Killer House Payment!

Dear Dave,
I'm about to get a settlement of $35,000 from an auto accident. Do you think we should use it to pay down our mortgage, or save it, sell the house and try to find something cheaper? Together, we bring home about $3,200 a month, and our monthly mortgage payment is $2,400. We also have about $5,000 in credit card debt, plus medical bills from the wreck.
Sherry

Dear Sherry,

I don't say this often, but you've got to get that house sold. And I mean today! You've got 75 percent of your take home pay wrapped up in a mortgage payment, and it's eating you alive! Your house payment should be no more than a fourth of your take home pay on a 15-year fixed-rate mortgage. And with what you guys bring in, that means your house payment should be around $800 a month - not $2,400.

If I'm in your situation, Sherry, I'm selling the house and finding a decent, inexpensive apartment to live in for a couple of years while I get my finances stabilized. Start on the Baby Steps, and get $1,000 in the bank as fast as you can for an emergency fund. After that, attack your debt using the debt snowball and pay them off from smallest to largest.

After you do all this you might be ready to think about owning a home again. I know you've been through some hard times with the car wreck and all, but you guys really need to practice being conservative right now so things don't get out of hand again!

Dave

Comments and feedback can be sent to feedback@ldsliving.com