|
  Dear
Steve,
I refinanced my home and now owe more money than what I can sell
it for. I am being transferred and the only thing I can think of
is to rent the house. I can't sell it because I do not have the
money that is owed on it. Do you have any suggestions to help me
out of debt? By the way, my credit cards are also maxed out.
-- Kathi
 Dear
Kathi,
Though you may feel overwhelmed by your debt right now, remember
that you have two big assets: your health and a job. With these,
most things are possible! I suggest you create a plan and break
your ultimate goal, of getting out of debt, into reasonable, short-term
goals. My experience is that you may find it less intimidating to
begin tackling both your home equity issue and your credit card
debt if you do it in small bites. I always recommend small bites
when trying to eat an elephant!
As you have found, the down side of borrowing against
your home equity is that if your home decreases in value or if someone
is willing to lend you more than 100 percent of its value, you might
find yourself in a situation where you owe more than your house
is worth. Most people never think that overborrowing on a house
could get them in trouble or limit their ability to take a job promotion
or transfer. So, dear readers, think twice before piling on more
home-secured debt! For others who already owe more than market value,
I suggest building a cushion either through a savings program or
by prepaying an extra amount on their mortgages each month to build
equity quickly. See Bankrate's mortgage
payment calculator for examples. So, let's look at some bite-sized
goals to help you swallow this elephant.
Goal 1: Rent it out
Because you are moving and can't sell your house, it would be wise
on your part to rent it out until you can pay off enough of your
loan to sell, but this brings up another issue. It is important
to choose carefully when finding a family, couple or individual
to rent your house. Due to your circumstances, adding costly repairs
to a home that is not taken care of by renters is something you
definitely cannot afford. Also, if you are moving any distance,
you may want to consider finding a rental agent or property manager
locally. Managing a rental from afar can be difficult and time consuming.
Goal 2: Downsize your housing
bill
Since you are transferring and moving, find a small home or apartment
to live in at your new location that is less expensive than your
current house. The money you save on housing can then be put toward
paying off your home loan. If your cards are maxed and you are upside
down on your house, buying another home may be more expensive, if
an option at all. Still, depending on the market you are moving
to, you may be able to quickly accumulate equity that can make it
possible to pay off your old mortgage. Be wary, however, and check
out the housing market trends in the area so you don't end up in
the same situation of owing more than your home is worth. I hope that a raise is
included in your transfer and this extra money can be
put toward your existing loan as well.
Goal 3: Dump the debt
Once you pay off enough of your home loan and are able to sell your
house, then begin focusing on paying off your credit card debt.
To avoid frustration, realize that the repayment of these debts
is something that will take you more time than you would like. However,
it took you time to accumulate the debt as well.
The simplest way to avoid this situation going forward
is to stop charging without knowing how you will pay off the bill,
buy only what you can purchase with current cash flow and save as
much money as you can.
Good luck!
|
