UPDATE: Dealing with debt...sell the house or tough it out?

[LarlaB]

I would appreciate some perspective and input into a financial situation.  Please be respectful that this is a trauma and a failure for me.  

DH lost his job 4 years ago- NPD mother fired DS from family business.  It was traumatic and unforeseen.  No settlement package.  Only screaming.  I had PTSD and needed therapy to get thru it.  Once we awoke from the emotional shock, we realized we have a financial crisis on our hands. 

DH has been underemployed since then and only the last 6 months are we anywhere close to a similar income.  We are self-employed or 1099- I have 1 business and 1 job, he runs 3 businesses and moonlights for someone else.   Plus we have a basement apartment rental income (60% of our mortgage).  We are hustling.  HUSTLING.  And we are pretty frugal.  We are happy with our jobs and enjoy the crazy most days....after having someone take his job away and destroy everything DH worked for, its very fulfilling to build our own businesses. But slow.  And we slowly went into debt. 

The problem?  We have credit card debt.  A lot. We are current and able to pay the bills but the interest rates are starting to climb faster than we can make progress on paying.  So its treading water.  Paying $500 extra on a card that has an $18K balance takes a LONG time to make progress. Our biggest hindrance is that  we don't have consistent income- one month is a feast, one a famine. So its very hard to budget- almost impossible with a changing income.   

HELOC is not an option, no balance transfer offers, no substantial savings and no retirement (we cashed out 2 years ago), and we are not willing to ask family members for help. 

The good news?  Our home is now valued at over $200K more than we owe  (bought 7 years ago).   If we sold, we could (1) pay off our debt and have a big chunk left over to (2)replenish retirement account and (3)have a tidy sum to start on a down payment for a few years down the road.   The downside- once you cash out, you're out.  And we would lose a great house in a crazy upvalued market.  Also lose the rental income we get off the house (60% of the mortgage is covered by basement rental apartment)   And then of course living in a rental situation isn't ideal -and we don't know how soon we could buy again. 

Or we could stay put..and try to find a way to (1)pay off debt AND (2)start to save.  Its a long long long road and its not clear that it will, in fact, actually work given the increasing interest rates.  It's not a lack of discipline on our parts- but we do take responsibility for slowly building the debt as we built the businesses.  Our income is not consistent because of seasonal markets- which is exhausting and maddening.  It's tough to navigate the swings when you're squeaking by, much less snowball debt. We know how to do that. Its just almost impossible with how tight our budget is. And there's the emotional load.  It's been 4 years of just struggle. 

We are early 40's with a kiddo going to college in 4.5 years.  That is starting to loom.  Neither of us imagined ourselves here- seeing everything we worked so hard for,  just slowly slip away. But I also know that money doesn't buy happiness.  I'm blessed beyond words to have a solid relationship with DH and to have our health.  I know that and I see that.  Which is why I'm so tired of spending so much energy on money.  

I'm unable to adequately communicated what these 4 years of struggle and stress have been like.   To finally be in an more secure joyful job situation is breath-taking.  To see DH love what he does after what he went thru, moves me to tears.  But that joy is ruined by our debt load.  The struggle to find a way to make it thru because of debt, is just crushing.  I'm tired of scrounging up hope to fight another day.  As much as I want to stay in our house, I would also like to be free of the fight.  I wish we could do both but given the imminent rising interest rates, I don't know that we can. 

Anyway- we  still want to do the smartest thing. We are getting mixed opinions from those in our life.  So I thought I'd ask here.... Given all that I've shared, SHOULD WE: 

(1) Sell the house, pay off debt and split the buik  between savings/retirement and investment....rent for a few years, and hopefully buy another house in 2-3 years.  And exhale. 

(2)Stay in house, FIND A WAY to find more money to slowly pay down debt as we hope that income continues to increase and we continue to be frugal.  


ETA:  THANK YOU for all of the replies, and the respectful and compassionate tone. I really appreciate the perspectives and input. :)  

 

We cannot refinance anything- we would have done so a long time ago.  We are self employed in new (less than 3 yr) businesses and banks do not cope well with either of those things. I'm not sure we would be approved for a new mortgage immediately after selling this house, which is why we would wait- to establish longer employment history at new businesses. 

A small starter home in our area is at $300K.  Renting the same house is $1800-$2200 per month, which is obviously more than our adjusted mortgage (with rental income).  

