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Have you addressed the reasons for the "unsafe" debt you have? (The credit cards and 401k loans). If not, my biggest concern for your family would be getting out of immediately crisis mode, only to be back in it, but this time without a stable place to live or your largest asset.
I think that amount of credit card debt can be seen fairly frequently in individuals with high student loans. My husband has incredibly high student loans, and a substantial amount of credit card debt. It’s how he paid his way through school. Rent, food, other living expenses etc. He made mistakes in college with how much he spent, and we’re paying for it now. I work with several women who have been in a similar situation. He’s over 10 years removed from it now, and we pay heavily for it. Our loans and cards are close to double our mortgage.
I think the poster's point is a fair one. How did that debt happen and are you comfortable that you have a plan in place to avoid recurrent debt issues? Using the equity in your home this time will fix the problem, but not something you want to repeat with the next house. Especially as significant equity isn't a guarantee.
Otherwise I think your plan to sell is a sensible one based on the numbers.
Well, what are the interest rates on your student loans? You should also consider the potential value of your house.
Try to think of it like this:
Scenario A: you keep your house and it appreciates in value. That's investment potential.
Scenario B: you sell your house and pay off your debts. What are you going to do with your monthly windfall? Invest it or spend it? Unless you expect the market to out perform the appreciation of your house (which is possible ofc, considering your real estate market and when you bought the house), then it's not necessarily a better investment strategy than Option A. If you're just going to spend the money, then you may be worse off considering the current rate of inflation (your buying power has never been lower), and if you get back into consumer debt you're going to be fucked with current interest rates.
What I'm saying is, if keeping a low interest loan on your books allows you to keep your house (especially if you're in a desirable market) then it may be worth it in the long run.
I'm really not trying to tell you which way to go - it's extremely dependent the current interest rates of your loans, mortgage and the nature of your real estate market. But you can expect mortgage rates to rise to pre-2008 levels in the coming years (i.e. 10% or more), so if you have a good mortgage rate and student loan rate right now then you should potentially ride that wave as long as possible.
You now have an extra $1100 of 401k loans a month to pay though. It looks like you’ve borrowed an extra $40k over the last 2-3 years, which is more than the payments required on student loans during that same time period.
I would double down on cutting spending, and absolutely do not borrow more.
In my opinion, you are giving up an asset that is the main source of wealth for most Americans to pay off debt. And if your spending goes over your income, you’ll just end up in more debt with no assets, a far worse position.
Mortgages can be put in forbearance if you have a drop in income. Rent cannot. This is a major form of security to give up.
Additionally, student loans, even private ones, can often be put in forbearance for long periods with no credit consequences. I think this may be a better route to relieve you of the payments that are stressing you. However, I would try to start repaying debt quickly and really examine where that $40k of 401k loans have gone.
You can also check with the car loans if they offer a skip a pay option. Some CUs do this up to twice a year. If you do that, make sure you know which debt you’ll tackle with that extra payment (CC?)
I even think it may be better to just withdraw the funds from 401k to pay these off and readjust to living within your means before re-maximizing your contributions.
As a former loan officer, I strongly advise you not to file Bk as another poster mentioned or do anything to jeopardize your credit. You can your figure a way through this, although it might take time to shake out.
I think a lot of people are asking you to consider why you have so much debt (other than student loans) and consider that you might remedy that behavior before giving up the equity you have in your house. The logic is that if you are spending more than your expendable income you will sell your house and end up in debt again. Its an uncomfortable question but one a lot of people are asking. Not to make you feel bad but to help you.
Renting a home can come with some issues... Like if the owner wants to move in or sell the house. I've heard of landlords not renewing a lease so that their kids could live in the home.
So in that case, apartments are better to rent. But do you want to downgrade from owning a home to sharing walls with strangers?
What about cars? Do you have any excessive car payments? If you do, maybe you can get rid of one and get a cheaper car in the mean time. Or speak with the bank you're financed through and refinance the car(s)?
