My Debt. Progress and a plan.

Sadly, I live on the wrong side of the tracks in Debtville.  I have a monster subprime first mortgage at 6% (variable).  I have a monster HELOC at 8.75% (fixed).  And I have enough student loans to make Sallie Mae blush at 2.5% (fixed). 

You’ll also see from the student loan post that I initially set a goal to pay off the loan by 2011 through a combination of existing savings, selling crap and saving as much money as I could.  That changed to saving enough to pay it off, but not actually paying it off.  (I didn’t do a separate update post because I did so many goals, spending, etc., updates and figured you’d seen enough, but I piled up enough cash to pay them off but haven’t triggered the payment (yet).)  Wahoo!  Long story short, because we’re thinking of buying a house, our plan was to put that money towards a bigger down payment and then address the student loan (Until recently the interest rate spread was pretty significant and because the house hunting was pretty active we thought it made sense.  It’s getting closer now, especially given our tax situation…).

You’ll also know from recent posts, that I’m looking to grow my net worth faster than Jose Canseco in a testosterone factory (naturally of course – no juicing with my money).  So one option would be to sell everything and start over with leftover cash.  With how much I hate paying interest, you would think I would just pay it off, right? 

Well because I own the investment property (and owe the mortgage and HELOC) jointly with a buddy who has been tackling some other, more pressing debt, I was a bit married to him with those loans and agreed to take a bit of a bullet so he could direct his excess cash towards other debts.  I figured I knew (or should have known) that his money life would affect me when we bought the house.  The drain on my cash flow for the “greater good” of him paying off more pressing debts I viewed as stupid tax.  Don’t get me wrong – I’m no saint.  It’s been stressful.  But I signed up for it, so I really have no one to blame but myself (not even Wes Welker…).

Enter the progress and a plan.  A few weeks ago I got a call from my buddy letting me know he was expecting to come into some significant bonuses over the next year and has cleaned up most of his other messes.  He proposed a plan to pound down the HELOC using his extra cash (and me matching it) with a goal of getting rid of it and refinancing the first mortgage as his bonuses clear!  If all goes according to plan, we should be able to get rid of the HELOC within 12-18 months.  I agreed.  Progress.  And a plan. 

In some ways, I’m counting some chickens here when I only have a nest of eggs for sure.  But I thought it was worth mentioning here, as extinguishing the HELOC has been a goal for quite a while now.  Plus, he was pretty sure the cash was coming in.

We’ve also kicked around the idea of selling the property.  I’ve loaned a ton of money to the property in past years and we think the property could sell for enough to pay off the mortgage, HELOC and, most likely, me back.  But if we pay off the HELOC and refi the first, the property should give us both some pretty nice cash flow (well, it would give only me the cash flow until I’m paid back the loan and then “us.”).  So the plan is to get rid of the HELOC and “stabilize” the property as much as possible with a better, fixed-rate first mortgage.

Part of me would love to get rid of the house, pay off the student loans and then be completely debt free (until, perhaps I get a house).  For now, because I’m a bit married to my buddy with respect to the property, we’re going with the “pound down refi plan.”

What do you think?  I figure these are a bunch of options:

• Sell and forgive whatever part of the loan we are short? 
• Sell and have my buddy pay me back 1/2 of the loan (to make it “even”)? 
• Go with the “pound down refi plan” as my buddy gets his bonuses in, leaving as much of my cash and investments alone pending our home purchase decision (this is what I chose)? 
• Do the HELOC tango with my buddy but follow the debt snowball in the process, paying off my student loans in a lump sum now, ignoring my house hunt, and then cash flow the HELOC as my buddy’s bonuses come in? 
• Pay down the HELOC without regard to my buddy’s half?

And many, many more for sure.  What would you do? 

Incidentally, anyone else get into a business / real estate investment with a family member or friend?  How did it go?  Let me tell you, it takes a LOT of patience and perspective to get through the roller coaster when things dip.

Until next time, put your credit card down and slowly step away from the mall!

Like what you see here? Tell your friends by sharing it with one of the buttons below. Post this to Facebook or Tweet it to help your friends and family, too. And don’t forget to send me an e-mail or comment to say hello. I love hearing from you.

Also, please join our recently-started Facebook community where I hope to build a place where we can all share thoughts, successes and support.  And don’t forget to follow me on twitter where you’ll find most of the posts, random thoughts by me and more.  See you there!

Image: Salvatore Vuono / FreeDigitalPhotos.net