 

 

[StartingOver]

I vote for paying off debt. We sold everything and paid off everything in 2008 after the crash. Life has been amazing living with no debt, paying cash for everything. Putting more into our retirement savings.

[katilac]

I'd be selling in a New York minute, but I have a very low tolerance for debt and uncertainty. And it doesn't sound like you have a plan to get out of debt, other than hoping that income increases. It might, but it also might decrease, and it sounds like you would be in hella trouble then. Your renter might leave, and it sounds like you don't have a fixed interest rate? 

I'd sell and rent something that is easily affordable.  

[Carol in Cal.]

Something to consider is, if you have a lot of money in the bank or investments rather than in the equity in your house, the FAFSA is going to show you as able to contribute a chunk of it to your kids' college expenses.  Whereas if it's in the house, they ignore it.  Are you sure you can buy a house before you have to starting showing your finances to the FAFSA people?

In your shoes I am not sure what I would do, but I'm leaning toward keeping the house because of that and also because it's going up in value, and also because you are getting such a good income (and one that in a rising market might also go up) from your tenant.

I'd look pretty hard for a zero interest rate credit card deal to see if you can stop the interest accruing spiral.

 

 

[lmrich]

Can you live in the basement and rent the main house?

[plansrme]

Can you sell the house and buy a much smaller house?  Rents are so crazy right now that I would want to be extra-sure that rent would be substantially less than my net mortgage.

[Arctic Bunny]

I would worry about selling the house, paying off debt, and then ending up back in debt with no assets and no backup plan. Selling the house would leave me with more  stress than credit card debt.

I would definitely try living in the basement and renting out the main part of the house first.

[Targhee]

I’m for selling, paying debt, and setting up for another home purchase in the future.  The biggest reason is you *never* know when crazy sh!t like what happened 4 years ago might happen again.

Tough choices, and a tight spot. Best wishes with that hard decision.

[Arctic Bunny]

7 minutes ago, Arctic Mama said:

That’s exactly why we ended up buying and our lease is up in two months - when rents are close to or more than a mortgage it is really tough to pay that long term, especially if income fluctuates.  We have couched it as “renting to ourselves” when we discuss it with people, because we are literally saving $600 a month every single month by owning, not counting an built equity.  Some markets are just weird.

Just for kicks, when we moved here, I looked at what we could afford to rent. We, too, are “saving” money by buying. And although we can’t control what interest rates will be when we renew our mortgage, it seems more predictable than rising rents and landlords wanting to sell the house we are renting, etc.

[LarlaB]

OP here....Thanks for the replies!  

 

RE living in basement and renting upstairs, its definitely been talked about. Its questionable if it could really work.   It's 1200sf and not great for 4 people- only 1BR w a second space that can only fit 1 twin bed.   

We could rent the upstairs for double what the basement brings in.  But practically, we'd have to spend money to get the upstairs ready to rent. Plus, our upstairs deck would need to be replaced before renting.  That's $10K for a super cheap fix. Yes that is a house investment, but it would take a while to earn that back.  When you put that on top of all the other considerations, its not so awesome. 
 

[Arctic Bunny]

Does the deck need replacing? Or just torn out and steps put in for now? How much would a rental cost that is bigger than your basement?

Wouldn't the same things need to be done to sell, as to rent the upstairs out?

[Alte Veste Academy]

In a home I loved in a bad market, with credit card debt only, I would opt for a debt management program. They can get all your cards rolled into one payment per month with reduced interest rates, allowing you to get out of debt much faster than you would on your own. https://www.nerdwallet.com/blog/finance/compare-debt-management-plans/

[LarlaB]

21 minutes ago, plansrme said:

Can you sell the house and buy a much smaller house?  Rents are so crazy right now that I would want to be extra-sure that rent would be substantially less than my net mortgage.

A smaller house in proximity (30 miles) to our businesses, would still be $300K.  If we moved 1 hour outside of the city it would be cheaper but that's not an option for us- business owners and all.  Rent is actually comparable- $1700-$2100 per month for that size house.   

 

Just now, arctic_bunny said:

Does the deck need replacing? Or just torn out and steps put in for now? How much would a rental cost that is bigger than your basement?

Wouldn't the same things need to be done to sell, as to rent the upstairs out?

