Just the Matter of Our Other Debt

by Lindy on March 22, 2011

0 Flares Filament.io 0 Flares ×

But first let me address this order of business…

February Half.com Sales – $92.98 (sold 4 books)

My first rebate check from Mr. Rebates – $20.90

Total February (non-eBay) earnings: $113.88

 

In case you missed it, we paid off our credit card debt. Woot!

Now it is our extreme pleasure to welcome out here to center stage, the ones you’ve all been waiting to meet, the newest stars of the Minting Nickels production, please give them a warm round of applause as they enter from stage left…

Home Equity would like to introduce himself first, since he often feels misunderstood.  Many times people assume he came into existence because his homeowners wanted extra cash to do something potentially irresponsible – like building a house out of an old 727.

But not the case here.  Our home equity loan was taken out to avoid foreclosure.  Our original mortgage was a five year, interest only loan, with a balloon payment due at the end of five years.  Obviously, we needed to refinance, but the appraisal came up about $10K short from our original mortgage amount.  The bank offered us an 80% loan on the appraisal, and then another 10% in the form of a home equity line.

So essentially, we took equity out of our underwater house, to fund our underwater house…It doesn’t make sense to me either, but hey, it was the bank’s idea.  (Read more about our house here if you’re curious.)

Auto and Student Loans have less interesting stories: We bought a new car, we went to a pricey grad school, the end.

Lindy would like to say that she is not going to total all of these amounts up because it might increase the chest pains she already feels coming on.

We’ve decided that the car loan will be our next target, because it’s the smallest balance and the payment is the second highest of the three loans. Plus, one of us has a car that is creeping up in miles, and we’ll need to start saving for a new one pretty soon.  All the extra income we report at this website, plus all of the money we were previously paying to the credit card will now be going to pay off the car.

You may be wondering, why do we care so much about paying off this debt?  Isn’t a car loan, a car loan, and just a way to secure reliable transportation?  Aren’t student loans something you just get used to paying the rest of your life?  Shouldn’t you consider your home equity loan as part of your mortgage and not worry so much about paying it off?

In many ways, these are all valid points.  But in our case, we’ve seen what happens when one debt is freed up.  We see all the extra money that is now available for other things.

We have goals and dreams, ones that require money.  Paying off our debt will get us closer to pursuing those goals.  So we’re willing to tighten up a little now, and hammer down some of this debt, because we see the end of the road and it spells FREEDOM.  At least for us.

Plus, we’ve had several years of financial missteps, and we kind of want to make it right.

What do you think about paying off these larger debts?  Is it worth it?  If you’re doing it, what is your motivation?

(727 photo source)

0 Flares Facebook 0 Twitter 0 Google+ 0 LinkedIn 0 Filament.io 0 Flares ×
  • Hi Lindy.
    Thanks for introducing us to your other debt, but I must say that im a little disappointed you didnt take out a HELOC to turn a 727 into a house. That place looked awesome! I would totally live there.
    To answer your question, I’m working on paying down my other debt too, starting with a small student loan that I’ve got left (and hope to have paid off by the end of the month) and then it will be on to the auto loan to recoup some of my value. I doubt i’ll be able to sell a year old truck with 45k miles on it for what I currently owe (~17k) so I’ll focus on that next. Good luck with your debt!

    • Lindy

      I was seriously considering the 727, but I guess that will have to wait until next time. Thanks Jeff, and good luck with that student loan!

  • Woo! Go next goals!

    Those interest rates are not chump change, even at 5%. And I can see why the mortgage company was so happy to work with you on that home equity line of credit… 6.9% is a nice way to soak you.

    I do not believe in keeping car debt or having car debt unless it is only temporary and is absolutely necessary to have a vehicle. A car is a depreciating asset and you don’t want to be in the situation where they repossess the car AND you still owe money on it.

    I could go either way on the home equity loan first vs. second. It’s a higher interest rate, but if it were paid off (or paid partly down and property values increase), it might be easier to refinance the entire house to a far better rate, but I don’t know what the interest rate on your house overall is, and if that would be worth it. There’s definitely something to be said for the psychological benefits of the debt snowball, and for keeping your car.

    I definitely agree that the student loan can wait until the other debts are paid off.

    This is pretty awesome! You’re doing well and you’re going to knock these goals out of the park. Maybe even sooner than you think if you keep up your hard work.

