Author Topic: Sell House to Pay Debt??  (Read 1287 times)

Mstrlucky74

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Sell House to Pay Debt??
« on: June 02, 2021, 10:53:06 AM »
I know we are in a financial mess but are very serious about buckling down.

So we own two houses. One we live in and one is a rental. We are considering selling the rental to pay off our debt.

Rental House( about $500 per month cash flow)
Owe- $285,000
Value - $415,000
Remaining Years on Mortgage - 16 year

Total Debt in CC's, personal loans = $150k( 40k of that is 401k loan).

If we buckle down LOL...we need to we could put $3-4k month toward our debt.

Thoughts on selling house or buckle down and pay off debt with our income.

BTW we just welcomed our first baby(girl) to the family...not sure if that play into the decision.


Our total income is $220k gross.

Thank you very much.

honeybbq

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Re: Sell House to Pay Debt??
« Reply #1 on: June 02, 2021, 12:01:10 PM »
I would not based on the very limited information you gave.

The larger question remains- how did you get into this situation? That would tell me way more about what you should do with your money based on the snippet above.

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Re: Sell House to Pay Debt??
« Reply #2 on: June 02, 2021, 12:05:30 PM »
Would you consider writing a case study?  The format has been refined over the years and seems to work well for giving an overall financial picture.

https://forum.mrmoneymustache.com/case-studies/how-to-write-a-'case-study'-topic/

You might not be willing to provide that much information here, but filling it out for yourselves would probably help you.

A lot of financial problems are emotional issues as much as anything else.  honeybbq asks a very pertinent question.

Mstrlucky74

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Re: Sell House to Pay Debt??
« Reply #3 on: June 02, 2021, 12:52:42 PM »
Thank you very much. So a lot of it was used to renovate the current house( not the rental) we own.

We bough it for $260k, put in about $100k and it's value is $520k.

Malcat

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Re: Sell House to Pay Debt??
« Reply #4 on: June 02, 2021, 02:01:05 PM »
I'm wondering why "buckle down" has an "LOL" after it.

A lot doesn't add up here. I think you need a case study for anyone to be of real help to you.

Villanelle

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Re: Sell House to Pay Debt??
« Reply #5 on: June 02, 2021, 02:28:24 PM »
What does "$500/m cash flow" mean, exactly?  What are the mortgage, property taxes, HOA, PM (if you have one) and other expenses?  And what are you budgeting annually/monthly for maintenance?  And how much is rent? 

And do you have an actual budget?  What will you do with the money that is no longer going toward monthly debt, and will you actually DO it? Because there is danger in selling a house and "magically" solving all your obvious financial problems if you don't address the underlying issues.  Suddenly, you have no debt and an extra $x000 that is no longer going toward servicing that debt, so it is easy to decide to renovate that one bathroom you haven't already done (that cost you thousands more than the actual bill because you financed it, I might add) or upgrading the car or going a bit bigger on Christmas or replacing your laptop with the Mac with the fancy new chip or going on an extra or nicer vacation... or all of the things you are already doing that put you in a position where you make a *lot* of money and are still in 6 figures of consumer debt.

Giving $120,000 to a spending addict often creates more debt, or at least has them right back where they started within a few years.  Only then, in your case, you wouldn't even have this house and the equity you are forced to "save".  So unless you address everything else, I'd say that you want to keep the house, almost regardless of the numbers (assuming they are black after ALL expenses and future expenses are accounted for) because at least it prevents you from blowing through that money.

Mstrlucky74

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Re: Sell House to Pay Debt??
« Reply #6 on: June 02, 2021, 03:08:16 PM »
I will do the case study and post here. Thank you very much everyone.

Mstrlucky74

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Re: Sell House to Pay Debt??
« Reply #7 on: June 02, 2021, 04:18:56 PM »
Hello all, Here you go. Hope this helps

Tester

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Re: Sell House to Pay Debt??
« Reply #8 on: June 02, 2021, 05:05:03 PM »
My first reaction is to not sell the rental.
Not because of it being a good rental (I have no clue if it is) but to force you to buckle down.
Buckling down and paying 3k/month against the debt will have a long lasting effect on your finances.
If after one year you see that you buckled.down and it worked you can then sell the rental as you know you can maintain a budget.
Just my two cents.

By the way, I am also struggling with keeping spending under control. No CC debt yet, only a mortgage, but after buying the house we saw a lot of money disappear.

