Since I am having to liquidate my retirement portfolio to pay for some tax debt, I want to have something financial that I can focus on and consider a project. So I am spending the next 3 years really focused on maximizing monthly cash flow and paying off debt. If I can pay off just the debts that I have listed in my spreadsheet, I can cut about 30% out of my monthly budget and free up cash for other purposes. Besides, paying off debt is a great way to improve my net worth without having to pay taxes on the gains.
Refinancing the Rental Property
I met with a banker yesterday to look at doing a refinance on 4 of my rental houses. I have anywhere from 20-29% equity in the properties with 20 years 10 months to 22 years 11 months left on a 30 year fixed rate mortgage. The interest rates range from 6.375% to 7%.
Even though I am unable to get the best deal due to my credit score (I have a lot of debt relative to the credit lines), it does seem worth it and is consistent with my goal of decreasing expenses and improving cash flow in order to pay off as much debt as possible in the next 36 months. This includes rolling some closing costs into the mortgage. Of course, I will have to see the final deal but the initial numbers looked reasonable.
Assuming everything continues as expected, I would only be saving from $60-70 per month, but multiplied across several houses, the savings will add up and allow me to use the money for paying off higher interest rate debt. I will also be able to eliminate PMI on the one property on which I only put 10% down.
Decreasing the Term
The best part of the deal, though, is that I will not only save a bit of money each month, but I will be saving anywhere from 10 months to 2 years and 11 months on the mortgages since they will all be 20 year loans with a fixed interest rate. This will add up to some additional savings on the back end.
When I add it all up, it looks like I will end up saving $132,000 over the next 20 years which works out to be a decent return on about $10,000 in total closing costs. I will report actual numbers after the closing.
This is just one of the steps that will help me pay off a lot of debt over the next 36 months and free up some cash flow that can be put to better use besides lining the pockets of the bankers.
Here are the carnivals that had articles from my blogs in them this past week:
It is with some sadness and a heavy heart that I bring to you this last quarterly dividend report. I had been making it a point to increase my dividend income and had been doing a good job of it this year, but circumstances have forced me to change direction. You see, the dividend stocks were in my retirement account which I am taking as a lump sum to pay off some outstanding tax debt. I will probably write more about that decision later.
So in preparation for the distribution, I did allow some of my stocks to get called out so the dividend income is a bit lower compared to last quarter. But had I not had to make this decision, I am sure that I would have been able to meet my goals for the rest of the year. At least that’s my story and I’m sticking to it.
You can see from the graph that the income was down from the first 2 quarters of this year. Like I said, I allowed SDRL and STX primarily to have some shares called away without buying those back which I would have done if the portfolio had kept going. But since I knew that I was arriving at this decision to liquidate, I just went with the cash and have been totally in cash since mid-September.
Nevertheless, I think it was a good experience to focus on dividend income over the past 12 months. This is exactly what I will need to do someday when I retire, namely wring cash out of my investments so that I don’t have to tap into the principal.
Now, my focus will be to eliminate a bunch of other debt so that I can aggressively invest and put together a nice portfolio of cash spewing assets. But for now, I think debt elimination will provide a better return on my investment since the interest rates are high enough and the savings are all tax free. So that’s where I will be putting my energies which means that you can be looking forward to debt reports. Yippee!
I am sitting in a public cafeteria catching up on some email and other stuff after getting back from Honduras and couldn’t help over hearing a young lady that was sitting 2 tables away. I wasn’t listening on purpose, but there was almost no one else in the room, and she talked really loud! Then a couple ladies sat at the table next to me (again one was loud) so I could hear her comments as well. It was interesting to hear the contrasting comments.
Lady Number One
The first lady was complaining about life and bemoaning her financial situation. At one point, she stated to the individual on the other end of the phone, “Why Am I not rich?” Well, since I got several details about your life during my 90 minutes working on my blog, I might be able to offer a few hints.
- You are a single mom. She stated that it was hard to support herself as a single mom to the guy on the other end of the line. I know it was a guy since she thanked him for his child support. There is no doubt that single moms have it incredibly tough especially with so many deadbeat fathers out there. At least she has the luxury of a decent relationship with the father of her child such that she can communicate on the phone. And it sounds like he is paying his support.
- You don’t have an education. I know this because she stated that she had decided to go finally go for her GED. I would guess her to be in her mid-20’s so I would suspect that she isn’t making much more than minimum wage if she is going for her GED and complaining about how tough it is to pay rent. No doubt that education has some correlation with income.
- You have maintained a quasi-victim mentality. I say this because she joked on the same call that she was “holding out to marry rich” (like I said, she must have a good relationship with the father of her child). And maybe it is not a victim mentality per se, but you can’t wait for someone to save you. And maybe she is waking up to that fact since she is going to be working on her GED and who knows after that. Kudos on that front!
The Second Lady
Contrast that to the second lady who offered this sound financial advice. She was telling a co-worker that:
- She was paying an extra $120 per month toward her mortgage to pay it off in half the time. Obviously, she is somebody who doesn’t like debt and must not have higher interest rate debt that she should be paying off first.
- She has 10% of her paycheck put away for retirement. She knows the importance of paying oneself first and preparing for the future.
She also looked to be about the same age.
I found it an interesting contrast good for a blog post. I also wonder if lady #1 heard what I heard and if she did, what she thought of it. So if there is a lesson to be learned, speak quietly in public places. You never know if a blogger is sitting at the next table or two.