Getting out of debt in FEBRUARY, 2012!!! - Page 4

[eirual]

So, we've had an idea brewing. I'm open to thoughts and suggestions.

Here's the deal:

• DH is a student and has one more year until he's done school. I'm the current breadwinner and am pregnant so will be off on maternity leave all of next year (it will be a tight financial year given that we'll have to live on half of one salary).
• we own a home out-of-town which is being rented out and is totally self-sufficient (i.e. paying for itself)
• we're currently renting a 1BR apartment in the town where we both grew up, meaning parents are near by (i.e. down the street) and it's where I work (career, contract, stable).
• A house in the neighbourhood just came on the market for a very reasonable price (modest bungalow, finished basement, huge lot, within school boundaries for DS)

So, we'd be crazy to double our housing costs and give up our 1BR penny-pincher apartment for a substantially larger mortgage/tax/utilities payment going into an already tight financial year, BUT (here's the hook)...

• We have friends who are moving back to town with the intention of saving money and proposed renting a town house to share (my initial reaction was "umm.....no...."). But this house that just came on the market would be great for sharing- we'd take the upstairs bedrooms and living space, they'd have the basement, and we'd share the kitchen. This means we could be in a HOUSE for the same price we're paying for our current 1BR apt. (there's not been anything that's come up in the rental market that would equally suit our needs),

Pros: more space, large lot, nice neighbourhood (welll...same neighbourhood...), most decently priced house to come on the market in a loooong time, it's finished and wouldn't need any work, financially would work splendidly for the year so long as our friends comit to a full year then DH and I would be back to work with dual income, my parents are able to help us financially to an extent, but would be uncomfortable in doing so if we keep both houses

Cons: some risk given that we'd be dependent on our friends' contributions, not 100% positive that it's where we'll want to be in 5 years (though when we leave we keep coming back, and now we have DS's school and my work here), we already own a house so I'm not sure how numbers will work out (qualifying for two mortgages, will we need to sell one to get the other?), we don't have a significant amount of savings (for down-payment, major repairs, not to mention tuition and FFEF).

[CrunchOoEezyMama]

I'm so excited to find this board and thread!  We recently discovered Dave Ramsey and have started our money makeover.   We are on the debt snowball step.  We had an emergency fund already (2-3 months worth) and money saved in a debt rolling fund but never knew how to approach all this.  So we cashed out most of the savings (leaving a baby emergency fund) and we paid off CC1, CC2 and part of our 2nd mortgage.  We have written a detailed budget and did the DR allocated spending plan so starting March 1 we are CASH ONLY!!  This is going to be the most important change for us.  In the past we had a budget set but b/c we were still using CCs we went over every month and were never able to get ahead.  We tried out doing cash only for food this month and it worked really well.  We are SO EXCITED to get going!!  We are planning to pay off the last CC and the rest of the 2nd mortgage quickly (with bonus time right around the corner) and then move onto the car and the 2 student loans.  Our overall goal is to be debt free except for the house in 18 months.   We are hoping this will put us in a much better situation to move in a few years since our house is currently underwater.  

Can't wait to keep in touch with you all through this journey! 

[lilacvioletiris]

eirual, I would be very hesitant to go in on a house with another couple because if they back out, then you are responsible for all things with the house.  Makes me think of the "do not cosign for another" principle. 

I know how much I want a bigger place to live myself, but I know I don't want to be dependent on someone else's money to make it happen.

[laohaire]

eirual, I thought "hmm, maybe that could work" but reading between the lines, you're not talking about RENTING this townhouse, but MORTGAGING it and having your friends chip in by paying you rent.

Sorry, I would not feel comfortable with that. Nothing to stop them from moving on in 8 months and leaving you holding the bag. And it's not like you'd just find other renters - you'd be more picky about who you would SHARE living space with, and for good reason.

[laohaire]

CrunchOoEezyMama, welcome! I know the feeling of excitement to have a plan!

And I would like to take a chance and crack open a bottle of bubbly for myself...

... as we've reached our BS3 goal of $10k!

I thought we'd be close but no cigar this month, but DH made an extra $250 and that was what we needed to tie it all up!

Here is where we are departing from the DR plan, as we are skipping to BS6. I won't bother to explain our rationale (unless someone really wanted to hear it, though I doubt it) but it was something we definitely thought through.

BS6 for us is both a student loan and a mortgage. I ended up moving the student loan to BS6 instead of BS2 because there was just no way we could tackle it within whatever time period DR suggested as the cutoff. I think the most aggressive possible payment plan would be 3 to 3.5 years.

However, we're going to only send a little extra to that loan, just for luck, and focus on the mortgage instead, due to the vast difference in interest rates. I calculated how much interest we'd save if we tackled the student loan first and then the mortgage, versus just doing the mortgage, and it's not even close. I shouldn't even send an extra dime to the student loan, honestly, but psychologically I will feel better sending them an extra $25 a month. I have a thing about paying the minimum on debt - just gives me the heebie-jeebies.