It's a second floor deck, so yes it would have to be replaced to rent.   No I wouldn't feel obligated to replace or do improvements before selling.  The market is hot- so, the house would be sold as is with deck, carpet allowances factored in. 

 

[LarlaB]

5 minutes ago, Alte Veste Academy said:

In a home I loved in a bad market, with credit card debt only, I would opt for a debt management program. They can get all your cards rolled into one payment per month with reduced interest rates, allowing you to get out of debt much faster than you would on your own. https://www.nerdwallet.com/blog/finance/compare-debt-management-plans/

Thanks for that suggestion.  We recently looked at a debt management company.....One well known company charged 20% and essentially tells you to stop paying your bills, change your billing address and phone to them and put money into a savings account....then once you have a lump sum saved and are seriously delinquent on your bills, (like 6-8 months) they have 'leverage' to negotiate.  That stressed me out just hearing about it.  As a last resort maybe.  But now?  No.  

But non profit debt management could be a better fit.  I am heartily interested in paying this off! 

[NorthwestMom]

Can you clarify the nature of your jobs? I think you said upthread that your income varies seasonally and month to month. Would it be possible to change 1 or 2 jobs to create a predictable monthly income flow for the near future?

[Susan in TX]

Don't sell the house. Stop worrying about paying off the debt, just don't add any more. Shop around for credit cards with lower rates. And just keep paying it off slowly. 

Susan in TX

[Alte Veste Academy]

3 minutes ago, LarlaB said:

Thanks for that suggestion.  We recently looked at a debt management company.....One well known company charged 20% and essentially tells you to stop paying your bills, change your billing address and phone to them and put money into a savings account....then once you have a lump sum saved and are seriously delinquent on your bills, (like 6-8 months) they have 'leverage' to negotiate.  That stressed me out just hearing about it.  As a last resort maybe.  But now?  No.  

But non profit debt management could be a better fit.  I am heartily interested in paying this off! 

Oh my goodness! No! That is awful!

My parents did this due to accruing lots of credit card debt because of multiple layoffs. They used Money Management International (one of the companies on NerdWallet's page I linked). They were current with their bills at the time, just feeling hopeless about ever paying off their debt. They did not have to get behind in order to start the program. It was wonderful for them. They paid everything off in three years while making one payment per month which was far less than what they were paying before. And they said the best thing was that right when they started they knew their payoff date. It was very goal oriented in that way, giving them the ability to see the light at the end of the tunnel.

[Meriwether]

I'm sorry your MIL did this to you. I would not sell the house. The renter paying 60% of the mortgage is huge. And housing price (and rents) could continue to rise. Can you refinance the house since it is worth more and take out enough equity to pay off the credit card debt? And then put the money you were putting toward the credit cards toward the house at a lower interest rate?

[catz]

I would have a hard time selling if you are going to need to rent for a significant amount of time befor you buy again.  If you could buy in 12-18 monthsand you knew you could get a reasonable rental, I think I might try that strategy.

 

however as a heads up, I really think a 4 year live away college experience is a luxury for many families in the current economy. I would be setting up college discussions with your oldest with finances and no debt in mind.   For you and preferably not for her beyond the basic federal college loan offerings.   There are many good high quality routes to a college education without significant debt.   

[Annie G]

I totally get that running your own businesses is a great feeling after being so powerless after MIL’s actions. But have you honestly evaluated whether the hours you are both putting in are more profitable than getting full time and maybe part time regular jobs? I’ve given up two businesses that went from profitable to not worth the time and money I was putting into them. It sucks, but it happens. 

Relying on a tenant for 60% of your mortgage payment sounds like a precarious position.  It’s different than having rental property separate from your primary home. Once your credit card debt is paid, can you make it without the tenant if needed? Not saying you shouldn’t have a tenant, just that the goal might be to not NEED to rely on their rent to cover the mortgage. If you sold the house, what do you anticipate your new housing costs would be? 

Have you done a Dave Ramsey style bare bones budget? Is there any fat to trim there? Hoping maybe there is some additional budget cutting that can help. 

I guess what I’m asking is whether it’s an income problem, a budget issue, or just a temporary credit card debt problem? 

‘Hope you can find a workable solution. We’re pulling for you.

[kitten18]

My gut reaction is to keep the house. 

