Need Some Help Regarding Balancing Debt/Investments

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Topic Author
Mrtrex
Posts: 33
Joined: Tue Jul 22, 2014 8:45 pm

Need Some Help Regarding Balancing Debt/Investments

Post by Mrtrex »

-Age 41

-Income $100k, bonus $6-14k paid once a year in March if numbers are hit. 2020 payout looks to be on the lower end.

-Tax bracket 15% PA

-Wife stays home with 3 kids self employeed income goes to kids clothes and stuff for them. It’s not much.

-401k 170k in Fidelity

-Savings/Emergency fund 20k cash

-Mortgage $3,500 including escrow a month $425k debt at 4.25% $54k debt heloc at 5% roughly 480k total, House valued at $570k

-car loan $0

-credit card 20k interest free until March 2020

-19% of pay going into 401k

-no other monthly debt other than utilities, gas and food.

We just got done building the house and ran into some unforeseen expense with the lot and a few other issues. This resulted in 74k additional expenses. The way I had everything budgeted to be comfortable did not include the extra 74k. This is now costing me $650 extra per month. I need to eliminate this or cut it drastically down so I can be comfortable again. Anyone have suggestions on what I could do?
Jack FFR1846
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Re: Need Some Help Regarding Balancing Debt/Investments

Post by Jack FFR1846 »

Do you get a match on your 401k? I'd only contribute to the match and use the money you would have added to hit $19k and pay down that debt. When you get that bonus, use it to pay down that debt. Can your wife get a weekend job?
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HomeStretch
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Re: Need Some Help Regarding Balancing Debt/Investments

Post by HomeStretch »

Mortgage rates have come down. Have you looked into refinancing your combined mortgage/HELOC?

Assuming you can refinance with $20k CC debt and the appraisal supports the $570k market value, you might need to come up with cash for the best rate.
Topic Author
Mrtrex
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Joined: Tue Jul 22, 2014 8:45 pm

Re: Need Some Help Regarding Balancing Debt/Investments

Post by Mrtrex »

Yes I get a match to 4%. Refi is not an option I looked into it.
HomeStretch
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Re: Need Some Help Regarding Balancing Debt/Investments

Post by HomeStretch »

Since a refi is not possible, your options are to increase income, reduce savings or cut expenses.
esteen
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Re: Need Some Help Regarding Balancing Debt/Investments

Post by esteen »

I assume the $74K extra expenses are represented in the $54K HELOC and $20K credit card debt?

March 2020 is going to come quickly. As Jack FFR1846 said, I would only contribute your 401(k) up to the company match and move all other funds toward the short-term debt repayment.

Attack the debt like it wronged you - because it has! I would sit down with my partner and take a long, hard look at what spending we can redirect toward debt payment - even if it's painful short term. Frame it like this: if someone were to offer you a million dollars if you could pay off your debt 5x as fast as your current rate, what extreme measures could you take to accomplish it? Make a list. Now review those measures - you may not take ALL of them, but there are probably some you came up with in this thought exercise that are worth the short-term pain to get rid of the debt burden.

Good luck!
“A man in debt is so far a slave.” -Ralph Waldo Emerson
Topic Author
Mrtrex
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Re: Need Some Help Regarding Balancing Debt/Investments

Post by Mrtrex »

Yes the debt is sitting in the heloc and cc. Just having a hard time lowering from the 19% it was so hard to get it to that point and the feeling of not contributing the max is killing me. I’ve cut everywhere I can I’m considering trying to hold off to do anything until the bonus comes then take that and the 20k and dump that on the heloc. If I had an emergency I could just pull it out of the heloc. Also debating on just tossing the 20k on there now and again using the heloc if an emergency happens.
HomeStretch
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Re: Need Some Help Regarding Balancing Debt/Investments

Post by HomeStretch »

While it’s painful to reduce your savings rate temporarily, you are carrying a lot of debt for your salary and as a single-salary household. I would not reduce the emergency fund of $20k which probably represents about 4 months of living expenses.

If you cannot cut expenses or increase income, agree with the suggestion to reduce your savings to the amount needed to get the match and to redirect that money plus your bonus to pay down the CC debt and HELOC.
bloom2708
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Re: Need Some Help Regarding Balancing Debt/Investments

Post by bloom2708 »

What is the house worth? I found it $570k. Whew.

I have no idea how you make that payment on your salary. I make similar and after maxing 401k and Roths, HSA, we don't save anything else. No mortgage for us and it still feels thin since my wife stayed home (3 kids too).

Was your income higher and dropped down some? OR wife worked to qualify? Stinks, but that is too much house on $100k.

Get the match only for 401k, snowball the credit cards then HELOC. No other saving/investing until down to just the mortgage. A Dave Ramsey debt emergency.

