18,000.00 debt

iVillage Member
Registered: 03-26-2003
18,000.00 debt
2
Sat, 01-29-2005 - 11:59pm

what is the most intelligent way to get rid of 18,000. debt if I just refinanced my home October 1, 2004 to try to get out of debt. I have many personal issues that are affecting my income and my debt problems including my son who is recovering from drug addiction and my daughter who just had her spine surgery 10 days ago. No excuses I KNOW.....but I have learned that I am Codependent, and bailed the son out too many times.

I just want to get out of this debt in the smartest way possible. My home was appraised at 300,000.00 and my loan is 114,000.00, so I do have some equity; HOWEVER, I did just refinance 10/2004.

What does anyone who has been this much in debt recommend for a single mom making about 30,000.00 a year, and currently caring for my daughter at home for the next 8 weeks until she recovers? I am BEHIND on many of my bills this month. Last time I looked, my credit scored dropped from about a 757 to about a 696. Help? Any suggestions are appreciated.

iVillage Member
Registered: 02-19-2004
In reply to: zen77
Sun, 01-30-2005 - 2:41am

Are you saying you were debt free in 10/2004 when you refinanced? If so, then you have to get a handle on the spending/bailing out/medical expenses before you can make a good get-out-of-debt plan.

What about a home equity line of credit? That way you don't have to refinance but you can consolidate your debt. Hopefully the interest rate and monthly payment would be more reasonable by doing this, to enable you to get on top of things and then start paying it down. Some will say that it's bad to trade unsecured debt for debt secured by your home, but you do have a lot of equity and a good credit score, so this may be one option to consider. Just make sure you can afford the payment before you agree to this. The last thing you need is to fall behind on a mortgage/HELOC payment. If you are going to end up defaulting, it's much better to default on credit cards than on a secured debt.

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iVillage Member
Registered: 03-27-2003
In reply to: zen77
Sun, 01-30-2005 - 10:42am

Welcome to the board! You will get so much good advice and loving support here. Things are tough for you right now, but you can take control and come out stronger and better off.

The first thing you can do is get your debting habit under control. Taking out additional debt against your house, in any form, is not, in my opinion, the way to do this. Too many people do this to "get out from under debt" and six months later find themselves with additional home debt AND more cc debt. It seems this has already happened to you, so you can see how it doesn't fix your problems.

Instead, I recommend you start tracking your spending, and discover where your money is actually going. Vending machines, lunches ordered in, trips to the grocery store (including the impulse purchase in the check-out line), etc.--these things seem small one at a time, but when you start tracking, you may find your money is trickling out in a thousand directions without your even having noticed.

Of course, your situation is made more complicated by the emotional and financial difficulties you are facing. So make a point to get some help with these things--first, get some counseling for the codependency. Check out community resources that may offer this free, or invest a little bit of money in it. Working on that will go a long way toward helping with the other issues.

Also check into community resources that may be able to help you with the bills and the down time as a result of caring for your daughter. Are you losing income as a result of this?

Once those things are squared away, sit down with a spreadsheet, pen and paper, or money management software, and figure out exactly what your bills are, how much you owe, when things are due, and how much is due each time. Set this against your income, and you'll have a snapshot of where you are. If your income is higher than your expenses, your next step is simple--look at where your money is leaking out, and patch the holes. Once you are current and making all your payments, you can begin paying down your debt.

If your outgo is higher than your income, your next step is to cut expenses where you can and/or find a second income. Obviously, you can't get a second job while your daughter is at home needing your care, so you may have to find another option for the next eight weeks. But you *can* begin cutting expenses and planning for your second income search.

Paying off debt the slow way, through inch by inch hard work and learning to live within your means is hard. But it is the only way to kick the problem permanently.

And yes, I've been where you are financially and below. We were 32k in debt at our lowest point, and dh was out of work entirely. When he went back to work, his income was less than 30k. We are now about 21k in debt (I'm not sure of exact numbers without pulling up my spreadsheet), and dh's income has gone up significantly, but we've gotten here only through very hard work and, for a while, me working a night job while dh watched the kids (outside child care was never really an option for us, largely because I couldn't possibly make enough money to offset the cost of childcare anyway). We never saw each other, my hair smelled like cigarettes from the bar I was working in, and I slept a maximum of about four hours a day; but it got us out of the hole enough to survive on dh's meager income so we could begin repairing our financial situation and living a normal life again.

One final note--I am one of those who strongly discourages the use of home equity to secure debt. You have a lot of equity, so it's not as big an issue for you, but if something were to happen to your job or your health, you still could stand to lose your home if you can't make the payments. As it is, you have only your mortgage payment to make in order to keep your home, but if you take out another loan, you'll have another payment (or, if you refinance, you'll have a higher or longer term payment) to worry about. It would be terrible for you to lose your home due to temporary financial trouble.

Again, thanks for joining the board, and I know you will find so much to help you here.

Blessings,

Heather

P.S. One more thought--have you considered selling your home and purchasing something smaller or less expensive? I know it sounds drastic, and it may not be the answer for you, but it's something to consider. With over 150k in equity, you could probably move into a new home, pay off your unsecured debts, have a lower monthly payment, and begin your new phase with equity in your new home. Of course, I don't know what homes cost in your part of the world, but here a $300,000 home is more than a family of four really needs--our family of four (plus one live-in 20-year-old who watches the kids in exchange for room and board) does quite nicely in a $137k house, with room to spare. Anyway, it wouldn't fix the underlying problems, but it could give you a jump start and a relatively "clean slate" to work with.