[gardenmom5]

btdt. (no, really - we've btdt. except for the family member part . . . .wow - that brought up a lot of repressed anger . . . and yeah, I do understand the ptsd from it too.)  sending you many hugs.

if you sell your house - where will you live? will you ever be able to buy another house?  depending upon market - they are a tremendous equity investment. we have friends who did that - and are very sorry.  they wish they'd just rented it out.  (they lived with the wife's mother and did house hold maintenance and repair in lieu of rent.) now - they're shut out of this area becasue they sold and left.

 

will you/do you qualify for any government support?

if you lived in your "apartment" - and rented out the main area of your house - could you charge more in rent?

if you found a cheap apartment- could you rent out your house as "two dwellings" and make a bigger profit?

[Liz CA]

1 hour ago, katilac said:

I'd be selling in a New York minute, but I have a very low tolerance for debt and uncertainty. And it doesn't sound like you have a plan to get out of debt, other than hoping that income increases. It might, but it also might decrease, and it sounds like you would be in hella trouble then. Your renter might leave, and it sounds like you don't have a fixed interest rate? 

I'd sell and rent something that is easily affordable.  

 

Do you know what the rental market looks like in your area? Are the businesses you built mobile - can you move to a different area with lower COL?

If you can rent for less than you pay mortgage and the debt is an emotional burden on you (as it sounds like), I think I would sell.

If you know your income will rise, you just have to wait it out for a few more months / set a limit on how many years it should take - I would perhaps try to stay. Can you make minimum payments on all other cards except the lowest and throw the bulk of your pay-off money toward the card with the least amount on it? If it's all on one card you would have to be content to chip away at it it you want to stay in the house. 

Could you sell your current house and with the proceeds and after paying off debt, buy a smaller place that would cost you less monthly? I would look at this option as well.

 

[gardenmom5]

depending upon what your interest rate is - is refinancing with a locked rate an option?   and extending the loan?  or is your income too uncertain to qualify?

[Liz CA]

39 minutes ago, Alte Veste Academy said:

Oh my goodness! No! That is awful!

My parents did this due to accruing lots of credit card debt because of multiple layoffs. They used Money Management International (one of the companies on NerdWallet's page I linked). They were current with their bills at the time, just feeling hopeless about ever paying off their debt. They did not have to get behind in order to start the program. It was wonderful for them. They paid everything off in three years while making one payment per month which was far less than what they were paying before. And they said the best thing was that right when they started they knew their payoff date. It was very goal oriented in that way, giving them the ability to see the light at the end of the tunnel.

 

This sounds like a good solution if the business is above board. I don't know anything about them.

[kiwik]

1200 square feet is decent for 4.  Ours is about 800 though we only have 3.  I put a plyboard partition in the biggest room to make a 3rd bedroom - could you do something lime that or a curtain across. With the deck, declare it off limits and lock the doors to it - I am assuming a housing shortage like most of NZ though - it won't work if you have an oversupply.  Give them a rent reduction for a month if they paint it.

[happypamama]

I'd call the credit card companies and ask for a hardship plan.  They may be willing to close the accounts and lower the interest.

[Scarlett]

I am waffling back and forth....but wanted to send hugs.  The debt makes me twitchy but that might get you more in financial aid for your college kid in 4 years.  And I hope you are planning the low cost college route....cc and living at home.,,

i would have to know could you rent something for the amount you pay intent now less the rental income?  For instance if your mortgage is 1000 and the renter pays 600....could you rent something for 400? And how much are you paying per month total on the debt you hope to wipe out?

[Carrie12345]

My immediate reaction is sell.  Of course that does depend on what you're able to buy/rent in place of your current home, and what you foresee that looking like in the next few years.  I know I'm hoping to buy a house in my mid-40s too, but I live where most houses aren't even worth $200k, never mind have $200k in equity!  So my plan is to be rid of a mortgage before retirement age.

I say that as someone currently paying down a good deal of debt, but with a regular paycheck coming in.  If I *could sell and immediately be caught up I would, but that's not an option, so I'm working hard at paying down.  I'd recommend running a few pay down calculators (I've used DR, but I'm loving Undebtit right now.  It's free, but I paid $12 for a 1 year upgrade.)  My "snowball" isn't significantly higher than yours, and it has us being done in the next two years.  If I loved my house, two more years doesn't seem like such a bad deal for keeping it.  (I happen to NOT love my house, but such is life.)

I don't think there's one right answer, but I know I'd pick the one that eliminates the biggest burden the quickest.

