I have a pretty big chunk of debt. Even with my great job, if I keep my current lifestyle, it will take me YEARS to payoff.

I am seriously considering selling EVERYTHING I own (including my house and car) except for the following items:
1) Work Clothes
2) Some non work clothes
3) Toiletries (toothbrush, razors, etc) (i.e. hygiene required to keep a job)
4) My bicycle and assorted items (helmet, lock, etc)

I would then rent a very crappy apartment near to where I work (literally across the street, rent is like $200/month) and commute on my bike or bum a ride everywhere else. I would have no computer, internet, cell phone, normal phone, satellite radio, ReplayTV, TV, etc, etc, etc. I literally mean keeping *ONLY* those four items on the list. But, I would be very clos to a library to fufill most of those functions.

Eat top ramen / etc.

Get a second part time/night job.

If I did all that, I could get 100% out of debt within 1 year.

*************************************************

Is it worth the short term pain/dramatic reduction in lifestyle for long term financial FREEDOM? Obviously this would probably kill any hope of dating or relationships for awhile too...

I am seriously considering doing this!! (And I feel like I'm insane to be considering it, it certainly isn't a 'normal' thing to do)

Any advice or input?

-Allen

Is it worth the short term pain/dramatic reduction in lifestyle for long term financial FREEDOM?

The question is, "Is it worth it to you?"

Start with this link (http://www.ricedelman.com/planning/debt/problem.asp) and read all 12 parts. Very worthwhile.

And this one: Simple Does Not Mean Easy (http://www.ricedelman.com/planning/onyourown/simple.asp). Must read!

Check out John Cumato's debt reduction system as well. It is awesome.

Jeremy

Can you use your quest for fitness as a model of how you would do under these living conditions?
Are you throwing yourself head-first into your fitness lifestyle, or are you taking it a bit at a time?

Can you use your quest for fitness as a model of how you would do under these living conditions?
Are you throwing yourself head-first into your fitness lifestyle, or are you taking it a bit at a time?

That is part of what scares me about this idea, I keep failing at my fitness quest over and over.

-Allen

That sounds insane to me. :D

I had very sizeable debt four years ago due to putting myself through school. It was overwhelming and in the midst of it all, I went out and picked up my dream car... with a monstrous payment.

I simply sat down, and as painful as it was at the time, laid out bills, expenses, future expenses (house repairs, upgrades, emergency fund, etc) and devised my own plan to get out of debt. It was basically to live with a very tight belt for the first three years (to keep my car) and later to pay off the debt more aggressively.

I also researched using a debt solutions company. They have their advantages and disadvantages. Advantage - some credit companies completely do away with interest/finance charges. Call your creditors and ask them what they do when they work with debt solutions companies. I figured out which of my creditors will wipe out finance charges/interest so that 100% of my payment went to the balance(s). I put those accounts on Profina Debt Solutions. To pay off my other accounts (who weren't willing to work with debt solutions payments to quickly reduce my debt) I procured a consolidation loan to wrap up the bills into one payment (which is tax deductible unlike credit cards). But... make sure you get any financing before you go into debt solutions companies. The disadvantage - debt solutions companies are frowned upon... your future credit will be limited until you pay off those creditors and get the debt solutions companies off your credit record. My life is further complicated by the fact that my wife filed for bankruptcy at the time I was doing all this to reduce our debt... so despite our very comfortable combined salaries, I can't get financed to buy a candy bar right now.

Finally, I was lucky enough to buy my house for $10K less than it was worth, and it recently appraised for almost 50% more than it was worth when I bought it, so I have very substantial equity now. I refinanced my house into a 15-year mortgage, took out some cash, and I've recently paid off a few pain-in-the-ass debts that were also out there.

My next adventure will be estate planning... I have to figure out what to do to tax shelter all this money now that my debt is slowly evaporating and my loans, on which the interest is tax deductible right now, will be gone and Uncle Sam will come looking for more taxes. I already take out the max for my retirement savings... I'm gonna need lots more to keep the tax man at bay.

In less than two years (23 months, but it's less than two years!), I'll be 100% in the black (except for the usual bills, the house and one car payment). Looking back over the years, I might have minimized my debt a little, but not much... 4.5 years of college on your own ain't a cheap endeavour.

