Help my mom with your infinite wisdom...

[browneyedgurl4]

My mom is at a financial crossroads. She bought her home 3 years ago at 5.25 percent. Her mortgage was for 106K. Her payments have been very manageable at about $500 per month. But her property taxes have been going up and she is worried she will lose her home because she can't pay the taxes. She has $10K in cc debt, and only makes $10 per hour. She can't afford to fix up her house to sell it, and at this point with the housing market, she doesn't feel like she will profit on the sale of her home.

She has talked about bankruptcy, but I have tried to explain that $10K is a small amount to file BK on and have bad credit for 10 years. Now she says that she will HAVE to sell her home this year. I have tried to explain that she will not be able to rent anywhere for as cheap as her mortgage is. She understands that, but can't get past the property taxes. They are around $3200 a year now.

She has thrown around the idea of a second job, but she is 55yrs old and has a bad back. So she is exhausted from her reg job as it is.

Any advice?

[Recovering Attorney]

Yes. Help her out financially til the she can sell her home. Help her with the taxes or take care of the CC for a spell so she can save some dough to pay the taxes. She's your mom.

She has a town board or city council person for her neighborhood. Contact that vote-seeking minion and ask for help with her property taxes. Maybe there is an exemption she is missing. Maybe the house is overassessed and the poltiician can help jawbone the assessor into a lower assessment or can help your mom challenge her assessment.

Contact her utility company. There may be a budget plan or other relief she can get to help with those bills so she can plan.

I'd call a few real estate brokers to get a real idea of what she could get for the house.

[jq26]

Totally agree with Recovering. Also, at $10 hour, she'll likely pay no federal income tax for the year. So have her file her taxes as soon as she receives her W2 and other tax forms for her federal tax return.

With such a small mortgage, it may not even pay to itemize. TurboTax or any other software will only cost $20 and can figure that out for her. Or at her income range, she can file for free on the IRS website. And have it direct deposited. Much quicker.

It may not cover the entire bill but it may cover half which is pretty significant.

[VeVe]

If she sells her home, where will she live when she is retired?

And how much longer does she have mortgage payments for?

I don't know where she lives, but I think once the home is paid off, the property taxes will be less than paying rent. I think at her age it's better off to know that she will have a home that she owns, rather than worrying about renting. Or would she sell this home and downsize to a condo or something more manageable?

Is there anyway you can help her out a bit?

[LadynRed]

I think at her age it's better off to know that she will have a home that she owns, rather than worrying about renting.

"At her age" ?? The woman's only 4 years older than me and you make her sound like she's ready for a retirement home ! She said her mother bought the house 3.5 years ago, so if she has a 30 year mortgage, she'll be retired before she ever pays that off. It'll take at LEAST 10 years before she makes any real dent in the principal too.

At $10/hr, 10K of credit card debt will take her FOREVER to pay off, and that's providing that she stops accumulating debt completely, right now. While 10K may not be a lot of debt to file bankruptcy over, it doesn't have to be a whopping amount to be too much based on your income and earning potential. A 2nd job at 55 can be pretty exhausting..I'd be challenged by it and I'm 51 !

So, maybe bankruptcy ISN"T such a horrible idea for her mother at the ripe old age of 55 . She can get rid of that credit card debt in short order, she could get out from under the house if she chooses with NO liability, and she'd have more of her income to live on. Bankruptcy doesn't mean bad credit for 10 years, the worst hit is in the first 2-3 years, after that it lessens each year provided she's careful.

That's my perspective.. from someone of the OP's mother's generation

[Methuss]

If my calcualtions are correct she has $20800 gross income and her mortgage with taxes included comes to $9200 a year. That's actually not that bad.

First off look at last year's taxes. Did she get a refund? If so, adjust her W2 so there is less being withheld. All you are doing is giving the government an interest free loan by letting them hold more than is needed. If she got a near 100% refund last year crank those deductions up to 10 to kepe more in net pay.

Next look at the property taxes. As others have said, the property may be overassessed. A consumer group did a study that estimated nearly 77% of all property in the US is overassessed. Counties are pushing assessors to jack up property values because they can't get voters to pass referendums to lift tax caps. So they get around it by overvaluing the property. People just think they have to take whatever bill they get. Wrong. You can contest it if it is being assessed too high. Also double check your exemptions to make sure all of them are being applied. Lastly, and this is for the future, most states allow for a property tax freeze for people over 65. So in 10 years you may be able to lock in the property taxes and keep them from increasing.

Once that is done, you should look at the personal finances. Is there an expensive car loan involved? Is the car insurance uncompetitively high priced? These should be assessed.

Then look at utilties and other expenses. You can save money by cutting phone service to a basic line and use a calling card for long distance. Cell phone? Get rid of it if it is not necessary. Most people don't know this but any cell phone, even without service, can dial 911. So if you are keeping a cell phone bill for emergency reasons, dump it....you don't need to pay for service to make emergency calls, just a charged battery.

Do a zero line budget. The budget should go down expenses starting with net income and subtract each expense starting with savings, then the house expenses, then food and utilities, then car, clothes, etc. Spend every dollar on paper even if you put some into a "I'm going to blow it" category (actually something should go into the blow category because no budget is perfect). Overfund your grocery category the first couple of months because you always are spending more than you think you are spending.

Saving priority #1 should be $500 in an emergency fund to take care of unexpected incidents so credit is not used.

Lastly, start paying cash and stop paying with credit. Don't use the debit card unless necessary and that especially goes for the grocery store where impulse buying is king. Set up envelopes for grocery, restaurant, gasoline, clothing, toiletries, cosmetics, and hair care. At each payday put the appropriate cash amount in each envelope and use it only for what it is designated for. Don't use grocery money to pay for restaurants and don't use clothing money to pay for gasoline. If you go grocery shopping and forget the grocery money envelope, you go home and get it. This may seem like a hassle but there is a reason for it. If you pay cash, instead of simply swiping a card, it hurts more. You register the pain of paying for things and therefore you spend less. Studdies say you will tend to spend around 20% less...and at the grocery store it is more like 40% less. When buying biger-ticket items...bargain. With a handful of $100 bills you can easily get a $2500 bedroom set for $2300...the sales guys will literally follow you around to make the sale.

With all these steps you should be able to pay down the credit card debt rapidly. Bonus money and windfalls should go toward paying down the credit card debt. Once the credit card debt is paid off, concentrate on car loans (if any) then increase the emergency fund to 6 month's living expenses. Then concentrate on paying off the house early. When there is no debt left, she will have freed up her largest source of savings; her income. With nothing but living expenses and property tax to deal with a lot more can go into retirement savings.

So there's her plan. It's up to you and her to implement it. Can it be done? Of course, but you have to be motivated to do it.