Now looking into replacing our car or buting a second car if I have to work from the office soon, I am trying to use this opportunity to makena habit of saving - saving for the car.

jiimmy

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Re: Sell House to Pay Debt??
« Reply #9 on: June 02, 2021, 05:35:29 PM »
I'd shut off 401k contributions until at least the $45k of 18% CC debt is gone. Think of it as a guaranteed 18% return.
« Last Edit: June 02, 2021, 05:37:33 PM by jiimmy »

Villanelle

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Re: Sell House to Pay Debt??
« Reply #10 on: June 02, 2021, 05:55:44 PM »
Whoa!  Yeah, that lol buckle down needs to happen, starting yesterday.  Some of that CC debt is absolutely insane.  Don't wait to sell a house. 

Oh, and unless I missed it you still didn't provide details on the rental house. 
« Last Edit: June 02, 2021, 05:58:20 PM by Villanelle »

secondcor521

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Re: Sell House to Pay Debt??
« Reply #11 on: June 02, 2021, 06:00:31 PM »
Hello all, Here you go. Hope this helps

It is clear to me from the case study document and your original post that you don't know how to budget very well.

Not budgeting very well means you're disorganized financially.

Being disorganized financially will not change if you sell the rental.

If you sell the rental, your financial disorganization will eventually result in you being in a similar spot in a few years.  Except then you won't have the rental equity to kick the can down the road a second time.

I recommend you learn how to become organized financially and how to budget well.  That will address the root cause.  Then you'll probably also know whether or not to sell the rental, but you probably won't need to in order to address your debt problem.

If you agree with this analysis, then you can seek out and find good resources for how to budget well and get financially organized.  I'd recommend checking out some books on the topic from your local public library and reading them together.

Paper Chaser

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Re: Sell House to Pay Debt??
« Reply #12 on: June 02, 2021, 06:09:13 PM »
I'd sell it. That's a mountain of debt, and a big chunk of it has super high interest. Other posters have a very valid point about the importance of habits, but paying this debt off gradually means you end up paying many thousands of dollars in unnecessary interest, and the debt hangs over you for years until it's paid off.

There are two sides of the balance sheet: income and expenses. The higher your expenses are, the more income you need. Servicing all of that debt means you need a lot more income. If that debt is gone, it frees up a lot of your income while working for educational savings for kiddo or additional investing (enabling earlier retirement), while also meaning you need less income in retirement savings to get by (again, further enabling earlier retirement).

Mstrlucky74

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Re: Sell House to Pay Debt??
« Reply #13 on: June 02, 2021, 06:18:37 PM »
Thank you sincerely everyone for your feedback.
We are serious about changing out habits and will MAKE sure it happens.
Opinions seem to be split about selling the rental.

Sibley

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Re: Sell House to Pay Debt??
« Reply #14 on: June 02, 2021, 06:25:28 PM »
Change habits first. Revisit selling the rental next spring. That will give you enough time to get into new habits and start to make a dent in your debt, which will then help you decide if you want to sell the rental.

Malcat

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Re: Sell House to Pay Debt??
« Reply #15 on: June 02, 2021, 06:27:56 PM »
Thank you sincerely everyone for your feedback.
We are serious about changing out habits and will MAKE sure it happens.
Opinions seem to be split about selling the rental.

That's because it's really a personal decision.

Mstrlucky74

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Re: Sell House to Pay Debt??
« Reply #16 on: June 02, 2021, 06:43:32 PM »
Change habits first. Revisit selling the rental next spring. That will give you enough time to get into new habits and start to make a dent in your debt, which will then help you decide if you want to sell the rental.
Makes sense!!

Abe

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Re: Sell House to Pay Debt??
« Reply #17 on: June 02, 2021, 06:44:43 PM »
You will need to sell at some point. Whether to do now or wait a year to fix your bad habits is up to you. My recommendations are:

Sell house. Put proceeds immediately towards consumer (non-mortgage) debt.


Your income (after 401k contributions, good job on that):
$197k per year = $16k/month
About $51k/12 = $4.3k/month goes into taxes (see if this is right based on your last income tax return)

This leaves you with $11k a month

Your expenses:
$2.4k (main house) - reasonable
$600 (food) - much too high (unless this includes formula, which is expensive)
$525 (utilities) - not sure how your gas and electric are both so high - your home must not have good insulation. Recommend fixing that when your debt is settled.
$1260 (cars) - you have too much car expenses. Why do you have a loan left on the car given your income (is it a 1-2% dealer loan?). Also, your car insurance is quite high, unless you crash a lot. Your cars don't seem to be worth much, but are sucking up way too much money. Ditch the expensive lease, get a cheap car and get cheaper insurance.
$450 (misc) - likely to be a vast underestimate as you have $6500 a month unaccounted.

