We own a house which we want to sell and move elsewhere. We have probably $120,000 equity in the house. We owe one year’s lease payments on a work van at $700/mo. and then owing $18,000 at end of term. We owe $40,000 in credit card debt. I keep switching cards to save on interest.
My husband is a floor layer and the paychecks are not regular. I am a stay at home mom with two small boys. Last year he grossed about $55,000.00. We’re barely keeping up and rely on credit cards when there’s no pay to cover necessities. It’s getting worse with the recession.
Should we sell the house and pay off all debt or use that money to buy another house? I am thinking that if we pay off all of our debt we won’t have enough money to buy another house, or at least a house that isn’t a dump. I don’t want a big mortgage and I don’t believe we’d be approved for one anyway. I estimate that where we are moving a decent modest house will be about $225,000. Our mortgage now is about $90,000.00.
So should we pay off debt and end up renting or having a bigger mortgage? Or should we put all of our money in another house and pay off the credit cards the long stressful way as we have been doing?
My answer might surprise you. I think if you can sell the house and pay off your debt then you might be in a better position. Here is why.
Your husband needs the work van for the type of work he does. You’ve got a big bill coming due on that van at the end of the lease payments and you’ve only got a year left. If you can’t find $18,000 by then he could be without a work vehicle. Sure, he could always gamble on finding another one but he’s got one now.
The card switching game is dangerous. Any one of those credit card companies could raise your interest rate at any time or refuse you yet another balance transfer and you would be in big trouble. With the rate increases that creditors are pulling now, it is not unrealistic that those rates, and payments will go way up.
If you find yourself stuck on the cards and the van then you might be looking at bankruptcy and if that is the case you’d be in trouble.
If you can sell the house now, save money for taxes, the van and pay off the credit cards and you can put the rest in a savings account to protect it and use for emergencies instead of turning back to the credit cards.
Until the housing market begins to improve I think you should consider renting.
Now, when the economy improves your husband should be getting more work, his income should increase, you can use the cash in your savings account for a down payment, he’ll still have the van to earn a living and you won’t have any credit card debt. best yet, if you follow this plan you’ll have a spectacular credit score and credit report. You will have avoided any delinquencies on your credit report, no bankruptcy, no foreclosure and no repossession.
The only bad thing in this approach is you are going to have to mentally get over the thought of renting versus owning.