[nevergiveup]

I know you said you are not willing to ask family members to help.

But could you ask family or a friend for a loan to pay off the credit card and you make payments to them instead?

[GinaPagnato]

If I understand correctly, your debt is limited to the credit card and it's $18K? So no other debt aside from that and the mortgage?

I would look for a way to make more money consistently, even if that meant changing jobs for one of you. I think I'd do that before selling the house. 

I'm really sorry for your stress. I could feel it through my laptop. 

[DawnM]

You would rent in the same area?  What would rent be?

In my area, if we wanted our son to stay in the same school, rent would be more than our current mortgage.  Now, we would have the cash in hand from the sale of our house, but it wouldn't make sense in the long run to pay $1000+ MORE than we are currently paying to live in the area, UNLESS we had no other choice.

could you sell, move further out, and still own OR rent cheaper?

[teachermom2834]

If things have stabilized and you are no longer regularly adding to the debt I wouldn't sell the house to pay it off. These changes get expensive.  I am worried the costs associated with selling and moving would turn out to be more than you intended and you would end up not as far ahead as you planned. Now, if there is just not enough money coming in and the debt will just keep getting deeper that is different. Equity in a home is something, even if you feel completely broke. 

About college. It is harsh but I would let that worry go. Tell dc you will not be able to help other than to help them navigate the process and be the cheerleader. They are old enough to understand. You aren't in a position to worry about college. There are ways for kids to get college educations without parental cash. Set the expectation now and release that stress.

Also, as your dc get older they can help out by working and picking up some of their own expenses. Once mine started working part time jobs and could put gas in the car or pick up personal items it was a relief on the family budget. 

None of that is what we dream (not helping with college, having kids pitch in) but it is not the worst thing. 

I'm sorry for your stress. We went through a very unexpected job loss when we had kids 16, 14, 11, and 6. After a couple years of instability we are back our feet and doing better. But I get the stress. I'm sorry.

 

 

[LarlaB]

10 hours ago, Annie G said:

I totally get that running your own businesses is a great feeling after being so powerless after MIL’s actions. But have you honestly evaluated whether the hours you are both putting in are more profitable than getting full time and maybe part time regular jobs? I’ve given up two businesses that went from profitable to not worth the time and money I was putting into them. It sucks, but it happens. 

Relying on a tenant for 60% of your mortgage payment sounds like a precarious position.  It’s different than having rental property separate from your primary home. Once your credit card debt is paid, can you make it without the tenant if needed? Not saying you shouldn’t have a tenant, just that the goal might be to not NEED to rely on their rent to cover the mortgage. If you sold the house, what do you anticipate your new housing costs would be? 

Have you done a Dave Ramsey style bare bones budget? Is there any fat to trim there? Hoping maybe there is some additional budget cutting that can help. 

I guess what I’m asking is whether it’s an income problem, a budget issue, or just a temporary credit card debt problem? 

‘Hope you can find a workable solution. We’re pulling for you.

Good question. Our businesses are easily profitable and we have been blessed.  It was a budget, income & debt issue- now just a debt issue.  We have a little fat to trim, but are very familiar with Dave Ramsey and do have a bare bones budget.  Fluctuating income continues to be an issue. We are working to save more cash to remedy that for the known lean months. 

We've been renting our basement to tenants for over 4.5 years, with 12 month leases.  Its a great setup in a very high demand market.  Highly desirable location & neighborhood and therefore easy to rent.  Not precarious at all, thankfully.

[LarlaB]

10 hours ago, gardenmom5 said:

btdt. (no, really - we've btdt. except for the family member part . . . .wow - that brought up a lot of repressed anger . . . and yeah, I do understand the ptsd from it too.)  sending you many hugs.

if you sell your house - where will you live? will you ever be able to buy another house?  depending upon market - they are a tremendous equity investment. we have friends who did that - and are very sorry.  they wish they'd just rented it out.  (they lived with the wife's mother and did house hold maintenance and repair in lieu of rent.) now - they're shut out of this area becasue they sold and left.

 

will you/do you qualify for any government support?

if you lived in your "apartment" - and rented out the main area of your house - could you charge more in rent?

if you found a cheap apartment- could you rent out your house as "two dwellings" and make a bigger profit?

Thank you.  It sounds so silly but I tear up whenever anyone tells me they've been thru similar.  Its a weird little club.  