Missing categories:
Kid stuff (daycare, etc - remember, budgeting is for the future, not last month)
Healthcare costs
Life insurance
Clothes
Home supplies
Household repair budget (roof replacement, appliance repairs, etc)
Any memberships (gym, amazon, magazines, country club, etc)
Any hobby expenses

Bottom line - you have no idea where half your money is going. At least you are saving towards retirement and have a reasonable amount saved. The ship is sinking and you will need to plug holes, otherwise selling the rental house (a must) will be a temporary bandaid and you will be back here in 2026 with the same problem (or worse). Also, as I'm sure you know, kids are a giant money sink. Tighten your belts and re-do your budget in more detail.
« Last Edit: June 02, 2021, 06:47:37 PM by Abe »

Mstrlucky74

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Re: Sell House to Pay Debt??
« Reply #18 on: June 02, 2021, 06:55:08 PM »
You will need to sell at some point. Whether to do now or wait a year to fix your bad habits is up to you. My recommendations are:

Sell house. Put proceeds immediately towards consumer (non-mortgage) debt.


Your income (after 401k contributions, good job on that):
$197k per year = $16k/month
About $51k/12 = $4.3k/month goes into taxes (see if this is right based on your last income tax return)

This leaves you with $11k a month

Your expenses:
$2.4k (main house) - reasonable
$600 (food) - much too high (unless this includes formula, which is expensive)
$525 (utilities) - not sure how your gas and electric are both so high - your home must not have good insulation. Recommend fixing that when your debt is settled.
$1260 (cars) - you have too much car expenses. Why do you have a loan left on the car given your income (is it a 1-2% dealer loan?). Also, your car insurance is quite high, unless you crash a lot. Your cars don't seem to be worth much, but are sucking up way too much money. Ditch the expensive lease, get a cheap car and get cheaper insurance.
$450 (misc) - likely to be a vast underestimate as you have $6500 a month unaccounted.

Missing categories:
Kid stuff (daycare, etc - remember, budgeting is for the future, not last month)
Healthcare costs
Life insurance
Clothes
Home supplies
Household repair budget (roof replacement, appliance repairs, etc)
Any memberships (gym, amazon, magazines, country club, etc)
Any hobby expenses

Bottom line - you have no idea where half your money is going. At least you are saving towards retirement and have a reasonable amount saved. The ship is sinking and you will need to plug holes, otherwise selling the rental house (a must) will be a temporary bandaid and you will be back here in 2026 with the same problem (or worse). Also, as I'm sure you know, kids are a giant money sink. Tighten your belts and re-do your budget in more detail.
So even if we pay ~$40k toward the debt in the next year you say still sell the house?

secondcor521

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Re: Sell House to Pay Debt??
« Reply #19 on: June 02, 2021, 07:02:21 PM »
Thank you sincerely everyone for your feedback.
We are serious about changing out habits and will MAKE sure it happens.
Opinions seem to be split about selling the rental.

That's because it's really a personal decision.

I'm no expert on rental properties, but it also looks to me that you didn't provide anywhere near enough accurate, consistent, and complete information on the rental property to determine whether it is a good one or not.  So people are basically just guessing.

Mstrlucky74

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Re: Sell House to Pay Debt??
« Reply #20 on: June 02, 2021, 08:12:29 PM »
Thank you sincerely everyone for your feedback.
We are serious about changing out habits and will MAKE sure it happens.
Opinions seem to be split about selling the rental.

That's because it's really a personal decision.

I'm no expert on rental properties, but it also looks to me that you didn't provide anywhere near enough accurate, consistent, and complete information on the rental property to determine whether it is a good one or not.  So people are basically just guessing.

I thought I did.

Mortgage balance - $285k - 16 years remaining
Value - $410k
After paying mortgage, taxes and insurance we are left with about $1,100 cash flow

secondcor521

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Re: Sell House to Pay Debt??
« Reply #21 on: June 02, 2021, 08:29:11 PM »
Again, I'm no expert on rental properties.  But as a first order guess I think those here who are would want to know about depreciation (which would I think involve your current marginal tax rate as well as when you placed the property into rental service, I think), occupancy, repairs, maintenance, and rental management fees (if any).  The following also might be nice to know:  monthly rent you're charging, interest rate on the mortgage, whether the mortgage is fixed or adjustable, and potential for price appreciation.

