Got myself into a pickle...

[komodo]

Right so my wife and I have managed to get ourselves into a bit of a pickle.

We have a PPOR with an estimated value of $450-480k
On this we have an outstanding mortgage of $352k PLUS a second mortgage as a deposit on our investment of $21k
The investment property is worth about $305k and is pretty much 100% hocked between the 2nd mortgage against the PPOR and the lend against it.

Where we're bent over is we've been silly with debt - about $115k worth of silly. $35k personal loan. $30k second personal loan. $40k on credit cards (yep I'm kicking my own bum here!) and $10k against a car. (wedding, renovations, holidays etc were all nice but we're still paying for them...)

Now to make things just that little bit more messy we've recently had our first child and my wife when she goes back to work will only be earning about 1/3 of her previous wage and now I have an unsustainable amount of outgoing so I need to consolidate and get rid of this naughty naughty debt before I get myself into a whole lotta strife that I can't paddle out of.

Last year I applied for a consolidated personal loan with one of the big 4 for $110k and got knocked back due to a having over drawn account a few times.

Now I'm a bit gun shy to apply to finance and get knocked back because of the effect on my credit file - where should I be turning to?

Are there any recommended brokers that deal with someone in my kind of pickle?
I could "possibly" get a relative who would go guarantor if I was able to get more than 100% finance against my PPOR if that would help?

Suggestions welcomed. I'm starting to loose sleep - eek!

 

[DaveM]

Reval PPOR to say 450k at 90%

431k funds less LMI (say 8k) less 352k less 21k = 58k cash to pay out the high interest on credit cards and next highest interest rate debt. More depending on PPOR val

Convert PPOR and IP to interest only, that plus CC debt reduction will free up cashflow.

Then cut up credit cards and loan docs and focus on providin for your new family and paying down debt

 

[Corey Batt]

As Davem has said, it may be of value refinancing the unsecured debt into a loan against your house. This will reduce your interest liability and repayments somewhat, giving you breathing room.

If you don't have the serviceability to do this with your current lender, another lender MAY take on your debt through a refinance IF you have consistently made your repayments for existing mortgage + a clean credit file.

Talk to a broker about your situation and be upfront with your situation, some people believe its a good idea to omit certain information - which is only to their detriment. Even if you can't climb out of the hole right now, you will know what you need to do to get to a better situation.

 

[alexlee]

Assuming you can lower the rates on the personal loans to around 5%, can you in fact service it? Have you actually looked at your budget?

 

[komodo]

Thanks guys that's pretty much what I'm hoping to do. My concern is that I've gotten about 3 weeks behind on some loan repayments. Nothing that shows up on my credit file but it does show up on bank statements with arrears fees etc. Will this be cause for concern even if I'm upfront about our situation.

 

[Terry_w]

A dangerous predicament. I would suggest you consider selling the IP now before you start defaulting. The proceeds will pay out the 2nd mortgage and ease cashflow.

 

[Simon]

Refinancing to pay out consumer debts is not always the easy option.

Unless you change your habits you can well end up maxing out the credit cards again on top of the new mortgage. I have seen people do it over and over again.

I'd recommend you examine your relationship with money and spending and make some changes before going into more debt.

I know I sound harsh but if you take the wrong turn here you could end up worse off as Terry alludes to.

 

[jim1964]

Im not a finance wizz,but this is what i would do.

1) Sell the IP ASAP.

2) Get another bank to take on the existing CC debt on a 0% for XX months,and cut the card up.Pay the debt down in this time.

 

[skater]

Im not a finance wizz,but this is what i would do.

1) Sell the IP ASAP.

2) Get another bank to take on the existing CC debt on a 0% for XX months,and cut the card up.Pay the debt down in this time.

This........AND take a good look at your spending. Draw up a budget and stick to it. Cut anything that is unnessessary. Get rid of Foxtel, eat at home. No new clothes unless they are really needed. Buy generic brands, etc.

A little hardship now is much better than a whole lot of it later, and may also help to educate yourself with your relationship to money.

 

[marg4000]

Sell something - NOW.

Go through all your assets ruthlessly and sell anything you can do without.

Sell the IP.
Downsize your car
consider Gumtree or Ebay for unused household or baby goods

CUT UP THE CREDIT CARDS - yes, shouting here.

Your wife may have to go back to work earlier than planned, and work more hours than previously hoped for.

You may be able to get a second job - weekends in bottle shop, stacking shelves at night, anything to bring in more $$$ until you get back on your feet.

These measure aren't forever, just to get you back on your feet and get rid of as much debt as possible. Make sure you get up to date with bank payments, then start with the highest interest ones (so long as there is no penalty for early repayment, i.e., personal loans).

And, from today, only spend on essentials. No takeaways, no coffees (unless made in your own kitchen), no new clothes, limit petrol etc.
Marg

 

[hobo-jo]

Sell the PPOR.
Circa $90k cashed out would cover most of the personal debt.
Move into a rental.
Pay down the remaining consumer debt ASAP.
Learn to live within your means.

 

[Terry_w]

Sell the PPOR.
Circa $90k cashed out would cover most of the personal debt.
Move into a rental.
Pay down the remaining consumer debt ASAP.
Learn to live within your means.

Good point
Moving into a rental is worth considering as you could claim expenses, and live much cheaper as well.

 

[Blacky]

Quite a pickle indeed.

As others have said, merely re-financing your debts is going to be a long/hard road to recovery. You need to make some big changes and quickly.

I would seriously look at offloading your car and IP (and any other expensive 'asset'). If your wife isnt working - you should only need one car at most.

Again - as others said - you need to be ruthless with your expenses.

Do you track what you spend money on each week/month? if not try this www.pocketbook.com.au. Very handy little program.

Then cut/slash/burn your expenses. Consider everything you spend money on as an un-needed luxury. You need to clear a lot of debt very quickly

Blacky

 

[DoAndroidsDream]

You use words like 'pickle', 'silly' and 'naughty' but the situation you are describing is serious and has the potential to affect your credit, bankrupt you or worse, your relationship with your wife.

The first step is really taking an honest look at your debt and your language to describe it. I'm not sure how your wife views your situation or if she is aware of how much stress this is causing you, but I think it's a conversation you both need to have. Without holding back. As others have said, I suggest that you understand your relationship with money and then work out a budget plan moving forward.

Others have come up with some good suggestions, such as selling your IP (I'll leave the finance/bank strategies to them), but I would also suggest that you speak individually with your bank and your credit card companies about a plan. You will have to double check whether this will affect your credit, but most companies are happy to work with individuals experiencing financial hardship. They can help with a smaller repayment plan or by putting your payments on hold altogether for up to 6 months in some cases. This is not a long-term solution, but it might relieve some of the pressure.

All the best to you and your new family.

 

[SOP]

Selling can take months. Move our ASAP and rent out your home and find a cheaper rental. Then when your circumstances change you can move back.

 

[Jake D]

After doing everything already suggested here, get a second job.

 

[komodo]

Right I think some of you are jumping the gun. There's no need to sell either properties. Selling the car is an option but I think first I'd be selling my ASX shares (I'm in the process of doing this but that's turned out to be a bigger job than first expected due to not having the correct ID paperwork). That'll pay out about $20k - should have done this a while ago.
We've gotten ourselves into this by acting first and thinking later. I'm trying to look at this sensibly and hocking everything in a fire sale isn't going to help us at all.

Wife is going back to work in 4 weeks. She was going to go back basically straight away but complications during labour have meant she has had to take time off.

We've sustained this level of debt for 4 years - its only really started to bite how much debt we're in with my wife not working at the same time as doing a $20K renovation/extension (due to a minor renovation that revealed some serious rot which needed to be repaired/replaced then and there) which has tied up cash flow. Yep should have used the cash to pay out debts but what was planned and what has eventuated are two different things and now I need to clean up the mess. I know WHERE I've gone wrong and how we've got into this position - I just need to workout how to finance to get out of the hole.

I don't have the time for a second job - I work 70+ hours a week in a high stress environment. Income isn't an issue - its out goings due to high (18%+ on cards) interest that's causing the headache. Our personal credit outgoings are more than my PPOR P+I mortgage. All the personal lending is @ 14% or greater.
Even if I wanted to work a second job being in the second highest tax bracket would mean that even stacking shelves night shift would mean that I'd have to work stupid hours to make sweet FA - I'll be honest I'm not even remotely interested in doing such. Time with my newborn is precious as it is. I don't need to be making it more so. Plus my employer wouldn't be impressed with me under performing due to fatigue and the last thing I need is to loose my job - then I WILL be in a heap of trouble.

I know HOW I'm going to get out of the outgoings hole - its a matter of how to go about getting that finance. If I could reduce all my interest to even 10% I would reduce my outgoings by nearly $1k per month.

The IP costs me basically nothing its less than $160 per month (including insurance, rates and topping up the mortgage). Selling that would be foolish as because its 100% hocked basically against its current val would mean I'd end up out of pocket further and that's assuming I could get a buyer in a hurry.

I've just last week cancelled my foxtel and switched internet providers and done a few other things in an effort to reduce household over heads. We've also pulled in the purse strings on spending. All these things are great but they wont get us ahead they'll just leave us treading water as we've been doing for the past 4 years if we don't get these debts consolidated and moved onto a lower interest rate.

I was more interested in how to go about getting the finance being that I've been knocked back previously for having some debts showing arrears (again though nothing that shows up on my Veda credit file - just items that show up on statements). I think I've probably made it out to be a lot worse than it is. No doubt we are in a serious position where we've built a house of cards that could come down very easily and this is why I need to act now to reinforce our financial position to prevent that happening in the future. I guess my wife's complications during labour have really given us a wakeup call as to how precarious our situation is.

Sure we've made some bad decisions and then on the other hand some of the debt has been accumulated due to medical treatment costs for my wife (part of the reason we've had a kid is because we were told we need to have a kid now or forget about it) and $10k of it was an emergency vet bill (as much as I'd like to say I'd give the dog the lead pill when you're in the situation compassion takes over from financial sensibility - enough said).

Appreciate all the advice guys.
I think more than anything this has reinforced my thinking that I need to sit down with a good mortgage broker and work out how best to structure borrowings.

 

[skater]

Right I think some of you are jumping the gun.

I don't think anyone's jumped the gun. I think you are probably in denial.

There's no need to sell either properties. Selling the car is an option but I think first I'd be selling my ASX shares (I'm in the process of doing this but that's turned out to be a bigger job than first expected due to not having the correct ID paperwork). That'll pay out about $20k - should have done this a while ago.

OK, good start, but will that $20k pay out all your credit card debts? If not, then you still have a heap of work ahead of you.

Wife is going back to work in 4 weeks. She was going to go back basically straight away but complications during labour have meant she has had to take time off.

We've sustained this level of debt for 4 years - its only really started to bite how much debt we're in with my wife not working at the same time as doing a $20K renovation/extension (due to a minor renovation that revealed some serious rot which needed to be repaired/replaced then and there) which has tied up cash flow. I know WHERE I've gone wrong and how we've got into this position - I just need to workout how to finance to get out of the hole.

And what happens if you can't get finance? Have you thought of that? Do you have any structure in place to make sure this doesn't happen again?

Our personal credit outgoings are more than my PPOR P+I mortgage. All the personal lending is @ 14% or greater.

This is a HUGE problem. You don't just need to refinance, you need to get this paid off. Even if you were to refinance at 10%, would you have enough to get stuck into this debt & get rid of it?


You would be best to maybe sell the PPOR (no capital gains tax) pay out all the non-deductable debts, and rent, while you get yourself back onto your feet. Sometimes the hard decisions are the right ones.

I know HOW I'm going to get out of the outgoings hole - its a matter of how to go about getting that finance. If I could reduce all my interest to even 10% I would reduce my outgoings by nearly $1k per month.

Like I said before, would that extra $1k be enough to knock this debt over in a reasonable time? If the answer is NO, then you need to be doing a lot more.

The IP costs me basically nothing its less than $160 per month (including insurance, rates and topping up the mortgage). Selling that would be foolish as because its 100% hocked basically against its current val would mean I'd end up out of pocket further and that's assuming I could get a buyer in a hurry.

I've just last week cancelled my foxtel and switched internet providers and done a few other things in an effort to reduce household over heads. We've also pulled in the purse strings on spending. All these things are great but they wont get us ahead they'll just leave us treading water as we've been doing for the past 4 years if we don't get these debts consolidated and moved onto a lower interest rate.

OK, good start, but somehow I fear that this is only the tip of the iceberg & much more could be done. You need to get rid of the debts completely.

I was more interested in how to go about getting the finance being that I've been knocked back previously for having some debts showing arrears (again though nothing that shows up on my Veda credit file - just items that show up on statements). I think I've probably made it out to be a lot worse than it is. No doubt we are in a serious position where we've built a house of cards that could come down very easily and this is why I need to act now to reinforce our financial position to prevent that happening in the future.

Yes, you need to act now! What happens if your wife wants to stop work to look after the little one? How would you cope? Does she have that option?

I guess my wife's complications during labour have really given us a wakeup call as to how precarious our situation is.

Like you said, it appears to be a house of cards that could fall down at any minute. Refinancing will give you breathing room, but it won't get the depts drastically reduced, which is what you really need.

 

[vaughan]

... $10k of it was an emergency vet bill (as much as I'd like to say I'd give the dog the lead pill when you're in the situation compassion takes over from financial sensibility - enough said).

Wow.

(Somewhat edited from my original post.)

 

[tobe]

have a go at refinancing. late payments arent a deal breaker for every lender.

I agree selling the investment property wont make much diference to your after tax cashflow, the best option is consolidation, IF you can turn over a new leaf afterwards.....