Yes that's the concern that if we sell and we might never be able to buy an even similar house in this area.    Starter homes are $300K here. .  NOt that we couldn't do it. Its just obviously, our home, neighborhood and location is ideal.  DH works in insurance as one of his businesses and writes a lot of home policies- so knows very well exactly what the market is.  

We have seriously considered living in the basement apartment.  It would be a huge move and lot of work which is exhausting to consider on top of all of our current responsibilities, but again- so is moving.  We'd have to retrofit some basement aspects (unfinished space to become office and bedroom).  I'm excited by it to be honest. Just intimidated by the work. ANyway- the top two floors would rent for $1200 MORE than current basement rental.  Again, the rental market is very strong here. I think we could do it for a year.  

[Condessa]

I really think you should consider the moving into the basement plan.  If you locked the door to the deck and made it clear that it would not be available to potential tenants, how much would it cost to get the upstairs ready to rent?  You could retain your home ownership and have a guaranteed place to live, and have your mortgage covered plus some income from renting.  So you would actually have a baseline regular income on which you could base your budgeting.  If there’s room for a twin bed in that room, there’s room for a bunk bed, right?  And it doesn’t have to be forever—you still own your house and can look at it as a temporary measure to help you crush that debt.  My family of 6 recently moved after 2.5 years living in a 930 sq. ft. house.  One bedroom was precisely the width to accommodate a twin bed.  We chose to live small for that period in order to allow us to make significant progress on our debts.  At the time we moved in, we were mostly concerned about the large medical expense debts we had accrued from our youngest’s health troubles.  Not only did we pay that off, but we also stayed and made it work long enough to pay off dh’s law school loans, too.  It is so freeing, and was totally worth the years of making it work in a small place.  I know living small is harder the older your kids are, but 1200 sq. ft. with four people sounds livable.

And you should certainly use a debt consolidation measures from nerdwallet mentioned up thread.

[SereneHome]

First of all, kudos to you for coming through such tough situation and working your butt off to fix it - some people would just be filled with anger and excuses.  I have a lot of respect for you and your family.

Second, you need to sit down, take ALL emotions out of the situations and put numbers on paper.  In my previous life I worked in corporate accounting/finance, doing budgets for a living.  I also have done a lot of that kind of stuff for individuals.  You HAVE TO take emotions out of it and run numbers.  And once you see what makes more sense financially you can decide if you are OK with that path.  And if you are not - that's OK too.  Bc we are not corporations, we are people - with feelings and emotions and it is OK to have that as part of the decision.  Be kind to yourself and give yourself grace.

Now, as far as running numbers - you have to take EVERYTHING in consideration and run all actual and potential income/expenses for both scenarios.  Not just actual housing costs, but difference in  gas, utilities, mileage on cars, various tax deductions that you might loose or gain, possible additional food expense, etc. 

Stock market is not going up this year the way it did in the two previous ones - you might or might not have gain on your investments for years if you invest now.

On a flip side, you might not need mortgage int and property tax deduction next year with the new tax law change.

Those are just two examples - but that's the kind of things you should consider.

The bestest and the goodest (words my kids use) luck to you!!!

 

[Soror]

Fwiw I think I would keep the house, I think w/ the house market how it is you're better off to keep your place. I would consider moving to the basement for a spell but I think I'd look hard at the numbers to see if it is worthwhile. What will it cost to get it move in ready for you and how much time will it take off paying off the debt? Do you want to rent out the baement long term? Would these renovations increase the rent you could get from it in the future? 

I keep thinking maybe I'll get a job myself when the kids are older to help w/ things. Big kids are expensive and retirement looming is depressing.

[LarlaB]

22 minutes ago, Michelle Conde said:

I really think you should consider the moving into the basement plan.  If you locked the door to the deck and made it clear that it would not be available to potential tenants, how much would it cost to get the upstairs ready to rent?  You could retain your home ownership and have a guaranteed place to live, and have your mortgage covered plus some income from renting.  So you would actually have a baseline regular income on which you could base your budgeting.  If there’s room for a twin bed in that room, there’s room for a bunk bed, right?  And it doesn’t have to be forever—you still own your house and can look at it as a temporary measure to help you crush that debt.  My family of 6 recently moved after 2.5 years living in a 930 sq. ft. house.  One bedroom was precisely the width to accommodate a twin bed.  We chose to live small for that period in order to allow us to make significant progress on our debts.  At the time we moved in, we were mostly concerned about the large medical expense debts we had accrued from our youngest’s health troubles.  Not only did we pay that off, but we also stayed and made it work long enough to pay off dh’s law school loans, too.  It is so freeing, and was totally worth the years of making it work in a small place.  I know living small is harder the older your kids are, but 1200 sq. ft. with four people sounds livable.

