I am kind of disappointed this morning since I found out yesterday that the refinance on the rental homes would not work. Apparently, my credit score is not good enough. Ever since 2008, it has been incredibly difficult to get credit so I will be focusing on getting out of debt instead.
Ultimately, it turns out that the net impact on the monthly cash flow won’t be all that different without the refinance. That is because I had to have 2 appraisals and one came in below the expected amount. As a result, I had set aside $10,000 to bring to closing in order to save about $650-$700 per month through decreased payments.
Now that the refinance won’t be going through, I will using that money to pay down a credit card balance in order to save over $2300 per year in interest. Once I get this card paid off which should be in the next few months, I will save almost $800 per month in cash flow which can be added back into the budget. So all is not lost with plan B.
Then once that card is paid off and I get a little more credit card debt eliminated, my credit score may very well be in a better place that I could refi the rental houses, decrease my interest rate and my term. I don’t anticipate rates moving up any time soon. I would think that I have a year or more to get a better interest rate.
If not and rates start to increase, that would mean that the economy is heating up which will only help my retirement account investments in the stock market. So I look at it as a win-win.
With this behind me for the time being, I can now focus on getting the business transaction complete and meeting my 2 goals for this year which are losing weight and paying off debt. In fact, I am about to launch a blog solely devoted to working my way out of debt which should bring some increased accountability and motivation to the equation.
I will let you know when it is up and running.
Here are the recent carnivals that have included articles from my blogs:
I just edited an article about seven steps to get out of a personal debt crisis over at Penny Thots. I felt that it was appropriate because I just recently decided that I wanted to get incredibly serious about developing a 5 year plan for eliminating all of my debt that is costing me more than 10% interest.
Why 5 Years?
There are several reasons why I picked 5 years and will be structuring the plan in such a fashion. First of all, I am in enough debt that I know it won’t be happening overnight but I don’t want it to take 20 years either. Some of the debts will be paid off in that time frame simply by continuing to make the current payments, e.g. the Prosper loan. Others will require some additional payments.
In five years (actually 67 months), I will be facing a significant birthday and will really need to be thinking about getting everything in line for retirement before it sneaks up on me without being adequately prepared.
Finally, the youngest child will be graduating from high school in just under six years so it is expected that the house will be empty. Having extra cash and extra time would be a good thing. At that point, extra cash will be used to invest in cash producing assets that help to support my wife and me during retirement.
Why Ten Percent Interest?
I would hope that the answer speaks for itself. Making 10% annually on an investment is a decent return, especially a no-risk, tax-free investment like paying off debt. Any debt that is charging me less than that will make me think twice about possibly putting those funds that would be used for payoff into dividend paying stocks or more real estate.
Student loans and mortgages are carrying such low interest rates that it would certainly seem reasonable to continue to pay these off slowly while building an asset base.
Creating the Plan
First, I need to sit down and figure out which debts are costing me the most interest and figure out where to focus my energies. I also need to write down monthly goals and targets to see if the debt reduction plan over the next 5 years will be feasible. My gut says it is, but I want to write it down in excruciating detail. I will work on that over the next few days.
Then I want to present the plan to my wife and enlist her cooperation and commitment. I figure that I will have to include a few rewards along the way to make any sacrifice more palatable. Things like deferred items around the house and a trip might be useful for obtaining the proper level of motivation.
I feel like I have made some progress but need to really sit down, create some intensity, and then execute. It is going to be a long road, but in the end, should be well worth it. I hope update everyone next week on how it all turns out.
The following is a guest post:
As a community manager for a really large debt relief company, talking about debt is part of my daily routine. We produce a lot of content about all things personal finance, with an obvious focus on debt. The bulk of our bloggers are our customers and they talk about what life is like when you enroll in a debt consolidation or debt settlement plan.
I feel really fortunate to have the ability to showcase content like this, which provides honest and straightforward accounts of debt relief services. Debt help is a tough thing to research and brings some heavy skepticism. The skepticism is justified as there are many players in this industry who do not operate with the customer’s best interest in mind.
Offering our customers a platform to discuss their experience with debt relief plans, the good and the bad, really helps to overcome some of the negative stereotypes that plague credible debt relief service providers. It is also extremely important as a research and educational tool for people seeking help with their debt. Consumers really need to take the time to understand what is involved to be successful with these debt solutions.
Reading blogs similar to what we feature in our community can help to level set expectations about; how long it can take to pay off your debts, what happens to your ability to secure new credit while enrolled, and what educational resources will be available while you’re participating. We also share blogs by graduates of our debt relief plan so that consumers can see what life is like without debt and dependence on credit cards.
If you are seeking help with your debt, I encourage you to check out this checklist. It’s a great guide to help you evaluate debt relief providers.
Suzanne Coblentz is a Social Media and Community Manager for CareOne Services, Inc. a Provider of the CareOne Brand of Debt Relief Services.