But I'll repeat for emphasis, the bigger factor is your and your spouse's extraordinarily poor budgeting skills.  Whether to sell the rental or not is, in the bigger scheme of things - and I'm only being mildly too dramatic here - completely irrelevant.  You literally don't know where more than half of your discretionary cash flow is going.

To put it another way and assuming for the moment that your numbers are approximately right:  The $6500 or so in spending that you are not keeping track of (see Abe's post earlier) is approximately six times the $1100 cash flow from your rental.

Or even another way:  Your non-mortgage debt (IIRC, I can't see the OP at the moment) is about $150K, which is more than your rental equity ($410K - $285K = $125K).  You don't own your rental, your Visa and Mastercards and AMEXes do.

You think selling the rental will solve your debt problem.  It won't.
« Last Edit: June 02, 2021, 08:59:01 PM by secondcor521 »

Peaksandvalleys

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Re: Sell House to Pay Debt??
« Reply #22 on: June 02, 2021, 08:29:22 PM »
Sell the rental and be done. You make 220K and you're up to your eyeballs in debt without even considering a financed car, a car lease and 2 mortgages.

You need to hear brutal honesty. My honest opinion is that I don't think you are truly motivated to make the changes required to get out of this massive hole without dumping the rental equity against this. Looking at your situation it doesn't look like you have done anything to minimize debt or live within your means. You are living BEYOND your means despite having an income 4X the average household. Sell the rental, get out of debt and cut your lifestyle to a point where you don't have to borrow on everything you own.

Apologies for the face-punches
« Last Edit: June 02, 2021, 08:31:02 PM by Peaksandvalleys »

Peaksandvalleys

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Re: Sell House to Pay Debt??
« Reply #23 on: June 02, 2021, 08:32:19 PM »
You don't own your rental, your Visa and Mastercards and AMEXes do.


This cannot be overstated
« Last Edit: June 02, 2021, 08:33:50 PM by Peaksandvalleys »

Malcat

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Re: Sell House to Pay Debt??
« Reply #24 on: June 02, 2021, 08:42:04 PM »
Sell the rental and be done. You make 220K and you're up to your eyeballs in debt without even considering a financed car, a car lease and 2 mortgages.

You need to hear brutal honesty. My honest opinion is that I don't think you are truly motivated to make the changes required to get out of this massive hole without dumping the rental equity against this. Looking at your situation it doesn't look like you have done anything to minimize debt or live within your means. You are living BEYOND your means despite having an income 4X the average household. Sell the rental, get out of debt and cut your lifestyle to a point where you don't have to borrow on everything you own.

Apologies for the face-punches

I'm quoting this because I think it's really important to note that the reason some people are recommending keeping the rental vs selling the rental has little to do with the rental itself.

The differing opinions are based on whether or not people think that selling the rental will make you more likely to get your financial shit together or less likely.

One camp worries you won't be motivated enough to pay off the debt with just cutting back on your spending. The other camp worries that if you eliminate your debt, you will have less/no motivation to get your spending under control.

No one is giving you math responses because this isn't a math issue, it's a behavioural issue.

You haven't really given much insight into the behavioural basis of how you got into this situation in the first place, so it's hard to give you personalized advice for getting out of it.

Abe

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Re: Sell House to Pay Debt??
« Reply #25 on: June 02, 2021, 08:50:48 PM »
You will need to sell at some point. Whether to do now or wait a year to fix your bad habits is up to you. My recommendations are:

Sell house. Put proceeds immediately towards consumer (non-mortgage) debt.


Your income (after 401k contributions, good job on that):
$197k per year = $16k/month
About $51k/12 = $4.3k/month goes into taxes (see if this is right based on your last income tax return)

This leaves you with $11k a month

Your expenses:
$2.4k (main house) - reasonable
$600 (food) - much too high (unless this includes formula, which is expensive)
$525 (utilities) - not sure how your gas and electric are both so high - your home must not have good insulation. Recommend fixing that when your debt is settled.
$1260 (cars) - you have too much car expenses. Why do you have a loan left on the car given your income (is it a 1-2% dealer loan?). Also, your car insurance is quite high, unless you crash a lot. Your cars don't seem to be worth much, but are sucking up way too much money. Ditch the expensive lease, get a cheap car and get cheaper insurance.
$450 (misc) - likely to be a vast underestimate as you have $6500 a month unaccounted.