And you should certainly use a debt consolidation measures from nerdwallet mentioned up thread.

Yes we are seriously considering this.  We would prob just lock the deck door and rent the upstairs as is.  It’s 4br/3ba and 2700sf upstairs and should rent quickly.

We've also toyed with making it an Airbnb which would bring in more but would be higher drama.  but the furnishing would cost and frankly the stress costs something too at this point.  We are already pretty busy.

 

ETA living in the basement apartment would add living stress.  It’s not a full kitchen and we’d have to invest some money to make the space work for a family of 4 with two adults working from home. I do lease an office space for my Massage business so that’s always a workspace option when my renter (I rent it out to another therapist) isn’t using it.  But we would definelty cover the mortgage and have income from renting the upstairs!!!  Which would be even more stress reducing.

[MaeFlowers]

We're kind of in the same boat with the debt load. It's a different set of reasons but we took some major hits last year. I had a bit of a breakdown the other day over it. Even though we can make the payments, the amount going to debt is overwhelming.

Have you looked into a refi or second mortgage? If sounds like you have a large amount of equity and you could cash out and still have equity remaining. You could reduce your payments somewhat and your interest rates. 

We looked into it but we didnt have the equity. Selling our house doesn't make sense here as rents are signifigantly more. So, we are paying it down slowly. Very, very slowly.

[Greta]

I think most of what comes to my mind has probably already been said (I've only skimmed the replies), but I'll give you my $0.02 anyway, along with lots of hugs and sympathy for an unbelievably stressful situation.  

First off, have a talk with your 14 year old right now explaining that she's going to need to work hard in high school to get what scholarships she can, and that she's going to need to go to the local community college for her first 2 years (if that's an option where you live) and attend an in-state university, etc*.  Fourteen is not too young to have that talk.  I was 15 when my parents told me I was on my own and they weren't going to help pay for me to go to college.  It made me absolutely determined to do it successfully myself, and it ended up being a very good thing for me.  I got a full academic scholarship to the state university of my choice, and I would not have worked hard enough to get that without them telling me "this is on you".

Second, I would be extremely hesitant to sell the house in your situation.  I think that would cause me more stress than it would relieve.  You would be going from earning rental income to paying rental income, and that just doesn't seem like a good long-term strategy.  Instead, I would encourage you to try to negotiate with your credit card company (companies?).  You actually might be able to work out a lower interest rate with them.  Or you might qualify for cards with zero interest for six months, or other offers like that, and can use that time to pay it down as much as you possibly can, or possibly even "move" the debt every six months if you can get another offer like that.  I saw you had a really terrible offer from one debt consolidation company, but I would urge you to keep looking because I feel you can surely find something better than that.

Third, if I understand correctly, your husband is running three businesses.  Is there any possibility that he could sell one or more of those businesses to another local entrepreneur?  Or to a hard-working employee of one of those businesses (if he has any) that might want to take over?  And then maybe with the time that would free up, he could get a more steady job instead?  Obviously not knowing details I don't know how viable an option that is, but I wanted to throw it out there for consideration.

* Instead of "etc." I should have said "or whatever advice is appropriate to your situation".  It's not that the particular things I listed are what you should say to her, but I meant it more as examples of what I would say to my dd if we were in similar circumstances.  

[tammyw]

I would be very wary of selling. Do you get a mortgage interest benefit on your taxes? If that goes away your tax benefit will go away.

if the housing market is good, won’t the prices keep going up, making it really hard to eventually buy in again? 

I would just find another way. Side jobs? What about stuff you could do close to home. Might sound silly but even something like dog walking / pet or house sitting.

[katilac]

11 minutes ago, Greta said:

 First off, have a talk with your 14 year old right now explaining that she's going to need to work hard in high school to get what scholarships she can, and that she's going to need to go to the local community college for her first 2 years (if that's an option where you live) and attend an in-state university, etc.    

