House

Rules of Money Management Haven’t Changed

Dear Mary,
I love your “Everyday Cheapskate” newspaper column. You’ve changed my life! Now I need help. My house is worth half of what I owe on the mortgage. Is it still considered a secured debt? I would love to sell it. I’ve even tried to give it back to the bank, but they won’t take it. Many people are in my situation. I’m trying to play by the rules, but I feel they keep changing. Laurie, Michigan

House
Dear Laurie,
Thanks for your kind words. Many people tell me they’re getting the equivalent of a degree in personal finance just by reading “Everyday Cheapskate.”

The housing crisis in this country is a tragedy, and one that way too many people didn’t see coming when they mortgaged their homes so heavily. However, I do not see where the rules are changing, as you suggest. In fact, I see the opposite. Many people now want lenders to change the rules based on the economy.Technically, your mortgage is a secured debt only up to the amount you could sell it for at this time. That makes the whole thing pretty much unsecured.

I’d love to know why you are now wanting out of the deal. Is it because you just can’t bear the thought of your home being worth so much less than when you bought it?

If you can get past thinking about its market value and if your mortgage payments are still affordable, I suggest you stop thinking about its value. The market is what it is. You borrowed the money to buy the house. There wasn’t a clause that stated you would repay the debt only if the property continued to appreciate. The lender financed your purchase. Nothing has changed. Keep making the payments as you promised, and enjoy living there.

If you have gone through a life-shattering event like a long season of unemployment or something similar, and you no longer have the income to make the payments, consider a “short sale.” This does require lender approval and your credit history will take a big hit, but I encourage you to set up a meeting with a local real estate agent who knows your neighborhood and can advise you on the possibility and terms of a short sale.

Dear Mary,
Several years ago, I began following your advice about taking more control of my finances. You wrote about using cash instead of credit and debit cards. I began doing just that. On paydays, I’d stop at the bank and withdraw enough money to last until the next payday. I then challenged myself to keep some of that money, which would then go into a piggy bank at home.

I just want to thank you. Now that the banks are adding fees and debit-card charges, I am way ahead of their game. I still use only cash. I feel like I have won, and all from a lesson learned from you several years ago. Keep up the good work. We’re still listening! Carol, California

Do you have a question for me? Get in touch by using the contact form, the comments section, or write to Everyday Cheapskate, P.O. Box 2099, Cypress, CA 90630.

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17 replies
  1. Barbara Girdlestone
    Barbara Girdlestone says:

    Mary, I love reading Everday Cheapskate. Targets is coming to Hamilton, ON Canada. Can you tell me what they are like. I heard you say they have a tough return policy. How are their prices? customer service? Their stores? Couldn’t be any worse then Wal-Mart. LOL. I really would like your opinion.
    I enjoyed subscribing to Debt Proof Living but couln’t afford right now. I really miss reading the articles and the forums and hope to be able to return soon.
    Barb

    Reply
  2. donedittydone
    donedittydone says:

    I love DPL and usually agree with Mary, however, I think this type of response to a very relevant question regarding the housing market is short-sighted. In some parts of the country, “underwater” means 50% of the home to loan value…and other parts in might be 10%. For people who are hundreds of thousands of dollars underwater, they are wearing a financial albatross on their neck. There are options for underwater homeowners such as a short sale. Banks are loosening their requirements for this as many people are choosing to stop paying their mortgage, living in their home for an extended period time and saving money…banks are more willing to work with people who are underwater and can afford their payment to avoid this type of scenario. It’s really important to find a real estate agent that specializes in short sales in your area and see what your options are for your situation.

    There may be a credit hit that one might take if they short sale, but in a few years, they will be able to come out on the other side and possibly able to purchase a property at a lower rate. A family must ask themselves what they are wanting out of life over the next 5 years…to still be underwater on a home that they have continued to pay on with no real increase in value OR taking charge of their situation and taking a credit hit via a short sale and making financial decisions based on the current economic situation while providing for ones family and future.

    To clarify, because I adore Mary Hunt, the principle of money and saving haven’t changed….but, the housing crisis has caused a shift…especially for those who have been “riding” out the market for the last 4-5 years only to see property values continue to drop in value. Banks are more willing now to work with those of us who have paid on time and have tried to make the best of our home situation.

    There are calculators online that can show you how long it will take to recoup money on a home that is underwater. Waiting 50+ years is not a realistic option for homeowners that are loan-to-value drowning in their underwater home…even if they can afford the payment.

    Reply
  3. Laly
    Laly says:

    Listening to your advise,i am of my credit card long back & i use only cash for shopping & i am in control of my expenses…You are doing a great job,keep it going.God Bless you.Thank you once again
    Laly -from India
    [email protected]

    Reply
  4. Carol in Calif.
    Carol in Calif. says:

    In response to Laurie’s question, many people in my area are renting their homes. For instance, I pay only $1,257 monthly payment for my 2 bedroom home which I feel I could rent for $1,600 at least. My neighbor is a rentor and they pay $1,800 so that isn’t unreasonable. I could save the difference and still claim the tax right offs. I could rent for almost the same as my mortgage payment, so that if I didn’t want want to live here, I still have options. I love it here though, so I’ll stay.