Missing categories:
Kid stuff (daycare, etc - remember, budgeting is for the future, not last month)
Healthcare costs
Life insurance
Clothes
Home supplies
Household repair budget (roof replacement, appliance repairs, etc)
Any memberships (gym, amazon, magazines, country club, etc)
Any hobby expenses

Bottom line - you have no idea where half your money is going. At least you are saving towards retirement and have a reasonable amount saved. The ship is sinking and you will need to plug holes, otherwise selling the rental house (a must) will be a temporary bandaid and you will be back here in 2026 with the same problem (or worse). Also, as I'm sure you know, kids are a giant money sink. Tighten your belts and re-do your budget in more detail.
So even if we pay ~$40k toward the debt in the next year you say still sell the house?

I think in general you have a house of cards that can rapidly go out of control. The most unstable card is the 18% debt you have. That needs to be settled as soon as possible, not over the next year.

Assuming you pay off your 18% loan from the credit card companies tomorrow, you will have a 5%, $70k loan with $3500 in interest due over that year. If your 401k loan is 5%, you're looking at $5k a year just in interest on these two loans. I'm assuming your book-keeping for the rental is sound, and you will turn a slight profit after payment on interest. However, that seems to assume no loss of rent, no unexpected expenses, etc. If you can discipline yourself, figure out ways to curtail your unexplained spending, and put that amount towards the consumer debt, then keep the rental for now. If you cannot do all three, then sell while the market is hot.

draco44

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Re: Sell House to Pay Debt??
« Reply #26 on: June 02, 2021, 09:07:16 PM »
Sell the rental and be done. You make 220K and you're up to your eyeballs in debt without even considering a financed car, a car lease and 2 mortgages.

You need to hear brutal honesty. My honest opinion is that I don't think you are truly motivated to make the changes required to get out of this massive hole without dumping the rental equity against this. Looking at your situation it doesn't look like you have done anything to minimize debt or live within your means. You are living BEYOND your means despite having an income 4X the average household. Sell the rental, get out of debt and cut your lifestyle to a point where you don't have to borrow on everything you own.

Apologies for the face-punches

I'm quoting this because I think it's really important to note that the reason some people are recommending keeping the rental vs selling the rental has little to do with the rental itself.

The differing opinions are based on whether or not people think that selling the rental will make you more likely to get your financial shit together or less likely.

One camp worries you won't be motivated enough to pay off the debt with just cutting back on your spending. The other camp worries that if you eliminate your debt, you will have less/no motivation to get your spending under control.

No one is giving you math responses because this isn't a math issue, it's a behavioural issue.

You haven't really given much insight into the behavioural basis of how you got into this situation in the first place, so it's hard to give you personalized advice for getting out of it.

I agree with Malcat's description of some of the worrisome behavioral possibilities here. The good is that you are here, asking for advice, and thinking about these issues probably more directly than before. The bad is that fixing this situation is not going to happen overnight, even if you do sell the rental to jump-start the debt payoff.

One thing I haven't seen mentioned yet in the behavioral side of things is the presence of your new child. I'm imagining two possibilities in relation to that, both of which may coexist. One is that now that you have another human being to look after, you are finally getting some fire under your butt and are more motivated than ever to get your financial house in order. Which is great. Let that desire to make the best possible future for your child inspire you to improve the financial stability of your household. Having a kid can be a life event that helps people prioritize their actions and get shit done like never before.

However, the counterpoint of that is that with a new baby, you may have less time and energy to focus on things other than your child. You will likely be exhausted from sleep deprivation. It will be tempting to buy a ton of convenience food, play for expensive childcare to give yourselves a break, and buy your child "all the things" because they deserve the best the world has to offer.

My two cents, for what it's worth, is that this may be a time in life to simplify. Selling the rental would not only accelerate your debt payoff, it would big you one less big thing in your life to manage.

Taran Wanderer

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Re: Sell House to Pay Debt??
« Reply #27 on: June 02, 2021, 10:50:41 PM »
The easiest way to get your self out of this mess is to sell the rental and pay off your debt. But thatís not going to keep you out of this mess. Itís an easy way out when what you need is self discipline and sacrifice.

