Just Getting Back on Our Feet Again
Posted September 21, 2013
WRAL Reader Question
My husband and me are upside down on our mortgage and are in the process of doing a shortsale.
In the meantime, his mom passed and he was willed her home. It is worth approx 150,000 with no mortgage. My husband was also willed a 2009 vehicle with only 30,000 miles on it and in pristine condition.
We have 33,000 in credit card, student loan debt, medical and dental bills.
We are a few months behind on CC payments and I am considering trying to haggle for a settlement of less than what is owed.
My husband just returned to work after 2 1/2 years with no job, after his employer of 24 years folded. I have been on disability for 18 years.
We have no savings after going through it during this financial "crisis".
We are planning to live in his moms home.
My question is this. We need to pay off the 33,000 in debt and then we will have just our everyday basic bills and expenses.
Does it make more sense to sell the car (worth approx 17,000-18,0 00), and use the money to pay on the debt, or should we get a HEL or HELOC to pay off all the debt?
We do not want to do anything to jeopardize the house. We just need some advice. The last 2 1/2 years have been hard and I feel like we can get a fresh start if we make the right choices.
I love reading your advice and if all of us would live by it, we would be much better off financially!
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It seems you've certainly lived through a stressful and financially trying time. And it is a sad time to deal with the loss of a loved one as well. However you were fortunate enough to have been left some assets that can assist you with your lives to come.
Selling the car makes sense if you already have a vehicle. If you keep the car it just means more bills and obligations for something you don't need. You might was well use the cash to deal with some of your debt.
You've already indicated you are a few months behind on the credit card debt. Between month three to six you may start receiving offers from creditors to settle the debt for less than you owe. Just be aware, there are some consequences for settling. The primary issue will be if you are not insolvent the amount of debt forgiven will be taxable, just as if you earned the money.
In addition the forgiven debt will be reported on your credit report but then again the delinquent payments are also already being reported and will remain on your credit report for up to seven years.
You did not say how much credit card debt you had but let's say you will settle the debt for about half of what you owe, I would not be in a rush to pay off the other student loan debt right away. If it is federal student loan debt there are options that might be able to reduce your payment (read this) and that would allow you to use some of the proceeds of the sale of the car to rebuild your emergency savings. Living without an emergency financial safety net is just setting you up for disaster.
And speaking of student loans, if this is private student loan debt, it is in your name, and you are permanently disabled, more private student loan lenders today have full discharge programs they just don't promote publicly.
The last option here would be a HELOC. Since your life situation is just starting to stabilize and you have no fallback emergency savings, I'd hate to see you start out already encumbering the property. There are some real life benefits being able to live mortgage free.
What do you think, does that sound like a reasonable approach?
WRAL Get Out of Debt Guy
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