 

 

I agree that a college talk is needed, but I would not couch it in terms of having to work hard to get scholarships. Kids can work hard all day long and still not get scholarships.  Potential scholarships can be (should be) part of the long-term discussion, but you have to be careful not to present it as "if you work hard enough, you will get scholarships" because that is definitely not a certainty or even a probability. 

[LarlaB]

2 minutes ago, katilac said:

 

I agree that a college talk is needed, but I would not couch it in terms of having to work hard to get scholarships. Kids can work hard all day long and still not get scholarships.  Potential scholarships can be (should be) part of the long-term discussion, but you have to be careful not to present it as "if you work hard enough, you will get scholarships" because that is definitely not a certainty or even a probability. 

Thankfully DD is an honors student and hard worker....She should graduate from HS with her associates degree as dual enrollment starts in 10th grade.  

I mentioned college as more of a sign marker in that we don't have 10 years to turn this all around. 

[Greta]

2 hours ago, katilac said:

 

I agree that a college talk is needed, but I would not couch it in terms of having to work hard to get scholarships. Kids can work hard all day long and still not get scholarships.  Potential scholarships can be (should be) part of the long-term discussion, but you have to be careful not to present it as "if you work hard enough, you will get scholarships" because that is definitely not a certainty or even a probability. 

Oh, yes, I agree!  I realize scholarships are harder to get now than they were when I did it, which is exactly what I've told my daughter.  But I've still encouraged her to try.  There are some excellent scholarships available at our biggest state school with GPA's and SAT scores that are very attainable for dedicated students.

[goldberry]

Having a house increasing in value with the mortgage 60% paid is huge.  Also, echoing what Carol said above about FAFSA when the kids go to college.  At first I was thinking sell, but the more I consider I'm changing to keep.  But only if you can manage to get in a frame of mind where the stress of the debt doesn't keep weighing on you.  You would have to "put it to the side" in your mind knowing that it will be awhile.

Just adding... what a rough road!  Glad things are looking up!  We too went through a time during the recession when DH was unemployed for 2 years and we spent our retirement savings.  It was so demoralizing.  But things do get better! 

[sassenach]

My gut is to stay. If you didn't have the built-in rental income I might have answered differently, but it's hard to imagine a housing situation better than that. If you move, you'll lose all the tax benefits of owning, too. And the Fafsa benefits.

[gardenmom5]

2 hours ago, LarlaB said:

Thank you.  It sounds so silly but I tear up whenever anyone tells me they've been thru similar.  Its a weird little club.  

Yes that's the concern that if we sell and we might never be able to buy an even similar house in this area.    Starter homes are $300K here. .  NOt that we couldn't do it. Its just obviously, our home, neighborhood and location is ideal.  DH works in insurance as one of his businesses and writes a lot of home policies- so knows very well exactly what the market is.  

We have seriously considered living in the basement apartment.  It would be a huge move and lot of work which is exhausting to consider on top of all of our current responsibilities, but again- so is moving.  We'd have to retrofit some basement aspects (unfinished space to become office and bedroom).  I'm excited by it to be honest. Just intimidated by the work. ANyway- the top two floors would rent for $1200 MORE than current basement rental.  Again, the rental market is very strong here. I think we could do it for a year.  

 

that's  another $1200 a month.  that can go a long way to paying down debt.  and you keep your house. (which will presumably continue to appreciate in value if you're in a strong market.)

[lmrich]

I would get further estimates on the deck repair or the replacement of just stairs and a small landing. You might get a home equity line of credit for this, and, yes, it adds to your debt, but, hopefully, you can manage to pay it off faster.  If you can rent the upstairs for the cost of your mortgage, it seems like the best possible solution. If your mortgage is $1200 a month, you can pay off $24,000 in less than two years. 

[gardenmom5]

oh-  and because the effluent had hit the fan . . . but we were still in our house .... my girls went to a far better college than we ever could have afforded - on full scholarships.(there was one year the school audited us becasue they didn't believe things could have gone from that bad to that much worse.   dh's background is finance and he has excellent records. they never bothered us again.    so - my girls went from the lowest tier income wise for students - to >95th percentile for income for their age of female graduates.)

so - don't discount the paying for college advantage.

sure- they could have gone to our good local state university - but they received a much better education where they went.

 

and our market is now insane and according to redfins' #'s - one of the top hottest in the country.  we would have been out of it if we hadn't managed to keep the house.