Boost income and slice spending to cut debt load and free up equity.
Profile
Cathy Failor
Cathy
Failor, 41, of Iowa is a single mom raising a 10-year-old daughter. She's a homeowner
and has lived in her home for four years. She works for a law firm.
As
a single mom, she is struggling with quite a debt load and money is tight. In
addition to a mortgage, she has: a home equity loan, a car loan, an unsecured
loan and credit card debt. Her adjustable-rate mortgage is scheduled to adjust
in March 2008. She is unable to refinance her way out of that adjustment because
she is upside down on her home, meaning the market value of the home is less than
the debt against the home. The main culprit is a $33,000 home equity loan at 12.9
percent interest with a backbreaking $448 per month payment.
The problem
Overview
Despite big
debts, in lots of little ways Cathy's instincts are good and she does some things
right.
Debt
overload
Home equity
loan
$33,000
Credit cards
$11,000
Personal loan
$13,000
Auto loan
$6,000
Total
$63,000
*plus a mortgage
She began contributing to her
employer's 401(k) plan as soon as she became eligible, even though
an employer match won't kick in until her two-year anniversary is reached in January
2009. She has regular monthly deductions from her checking account into a 529
college savings plan for her daughter and to an IRA. She pays for expenses such
as her parking and daughter's summer care through flexible spending. She refinanced
her car loan to cut the rate from 11 percent to 4 percent. And she rolled over
her previous employer's retirement plan balance into an IRA, converting it into
a Roth IRA that will permit tax-free withdrawals in retirement.