Pay yourself first. For now that means tightening your belts and cleaning up this mess. Only buy essentials. Get ride of the leased car. Look for credit cards with balance transfer deals to lower your interest rate. You make $220,000 per year and another $13,000 from the rental. Plan on at least $5,000 a month toward your debts. I havenít done the math on your numbers. Can you bump it to 6, 7, or $8,000?  Donít worry about the mortgages on your primary or your rental - you can keep those for their whole terms. Anything else? You shouldnít have it at all. Ever.

Get some discipline. Get rid of luxuries - you can get them back when you can pay cash for them. Take this time while your baby is young and enjoy being home together. Use this time to set yourself up for the rest of your life. Youíll be glad you did. 

former player

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Re: Sell House to Pay Debt??
« Reply #28 on: June 02, 2021, 11:55:14 PM »
You have a hair on fire debt emergency, with $45k at 18% interest and 70k at 5% interest. The 45k needs to be dealt with immediately.

Selling the rental will not solve your problem with the 45k because it will take too long: you will need to evict the tenant, get the property in sellable condition, get it listed, get offers and close, whereas the 45k at 18% needs to be gone this week.  My suggestion would be that you start by cashing out the etrade account for $19k of it (small caution here: is there any tax to pay on doing that?).  Do you have any cash in the bank?  You need to keep enough to pay next month's expenses (let's say 6K as a rough estimate) and throw the rest at that debt as well.  Then look round your house for things you can sell: unused electronics, pre-pregnancy designer clothes and shoes, and so on.  What's left of the debt after that you need to get cheaper financing on.  Add it to your personal loan?  Interest free periods on credit cards?  With your income, and I'm hoping decent credit scores, there should be plenty of companies willing to lend to you at a lot less than 18%. 

As well as having a hair on fire debt emergency you also have a hair on fire spending emergency. 

You are spending $1,260 a month, $14,780 a year, from taxed income, on your cars!  What is the interest rate on the loan on the wife's car?  What is the position on the lease on the husband's car, can you get out of it?  Why is your insurance costing you about 3 times what it should be?  And why are you spending so much on gas,.. do you have a clown commute?  Without the answers to those questions I can't suggest specific action to reduce your car costs but I'm betting that you have been accumulating car costs ad hoc and then taking them for granted rather than having a thought-out plan.

Gas and electric at $300 a month, $3,600 a year looks high.  Baby needs to be comfortable but otherwise you need to take a long hard look at where you are wasting energy.

$120 a month for one cell phone is absurd.  Is this a contract, and if so when can you get out of it?  You should be able to get good coverage for about a quarter of that cost.

Miscellaneous at $450 a month needs to be broken down further to see what it is.  As the case study document suggests, misc. should be at about 2.5% of your total expenses: any higher (and yours is much higher) makes it clear you do not understand your spending.  And as others have said, there are significant categories of spending not set out at all.  Do they fall under this misc. amount?

Now for the gaps in your case study.  As others have pointed out you have a lot more income coming in than is accounted for by the expenses you list.  There should be a firehose of cash coming in that has been going to nothing else than paying your debts. You don't seem to have been paying off your debts, so where has it been going?  Is it being stolen from you?  I can't at the moment see any other explanation.  You should be paying off debt out of your net income at $5k a month as a minimum (thats $60k a year) so why haven't you been doing that?

Finally on your case study, because it is just a rather blurry snapshot of your current position we have no idea of how you got here and what your plans for the future are.  Why do you even have a rental and what is the plan behind having it?  What was the plan behind buying the house you live in and what was the plan for paying for those expensive renovations?  How has having a baby (congratulations, by the way) affected your income and expenses so far and how will it affect them in the future?  Are you planning any more babies and how will that affect your income and expenses?

I'm not sure from your posts how much of the Mr Money Mustache blog you have read?  If you start with this post and keep going you will get a good idea of what you should be doing and where the people commenting here are coming from.

https://www.mrmoneymustache.com/2013/02/22/getting-rich-from-zero-to-hero-in-one-blog-post/


Villanelle

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Re: Sell House to Pay Debt??
« Reply #29 on: June 03, 2021, 11:52:37 AM »
Thank you sincerely everyone for your feedback.
We are serious about changing out habits and will MAKE sure it happens.
Opinions seem to be split about selling the rental.

That's because it's really a personal decision.

