has mold and needs work - good area though- good school district (still have 2 kids at school).
I cash out some of that Pension. I also throw money into my new work pension and then take a 50k loan from that.
with some other savings we scrape together enough to buy a house. Cash. As I've just had a short sale I have no credit rating. The banks laugh at me and close a credit card or 2 (treated my wife very differently when she walked in the door with a 50k to deposit though!!).
Did a lot of the refurb ourselves. had to use credit cards to finance it - including all new appliances (but at least we have energy efficient ones!).

Current situation
We have no mortgage and a very nice 1,600sqft house backing onto a lake and conservation property. The value of the house has risen beyond the amount we invested into it so that's a plus (although its not available to use the equity - nor do I want to). And we aren't paying out $1,500 a month rent!!

However before we can consider FI we have to do something about the remaining debt.
We have a very expensive trip back to Europe coming up for a wedding (my BIL). and we are taking the kids as chances to hang with the family are low.

Current debt:
Credit Cards - 19K (at least all of our major vacation expense are taken care of in that figure - 6k and counting so far)
Loan from work pension currently 46K being charged at 3.5% - to myself. However if  I leave work (or they leave me - which is possible with potential work being moved to india) I have to pay that back or treat it as earned income and pay tax and a 10% penalty on it.
The Government. 25K at 3% - tax due from the amount I took out from my tax deferred funds. being paid at a rate of 500 a month.


So - some juggling on the cards will mean that we can slice 10k off them by the end of October and leave the rest at 0% until next October. Savings between now and then with cover the rest.


The rates I'm paying on the rest doesn't give me a concern. Even with that I thing I can save nearly 40K a year. As long as I can stick to the budget (being implemented right now).

My concern is losing my job. I've run the numbers and if I can stick it out / survive until march 2016 then I am FI (on a low budget but we can carry on with some work adding to the budget).

however that doesn't work with paying back those two funds in a year or so.


if I pay back the Pension loan then we have to drop the budget and I still have to find 500 extra a month to the IRS.



SO... what are the thoughts about next July taking out a home equity line  - should have my credit back being 2 years after the short sale (current credit rating is high 600's). If that's a decent rate then the interest payments would be way lower than the amounts I'm currently paying. That's only if I lose the job - for as long as I'm in it then i'll carry on as it is.

I just like to think ahead! If I can leave this job I would. Anticipated net should be about 450k in 15 months - plus my wife kinda likes her (low paid) job and that would cover our budget easily. I hate my mind numbing job and I have a very busy time scheduled - theres a lot of books to read, food to cook etc etc... the job doesn't fit into that scenario!! :D

sticking the debts (of probably 18k IRS and 40K pension loan) of a home equity loan means we can reduce the payments of 900 a month to interest only of about 130 a month. that is manageable in our budget and I might actually get off my butt and do some extra work to pay it off.


Any other alternatives/ suggestions? delaying me leaving my job may not be an option - I may be forced out (although they could pay me a severance package which would give me plenty of extra funds. Kinda hoping it goes like that because by early 2016 that means I'd have about 4 years worth of expenses money in liquid funds...)















Gimesalot

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Re: Debt repayment question - priorities
« Reply #1 on: August 29, 2014, 07:55:56 AM »
Given your past history of inability to pay your debts and living costs, I would not do anything that will transfer your debt to your house.  If you can't pay it back, you lose the house.

As MMM would say, your hair is on fire.  You need to pay your debt, not transfer it around and play games.