-R

I don't think it's insane but its definitly scary! :eek:

Instead of eliminating all your extravagances why don't you just eliminate some? You could cancel your cable, cell phone, satellite radio, etc. Just keep your regular phone, use your bike as often as you can to save on gas and plan out a really strict budget. Or for you does it have to be all or nothing? :confused:

Go for it. You'll save yourself so much money in the long run which will likely make your future much brighter. It's only a year, so be hardcore for a year and get that debt gone.

I'd do it(but I'm a bit of a massochist).

Part of it is just looking around at the vast armada of "Stuff" I have.

When I ask myself: "Now that the joy of acquiring it just to have the neatest/newest/latest/greatest has passed, would you buy it again?"

And, even more useful:
"If you didn't own <Insert_Item>, would you buy it for what you could sell it for on Ebay?"

More often then not the answer to both those questions is: "No"

Therefore, I should sell most of my stuff on Ebay.

But, I figure if I'm going that radical, why NOT get rid of my house that, now that there is no Fiance helping with rent is a pretty big drain (28% of my take home pay, just for the mortgage payment) on my monthly resources...etc, etc.

It keeps being "if your going to do A, why not also do B? If you are going to B, why not also do C?"

:d_eek:

-Allen

But, I figure if I'm going that radical, why NOT get rid of my house that, now that there is no Fiance helping with rent is a pretty big drain (28% of my take home pay, just for the mortgage payment) on my monthly resources...etc, etc.

Houses equate to financial strength. Unless you recover from this 100% with sparkling credit, you'll have trouble getting another mortgage at a human interest rate. If you're going to go extreme, sell everything, keep the house and sit there in the dark. Your house is a good investment, selling it would be a big mistake in my book.

I think Bluestreak is right, dont sell the house. I agree regarding your possessions, they are just pointless material things and you wont miss them, anyone who has ever backpacked knows what I mean.

Financial planning is not my thing but maybe to save money you could rent your house out and rent out a cheap little apartment right near your workplace for you to live in.

keep us posted.

Marcus :tucool:

And, to be clear, I am current on all my payments and am *NOT* struggling to meet my minimum payments. I've never had a late payment on anything, or anything of that sort.

I'm not at risk of any repossessions or utilities being shut off, I just want to get out of debt as fast as possible, and making payments of only $100-200 more then my minimums isn't doing it fast enough :)

For the record, we are talking $23,900 credit card debt (on my one and only card, YOWZA!), $18,000 student loans, and $77,000 on my house (worth about $86,000)

That is *ALL* my debt.

I take home $30,550 a year and cost of living here is very low compared to many other places (That $86,000 buys a 3 bedroom, 2 bath home here)

Does that impact or change anyone's opinions?

-Allen

How.. What... Hmm... To phrase it properly... You seem to have a supply, how is the demand? Why not rent a room?

Black-to-white, and make the things that give you debt into a thing that makes you money? (college education not-with-standing, that'll make you money anyway.)

This is the exciting part of life that I get to look forward to. I hope I'm prepared for it.

It's rough that you feel that you're paying it off so slowly, that you want it gone right now. But I'm a guy that's infuriatingly collected, of course, I don't want to put any of the money I get from my summer job into a bank account... I want to go spend it, fast as I can.

(Let's not talk about me now, I'll give my ego a rest) Spreading yourself thin the way you're thinking of doing is rough. I'm always impressed when I hear about people doing it, but impressing people doesn't really help. I can't talk anymore. It's not working. [The train of thought has spun through a tear in space and is now writing the complete works of Shakespeare with nine monkeys and one very confused train engineer.]

But hey, if we find me asking this same question in approximately two to three years from now, remind me of what I said.

Jeff. "O, my gosh, I should really stop talking now."

According to your figures, you won't pay your debt off in 12 months. You've got about $40K of unsecured debt and even if you profit $11K off your house you'd have to put 100% of your takehome pay into paying debts. You have to eat!