I would down price the house and that would take a whole bunch of pressure off your income.
"We are here to provoke thoughtfulness, not agree with you." Unknown Boglehead
delamer
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Re: Need Some Help Regarding Balancing Debt/Investments

Post by delamer »

Mrtrex wrote: Tue Aug 06, 2019 6:25 pm Yes the debt is sitting in the heloc and cc. Just having a hard time lowering from the 19% it was so hard to get it to that point and the feeling of not contributing the max is killing me. I’ve cut everywhere I can I’m considering trying to hold off to do anything until the bonus comes then take that and the 20k and dump that on the heloc. If I had an emergency I could just pull it out of the heloc. Also debating on just tossing the 20k on there now and again using the heloc if an emergency happens.
Seems that the 0% credit card debt is the looming problem, not the HELOC.

You either need to roll that $20K over to another 0% card, pay it off, or move it to the HELOC (if possible) within 6 months.

Otherwise, you are going to get slammed with a high interest rate.

To get out of debt, your savings rate is going to have to be sacrificed to debt payoff in the short run. There is no magic bullet here.
Last edited by delamer on Tue Aug 06, 2019 8:50 pm, edited 1 time in total.
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grabiner
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Re: Need Some Help Regarding Balancing Debt/Investments

Post by grabiner »

You can view paying off the debts as an investment. If you pay $10,000 more against the HELOC, you get a risk-free 5% return; your net worth next year will be $10,500 higher. This is a better deal than the low-risk options in your 401(k).

And the return on that investment will be visible when your HELOC is gone; all the money that you were paying against the HELOC, including both principal and interest, will be available for you to contribute more to your 401(k) and IRAs.
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Topic Author
Mrtrex
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Re: Need Some Help Regarding Balancing Debt/Investments

Post by Mrtrex »

So my 0%apr on the 20k is June 20th 2020 not March so I will have a few additional months on this one.
delamer
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Re: Need Some Help Regarding Balancing Debt/Investments

Post by delamer »

Mrtrex wrote: Wed Aug 07, 2019 9:09 am So my 0%apr on the 20k is June 20th 2020 not March so I will have a few additional months on this one.
That doesn’t change the underlying issue though.

What’s your plan to handle the credit card debt come June?
fuddbogle
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Re: Need Some Help Regarding Balancing Debt/Investments

Post by fuddbogle »

Here is what I would do:

1) My wife would have to get a job and find low cost daycare
2) I would only contribute 4% of my salary to 401k
3) Pay down debt and housing. By building this house you’ve chosen that as your investment reservoir.
cherijoh
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Re: Need Some Help Regarding Balancing Debt/Investments

Post by cherijoh »

bloom2708 wrote: Tue Aug 06, 2019 8:25 pm What is the house worth? I found it $570k. Whew.

I have no idea how you make that payment on your salary. I make similar and after maxing 401k and Roths, HSA, we don't save anything else. No mortgage for us and it still feels thin since my wife stayed home (3 kids too).

Was your income higher and dropped down some? OR wife worked to qualify? Stinks, but that is too much house on $100k.

Get the match only for 401k, snowball the credit cards then HELOC. No other saving/investing until down to just the mortgage. A Dave Ramsey debt emergency.
I was thinking the same thing. The OP got in way over his head with far too much house. With a base salary of $100K and a $3.5K mortgage payment that is 42% debt to gross income ratio without counting the HELOC and credit card. I guess lending standards have loosened back up since the housing crisis. <shaking my head in disbelief> Frankly, I'm amazed that OP got a HELOC credit line that large.

OP you might want to look for Dave Ramsey's books at the library or even attend Peace University. (Just ignore his investing advice).

delamer wrote: Tue Aug 06, 2019 8:46 pm Seems that the 0% credit card debt is the looming problem, not the HELOC.

You either need to roll that $20K over to another 0% card, pay it off, or move it to the HELOC (if possible) within 6 months. Otherwise, you are going to get slammed with a high interest rate.

To get out of debt, your savings rate is going to have to be sacrificed to debt payoff in the short run. There is no magic bullet here.
Yes, OP needs to read fine print on the 0% credit card. Cards that offer 0% deals don't generally have good interest rates after the introductory period. The lender is subsidizing the 0% deals by interest collected on those people who were not able to pay it off in time. But with the high debt to income ratio, I expect the HELOC will also prove to be a longer term issue.

OP, what is your available credit line on the HELOC? I would be very surprised if you have an extra $20K available on your credit line to cover the cc balance. Are you currently paying interest only or has the HELOC been amortized (i.e., paying principal and interest)? If interest only, that is another time bomb waiting to detonate.
Mrtrex wrote: Tue Aug 06, 2019 6:25 pm Just having a hard time lowering from the 19% it was so hard to get it to that point and the feeling of not contributing the max is killing me.
I'm sorry if this sounds harsh, but you should have thought of that before you overextended on purchasing a house. IMO you were overextended well BEFORE you had the issues that put you into crisis.
Flyer24
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Re: Need Some Help Regarding Balancing Debt/Investments

Post by Flyer24 »

Ouch. You have way too much house and a lot of cc debt. You are what we call “house poor”. I would either find a way for your wife to get a full time job or sell the house. I agree with the other idea about getting on the Dave Ramsey plan. Funding your retirement shouldn’t be your top priority right now. You need to get your debt under control first.
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