Anyway, yay for us! It's really difficult to predict this far out, but I have estimated it will take us 12 years to pay off the mortgage, which would be 10 years early (we're already almost 8 years in). I feel like every extra dollar we send in will end up saving ridiculous amounts of money in interest.

[lilacvioletiris]

Laohaire, congratulations!  It actually seems like an excellent idea to move the student loans to later, I still have my student loans in my original debt snowball and that is why it is taking my DH and I five years to get consumer debt, car loans, and student loans paid off.  Having 3 months of expenses in savings is awesome!  There is a light at the end of the tunnel and it is NOT a TRAIN!

Welcome CrunchOoEezyMama!  Dave Ramsey's plan has been a life changing one for my DH and me.  I hope it has the same effect for your family!  I know how good the cash only felt as well as only spending what we actually had money for.  I have been trying to sell some things as well.  It is tough going sometimes to keep motivated, but I find the people on this thread encouraging and inspiring.

[kitteh]

Originally Posted by eirual 

Pros: more space, large lot, nice neighbourhood (welll...same neighbourhood...), it's the most decently priced house to come on the market in a looooong time, it's finished and wouldn't need any work, financially would work splendidly for the year so long as our friends comit to a full year then DH and I would be back to work with dual income, my parents are able to help us financially to an extent, but would be uncomfortable in doing so if we keep both houses

Cons: some risk given that we'd be dependent on our friends' contributions, not 100% positive that it's where we'll want to be in 5 years (though when we leave we keep coming back, and now we have DS's school and my work here), we already own a house so I'm not sure how numbers will work out (qualifying for two mortgages, will we need to sell one to get the other?), we don't have a significant amount of savings (for down-payment, major repairs, not to mention tuition and FFEF).

I say no, for the above bolded reasons. Although the house is the most decently priced to come on the market in a while, that doesn't necessarily mean it's a great deal. I'd only buy a house right now if I seriously found a steal of a deal (to use Suze Orman's catch phrase.) Also, I'd be reluctant to be dependent on others for rent, and remember that in this situation you and your husband would be like landlords. I know that you are doing that already with your other property and that it's working out well, but I'd still be reluctant to enter into a landlord/tenant situation with good friends of mine. Also, and this is really the kicker, you don't have a significant amount of savings! You don't have a down-payment, and yet you're considering purchasing a house? That is a BIG no-no to me.

[eirual]

 The kicker is that in a year we'll be fine to manage it on our own.

We'll meet with the bank and see how numbers work out, but I've decided I won't be heart-broken if they don't. It really would take a bunch of pieces falling miraculously in place in order for this idea to actually work.

[EmsMom]

I have kept a very close eye on housing prices in my area for at least a year now because I am looking to buy in the near future.  In this area, houses are still losing value.  It may be true for your area as well and when you all get back on your feet there may well be another house even more suited waiting for you.  You can't really know.  With gas prices on the way up, it is going to squeeze everybody, especially the people who are over leveraged on their houses.  If you sit tight, you might stand to gain on the other side. 

[lilacvioletiris]

Tonight I listened to the "That's Not good Enough!' Lesson and negotiation is key and having cash to make the decision is so much better.

DH and I are looking into our life insurance opportunities.  We need to get both our names on a policy to show the U.S. government that we are really married in good faith so we can renew my DH's green card this fall.

[kitteh]

Hey Lilac, where is your DH from? Mine is Chilean and we just went through the whole immigration thing. It was so expensive! But now he's got his 10 year GC. Of course, now he wants to go for citizenship, which means more $$. Sigh. But I'm just glad to have us all legally together in the same country, so it's worth all the hassle and paperwork and appointments and interviews and money.

[doodababy]

How does this all apply to maintaining a good credit score?  

Our story: My husband and I have worked very hard to avoid debt.  Except for our mortgage, and two cars, we paid as we had cash available.  seven years ago when shopping for a new home, we realized renting would cost 1/3 of a modest monthly mortgage.  So we've been happily renting, with cash savings from the sale of that home.  We bought our two cars and maintained them for 14 and 10 years.  Then last December we decided it was time to replace one of the cars.  We were shocked to learn that we have a credit rating of Zero!  We have no mistakes on our credit history, and hundreds of on-time payments, however the reason we were given was "no credit history", the car and mortgage history "is too old".  So while we are in a position to pay cash for the new car, we are absolutely amazed that we would be charged an outrageous interest rate if we chose to buy it with credit.  One suggestion from a friend is to buy our groceries with a credit card - I am wondering why would I want to spend time to clip coupons when that savings would only go to interest rates and fees?  

[lavatea]

Originally Posted by doodababy 

How does this all apply to maintaining a good credit score?  
Our story: My husband and I have worked very hard to avoid debt.  Except for our mortgage, and two cars, we paid as we had cash available.  seven years ago when shopping for a new home, we realized renting would cost 1/3 of a modest monthly mortgage.  So we've been happily renting, with cash savings from the sale of that home.  We bought our two cars and maintained them for 14 and 10 years.  Then last December we decided it was time to replace one of the cars.  We were shocked to learn that we have a credit rating of Zero!  We have no mistakes on our credit history, and hundreds of on-time payments, however the reason we were given was "no credit history", the car and mortgage history "is too old".  So while we are in a position to pay cash for the new car, we are absolutely amazed that we would be charged an outrageous interest rate if we chose to buy it with credit.  One suggestion from a friend is to buy our groceries with a credit card - I am wondering why would I want to spend time to clip coupons when that savings would only go to interest rates and fees?  

