All Forum Posts by: Jon Fed

My wife and I are newbie investors. This thought came to me the other day....

My wife and I have around $160k in total debt-student loans, cars, credit cards from a failed business venture, etc. costing us about $2800 pm to make the min payments. Interest rates vary from 0%-18% (8.3% is the overall avg). Some of the debts will pay off within a year or two, the majority spread out over several years. We can afford the payments w my W2, but barely have anything left to pay extra after everyday living expenses. I figure it will take us about 12yrs to get everything paid off if we continue the payments. Our credit is still excellent but we are also going through a short sale.

We will be moving to my mom's house, which she owns free and clear (around $180k value), and is looking to sell it and move out of state in a year or so. So I was thinking if we could take a 15yr cash-out refi and pay off all, or most, of our debt, our PITI would be around $1500. If we paid an extra $500 pm, we could be on pace to pay it off in about 10yrs, and have a more managable monthly payment. This would also allow us to save our credit and we could, within 2 yrs, take a mortgage in our name and, in turn, rent it out down the line for $1200 pm. We could then continue to pay the $1500 extra and have the house paid off, and be completely debt free in less than 7yrs and have a cash flowing house to go with it.

This seems too easy. I know we will lose the tax benis of paying off the student loans but will gain one when we have the mort in our name. Other than the risk of losing the house if we fail to make payments, what other pitfalls am I overlooking?Thank you in advance,

Jon