TomTX

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Re: Debt repayment question - priorities
« Reply #2 on: August 29, 2014, 07:58:55 AM »
Florida has Craigslist. You didn't need all-new appliances.

skunkfunk

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Re: Debt repayment question - priorities
« Reply #3 on: August 29, 2014, 08:37:35 AM »
You need a FULL case study including all income and expenses. As your hair is on fire, you will need to most likely make some major changes, none of which involve juggling revolving credit.

former player

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Re: Debt repayment question - priorities
« Reply #4 on: August 29, 2014, 10:27:37 AM »
So, you lived high on the hog, the credit cards and the house equity until you lost your job in 2011, then walked out on your debts on the house and moved to Florida to start again.  You bought another house (a lakefront property in a good area) by cashing out so much of your old pension that you now owe $25K in tax, by borrowing $50K from your new pension fund and by putting $19K on credit cards.  You are about to take your family on an expensive holiday.   You are 47 years old.  You have a family to support, a wife who doesn't earn much and a job you hate that could disappear to India at any time.

I only have one question: have you actually read any of the MMM blog?

UnleashHell

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Re: Debt repayment question - priorities
« Reply #5 on: August 29, 2014, 04:09:10 PM »
some harsh comments - but I didn't exactly give much of a background.
Too much consumerism and I caved to the pressure of buying a house when the third child arrived! We ended up in that house for ten years and I'd have happily stayed there - I did a lot of work to it - even some myself. Problem was not enough income - but I was saving. 2002 priorities were having a reliable car and fixing what needed to be fixed in the house. The wife wasn't allowed to work and I was stuck in  my job - unless I wanted to go back to England. Which I didn't.
In 2008 I started to make strides into paying it all of - the market when to crap but the investing has been a hobby of mine. I still finished the year up. by 2010 all the debt was dropping.
By 2011 we had no car loans, minimal credit cards and the mortgages were back under the price we bought the house at.
I'd tried several times to work with the bank to merge the mortgages or reduce the rate but they wouldn't do it.
For 2011 I was going to cash in the last of my savings, pay off the 2nd mortgage and refi the first - as well as finishing the credit cards. Would have been a total debt reduction of 104k in just over 3 years.... and debt payments dropping from 3,500 a month to about 1k for the mortgage.
Was I heading in the right direction. Hell yes - and more.

Being laid off in 2012 killed me - the nearest appropriate job I could find (I'm in Reinsurance) was in Florida - 1400 miles away. I'd been out of work for 5 months by then.
High on the hog? yeah - then killed most of the debt...
I had to move and sell the house - tried my best to do so but the net I could sell it for was under the mortgage value - which meant it was worth less than 10 years previously!! way to go. Killed me to leave it - the only house my youngest had known, the only one I'd owned. It was our family home and I'd put my heart and soul into it.
I tried everything to talk to the bank about a short sale (and early enough meant that I'd have sucked it up and used my savings to pay the short fall) but as my accounts were up to date they wouldn't consider it. I paid that mortgage for 10 months. and the rest of the bills for another year and paid someone to maintain it. While the bank refused to talk to me I lost two buyers that would have covered most of what I owed. a year later it sold for 40k less and the bank took the hit. It killed me to walk away and I had a year of them harassing me about it when they had the chance to get it sorted out earlier. the stress was unbelievable and took a toll on my health.
It was a bit more than walking out on a debt.

since 2000 - even with the loans and cards and everything I saved and invested and had a net wealth that increased every year apart from 2012  - 5 months without a job will do that to you.
When I had a chance to buy a house later I took the chance and cashed in some of my pension. Given that rent was 18k a year for a house I worked out that it was worth it - even with a 25k tax bill. Own out right, no mortgage.

as for the credit card debt - that was for renovation the house -the one that's gone up more in value than the tax bill.. and I do have new, energy efficient appliances that will last me a long time.
The debt there is being address - mostly in cash when I can know where we are after our trip to England. the rest I can move to a 0% card until I have more cash - right after we save!
and the trip to England for a wedding - that's happening. be nice to see the kids grandparents too as they are too fraile to travel and we don't when, if ever, we'll see them again. If that's a bad thing well tough. Family first.

my question was about the remainder of the debt - pay, or do a heloc as a cushion or any other ideas?
. I could be close to FIRE within 18 months. not shabby for someone who had a 5 month job loss and a short sale last year.