    • Lindy

      Thanks Nicole. Our house is even more underwater than when we refinanced (thank goodness we got in before house values plunged even more), so we’re not planning on recouping anything in the near future. We did consider going with the home equity loan first, just because of the interest, but we figured the car payment would be an easier target for knocking off.

  • THANK YOU for this post. It’s so nice to read a post by someone who is still IN debt and climbing out, as opposed to someone whose already reached their goal and is now focused entirely on building wealth, which seems to be the case on so many of my favorite personal finance blogs.

    My husband and I are working on about $60k in student loan debt, and the saddest part is that it isn’t even graduate school debt. Just regular old college! Likewise, we’ve still got a car note, which we’ll hammer out by the end of the year.

    • Lindy

      Well I’m glad we can commiserate together then! Thanks for your comment.

  • laura

    Good luck with the next stage Lindy and urgh to the mortgage company!!

  • Congratulations on making even more money. Your house is like a treasure chest full of ebay and half.com gold.

    Once our credit card debt is gone, we are focusing on our car loan too. I used to think we would/should always have a car loan, but now I know better. I feel like we are making up for years of financial missteps too.

    • Lindy

      One member of our family has a thing for books. I’m not telling who, but I’ll say it’s not me. :) It does seem like our house is an endless treasure trove, but that’s only because we spent too much money in our youth on all this stuff.

  • The biggest debt I had to pay off (until my line of credit – we won’t go there right now) was my student loan, which seems small compared to yours, of $16,000.00. But it sure didn’t seem small as I made the $250 monthly payment at a time when I was a single parent with an “occasional” teaching position. Some months I’d only make around $1200 bucks. It took me til my daughter was 10 to pay it off as I literally had NO extra money. With interest it came to about $26,000.00. I’m proud of myself though that I paid it off while other people I knew did everything in their power to get out of it by moving to a different country, ignoring it or staying in school so the payments wouldn’t start. What a relief it was to get it paid and then that extra $250 a month made a huge difference to our lives. You’re off to a great start (sorry about your upside down house:(

    • Lindy

      You should feel proud of yourself for accomplishing that. You knew people who ran away? Craziness, I tell you.

  • gosh, I love the excitement that comes in this post! Looks like you’ll be living in debt-free-land before you know it!

  • Kristy

    Good for you!! I love the plan you have and the excitement that comes with following through with it. It’s nice to read about families who are currently doing it instead of the many blogs who have been there, done that…can’t wait to have our first debt paid off to roll that money over…congrats!

  • Wow, almost 7 percent on the Home Equity loan! I guess I’d pay that off first, since it has the highest rate, though I’ve also heard other people espouse the theory that you should pay off the smallest amount first, so you can cross it off the list. Whichever works for you! Personal finance is … well, .. personal!

  • Yay extra money! I thought of that too when I thought I should pay off the mortgage and not invest, but went for a bit of both, but heavy on the investing. For me it was a no-brainer because interest rates were so low on the mortgage.

    I guess I would factor in whether one of the interest rates are possibly variable? Could the rate go up on any of them – if so, that’s the one I’d kill off. But I’m super safety conscious since I saw my sister lose her house back in the ’80’s with high double digit interest rates.

    • Lindy

      Actually, you do bring up a good point about variable interest. Our home equity loan is calculated based on prime + (some figure), so it technically could go up. We might just be playing with some debt calculators this weekend…

  • Either the highest rate or the smallest amount… agree w/ Paula, it’s a personal choice. Might help to make a timeline projection, and look at the total amount of interest that could be paid over the life of the loan.
    And the 727 house is too cool for school.

  • I would agree that paying off the car loan seems like a good way to go. The only question I would have is what about the home equity line. Is there a time frame for paying that off? If not and you don’t have to worry about the risk of foreclosure again, the car payment is the way to go. Then drive those cars until they die. My mini-van has 151,000 miles on it. I had the transmission rebuilt at 116,000 miles but 2 years of no payments have more than made up for that cost.

    • Lindy

      Nope, no time frame on the HE loan. There’s definitely something to be said for no car payment. Right now we have two cars, one with a payment, and the other without. It would be nice to have both with nothing owed.

  • Great job guys! Keep up the good but hard work!

  • Thanks for introducing us to your other debt (btw… that picture made me giggle).

    It definitely seems like going full force at the car loan and then trying to tackle the home equity is a good plan. And WOW that is a lot of student loan debt. Sucks balls. =\

Previous post:

Next post: