So, what Gil and Tracy want to do over the next few years is reduce their overall debt, while keeping up on all of their payments. If at all possible, they also want to chip away as much as they can on their 2nd home loan which carries a high interest rate.
What resources are available to people who are struggling to make their mortgage payment after their loan has adjusted? Or to people like the Vasquez family who are anticipating such problems in the not so distant future?
Families like the Vasquezes should not feel they are alone. As a result of the sub-prime crisis, many non-profits have formed with the purpose of helping homeowners understand their options before they get behind on payments as well as after.
Most recently, the HOPE NOW Alliance was launched to assist homeowners before their mortgage situation becomes overwhelming. HOPE NOW offers mortgage counseling services at 1-888-995-HOPE.
Another terrific resource is the National Foundation for Credit Counseling, which is the nation's largest and longest serving non-profit credit counseling organization. The NFCC sponsors a web site, www.housinghelpnow.org, which provides information and access to HUD-approved counselors who can help you sort through your situation, looking at your overall financial picture as well as the terms of your mortgage to determine an appropriate course of action. Counseling services are available at little or no cost, depending on your circumstances, and can be of tremendous assistance.
With an aggressive debt reduction plan in place and Christmas right around the corner, what is a realistic approach to holiday spending for the Vasquez family?
My best advice here is to commit to a cash only spending policy and to limit gifts to a few fun, yet inexpensive items. While the general rule of thumb is to spend three days of net pay, this strategy does not make sense if you are struggling to make ends meet.
Every family really needs to look at their individual situation and determine how much extra money they have to spend. Ideally, you do not want to wrack up credit card debt that you cannot repay the next month.
Is there anything the Vasquez family should be thinking about as we enter tax season?
Gil and Tracy are anticipating a refund next spring, and while everyone gets excited about a refund, it generally means that your withholding is not correct. Essentially, if you are getting a refund, it means that too much is being withheld for taxes from each paycheck.
So, rather than being able to put that extra money towards debt reduction, you are loaning money to the government over the course of the year—and earning no interest, I might add—and getting it back the following spring.
My recommendation, be sure to re-look at your withholding each year and account for any changes in your life—like getting married or having children—which could impact your tax withholding status.