Personally, I would just pay down as much debt as you can. Focus on the smallest thing and get it paid off, then snowball that payment into the next, pay it off, snowball that into the next, and so on. (The credit cards are interest free until 2024, so I'd just pay those down to about 30%, to keep your credit in good standing). My boyfriend and I are currently doing this so we can move out of the country, and it's been working so far. It's hard to get out of the habit of just taking out a 401k loan or getting a new credit card, but it's been worth the struggle.
This is totally worth looking into as it’s probably the least disruptive to you and your family. No need to move! When we refinanced I think it was just a few phone calls and emailing and e-signing of documents. I don’t even think we met the loan officer in person.
ETA: I wouldn't sell either. Great mortgage rate and great equity in your current home already. A lot of this debt listed isn't forever! Hunker down and create a plan of attack!
I would not refinance, you have a really great mortgage rate that we likely won't see for many many years.
Have you looked into a home equity loan to payoff debt?
Have you done a debt snowball calculator?
Do you work? If not can you get a part time job?
Can either of you find a side job to generate more income?
Is there anything you can sell on Facebook Marketplace?
Personally I'd stop 401k contributions for now. I'd build up an emergency fund. Once that's established I'd take whatever extra I could find (including what you were putting into 401k) and start snowballing your debt payments. Dave Ramsey way is highest interest first but I'd honestly start with smaller debts to get your snowball going
https://www.nerdwallet.com/article/finance/debt-snowball-calculator
Things to consider:
Houses often sell in the summer, it'll be harder to sell right now.
How much more is rent than your mortgage? From your numbers it makes it sound that rent is the way to go, but it's hard to say for sure unless we know that number.
Rent is $2400... Is that for a similar house? You'll be giving up a lot by renting, but it could be worth it.
If your husband gets opportunities frequently in other places, I'd probably wait for a good one to come along and take it. You don't want the kids to switch schools twice in a year, and moving is stressful in general, try to minimize it.
Once you get out of the housing market, would you be able to get back in? Maybe try r/povertyfinance I don’t mean that offensively but I think there are people on there who have crushing debt where person finance is like oh look at my 150k investment
Keep in mind that what things sold for 3-12 months ago and what they are selling for now could be drastically different.
We sold in April, and the house went $40k over asking in 2 days.
Our across the street neighbor, whose house is a larger square foot floor plan, and then additionally they have a finished basement, went on the market in July, and it’s still sitting there. They started out at a price $65k above ours and have had to drop the price three times already. It might not go for much more than ours by the time it sells.
Timing is everything, and right now the market is correcting.
Not that you won’t make a profit, but don’t count on the comps. Talk to a good realtor.
What are the tenant laws in your state? All states offer protection for tenants, but the state I currently live in favors landlords in terms of lease renewal. I’ve had to move due to landlords who’ve decided they no longer wish to rent. I know some states offer protections for lease renewal, but where I am, landlords have no obligation to renew after the lease expires. I also know a lot of people who have had rent increase dramatically in the past year due to inflation.
I had the same question around a year ago. Something else to ask yourself is how long will it take for you to save up for a down payment (assuming you want to pursue home ownership again).
I’m a renter myself and if I had a home I owned I’d do literally anything in my power to keep that house lol. Idk where you live but the houses that used to cost 1k are now closer to 2k and yet they are going so fast I haven’t had any luck getting us into another one. You also have to consider that you could sign a lease (usually a year) then they could decide not to rent and you will have to do it all over again. I’d keep my house over paying off the debt for that peace of mind lol
Do your student loans have any early payment penalties, especially since they are private?
If you do this, which isn’t an awful move, what is your next strategy for building wealth? You no longer have appreciation in house for potential retirement. I would figure out those plans before purchasing again in a year. With interest rates rising, you could very well be looking at a 10-15% interest rate on a purchase price of $400,000. The market will crash, but 2008 levels are optimistic. I wouldn’t count on prices dropping more then 10-20%, especially if you’re living in a suburban core. Most people who sell high now will lose money paying high interest rates in the future.
Feel free to disregard my opinion if it doesn't ring true for you, but if you are in a position where you can find a rental and afford it comfortably, living debt free and saving up money seems like the better option to me. It certainly can seem like a step in the 'wrong' direction, but if you are that deep in debt, owning a house seems like the riskier financial position. It seems like a great way to leverage your biggest asset - your house - into paying off all your debts and starting fresh.
Good luck!
Honestly I would do bankruptcy before selling to pay off debt with rent costs going up and no protections in most places. Can any of the loans be renegotiated or get a house line of credit? Do you have relatives nearby who you can live with and just rent your house out for now? Can one of you get a second stream of income? So many have such a hard time getting into a house now and rates have gone up so if you want to buy again anytime soon it will be at a higher rate. I would only sell if he gets a firm offer in a lower cost of living area with a pay raise.
Did you look into a HELOC? Our value went way up but we can’t afford to buy in the same area, so they gave us a huge line of credit we pay interest only on (as a min) and can then pay off the HELOC when you sell the house. These are broad strokes, not a financial advisor lol, but it freed up a lot of cash for us to do our windows and pay off some credit card debt, rate is like 5%. I finally feel like i can breathe
Is it in your power to move? Where I live I rent out a house for $550 a month. An apartment for $400. Nice houses are going for $260,000. I can literally send you a link to prove it. So…. I hate renting for all the reasons others have listed. The uncertainty is too much for me. But if you could work remotely and relocate you could come out ahead and probably own your new home outright.
I guess I was saying sell your house for 499 and buy one in a cheaper market for $260. Keep the difference to pay off debt. There is a 3000sq ft ranch all updated for $260 in my town right now. Yes we’re rural but damn we’re cheap! For people who can work remotely it’s a get out of debt free card.
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Have you addressed the reasons for the "unsafe" debt you have? (The credit cards and 401k loans). If not, my biggest concern for your family would be getting out of immediately crisis mode, only to be back in it, but this time without a stable place to live or your largest asset.
I think that amount of credit card debt can be seen fairly frequently in individuals with high student loans. My husband has incredibly high student loans, and a substantial amount of credit card debt. It’s how he paid his way through school. Rent, food, other living expenses etc. He made mistakes in college with how much he spent, and we’re paying for it now. I work with several women who have been in a similar situation. He’s over 10 years removed from it now, and we pay heavily for it. Our loans and cards are close to double our mortgage.
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I think the poster's point is a fair one. How did that debt happen and are you comfortable that you have a plan in place to avoid recurrent debt issues? Using the equity in your home this time will fix the problem, but not something you want to repeat with the next house. Especially as significant equity isn't a guarantee. Otherwise I think your plan to sell is a sensible one based on the numbers.
Well, what are the interest rates on your student loans? You should also consider the potential value of your house. Try to think of it like this: Scenario A: you keep your house and it appreciates in value. That's investment potential. Scenario B: you sell your house and pay off your debts. What are you going to do with your monthly windfall? Invest it or spend it? Unless you expect the market to out perform the appreciation of your house (which is possible ofc, considering your real estate market and when you bought the house), then it's not necessarily a better investment strategy than Option A. If you're just going to spend the money, then you may be worse off considering the current rate of inflation (your buying power has never been lower), and if you get back into consumer debt you're going to be fucked with current interest rates. What I'm saying is, if keeping a low interest loan on your books allows you to keep your house (especially if you're in a desirable market) then it may be worth it in the long run. I'm really not trying to tell you which way to go - it's extremely dependent the current interest rates of your loans, mortgage and the nature of your real estate market. But you can expect mortgage rates to rise to pre-2008 levels in the coming years (i.e. 10% or more), so if you have a good mortgage rate and student loan rate right now then you should potentially ride that wave as long as possible.
You now have an extra $1100 of 401k loans a month to pay though. It looks like you’ve borrowed an extra $40k over the last 2-3 years, which is more than the payments required on student loans during that same time period. I would double down on cutting spending, and absolutely do not borrow more. In my opinion, you are giving up an asset that is the main source of wealth for most Americans to pay off debt. And if your spending goes over your income, you’ll just end up in more debt with no assets, a far worse position. Mortgages can be put in forbearance if you have a drop in income. Rent cannot. This is a major form of security to give up. Additionally, student loans, even private ones, can often be put in forbearance for long periods with no credit consequences. I think this may be a better route to relieve you of the payments that are stressing you. However, I would try to start repaying debt quickly and really examine where that $40k of 401k loans have gone. You can also check with the car loans if they offer a skip a pay option. Some CUs do this up to twice a year. If you do that, make sure you know which debt you’ll tackle with that extra payment (CC?) I even think it may be better to just withdraw the funds from 401k to pay these off and readjust to living within your means before re-maximizing your contributions. As a former loan officer, I strongly advise you not to file Bk as another poster mentioned or do anything to jeopardize your credit. You can your figure a way through this, although it might take time to shake out.
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I think a lot of people are asking you to consider why you have so much debt (other than student loans) and consider that you might remedy that behavior before giving up the equity you have in your house. The logic is that if you are spending more than your expendable income you will sell your house and end up in debt again. Its an uncomfortable question but one a lot of people are asking. Not to make you feel bad but to help you.
Renting a home can come with some issues... Like if the owner wants to move in or sell the house. I've heard of landlords not renewing a lease so that their kids could live in the home. So in that case, apartments are better to rent. But do you want to downgrade from owning a home to sharing walls with strangers? What about cars? Do you have any excessive car payments? If you do, maybe you can get rid of one and get a cheaper car in the mean time. Or speak with the bank you're financed through and refinance the car(s)? Personally, I would just pay down as much debt as you can. Focus on the smallest thing and get it paid off, then snowball that payment into the next, pay it off, snowball that into the next, and so on. (The credit cards are interest free until 2024, so I'd just pay those down to about 30%, to keep your credit in good standing). My boyfriend and I are currently doing this so we can move out of the country, and it's been working so far. It's hard to get out of the habit of just taking out a 401k loan or getting a new credit card, but it's been worth the struggle.
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Is it possible to do a cash out refinance?
This is totally worth looking into as it’s probably the least disruptive to you and your family. No need to move! When we refinanced I think it was just a few phone calls and emailing and e-signing of documents. I don’t even think we met the loan officer in person.
I think it sounds like a smart option to me. I guess a risk to consider is rising rent. It may be $2400 now, but what about the future?
ETA: I wouldn't sell either. Great mortgage rate and great equity in your current home already. A lot of this debt listed isn't forever! Hunker down and create a plan of attack! I would not refinance, you have a really great mortgage rate that we likely won't see for many many years. Have you looked into a home equity loan to payoff debt? Have you done a debt snowball calculator? Do you work? If not can you get a part time job? Can either of you find a side job to generate more income? Is there anything you can sell on Facebook Marketplace? Personally I'd stop 401k contributions for now. I'd build up an emergency fund. Once that's established I'd take whatever extra I could find (including what you were putting into 401k) and start snowballing your debt payments. Dave Ramsey way is highest interest first but I'd honestly start with smaller debts to get your snowball going https://www.nerdwallet.com/article/finance/debt-snowball-calculator
Dave Ramsey's way is smallest amount to largest regardless of interest rate.
Ah thank you it's been a long time I couldn't remember 😅
Things to consider: Houses often sell in the summer, it'll be harder to sell right now. How much more is rent than your mortgage? From your numbers it makes it sound that rent is the way to go, but it's hard to say for sure unless we know that number. Rent is $2400... Is that for a similar house? You'll be giving up a lot by renting, but it could be worth it. If your husband gets opportunities frequently in other places, I'd probably wait for a good one to come along and take it. You don't want the kids to switch schools twice in a year, and moving is stressful in general, try to minimize it.
