Americans are known for lots of things. We are known for our love of baseball and football, for apple pie, eating out, pick up trucks, and DEBT. The average person in the United States currently carries more debt than we ever have before. According to Money Magazine as a people in our nation, we currently owe more than 13 TRILLION dollars. Yes, that’s trillion with a “T.”
The problem for those of us who are want to be more prepared is that debt keeps us from being able to do many of the things that we want to do. I guarantee you that if our mortgage was paid off, we’d be in a lot better financial shape than we are now. We would have more money to spend on preparedness, to put back for our kids’ college, to invest in things for our children that we feel are important.
Before we can devise a preparedness plan to get our money to where we want it to be, we need to be honest about where we currently are. If you have subscribed to my newsletter, you’ll find a new printable in the “Printable Library” for listing out your debt to get a better picture of where you are now. In this two-part set of articles, I’m going to list out five common areas of debt. BUT I’m not going to leave you there. I’m going to give you suggestions on how to tackle each area of debt in the hopes of helping you get out of debt faster. Faster is good. Say it with me – “Faster is Good!”
Who Really Owns Your Loan?
If you own a house and you didn’t pay cash for it, then you definitely have a mortgage. Now not all mortgages are equal. Some are actually better than others. We discovered, through necessity, that a mortgage through a small town bank is much better than a mortgage through one of the larger mortgage companies like US Bank, Bank of America, Chase, Wells Fargo, and others.
Here’s one reason why. When you take out a mortgage through one of the big mortgage companies, it is almost always sold to one of two government entities – Freddie Mac and Fannie Mae. As a matter of fact, the federal government owns more than NINETY PERCENT of the mortgages in the United States. That is a startling figure!! We didn’t even know that our mortgage was sold to Fannie Mae. We kept getting correspondence from the company through whom we took our out mortgage. It wasn’t until later that we discovered that while they continue to “administrate” the loan, they no longer owned the note on our house.
Who Owns Your House?
So not only does the state government “own” your house – if you think it doesn’t, don’t pay your property taxes for a year. I guarantee the “real owner” will show up.
What About Hard Times?
The federal government owns the mortgage on your house UNLESS you use a small bank. We are so fortunate that our mortgage is currently owned by a small bank who promised not to sell it.
The reason that this is so important is that if you fall on hard times, do you think the government will take pity on you? There is no guarantee either way, but I like my chances with a small personal bank to work with me much more than the federal government.
And don’t think that because you are totally able to make payments on your house that nothing will ever happen.
A Little Story
Let me tell you a story. Once upon a time in the town of Ferguson, Missouri, lived a family of seven. They dwelt in relative harmony until riots erupted. When the parents noticed that the children were being affected by the unrest, they decided to move.
The family put their house up for sale and moved to a neighboring state. Fortunately for them, a contract was put on their house. But before they could close on it, despite asking the water company to turn off their water, the pipes in their home froze (because the water company didn’t turn off their water). Their entire house was ruined. A pipe burst on the second floor and the basement was filled with four feet of water.
The water company said it wasn’t their fault. The insurance company said they weren’t going to fix the house. The family had already moved and were paying rent on a different house. Having taken a significant pay cut in order to move, the family couldn’t keep making both payments.
The family talked to the mortgage company, and they didn’t seem to care about the circumstances surrounding the destruction of the house or why it couldn’t be fixed. They simply said pay or default.
They had no choice, the family had to default on the loan and take out a deed in lieu of foreclosure. Their credit was damaged, and they couldn’t take out another mortgage for a long time.
Uhuh, that did happen to our family. And every bit of it is true. Dealing with a small town bank would probably have mitigated at least some of the problems that we had because of our circumstances.
Some other things to note about mortgages
If you are going to buy a house on a mortgage, please, please put at least 20% down so that you don’t have to make an extra monthly payment called PMI or Primary Mortgage Insurance. Anytime a downpayment for a mortgage is less than 20%, you will be required to buy insurance (PMI) in case you default on your loan. It is something you have to pay monthly until you owe less than 80% of your mortgage.
And, take it from someone who learned the hard way, only take out a 15 year or less loan. It will not anywhere near double the payments you would have to make if you took out a 30-year mortgage on the same amount of house. Our current house is valued at more than $150,000 and less than $200,000, the difference between a 30-year loan and a 15-year loan was less than $200/month. The difference is you end up paying almost twice the interest when you take out a 30-year loan.
In 2017, approximately 43 percent of adults (not households) had auto loan debt. Which means that many more than half the households in the US had car loans last year. I get it. Most people feel like they can’t get a house or a car without taking out a loan.
As a country, we look at these new cars and think it’s better for us to make payments on a new car than to have to continually fix a used car. I can totally understand that logic, but it doesn’t have to be that way.
Pay Cash for a Car?
We have decided to only purchase cars that we can pay for with cash. Over the last couple of years, we have developed a wonderful relationship with a very honest and reliable auto repair shop. We have had to purchase two new-to-us cars the last 3 years. When we are looking for a car, I’ll search for the type that we’re looking for online. When I find the kind or one of the kinds that we’re looking at, I go out, check it out in person and test drive it. If I like it, I ask if I can take it to our auto repair shop for them to look over. If they say, “No,” then I won’t buy the car. I’ve only had one company refuse to let me take the car to have it looked at.
By doing a comprehensive inspection, I find out if there are any surprises with the vehicle. The inspection runs me $100. But that $100 saved me from purchasing a van with transmission issues. This auto repair shop has done well by us both times we’ve purchased vehicles. Neither car has had any large scale mechanical issues. Another upside from having the inspection done is that we know if the vehicle is due for any major maintenance in the short-term. We can then factor that into our decision of whether or not to buy the car.
What If You Already Have a Loan?
But what if you already have a car loan? Have you paid enough of your loan off that you can trade your car in on a reliable used car so that you have no further payments? Or can you sell your car outright and pay off your loan with some money left over for a reliable used car? You can find reliable used cars and vans for between $5,000-$7,000. Or if you already paid off your car loan, make your plan to make the car last as long as you possibly can. Don’t trade it in for another car loan.
What About You?
Do you have any tips and tricks to keep yourselves out of debt or to minimize your mortgage or car debt? I’d love to hear! Either comment below or hit “Reply” to this if you got it as an e-mail.
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