Dear WWKD,

My husband and I have an investment condo. We have been able
to rent the unit for the last 5 years however we were never able to rent
it for the full amount of the mortgage plus HOA dues.  We owe approximately 30k more than it is worth.  Although it is an inconvenience to rent it, and we
lose approximately $260 every month I don’t want to foreclose and
have that on my credit rating.  However, my husband thinks it is best to
foreclose.  Need some guidance!!  What would you do?  BTW  we are living approximately $250.00 dollars beyond our monthly budget at this time.

What would Kim do?  Signed: Beyond our Budget

Dear Beyond our Budget,

An investment condo means that you are in a positive cash flow each month or that your plan shows there will be a positive cash flow in the very near future.  In your case I don’t see either.  If you have been losing $260 each month for the last 5 year that means you have lost $15,600 over the last five years on something you purchased with the intent to provide additional income.

If you are like most people, you are not in a position to consistently lose money, in fact you made that point clear by stating you are living $250 beyond your monthly budget each month.

Here a question, is that  $250 because of the $260/mo loss from the condo or is it in addition to that meaning you are at a $510 deficit each month?

What I would do is sell the condo, even at a $30k loss.  Get a loan for the difference and pay it off.  Yep, that hurts, but there is no better learning experience than one that hits your wallet.  I am not a big fan of foreclosure unless there are NO alternatives, I don’t see that as being the case here.  If that isn’t an option, you could always increase the rent, but I suspect in this market, there are plenty of condos available for rent so most likely your renter would just move on leaving you in the whole for the full amount each month.  Best to sell at a loss.  Be sure to properly inform your renters of your intent…no reason why they should suffer due to your financial issues.

Regarding living beyond your budget each month by $250, I would revisit my budget.  Time to cut back on something, cable TV, eating out, maybe even selling a car that has payments.  There is no way I would live in the beyond my budget each month, that means you are not living on your own, you are charging your living habits somewhere.  There is some behavior that must changed or something maybe multiple things need to be sold.

WWKD,

I have two properties.  One I live in the other I rent at negative cash flow of $200. I owe $103,000 market value $67,000. property is 26 year old.

Should I foreclose and get read of it? Should I stop payment on it? How bad will that affect my credit score although it may not matter at this point because my credit is not at its best.   Thank you for your help and expertise.

Signed Two Properties
Dear Two Properties,

I don’t recommend just stopping payments, after all you have a responsibility to your renters and they must be considered first.  They are paying you rent, they don’t deserve to be evicted by the bank due to a foreclosure by you not paying what you agreed to pay with the bank that is just not right or responsible.

Talk to the bank, let them know about your situation and see if they can adjust your mortgage on the rental property.  If not, discuss with them what your options are, they don’t want another foreclosure anymore than you do.  Maybe a short sale is possible, or deed in lieu of foreclosure.

Consider the possibilities of talking with your renters about a rent increase, be sure to follow your current lease terms.  Also, maybe the renters would be interested in buying the home from you, that is something else to offer and/or discuss with them.

WWKD,

So Kim, if I come up short $500.00 each month on my quickie budget…and I have a small draw that does not cover my bills AND I will not sell my house in this down economy and lose my equity situation what do you suggest?  I would like someone to look at my budget and, give me personal advice on what I can trim.  I am at a loss to find anything.

Signed: At a loss

Dear At a loss,

Coming up short $500 each month is a lot of money.   I have to admit, from your question I do need a bit more information to be able to provide you a real solid answer but I can provide some general suggestions.

By stating you are taking a “small draw” I assume you are self-employed or a free agent which is a fantastic way of life but it does take a lot of work.  Not knowing the field that you are in, is it possible to increase some marketing to bring in more business to increase your monthly income.  That would be my first recommendation.

Second, when one is self-employed sometimes it is necessary to take up a second job during the lean times.  True, this is never a preferred method, but it would be pretty easy to bring in enough from a second job to cover the $500 difference.

I realize you don’t want to sell your home due to the down market but I would encourage you to look at all options, consider if you have too much home for your income.  Yes, this is a tough thing to consider, but if you are not making your mortgage, it is better to start a selling process now before you possibly get into a foreclosure situation.  If you are keeping your mortgage current, that is great, but I would still re-evaluate if you have too much home for your income.

Yes, I would agree it may be a good idea to have someone take a look at your budget.  We do offer a one-time budget review which can be found on Our Services page.

WWKD,

We have 36k in credit card debt.  We make around $6,400 a month after taxes.  The mortgage payment is $1,500 and we are current.  We are able to pay  utilities and food as well as the car payments but that is about it.  The credit card companies are bugging us everyday wanting money from us that we just don’t have.  As it is we are still having to charge some things like cloths on credit.  I am a stay at home mom, and have three kids the oldest is 8.  I don’t want to get a job because what I make would be spent on day care.  What should we do?  Is bankruptcy the answer?

Signed: Should We File

Dear Should We File,

Just like I wouldn’t recommend someone get a divorce, I wouldn’t  recommend someone file for bankruptcy.  Both are the easy way out but cause pain and heartache for years after the papers are signed.

What bankruptcy does is clear up the symptom (stops the bill collectors from calling) it doesn’t address the root cause of the problem which is spending behavior.  Bringing in $6,400/mo is good income.  From what you have said here I would first look at where your money is going.  You mentioned $1,500 mortgage, utilities and food, all these things are necessity.  You also mentioned car payments.   Car payments  is a killer to budgets.  The average car payment is between $380-$460 month every month for up to 60 months, sometimes more.  If you have two cars, each with a $380 payment, that is $760 bucks that you could be putting on credit cards to pay down your debt.

