By Jesse Herman, contributing editor
A once booming housing market has stumbled as of late, leaving some home loan borrowers in debt. The last few years were a walk on the beach for some, as interest rates were low and home values steadily increased. Unfortunately, many borrowers were caught looking forward and did not notice quicksand before them. There are ways to climb from the vacuum that is debt, even if it seems there is nothing to grab onto.
Assess the Situation
Did you recently get fired or injured? Maybe rising ARM mortgage rates have left you only paying the minimum due, actually leading to increased debt. Miscalculating what can be afforded can be a critical mistake, so too can misjudging how well the housing market will do. Know where your issues lie and address them.
Don’t Dig too Fast
Budgeting expenses can be a hassle, yet is essential to monetary success.
Figure out how much money is spent on monthly basis. Analyze what expenditures are unnecessary and eliminate them. Things such as going to the gym, buying name brand food, eating out, smoking, shopping and many more self-indulgent behaviors are developed over time and can be addictive. These “things” often get mistaken with happiness. There is little joy in staring down the barrel of financial debt.
Self control and a realistic perspective of who you are and what you can afford will lead to paths that are not only self-fulfilling but economically sound as well. Little events such as walking your dog, spending more time with the kids or organizing a weekly card game with friends (no gambling, please) are easy ways to divert from expensive tendencies.
Vacations and valuable possessions should be rewards for sound money management, not mandatory staples towards everyday happiness.
Once this is done, set a certain amount of money to work with each month and don’t exceed that limit.
I’m in over my Head!
Daily expenses have been trimmed, you’re now the most boring person on the block, the family is annoyed and still you are in debt. First, continue what you are doing in terms of budget and daily expenditures. Next, it may be time for radical financial changes.
A potentially easy way to save money is through debt consolidation. A variable-rate home equity line of credit coupled with a primary mortgage may be costing more than if it was refinanced into one fixed-rate loan that accounts for both balances. You may be surprised when the numbers work out to savings of hundreds of dollars a month. These savings add up quickly, just as paying too much can add up quickly as well. Also, if your credit has improved than refinancing may also save money. Always check out current deals and rates and consult a professional on how they can be adjusted to save you the most amount of money possible.
It is amazing how the loan market changes over time for borrowers who have developed good credit. The rates agreed to when you were 25 years old, ignorant to your choices and had bad credit may be much better if you’ve developed positive credit history and are aware of market trends.
Reach out for Help
Mortgage foreclosures are not only a skull and crossbones scenario for borrowers; they also can cost lenders money as well. Ask your lender for a forbearance to limit the amount of money to be paid on a monthly payment. There is no guarantee that one will be granted but it’s worth a shot.
Time for Changes
If all else fails it is probably time for a change. Sell the house and move into something you can afford. Maybe you can turn a profit and things won’t be so bad after all. Make sure your home is on the market in advance, though, as right now housing supply outweighs demand.
