I’m a Police Officer With an Underwater House And I Want to Get Out of Debt. – Jim

“Dear Steve,

I am a police officer with a part time employed wife and 2 toddler children. We have about $66,000 in debt ($53,000 from HELOC that was used for home purchase and $13,000 in credit card debt). We have been slowly paying off the credit card debt by completing balance transfer offers, etc. We do not use these cards for charging at all, just paying off the balances from years ago. We purchased a house at the peak of the market with 80/20 financing and since the crash of the market our house is over 70,000 underwater because of doing the 100% financing option upon purchase. We luckily have excellent credit scores (around 800 or so for both of us) and we make our monthly bills, pay a good amount toward old debt (approx. $900 per mth) and have some extra for activities, etc. The house needs some costly repairs but have been putting them off in order to keep paying down the current debt.

I have heard about people doing credit card settlements (pay partial balance) for forgiveness of the rest of the balance, etc. We both have excellent credit scores (around 800 or so) and are concerned about how this will negatively affect our scores. Also, with the house being negative so much in value, and the interest rates being so high, what would you suggest for refinance, etc? I am not looking to lose everything and file for bankruptcy, but honestly don’t know much about the options we have. I am looking to just get a fresh start and get rid of this debt that is over 4 years old. Input please?


Dear Jim,

You probably have enough stress on the job without all of this as well.

So it appears you are working down the debt slowly but I would be pleasantly surprised if you are saving money each month while you dig out of this hole as well.

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The balance transfer game is both helpful but can hurt your credit. You wind up with a string of cards and open accounts and who knows when you are going to get denied for a new card and be stuck on some high interest rate card. And all those open accounts hurt your future borrowing limit.

A balance transfer is a good way to pay off debt for less AS LONG as you repay the debt in full before the interest changes. Balance transfers are designed to suck you in with low rates and low minimum monthly payments that do not make much of a dent in the debt.

If you are simply moving the debt using balance transfers to get the low rate and temporary payment because that’s all you can afford, you are fooling yourself this is digging you out. It’s not.

We are left with a house in need of repair that you can’t afford, making some progress with the credit cards, and a home that is way underwater.

Here is what this all comes down to, just one question. Do you feel you need to slave the next five to ten years to try to fix past financial decisions of take what you learned and do better moving forward?

So it looks like in 16 months or so you’ll be able to knock out the credit card debt and then focus on other payments. In that case you could go for an unsecured loan from a place like Lending Club.

Is your goal to stay in the house, even though it is underwater and wait till you can better afford to borrow again for the repairs? Keep in mind that additional money invested in the house will put you further underwater with the home.

How much do you have in savings and how much do you save each month?

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If you plan to stay there for the next decade or two that might be an acceptable risk. What do you think? I need your feedback.

Please post your responses and follow-up messages to me on this in the comments section below.


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Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
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