I have said it before, used cars are fantastic.  I have a 2001 Explorer that I paid $5,600 for 2 ½ years ago, it runs great, is reliable, and has cold air.  But what makes it even better is it is paid for.  No matter what I would never be able put $380 a month into that on repairs.  My recommendation would be to first sell the cars and buy something you can pay cash for.  Most likely you owe more on the car than it is worth, so worst case, trade down on the car.  Trade it in for something with a much lower payment that you can get paid off in a year or two.

Make a budget.  Write down all your expenses, right down to money you feed into the vending machine, eating out, newspapers and magazine subscriptions.   Then objectively take a look and determine where you can cut back.  When coaching clients I can usually find $250 to $500 of over spending each month, that is a big monthly raise.

Once you have a budget laid out, make the decision to follow it.  If you want to spend money, check the budget, discuss with each other if you can afford it now or if you have to save for it.  Stop using credit cards.  Spending on credit means you can’t afford it.  Discipline yourselves to look long term instead of getting it now.

Most people who file bankruptcy are in debt again within two years, hence all they did is clear up the symptom instead of cure the cause which is over spending.  Your goal should be long term solution, not short.

As a side note, children are like sponges, they watch how Mommy and Daddy handle money, they may not understand it now, but they are learning the behavior just the same.  How do you want them to handle money when they are old enough?   Like you are now, or by paying cash and living without bill collectors calling?

Please let me know what you think.

WWKD,

We currently have a first mortgage of $280,000 with an interest only adjustable rate of 5.5% that will begin to adjust in January. We also have a second mortgage of $140,000 with an interest only rate of prime minus 1/2 that will be due in full sometime in 12 years. We tried to refinance and roll the second into the first, but the house dropped $250,000 in value and were not approved for the refinance. What options do we have if any. Signed: Thinking about walking away

Dear Thinking about Walking Away,

If I was able to make the payments and am current on both mortgages I would not walk away.

Yes, I would continue to plan and attempt to refinance to a fixed interest rate on both mortgages. Banks do not want you to walk away or go into foreclosure, that is a no win for both sides. I would try again with your current lender, that is always your best option, you may have to talk to multiple people each at a higher position than the other before you get someone to listen to you…remember their first answer will always be “no”, many times their second answer is “no” as well, but keep trying.

There are plenty of lenders out there, if your current lender won’t let you refinance, start shopping around but keep current on both mortgages.

You have a valid concern that once the interest rates begin to adjust you may not be able to afford the payments so the time to plan for that is now. Good news is, interest rates are still low, so even it it adjusts it should still remain on the low side.

WWKD,

Money is very tight, we make it each much but barely. We know we are suppose to pay tithe but don’t see in the number how that is possible. How do we pay tithe when at the end of the month there is no money left after we pay all the bills and buy food? Signed Convicted but Scared.

Dear Convicted but Scared,

This is such an important question and one I receive often.

All that we have belongs to Christ, he trusts us with all of it and all He asks in return is that we give back 10% in faith the He will supply for our needs. If you tithe faithfully from your heart and put our honest trust in God that He will supply for your needs, He will meet those needs. The only think that God challenges us to test HIM on is tithing.

“I am the LORD All-Powerful, and I challenge you to put me to the test.
Bring the entire ten percent into the storehouse, so there will be food in my house. Then I will open the windows of heaven and flood you with
blessing after blessing. I will also stop locusts from destroying your
crops and keeping your vineyards from producing.” Malachi 3:10-11 (CEV)

Tithing is all about faith in Christ, not about obligation. Oh I know how difficult it is to tithe when you look at your bills and your income. I was once there, contemplating putting that 10% toward bills instead of returning it to God. But I believe in HIM and paid my tithe faithfully, he always provided for my needs. I remember one time, I had paid all my bills, rent, electricity, car, gas, but I didn’t have enough for food after paying tithe. I paid my tithe, the next day I received a check from my power company returning my deposit, enough for food for the month. God is good and He does supply for our needs.

What that taught me was that I must pay my tithe first, so I am not tempted at the end of the month to use that money for living expenses.

Put your faith and trust in Christ, return to Him what belongs to Him, test Him and see how He will bless you. This what I have done, God hasn’t failed me yet.

Each day I received multiple questions from folks just like you looking for some help, some hope, regarding the financial situation they are in.

I get questions ranging from how to handle a short sale, to dealing with debt collectors. Questions from people who just received a foreclosure notice in the mail and are scared to death they will lose their home.

You would think that I only get questions just about how to handle money since this is a money management coaching and mentoring site. That couldn’t be further from the truth. I get questions not just about how to manage money, but how money sometimes manages marriages. You see money doesn’t just affect bills, it affects relationships. Husband & wife, mother daughter, father son. If money isn’t being managed well, chances are relationships aren’t either.

That brings me to the “What Would Kim Do?” segment of this site. This is a place where I will be answering the many questions that come into my office through this site, Dave Ramsey inquiries as well as email and some forum posts that I feel need some further clarification. Nine out of the ten questions I receive are involving a situation that I have gone through, so my answers are based on what I would do or what I have done to resolve the situation. Since I have been successful with dealing with creditors, eliminating my debt, financial pressures that affect life, I am in a great position to share my success with you,

I am doing this in hopes of providing you another avenue to get free help, to get a sense that you are not alone in your financial distress, that there are others who have similar circumstances as yourself. If I can be successful, so can YOU!

Please subscribe, read through the articles. If you don’t find your answer to your situation feel free to submit a question, you never know, your question may be selected and answered here. Of course, all names have been changed so you won’t have any worries about being identified.