I think that this system is designed for people that want to live outside the credit system.

You would avoid interest (and not negate your coupon clipping) by paying the credit card off in full each month. And you'd just make sure you have a no fee credit card.

[EmsMom]

Originally Posted by doodababy 

How does this all apply to maintaining a good credit score?  

Our story: My husband and I have worked very hard to avoid debt.  Except for our mortgage, and two cars, we paid as we had cash available.  seven years ago when shopping for a new home, we realized renting would cost 1/3 of a modest monthly mortgage.  So we've been happily renting, with cash savings from the sale of that home.  We bought our two cars and maintained them for 14 and 10 years.  Then last December we decided it was time to replace one of the cars.  We were shocked to learn that we have a credit rating of Zero!  We have no mistakes on our credit history, and hundreds of on-time payments, however the reason we were given was "no credit history", the car and mortgage history "is too old".  So while we are in a position to pay cash for the new car, we are absolutely amazed that we would be charged an outrageous interest rate if we chose to buy it with credit.  One suggestion from a friend is to buy our groceries with a credit card - I am wondering why would I want to spend time to clip coupons when that savings would only go to interest rates and fees?  

Get a card with no fees, preferably with some kind of reward you can use like cash back.  Charge your groceries and pay off in full every single month.  No interest paid, no fees.  Plus on some kinds of purchases you get some extra consumer protection by using a credit card.  Some people have trouble handling the "temptation" to run up the cards, but you sound pretty disciplined, so it shouldn't be a problem.

[doodababy]

Thank you for replies :)  One banker said that paying off the credit card, in full, every month would *not* build credit score, it doesn't contribute to the algorithm the credit agencies use :( anyone know where I can find a copy of what factors they do actually use?

We do want the option to use credit if we chose to (like if we ever go on an overseas vacation - wouldn't feel comfortable carrying cash, or find a house/property that we do want to own, or if some future emergency that we didn't want to drain all of the savings...).  

[EmsMom]

Originally Posted by doodababy 

Thank you for replies :)  One banker said that paying off the credit card, in full, every month would *not* build credit score, it doesn't contribute to the algorithm the credit agencies use :( anyone know where I can find a copy of what factors they do actually use?

We do want the option to use credit if we chose to (like if we ever go on an overseas vacation - wouldn't feel comfortable carrying cash, or find a house/property that we do want to own, or if some future emergency that we didn't want to drain all of the savings...).  

http://money.msn.com/credit-rating/your-credit-score.aspx
You could try this calculator.  Just for fun, I used 1 open credit card with a less than $500 balance and no other loans, which is what you would have if you had one major credit card and used it a bit every month and then paid it off (regular use would probably mean adding to the balance for a week or two before the last month's balance was paid off).  It leaves you with a pretty good score according to this tool.  It might take you a little bit to get the major credit card, though.  you may need to start with a store or gas card and use and pay off regularly.  In a couple of months try for a major card. 

[lilacvioletiris]

You have to remember that your credit score is really a DEBT SCORE.  If you have NO debt, then you have NO score.  

The link below talks about how your FICO score is calculated and how to purchase a home without having a FICO score (which would have similar principles for paying for a car in cash as well, rather than financing).

http://www.daveramsey.com/mobile/truth-about-detail/storyID/the-truth-about-your-credit-score/

This Dave Ramsey article sort of hits at what has happened for your family.

http://www.daveramsey.com/radio/highlights/?urlVars=2011/3/1/Stay-Out-Of-Debt-And-It-Doesnt-Matter

http://www.daveramsey.com/index.cfm?event=askdave/&intContentItemId=8097

I know I have a long way to go, but I am looking forward to a FICO score of zero because that will mean I have money in the bank to buy a car because I have saved for it and a home that is paid off!  I can't wait!

[doodababy]

Lilacvioletiris: Thank you for these links!  That clears up a lot!

Amazing, really - the whole credit/debt score feels like a scam to me.  I was a believer, so was quite irked when our credit union offered us 7%.  I assumed I had done something wrong, and have been busy trying to figure out how to "bring up" our score.  Now I feel better understanding what they were really looking at.  And will keep doing what we've been doing.

Happy to have found this thread - thanks for the support :)

[trekkingirl]

Looks like the transmission is going to cost $3000 instead of the original estimate of $3500! That's a $500 savings. Still a huge blow........

[lilacvioletiris]

doodababy, glad the links helped.  It is such a strange phenomena to be doing the "right things" financially but the general financial world doesn't see it as "right" and "penalizes" the good things we do.  Glad you will be keeping on "living like no one else, so you can LIVE like no one else."

trekkingirl, glad to hear the transmission is less expensive than you thought it would be, even though it is a huge amount of money.