I'm no expert on rental properties, but it also looks to me that you didn't provide anywhere near enough accurate, consistent, and complete information on the rental property to determine whether it is a good one or not.  So people are basically just guessing.

I thought I did.

Mortgage balance - $285k - 16 years remaining
Value - $410k
After paying mortgage, taxes and insurance we are left with about $1,100 cash flow

You did not.  I posted above what you need to include.~~  How much is the monthly rent?  What is the mortgage (monthly), HOA, PM, property taxes?  Any other costs?  And what are you budgeting annually for maintenance?  (Not what are you spending, but what you are you budgeting, as rental maintenance costs tend to be very lumpy.  You go months with almost nothing, and then suddenly a new roof is needed and the fridge dies). Are you budgeting for vacancies, even just a week or so between tenants?   Also, I'm confused because originally you said $500 cash flow i think, and now you are saying $1100.  Or am I misremembering?

Also, it seems the "budget" you posted is a rosy projection of what you think you will start spending as of tomorrow, not what you actually spend.  There's a lot of fat in the budget, especially for someone who should be feeling like they are in an emergency, but if that was what you are actually spending, you wouldn't be in six figures of consumer debt.  So what did you spend each month (on average) to get you where you are today? And why do you believe that starting tomorrow, so much of that will change?  You mentioned home improvements, but I'm betting that your debt is from far more than just that.

In your position, I'd probably keep the rental (pending the numbers you need to provide to give an accurate picture of it) and give myself 4-6 months.  During that time, I'd want to pay down at least $10k in debt and stick to an actual budget.  (WHat you posted minus at least 5% would be a good place to start.  *IF* I was able to stick to that, then I'd feel semi-confident that I wouldn't just pay off the debt with the rental money and be right back to being an over-spending mess within a year.  Yes, those 4-6 months mean paying more interest than if you listed it today, but that gives you time to devlope healthier habits and see if you can stick to them.

Starting today, find 5-6 meals that cost less than $2pp and make those at least 5 mights a week.  Turn your thermostat up (for a/c) two degrees or to 78*, whichever is higher.  Sort out your f'd up car situation. (Can't offer better advice because you didn't offer enough details.)  Change your cell phone provider.  Cut "misc." spending to no more than $150. 

That's where to start. 

And FP makes a great point about the fact that you probably need to have some money in the bank in order to be able to sell while you carry the place.  At a minimum, even if you have a seller lined up while it is still rented, you will probably have about a month between when they are out and when you close. 
« Last Edit: June 03, 2021, 12:02:33 PM by Villanelle »

Laura33

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Re: Sell House to Pay Debt??
« Reply #30 on: June 10, 2021, 04:05:38 PM »
I want to focus on what @Malcat and @Sibley said.  You are trying to solve a behavioral problem by throwing money at it.  The problem is, that's how you got into this situation in the first place -- by throwing money at stuff you wanted but couldn't afford.  The quick fix of selling your rental and paying things off in one swell foop will relieve the current pressure you feel that is forcing you to consider changing your habits, but it will not fix the underlying behavioral/emotional need that got you into this situation in the first place.  So all that will happen is you will feel a great sense of relief and then 5 years from now will find yourself in exactly the same situation you're in now.  Why do you think so many people who declare bankruptcy get through it all only to go broke again a few years down the road?  Anyone can white-knuckle their way through a few months of deprivation; it's much harder to make long-term changes in your thinking and behavior to keep you from going down that road again.

You know what does tend to force that sort of long-term change?  Dealing with the pain and frustration and anger and constraint of working your way through your debt day after day after day.  The reality is that it it took you a long, long time of making bad choices to dig yourself a hole this deep, and the pain of digging  your way out over a long period of time is the only thing that will likely have enough power to really make you believe, at a deep level, that you will never go back there again. 

The good news is that as Dave Ramsey would say, you've got a really big shovel.  You guys make a shit-ton of money, and the mandatory expenses you laid out in your case study account for only a fraction of it.  So dedicate yourself to throwing every single extra cent at that CC debt, because that 18% will freaking kill you.  And in the meantime, track every single penny you spend.  You can't fix a problem when you have no idea what it is -- and it's pretty clear from your case study that you don't.  So while you're tackling your highest-priority debt, start gathering the data to figure out where your money is really going.  Then, when you've got the CCs paid off, you will have months of data that you can look at and figure out what your weaknesses are and develop a plan to work around those.