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While I think most of the original advice given back on page 1 was pretty good, I think she should probably be looking at renting instead of buying a smaller place. There's no bank around that would give someone in this situation a mortgage for a second property.
Aside from that, she need to start looking at short sale options. That house is just going to ear her financially alive. Even if she were to sell it at a $200k loss and her mortgage company obligated her to pay that back, I still think renting a 2 bedroom apartment and paying that loan back would be less than the current mortgage + taxes. One way or another, she needs to sell.
Either that, or marry a doctor fast who want a charity case... because I think that's the only other option. Honestly, in this whole situation, I feel bad for the kid most of all.
I have no advice to offer as it has already been given. What I will say is I certainly would not want a physician with that much financial stress providing me any medical care or advice. That heavy a financial burden could be distracting and affect her ability to make sound decisions.
Bankruptcy is the most obvious answer. Stings the pride a little, but she'll get over it. And her as well as her child's life will be much better afterward.
Of course, she probably can't bankrupt out of the student loans. But if she's willing to take a job in the public sector she may be able to get some relief as well as better working hours. (but the pay usually isn't as good.)
Can she not find a live in nanny for closer to $2k/month + free rent/food? She could also find a few young college girls and rent them a room for $500 each. The third thing she can do is give away the pets which probably saves $3k/year.
These three suggestions give her an extra $39k/year - enough to cover her student loan. Maybe this would give her some breathing room. If she gets raises, she'll have even more room.
With that said, it's still not how a MD should be living.
I imagine with a child and all those expenses, she takes home ~$150k/yr?
Property taxes on home/car are probably $12k.
Food budget for herself, child and pets is probably $10k.
Utility/maintenance on that huge home probably run her another $10k/year.
mortgage payment at 5% = ~$5k/month/$60k
car payment/gas/maintence = $800/month/$9600
childcare = $4k/month or $48k/year
student loan payment even at 2% (low) for 20 yrs = $2800/month/$33,600
So with just this stuff she is already paying out about $30k more than she makes. And that's without buying clothes, toys for the kid, entertainment, credit card payments, retirement,toiletries, gifts, etc.
This lady need a husband ASAP. And she doesn't have to be picky...heck, the guy could quit work and just be a stay at home dad. Is she horribly ugly or something?
She has seriously screwed up. Taking renters/renting the home out is just gonna lead to more problems and would be my last choice.
If I woke up one day out of the blue and found myself in her shoes. I would....
Kid....
Find a new daycare/nanny. 48k a year is ridiculous with her budget. Its not forever just until she can get everything under control.
House....
Approach the bank about taking the home back and/or doing a short sale (tricky, not likely to work). Whats likely to happen is that the bank will string her along to keep her making payments and blowup any short sale at the last minute on a technicality. Besides if she found a buyer today its gonna be 4 or 6 months before she actually gets to the sale date.
The only viable renting option she has is if a service is available that can manage the property for her and her portion of the rent is less than 1k away from making the rent. She will need to find something seriously cheap to rent to be able to pull this off. And once she is out she will have to immediately save up 3-4 payments so she can cover the payments with zero rental income, or she will wind up in a worse mess.
Fancy car....
I either missed this or it wasn't included. Sell the car she is probably driving around that she can't afford and pick one of hundreds of safe reliable 2-3 years old used cars that cost <30K she could easily afford.
She seriously needs to be living like she is making 70k a year in respect to the above items. What got her into this mess is thinking, I make 170k a year, I can afford that. She needs to change that thinking and shrink her expenses down so tight her neighbors thinks she flips hamburgers at McDonalds, and tough out a few years of pain to get the yoke off her neck forever.
Credit cards.....
With her income she should be able to rapidly pay these down once she gets the above under control. Lock them up and never use. Barring the will power to do that, cut them up.
Student loans.....
Once she gets the cards taken care of then she should be able to roll a large portion of her surplus into paying these down. The rest she can start saving, I wouldn't save a nickel outside a stash of emergency cash until I got to this point. (well if she has a matching 401k she needs to be contributing to get that match).
Its gonna take several years to climb out of this hole. The more aggressive she gets on trimming her lifestyle back the quicker she will be able to move back into the lifestyle that her income should afford her. The smart play would be to SLOWLY increase her lifestyle once she gets out of debt and begins catching up on savings.
If she is unable to do these then the last resort is bankruptcy. With her income it will be difficult to get everything wiped out, but she should be able to get enough lifted, and a reasonable payment plan put in place. The key to turning the corner is the house and the nanny.
Why oh why did she ever think that bringing a kid into this mess was a good idea. If she was that lonely/desperate a good vibrator would have made a better play toy than a kid and cost a whole lot less. And if its a Mr Right she wanted then having a kid seriously put her at a disadvantage in that department.
The behavior listed is so irresponsible that I would fully expect that if you updated this in five years we would hear a story about deteriorating health, medical bills on top of the already mentioned bills, 50k additional in debt from payday loans, a bank is chasing her down for 400k of unsecured debt because they foreclosed on her and sold her house for 500k, a problem kid stoned on an assortment of drugs for a whole host of mental issues and a divorce. Got to get through to her that she has to change the behavior.
And yes, these types of people is exactly why Dave Ramsey is so popular. In fact you should get her the book, because its not really a book about getting out of debt so much as its a book about changing how you think about money.
Last edited by justanokie; 04-19-2014 at 05:45 AM..
Why oh why did she ever think that bringing a kid into this mess was a good idea. If she was that lonely/desperate a good vibrator would have made a better play toy than a kid and cost a whole lot less. And if its a Mr Right she wanted then having a kid seriously put her at a disadvantage in that department.
I wonder how old she is. I'm guessing 35. I've heard some women say that if by a certain age (I think it was 33+) they aren't married, they'll find a sperm donor. I just laughed because I didn't know if they were serious. This woman was serious.
I don't see a problem with walking away from a house and mortgage. people should do that if they cant afford their home anymore. isn't that the deal? you agree to pay your debt and if you don't, the bank gets your house. the issue is that without 20% down payments, there is no equity so the bank gets nailed. however, if they bank doesn't give a loan unless there is a 20% down payment, then they have a cushion and can make out fine on the deal.
also, I don't blame banks for the fact that many people cant afford their mortgages. I think people are responsible for that decision. but a bank should also be responsible for their decision to loan someone money when that person cant afford to pay them back. if this lady has a 950k mortgage and a 170k income, then I don't feel sorry for the bank if the lady stops paying. they shouldn't have loaned her that much to begin with.
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