Dear Mary: We live in Nevada and own a second home in Arizona. My husband wants to sell the Arizona property and then use the proceeds to pay off our credit debt, auto loan and home equity loan on the Nevada property — about $165,000 total.
I disagree. I think we should rent the Arizona property to generate income and benefit from its future appreciation.
My husband is concerned that if we are unable to rent it out, we will not be able to handle two mortgage payments plus our other debts as well.
What should we do? — Lorna
Dear Lorna: Let’s say you sell the Arizona property and pay off your debts, and then it turns out you were right that you could have easily rented the property and made a killing on its appreciation. Even though you would have forgone a return on investment, you are debt-free, and you own a home in Nevada.
But let’s say you don’t sell, and it turns out he was right: You can’t rent the house, and you can’t keep up with both mortgages plus the big load of unsecured debt. In that case, you could lose everything. You have to see that as a real possibility.
My advice is to see this as an opportunity to show your husband a great deal of respect by trusting his decision.
There’s something in this for you, too. This gives him the opportunity to meet your need to be taken care of and to feel financially secure.
This looks like a win-win. However, before you do anything, be sure to check with a tax professional to learn what taxable event, if any, selling the Arizona property might trigger.
Dear Mary: I am a pilot for a major airline and have a $70,000 credit card debt plus a mortgage. I’m not proud to say we have no savings or emergency fund.
Soon, I will get a windfall of about $40,000. Should I use that to pay down the unsecured debt? -- Stan
Dear Stan: If you were to do that, you would still have $30,000 unsecured debt plus a mortgage. Sounds a lot better, for sure.
But what happens next month, when you have an unexpected emergency, or next year, when you lose your job? You’ll feel you have no choice but to run to the credit cards for a bailout, and before you know it, you’ll be back at $70,000, or probably more.
My advice is to use that windfall to fund your contingency fund, which is a pool of money equal to three months’ (six is better) living expenses, known by many as an emergency fund.
Sock it away in a savings account, where it can earn some amount of interest. Now live as frugally as you can, and attack that $70,000 nut with all the gusto you can muster.
Put yourself on a strict spending diet. Just knowing you are not sitting on the edge of financial doom will give you the courage to endure short-term sacrifice.
All you need now is persistence and determination.
Mary invites you to visit her at EverydayCheapskate.com, where this column is archived complete with links and resources for all recommended products and services. Mary invites questions and comments at https://www.everydaycheapskate.com/contact/, “Ask Mary.” Tips can be submitted at tips.everydaycheapskate.com/. This column will answer questions of general interest, but letters cannot be answered individually. Mary Hunt is the founder of EverydayCheapskate.com, a frugal living blog and the author of the book Debt-Proof Living.