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Financial Advice Sought

Question

Background: I’m a 50 year-old male coming off a horrific year-long divorce that ended up going to trial, where I received a very favorable ruling. I’m trying to pick up the pieces of my finances and determine a feasible path forward.

Details:

– As a result of the divorce, I lost my low six-figure job in May of 2018 and was out of work until starting a new job in January 2019. I netted approximately $2,500 per month in unemployment streams until my benefit expired at the end of 2018. My new job was a step up in responsibilities (went from regional sales manager to national sales manager) but a step down in guaranteed pay. I’m receiving a base salary of $80k, but have a significant bonus tied to company performance, which is paid at the end of the calendar year. I’m expecting to earn an additional $20k – $40k in bonus, but that’s neither guaranteed nor coming due for many months.

– My ex and I own two homes and I was awarded the larger of the two homes in the final divorce ruling. This home has a market value of approximately $1.3 million and has approximately $160k remaining on the mortgage. Monthly mortgage payments are $2,200 at the 3.25% interest rate on the home loan.

– I was awarded child support payments of $1k per month from my ex to be paid to me until the kids are 18 (four more years). This was a unique component of the final ruling based upon my ex’s role in the loss of my last job, which I won’t go into further.

– I have a Schwab Roth IRA with just over $100k in it. I have resisted dipping into this due to the stiff early-withdrawal penalties and now that I’m back to earning at near-historical levels I’m hoping to be able to stay afloat with monthly mortgage payment and normal bills.

– I have two credit cards with combined balances of approximately $60k which are almost entirely a result of attorney fees. Both cards have typical APR’s, so I am paying hundreds of dollars in interest charges each month.

– In January 2019 I applied for a $50k personal loan with my bank to help pay down my credit card balances. At this time I had just received the job offer (which I presented to the bank) but hadn’t started my new job yet. The bank denied my loan request, citing my high credit card balances as the reason. The home that I was awarded in the divorce ruling had not yet been quit claim deeded into my name, so I was not able to qualify for a secured loan. The quit claim deed should finally be executed within the next couple of weeks, so I’m trying to have a game plan in place just as soon my ex’s name is off the title to my house.

– My credit score one year ago was 751. When my credit score was re-run by the bank considering the loan, it had dipped to 731 (surely as a result of the high credit card balances). I have zero history of late payments or loan defaults.

– Other than my Roth IRA, I have a couple thousand dollars in my checking account as a result of my first paycheck from my new company. My car is paid for and I have no other debt other than normal monthly bills.

Inquiry:

– I’m going to need to be able to refinance the home I was awarded within twelve months (per the court order), and after my personal loan was denied I’m freaking out that I’m going to have a difficult time doing this. Given my background, will I be able to refinance without having to sell the home? Having my parents co-sign on the refinancing is a possibility, but I’d hate to have to ask them to do this.

– With my lower guaranteed earnings in my new job, does it seem like I’ll be able to afford to keep my home rather than being forced to sell it? I have very simple means and don’t need fancy cars or lavish vacations and am planning on continuing to live very frugally, but this is my dream home and I would be devastated if I was forced to sell it.

– I’m getting clobbered with credit card interest charges and am highly motivated to get my balances paid down. Once the home has been quit claim deeded to me, will I be able to qualify for a secured loan to allow me to pay down these balances?

– Do I dare tap into my Roth IRA to free up money to pay down my credit cards? I’m a financial novice (my ex is a CPA and handled all of our finances) and could probably use a session with a local financial planner, but I’ve been hesitant to shell out money that I don’t currently have to do this.

**Any advice regarding my precarious situation would be greatly appreciated.**

Answers

Someone answered:

Seems like you can fix all your problems and set yourself up for a great future by selling your house and replacing it with a cheaper one. Pay off all your debt, and live mortgage free.

Someone answered:

I’d tap into the equity in the home to pay off the credit card debt either via a HELOC or a cash out refinance. With an 80k salary and the child support payments you should not have an issue qualifying for the refinance. Keep in mind when you refinance that you will recast the loan over 30, 15 or potentially 10 years so your monthly payment is going to go down which sounds like it could help with cash flow too.

Someone answered:

There's a lot here, but #1 thing to do is go to the bank and get a HELOC on the house to pay off the credit cards