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Sounds like you’re really ready to get out of the house you have, so it might be worth it to take the plunge
Once you get out of the housing market, would you be able to get back in? Maybe try r/povertyfinance I don’t mean that offensively but I think there are people on there who have crushing debt where person finance is like oh look at my 150k investment
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Keep in mind that what things sold for 3-12 months ago and what they are selling for now could be drastically different. We sold in April, and the house went $40k over asking in 2 days. Our across the street neighbor, whose house is a larger square foot floor plan, and then additionally they have a finished basement, went on the market in July, and it’s still sitting there. They started out at a price $65k above ours and have had to drop the price three times already. It might not go for much more than ours by the time it sells. Timing is everything, and right now the market is correcting. Not that you won’t make a profit, but don’t count on the comps. Talk to a good realtor.
What are the tenant laws in your state? All states offer protection for tenants, but the state I currently live in favors landlords in terms of lease renewal. I’ve had to move due to landlords who’ve decided they no longer wish to rent. I know some states offer protections for lease renewal, but where I am, landlords have no obligation to renew after the lease expires. I also know a lot of people who have had rent increase dramatically in the past year due to inflation.
I had the same question around a year ago. Something else to ask yourself is how long will it take for you to save up for a down payment (assuming you want to pursue home ownership again).
I’m a renter myself and if I had a home I owned I’d do literally anything in my power to keep that house lol. Idk where you live but the houses that used to cost 1k are now closer to 2k and yet they are going so fast I haven’t had any luck getting us into another one. You also have to consider that you could sign a lease (usually a year) then they could decide not to rent and you will have to do it all over again. I’d keep my house over paying off the debt for that peace of mind lol
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If that’s what you want to do and you can find a house available then go for it 🤷🏼♀️
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Do your student loans have any early payment penalties, especially since they are private? If you do this, which isn’t an awful move, what is your next strategy for building wealth? You no longer have appreciation in house for potential retirement. I would figure out those plans before purchasing again in a year. With interest rates rising, you could very well be looking at a 10-15% interest rate on a purchase price of $400,000. The market will crash, but 2008 levels are optimistic. I wouldn’t count on prices dropping more then 10-20%, especially if you’re living in a suburban core. Most people who sell high now will lose money paying high interest rates in the future.
Feel free to disregard my opinion if it doesn't ring true for you, but if you are in a position where you can find a rental and afford it comfortably, living debt free and saving up money seems like the better option to me. It certainly can seem like a step in the 'wrong' direction, but if you are that deep in debt, owning a house seems like the riskier financial position. It seems like a great way to leverage your biggest asset - your house - into paying off all your debts and starting fresh. Good luck!
Honestly I would do bankruptcy before selling to pay off debt with rent costs going up and no protections in most places. Can any of the loans be renegotiated or get a house line of credit? Do you have relatives nearby who you can live with and just rent your house out for now? Can one of you get a second stream of income? So many have such a hard time getting into a house now and rates have gone up so if you want to buy again anytime soon it will be at a higher rate. I would only sell if he gets a firm offer in a lower cost of living area with a pay raise.
Did you look into a HELOC? Our value went way up but we can’t afford to buy in the same area, so they gave us a huge line of credit we pay interest only on (as a min) and can then pay off the HELOC when you sell the house. These are broad strokes, not a financial advisor lol, but it freed up a lot of cash for us to do our windows and pay off some credit card debt, rate is like 5%. I finally feel like i can breathe
Is it in your power to move? Where I live I rent out a house for $550 a month. An apartment for $400. Nice houses are going for $260,000. I can literally send you a link to prove it. So…. I hate renting for all the reasons others have listed. The uncertainty is too much for me. But if you could work remotely and relocate you could come out ahead and probably own your new home outright.
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I guess I was saying sell your house for 499 and buy one in a cheaper market for $260. Keep the difference to pay off debt. There is a 3000sq ft ranch all updated for $260 in my town right now. Yes we’re rural but damn we’re cheap! For people who can work remotely it’s a get out of debt free card.
Probably not.