    Reply
  5. ShirlSumm
    ShirlSumm says:

    Great sage advice. I too am using cash only. Your identity can’t be stolen if you accidentally leave cash behind.

    Reply
  6. Mary Hunt
    Mary Hunt says:

    My heart is filled with gratitude for all of you, my dear readers. Your responses here have encouraged me more than you can imagine. Keep ’em coming!

    Reply
  7. Katie
    Katie says:

    Carol expressed what so many of us feel. For nine years I have enjoyed and learned from Cheapskate Monthly and DeptProof Living. My second marriage began with a financial volcano that was boiling beneath and I had no idea of its activity. Four years later, it exploded and spewed fourth bankruptcy and foreclosure. While this was certainly devastating and caught me unawares, I was comforted in all the things I had learned from you, Mary. Thank you. Thank you for helping me through that awful time. I tackled problems with confidence and knowledge and am slowly rebuilding my financial life with realistic expectations and a focus on the things that really matter: family, friends and financial responsibility. My father was financially savvy and successful, but I did not inherit any of those type of thinking genes. Finances are confusing and uninteresting to me. I am the artist. BUT you have made the topic fun and very interesting – I now feel empowered to take care of financial things! My sincere gratitude, Katie, VA

    Reply
    • Mary Hunt
      Mary Hunt says:

      Kate, you have just charged my batteries. I am so glad that somewhere, somehow we found one another. Stick close.

      Reply
  8. Holly
    Holly says:

    Thank you Mary for all that you do to help us make wise decisions. I completely agree with your answer to the first question . . . in fact, I think you were definitely gentle in your response. We’ve all had a hard time with the economy: our house is worth a third of what we paid for it. We had to move for my husband to find work, and now are long distance landlords earning rent that doesn’t cover the mortgage. Life is hard, but the rules have not changed; especially the rules of paying what you owe and doing the right thing. Keep doing what you’re supposed to, follow the principles you read on this blog, and your circumstances will turn around. Don’t lose heart! America is still a land of dreams.

    Reply
  9. Shay
    Shay says:

    Mary, thank you for saying what I’ve been thinking for a long time in your response to Laurie from Michigan. I’ve had friends and acquaintances who used the fact that their home was now worth half of what they originally financed it for to walk away from their mortgages, abandoning their homes to the bank. They could afford to make the payments – they just didn’t want to now that they figured they’d never get what they considered to be the “value” of their homes back.

    Whatever happened to people making a commitment and sticking to their word? I also have a mortgage that is higher than I’d like it to be, and my home also has gone down in market value more than half what it was originally worth. But I have a contract with the bank that I signed, and I will honor it. The bank fulfilled their part of the bargain – they loaned me the money in good faith. Now I will fulfill my part by paying it back.

    Like you, I totally understand if someone can no longer make their payments due to horrific life events, and my heart and prayers go out to them. My beef is with people who just bail out because their home is no longer worth the inflated amount it used to be, and they no longer want to make good on their commitment to their lender.

    Thank you again for having the courage to tell it like it is, and also for giving such great advice over the years. Your advice has helped not just me, but countless other people.

    Reply
    • Michelle DesRosier Okpisz
      Michelle DesRosier Okpisz says:

      Well Said! No one promised my home would appreciate in value when I purchased it, yet I still made a choice to purchase along with the commitment to pay off that debt. The rules haven’t changed, only attitudes. It’s a sad commentary on the moral state of our country.

      Reply
  10. erika m.
    erika m. says:

    Yes, Mary, we ARE still listening! My bank thought I was insane when I exchanged my debit card for a regular-old ATM card a year ago, but I love the freedom of controlling my money more! Thank you.

    Reply
  11. Kim
    Kim says:

    I agre with Carol! While I don’t use cash, this column and advice caused me to completely overhaul our finances over 6 years ago and we’ve been in a good position ever since. Thanks you Mary and EC for helping my family get on and stay on the right path! My Freedom Account and Contingency Fund thank you too!

    Reply
    • kls
      kls says:

      I do not have a problem with debt, However I switched to cash only for most monthly spending. I take out a set amount (only $300) at the beginning of every month and keep a spread sheet of what I’ve spent and make sure it matches what I have left. I throw the change in a piggy bank. I am spending my money much more thoughtfully. I am no longer signing a receipt and not really paying attention to the exact amount I spent. No more pointless spending at Whole foods or discount stores!
      I pride myself always on being a thoughtful consumer and this has helped me live that way.

      Reply

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