MM’s Money

September 6, 2008

How Did We Get Here? Part 2

Filed under: Debt,History,Planning — mmsmoney @ 3:34 pm
Tags: ,
My family’s debt. Is. Ugly. So in the interests of full disclosure – especially since my first post makes it sound like I put all our issues on hubbies shoulders (these are real numbers as of last week):

Personal Loan (Credit Union – 18.65% interest): $ 1,983.15
401K #1 loan – (9.5% interest):                           $ 2,933.92
401K #2 loan – (9.5% interest):                           $ 4,434.83
Mom Loan:                                                         $10,000.00
Home Equity Loan (6%):                                      $16,650.00
                                                                          $36,001.90

Ahem. Yuck – so I can trace the origins of the Personal Loan to consolidating my college debts – and I am 34! 13 years OUT of college! I was so disfunctional in the excesses and bad spending of 2004 – 2006, I used 401k loans to makeup household expenses. Seriously bad bad bad. at that point, I guess I thought it was better to mortgage the future than to fess up to the issue of the day and get DH and I on the same page financially. Seriously – we could have buckled down then and averted the 2007/2008 disasters.

Mom loan I addressed above – the strings & terms: family counselling (done – and VERY BENEFICIAL) and repayment when she retires…which is in 5 or so years. She didn’t define an interest rate, but I am going to pay her back (at minimum) at the rate of return she earns on her other retirement accounts – see my next post about how I know what she earns on her retirement accounts. It’ll tell you what an idiot I am/was re: not taking advantages of the resources available to me…

Home Equity Loan: Yeah, this one’s bad – we consolidated some of my CC debt and DH’s business debt into an equity loan on our HOUSE. WHich we almost LOST because we couldn’t pay our FIRST MORTGAGE. Which, though not included in the list above since we’ll deal with all these first, is at $133K owed. Purchase value was $142K, current market value is $210K, but you and I can’t count on that and why oh why did Citi give us that loan?! This one has a 5 year repayment plan. Anyhow. moving on.

NO vehicle debt, NO cc debt (other than that which is rolled into the loans above). True confession – but not a surprise: I am a bad bad risk, since I would regularly not pay the dang bills, so we have none (no credit cards) other than DH’s contractor credit accounts with Lowes/Home Depot/and the electrical supply house. Sometime soon, after full buffering, I plan to apply for and fund a secured card to get my credit scores back on track.

So there it is. The Debt. Here are the minimum payments:
Personal Loan: $93 per payperiod, so I’ve budgeted the monthly average amount $201.50 per month
401K 1 & 2: $44.65 and $124.99 per payperiod, so $367.55 per month – auto deducted from paycheck, so not appearing in budget (I think that’s what I read as advice in another forum)
Mom: None – yet.
HEL (so apropos!): $370 per month

So out of my net income, we pay $944.05 per month. God GAWD. That’s just $200 less than our mortgage. Maxed Out (that canadian tv show) would beat us over the head & shoulders with DH’s 2 by 4’s! I used this AWESOME spreadsheet (http://www.vertex42.com/Calculators/debt-reduction-calculator.html) – found through http://consumerist.com/ to establish our plan.

Our plan for debt snowballing is to take care of the high-interest loans first, then tackle Mom (heh! that’s funny sounding) & Citi. By adding $50 per payment on the personal loan, I’ll pay it off 4 months early – in March of 2009. The ‘issue’ with the 401K loans is that they can’t be paid incrementally – they need to be cleared in full. So once the personal loan is clear, I will budget the min payment on that plus the extra $50 per pay period to an account to accumulate the payoff amounts. This will clear the first in October 2009, and the second gets cleared in December 2009. That frees up A LOT OF CASH. By January 2010, we’ll be throwing $1039 at the Home Equity Loan!! Clearing it (if all goes to plan) at the start of 2011. Yes – three years from now we will be getting there!

So Mom – she’s at the end of the list by her choice, wanting us to get the rest of our debts settled before addressing our loan. What a gal! She’s widowed (we lost my dad 9 years ago) and she is a teacher – and SO UNDERPAID it’s ridiculous. That she was able to lend us this money is amazing on several fronts. More on her later! We’ll start repaying her as soon as the HEL is paid off, March 2011 and will repay at a slightly lower than the snowball rate at that point – $1000 per month to include interest, so total to be paid will be slightly more than $14K. Only fair to have her money working for her while it is in our possession!

other notes: part of my total compensation at my job is participation in the annual bonus program – 10% of my salary is available as a bonus to be paid in March/April based on the company’s success (or not) the prior year. I have NOT included any bonus payments in our debt repayment plan at this point – because that money is at risk and could vary significantly. This year we weren’t paid a penny, and I had COUNTED on that money, which coincided with that disaster of the above post!! But the year before, we got 120% of our pool – which helped settle the baby debt and lil one was not repossessed by the hospital OR the anesthesiologist (who knew pain-free childbirth could be so financially painful)! So that year, the bonus I banked (well, I didn’t bank it) was (pre-!@#$) $9K!** So potentially (and I can’t start counting on it), I could clear the personal loan, Fidelity 1 & 2 by June of 2009! And that would accelerate everything. Again, chickens/hatching blah blah, but that’s in my hip pocket and DH and I are both firmly on board with applying that money (if I get it) to debt repayment.

** another bad choice in a world of bad choices – medical debt is much ‘better’ on the Credit Report than collections! I should have done a payment plan with those creditors and got current with the CCs & other bills. But hindsight is 20/20 and I didn’t know that factor till Big Sis (more on her next post) stepped in to educate me.**

So this was the ‘show your knickers’ post (my dad’s term for sharing dirty laundry/full confession). Hope I can meet these goals! Will keep y’all posted…

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