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Needing advice on how to get on track to be financially successful. I am 35 years old single parent and Currently have a home at 3.75% interest rate. Owe 220 and it's worth 290k. Debt totaling 126k including a 48k car loan and 14k in cc debt and the rest Is federal tax debt. Wondering if it is smart to sell my home and use the equity (50k) to pay off some of my debt, sell the car (48k) and get rid of my car note then continue on a strict budget to pay off the remaining (30k)? My average income for the last two years is 150k but subject to change since I am self employed. If I sell I was thinking of buying another home To keep my mortgage the same since it is not a stretch financially. (Selling because I'm ready for a new house and want to get a jump on the debt using the equity. Trying to get to a place where the only debt I have is the home so I can save more and put more towards the potential new mortgage to pay it off sooner. I also have 1 child getting ready for college in the next couple of years. Obviously I haven't been the smartest financially and something has got to change. I have started living on a budget but need to know what to do from this point on. Any advice is greatly appreciated. I have options but I am confused and afraid to make any more bad choices.

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    It would be far more valuable to list your current average net income and how much you are repaying on each of these debts each month (and how long it'll take to pay them off). You say your average income is 150K. Is that per year or for two years? What currency is this? Why do you need such an expensive car, assuming US currency? How much is the car worth if you sold it? – ChrisInEdmonton Feb 28 '15 at 13:55
  • What state do you live in? – Rocky Feb 28 '15 at 18:31
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I think your plan is good.

The keys to your plan are:

Trying to get to a place where the only debt I have is the home

Credit card debt and Federal tax debt is some of the worst debt you can have. The quicker you can get rid of it, the better.

sell the car (48k) and get rid of my car note

A $48K car is not appropriate for anyone but the most wealthy among us in my opinion; certainly not for someone in debt. Sell the car and get yourself a $5-$6K car. Pay cash for it.

continue on a strict budget.... I have started living on a budget.

This is the real key. Once you have figured out how to plan your spending and committed to never spending more than you have, you have solved the problem and not just the symptom. If you don't figure this part out, you could sell enough stuff to get out of debt, but you'll find your way back in trouble again soon.

sell my home and use the equity (50k) to pay off some of my debt.... Selling because I'm ready for a new house and want to get a jump on the debt using the equity.

If you want to sell the house, then sell. It will certainly help you get out of debt quicker. You may want to consider renting for a short while before you buy another house, because then you'll be debt free and in a position to think clearly about what you can afford. With your income, it shouldn't take you long at all to clear the last $30K of debt. I would just hate to see you get close to being debt free, then buying a new house and having your self-employed income temporarily dip down to the point where you are in trouble again. If you can clear the debt, build up an emergency fund, and build up a good down payment before buying again, you might find yourself in a better position to buy and stay debt free except for your mortgage.

federal tax debt

It sure is easy to get in trouble with taxes as a self-employed person, isn't it? Make sure that you have learned what went wrong, and you've corrected what needs to be corrected, so you don't end up owing money to the government again. A good accountant is worth the expense.

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Having just gone through the fun of buying a house, I would be cautious of selling your house to get out of your debt. You are going to spend something on the broker's fees (I think our seller paid 7%, but another source I see says 6%, so let's go with the lower amount). 6% of your house is $17,400, not an insignificant amount when, assuming you get full price for it, you would be earning 70k before that fee (it's around 25% of what you'd make off the house). Not ideal, and that's not considering other fees and things that will come up when selling the house. I don't think this is the "magic bullet" for you.

The first thing you should do is make a spreadsheet that lists all your debts (similar to the list you made here, but include the interest rates, and calculate how much interest per month you are adding for visualization (debt owed * yearly interest rate / 12 for simplicity)). This will let you get a clear idea of where the money needs to go. The second step is to make a budget, and figure out what money you have to pay the debts (cutting as close to the bone on your budget as possible, since you have a lot of debt).

Once you have that information, start paying your highest interest adding debts first. This will have the biggest impact in the long run. This also gives you a priority list for renegotiating or eliminating the debts.

The first thing I would do is get rid of that car. Get a nice used car that is reliable, but has already depreciated some. You can most likely roll the difference between what you owe on your current car and its value into that car loan. Pay cash if you can, but if you can't, don't worry too much about it, just make sure to update your debt spreadsheet and recalculate everything.

Next, I'd try to work towards an Offer in Compromise with the IRS (what form your tax debt takes may impact your eligibility). This may make it possible to reduce what you owe them, which will help.

I would also take a second mortgage/equity loan out on the house to pay down the higher interest debts, provided you get a lower rate for it. Houses are GREAT for this, because they tend to retain their value and allow you to have lower interest rates. That Credit Card debt is probably the highest interest bearing and needs to be gotten rid of as soon as possible.

Bankruptcy is also always an option, but since you owe so much to the IRS, I doubt it will help.

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