Why do you feel such pressure to eliminate the debt so fast? Perhaps this is why you fail at your fitness efforts. You need to make a plan that you can stick to for the long haul. Change your lifestyle but selling your house is a horrible idea. If you want to do something extreme, rent out a room in the house, take a part time job, and sell as many of your belongings on ebay as you don't want anymore. But you need internet access to log onto JSF.com

I think that there are better better alternatives if you look around...

According to your figures, you won't pay your debt off in 12 months. You've got about $40K of unsecured debt and even if you profit $11K off your house you'd have to put 100% of your takehome pay into paying debts. You have to eat!

Why do you feel such pressure to eliminate the debt so fast? Perhaps this is why you fail at your fitness efforts. You need to make a plan that you can stick to for the long haul. Change your lifestyle but selling your house is a horrible idea. If you want to do something extreme, rent out a room in the house, take a part time job, and sell as many of your belongings on ebay as you don't want anymore. But you need internet access to log onto JSF.com

You're forgetting the thousands of dollars I could raise by selling my 'stuff' on Ebay.

I feel the pressure to eliminate it so fast because the go slow, budget, pay off slowly plan hasn't worked for me, ever. I think I have an all or nothing personality. (Weakness, for sure)

Uuuu renting rooms. I wonder if I could get two folks renting here for ~$300/month thus essentially giving me FREE rent and maintaining the equity in the home...hmmmm.

-Allen

Your forgetting the thousands of dollars I could raise by selling my 'stuff' on Ebay.


That's true but the selling costs involved with cashing in on the house would be around 6% (around $5K). What exactly do you have that you want to sell? Maybe a JSF.com member would be interested...


It seems that you're seeking some drastic changes after your breakup. Interviewing roomates and picking one or two that you think you'd get along with would be a good alternative to living as a hermit for over a year in a shanty. don't you think?

Here's what I'd do in your situation:

(1) Keep the house.
(2) Rent out rooms/take on roomates. OR Rent the whole house to someone else at a profit over the mortgage payment, and use the difference to rent a cheap apartment. (First option if you don't mind living with others, second option if you can only stand to live alone.)
(3) Sell all the stuff I have that I couldn't actually afford when I got it. (Meaning the possessions that I bought on credit.)
(4) Sell all the stuff that can be replaced with something cheaper. For example, if I had a 45" flat screen TV, I'd sell it, and buy a cheap little used 13" job with an antenna for local news and weather alerts.
(5) Sell the car and buy a much cheaper used car. All you really need is a car that runs reliably, isn't a death trap, and won't eat away all the money you saved on fuel.
(6) Get rid of all the services that you don't need. Get rid of cable TV, get rid of broadband Internet (if you have it), get rid of the regular phone and just use your cell phone, definitely get rid of the satellite radio etc. If that library is near your office, you can always go by there to use the Internet.
(7) Stop eating out. . . ever. Shop sales and day old bread stores.
(8) Do anything you think of to save money.
(9) Do NOT under ANY circumstances, save paying for life saving medical procedures, get yourself into more debt.

I think that selling everything and moving into the crap apartment by your office would be irrational. What if you needed to leave that job in 7 or 8 months due to some unforeseen circumstance? You'd be pretty stranded. And you're not a monk, so it might be unrealistic to live like one. Living in your little hovel with nothing but some clothes, a cot, and a milk crate table might just set you up to go on a major spending spree (i.e. more credit card debt) or eventually make you depressed.

You can get out of debt pretty quick, I think, without making yourself utterly miserable. It might take a little longer than a year, but it might actually be something you can live with. :)

you basically just described "gazelle intensity", a metaphor Dave Ramsey uses in his Financial Peace and Total Money Makeover books... check them out, he has a detailed plan to attack debt to include his "debt snowball", funding your retirement, paying off your house, and not using credit cards EVER again! its a pretty good concept, and with a certain level of intensity and focus, the goals can be achieved in a relatively short time... www.daveramsey.com is his site for more info

A house is money in the bank. As long as it is taken care of it will always appreciate. Plus the interest paid on it during the year is a nice tax break.

An online friend had good things to say about www.roomates.com (http://www.roomates.com).

That should help you avoid getting a less than desireable roomate.

Check out this website. This guy wrote a book about selling everything on eBay:
http://www.allmylifeforsale.com/

I think selling everything makes sense when interest rates are high, but, dude, the student loan rate has never been lower! Get rid of that credit card debt ASAP by consolidating. What's your CC rate?

Keep the house & rent out a room. Don't pay a dime more than the absolute minimum on those student loans and concentrate on wiping out the credit card debt.

What's your house's interest rate? You might be able to refinance the house at a lower rate, take out a few grand in equity and pay down some CC debt. Your monthly payment would be the same or slightly lower.

Just some ideas.

do NOT borrow money to pay bills, ie HELOC to pay credit cards, etc etc. using someone elses money to pay someone else just gets you in more trouble, shows more credit activity on your report, and pulls the FICO down lower. a simple way to eliminate debt is to create a "snowball" effect, and this is similar to losing weight. yeah, we all want to lose 50 lbs, but if that was our only goal, we would lose sight of it and stop, so we set mini goals of 5 lbs, 10 lbs, etc to carry us to the end.

snowball is simple...

list out all your debts, smallest to largest. now, wipe them out, one by one, smallest to largest. this gives you some initial easy wins as the smaller bills are "low hanging fruit" and can easily be taken care of by adjusting some finances. as you pay off the smaller bills, that the money that would have been applied to them, and apply it to the next larger bills... as you move on toward the larger bills, you are able to pay more per month to eliminate them because the smaller bills are gone. additionally, create a budget and stick to it! a budget isnt something that is easy to produce, and might take weeks if not month(s) to refine. but write one, and stick to it, and make notes where adjustments are needed.

tip for your house :: how much do you pay per month for your mortgage? is it more than 25% to 30% of your income? if so, you are house poor, and need to adjust your lifestyle. are you paying PMI on your mortgage because you didnt put enough money down, and they required title insurance? this is all excess cash you are having to outlay which is wasteful.

you are getting lean and mean with your diet, cardio, and weightlifting. its time to get lean with finances!

Key to success :: Ensure your inCOME is larger that your outGO and you are fine. If not, you need to make lifestyle changes to get your finances "in shape".

Keep the house & rent out a room.
careful now... legally, he is obligated to list this money as income, and it can potentially move him to a higher tax bracket. this can and will affect his bottom line, so he may want to look at some calculations on how it will change his taxable earned income.

That's true but the selling costs involved with cashing in on the house would be around 6% (around $5K).
I think you are thinking of the real estate agents commission, which is an industry average of 6%, 3% for the buying agent and 3% for the selling agent. He could easily sell his house For-Sale-By-Owner, and pass those savings along to a new home buyer. This is very attractive right now...

Also, lets not forget potential tax implications of selling a house. If he has owned it for less than 2 years, he will be forced to pay short term capital gains, which can be anywhere from between 15% to 25% of the PROFIT. The profit is only the difference between what he paid on the house versus what he sold it for, minus any IMPROVEMENT he made, ie installed brick sidewalks, added a driveway, installed carpeting, etc. Yes, these all add to the bottom line on a house and help reduce the tax implications when selling.

If he HAS owned the house for 2 or more years, he is not obligated to pay capital gains on any profit unless its $250,000 if he is single, $500,000 if he is married. Since I doubt he will make that much profit, he would essentially be tax-free on his profits... This is a GOOD thing! :claplow:

list out all your debts, smallest to largest. now, wipe them out, one by one, smallest to largest. this gives you some initial easy wins as the smaller bills are "low hanging fruit" and can easily be taken care of by adjusting some finances.

I totally disagree with this. Don't eliminate the smallest debt, eliminate the highest interest rate debt. Trading high interest rate debt for low interest rate debt lets you eliminate more debt in less time. It's simple mathematics.

It's hard to do calculations without knowing your rates, but usually CC rates are around 20%, mortgage rates are ~6%, student loans are, what, 3-5%. If you borrow $ at 6% to pay off a 20% debt, you're going to pay the principal debt off faster because you're not wasting money on interest. Period.

PS. Who says you need to report the rent to the IRS? :D

i guarantee that his smallest debts are his highest interest rates, ie credit cards from Citibank and/or CapitalOne. Again, the first rule of thumb to fixing this is to have a "Plasectomy", cut up those cards and pay them off, and close the accounts.

PS. Who says you need to report the rent to the IRS? :D

Actually, there are many benefits to this - including repairs to the house and other miscellaneous expenditures that can be claimed on taxes at the end of the year if he can show that a portion of the house is a rental property. I used to do this when my wife and I weren't married yet but were living together. I was technically "renting" to her (which also negates "common law", even though FL doesn't have common law), so a portion of the house and repairs were claimed as rental property. I always came out ahead of not claiming the rent because you can deduct tons of stuff on your taxes that way.

I don't know the specifics - I always use a CPX to do my taxes. I only know enough to be completely dangerous when it comes to filing taxes.

PS. Who says you need to report the rent to the IRS? :D
granted, your nickname IS taxcheat... Ill sum it up in one word :: AUDIT

Its better to be safe now than sorry later, and writing that check+penalties+interest to the IRS.

... including repairs to the house and other miscellaneous expenditures that can be claimed on taxes at the end of the year if he can show that a portion of the house is a rental property.
yep, there are certain things that can be 100% deductible that year, ie repairs, and other things get a depreciation schedule, ie property improvements (landscaping, jacuzzi tub where there was a normal bathtub, etc)

he could POTENTIALLY come out "negative" if he did his deductions right, and had a Certified Tax Ninja sign off on it!

If his credit card interest is anything over zero and he has good credit he should just roll the balance into a zero percent card. There are always good opportunities coming in the mailbox. I've been rolling mine over for years and I'm very aware of my credit score-it's been improving.

Also, he should make sure he's paying a competitive interest rate on his mortgage.

As far as his taxes, he should report the rental income on a Sched E and in turn he can prorate his mortgage interest, prop taxes, repairs, maintenance, and utilities, AND he can depreciate the rental portion of the building's cost basis. Now I know what you're thinking-he's already deducting mortgage interest/prop taxes so how does that help him? You're right it doesn't, but being able to depreciate the rental portion of the building does. At the time of sale this depreciation will need to be recaptured at ordinary rates, so he shouldn't sell the house in a year where he's making huge income.

By the way, the argument that he shouldn't take on renters because "he'll be pushed into a new tax bracket" is idiotic. True, he should evaluate the true after tax effects, but if your boss offerred you a raise of $5K/yr, would you tell him, "no thanks, I don't want to pay the $2K in taxes that would result"?

The argument that he shouldn't ever refinance and just pay the small debts first doesn't make sense either. The reason the personal finance gurus always steer people away from borrowing is because they know that most people will just move the debt from one source to another and then run up that same credit line again, adding to their debt. However, if you have any self-control, refinancing debt is the easiest way to reduce it's burden.

Troy, if you had a $10,000 credit card debt and the rate was 10%, would you just suck it up and pay it down gradually, or would you transfer the balance to a zero percent card and cancel the first account. Despite what you've read about FICO scores, I can assure you that it's much more important to pay the least amount of interest possible, allowing you to actually pay down the debt, rather than avoiding 'activity' on your credit report. That being said, it's a bad idea to apply to multiple credit cards in a short period because it will show up as 'excessive inquiries'.

Troy, if you had a $10,000 credit card debt and the rate was 10%, would you just suck it up and pay it down gradually, or would you transfer the balance to a zero percent card and cancel the first account.
personally, i wouldnt do either if i had a card with 10k worth of "stuff" on it. here is why... generally, if you roll over to a zero percent card, you will be charged some sort of membership fee on a yearly basis OR there will be other stipulations where its 0% for a certain amount of time then jumps to 18 to 21%. pay attention to the fine print on those credit card contracts, because those that offer 0% for the first 6 months can and sometimes WILL tack on back interest if you maintain a "balance" over that 6 month magical mark. its similar to furniture stores that do "zero payments and zero interest for 6 months". if its not paid before that 6 month mark, they assess interest in arrears and hit you up.

here is what i WOULD do :: if i was dead set on getting that 10k debt GONE, i would put the maximum amount of money toward it every month i could, sell useless stuff in my house that i havent used in the past month or two, and even take on a part time job.

the difficulty with this question is that the answer differs based on the persons situation. to me, paying off a 10k credit card in 2 months would be easier than for someone that is living paycheck-to-paycheck, and in way over their head. so i honestly cannot answer objectively unless i were in said situation.

i personally prefer to use debit cards for my transactions because im spending my own money, not the banks. i do have a credit card, a single card, that sits in my freezer embedded in ice. we froze it in water as a joke saying "emergency only" and it stuck with the wife and i to this day...

also, i never said "dont refinance"... with todays rates, there is no reason NOT to refinance, especially if they are going to start going up again. thats one of the smartest things to do, and if you can get it with minimal closing costs, all the better, just dont wrap closing costs into the loan, and watch out for junk fees such as $35 for "express title delivery" or other weird stuff. I wont get into the debate of fixed length vs ARM, thats for another time!

you are exactly correct in regards to moving loans around doing consolidation or other sorts of interest-lowering techniques. a MAJORITY of the people out there dont have the self-control to call the company they just consolidated away from to say "please close this account", so they leave it open, and ultimately something happens that forces them to use the card. perhaps the tranny on their car dies, perhaps they see that new plasma on sale at Best Buy, whatever the case, the control is not there. its just like a diet, sometimes we stumble and stuff our throats with shit food, but we can easily undo that the next morning on the treadmill.... no amount of treadmill work will undo an afternoon at Best Buy :whistle:

Thanks for all the replies so far:
To list my debts from smallest to largest would be:
Student Loans: $18,000 at 3-5% (not sure but it is low)
Credit Card: $23,000 at 9.9% (rising slowly as interest rates climb)
House: $78,000 at 6.15% (this just was refinanced a couple months ago, and cash was pulled out to reduce the credit card debt, so there isn't much equity left. Value of home is ~$85,000)

That's it! No other debts, so the "low hanging fruit" is pretty much already taken.

Value of my "stuff" is approx (what I could get on Ebay):
Car $5,500 + $1,000 'parts'
Car #2 $500
Misc. Computer 'Stuff' $1,000
Home Theater 'Stuff' $3,500
Piano $1,500
Old video game 'stuff' $750
Golf Clubs $200
Other Misc. 'Stuff' $500
G4 Car Alarm $250
Rockford Fosgate EPX Symmetry II $200
CONSERVATIVE TOTAL OF 'STUFF': $14,700

-Allen

Thanks for all the replies so far:
To list my debts from smallest to largest would be:
Student Loans: $18,000 at 3-5% (not sure but it is low)
Credit Card: $23,000 at 9.9% (rising slowly as interest rates climb)
House: $78,000 at 6.15% (this just was refinanced a couple months ago, and cash was pulled out to reduce the credit card debt, so there isn't much equity left. Value of home is ~$85,000)

That's it! No other debts, so the "low hanging fruit" is pretty much already taken.

Value of my "stuff" is approx (what I could get on Ebay):
Car $5,500 + $1,000 'parts'
Car #2 $500
Misc. Computer 'Stuff' $1,000
Home Theater 'Stuff' $3,500
Piano $1,500
Old video game 'stuff' $750
Golf Clubs $200
Other Misc. 'Stuff' $500
G4 Car Alarm $250
Rockford Fosgate EPX Symmetry II $200
CONSERVATIVE TOTAL OF 'STUFF': $14,700

-Allen

If you could play the rate game-try the Amazon.com BankOne card which is 0% for one year on balance transfers and no annual fee-you would save $200/mo in interest. And you're right that your card will probably keep raising the rate plus it compounds daily so it's effectively higher than 10% annually right now-it's closer to 11.

Your mortgage rate seems about right, I would recommend paying the minimum on the student loan and mortgage and trying to pay off your credit card by selling the home theater stuff plus video games and (only if you don't play) the piano, then setting up auto pay on your credit cards so you're paying $250/300 per week without thinking about it. Then your cc debt will be gone at the end of one year or so, and you can focus in on your student loans if you want but I wouldn't bother-the interest is tax deductible. Oh and you might think about locking in your student loan rates by 'consolidating', which is a misnomer for you since you probably have just one loan. But you're basically going to be moving from adjustable to fixed on your student loan and if you can get it under 4% you'll be thankful down the road. My wife was able to lock hers in at 3.25%, which helps since she has $130K of med school debt.