November 28, 2007, 8:00 am

Restructuring My Debts Through My Property

by: The Financial Blogger    Category: Pay off your Debts,Project $1500
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For those who are following my Financial Ramblings, you are well aware that I was in the process of paying off my debts and restructuring my whole financial situation through a bigger HELOC. I have already written about this strategy in the past but since I can apply it to my own situation, I thought I would explain what I did and why I did it. As I previously mentioned in the past, I think I made a deal with this property.
I will start my explanation with some facts for today and I will post the strategy and the result in the following days. I was a bit reluctant to post about my assets and net worth but I thought it could help many people to get started. In fact, I really started to build my net worth about a year ago (when I sold my first house). Having two kids obviously make things more complicated. Nonetheless, I think I have a pretty good plan for the years ahead. So here my situation before I decided to do anything about it.

The facts

Here’s a quick peak of my financial situation prior to restructuring my debts and increase my HELOC:

The liabilities:

– Personal loan 25K with payment of $650

– Personal line of credit of 20K with a balance of 18K (I am paying 3,25% on this one, so I only pay $65 a month)

– HELOC of 192K with a balance of 190K (remember, I am doing a Smith Manoeuvre) with a monthly payment of $1,200

– Loan from parents of 25K, not payments required yet (agreement to pay in full in three years with an interest rate of 4,8%)

– Total debts: 260K (I do not have credit cards balance as I pay them in full on a monthly basis). for a monthly payment of $1,915.

The assets:

– Bank account : 1K

– Smith Manoeuvre investment account: 4,7K

– Stocks: 1,5K

– RRSP (mine): 6K

– RRSP (Wife): 2K

– Car: 9K

– House: 263K (last year’s appraisal value)

– Total assets: 287,2K

– Net Worth : 27,2K

While my net worth is not very impressive (I am actually not very happy about it!), when you put it in perspective of my age (26), I think it is not too bad. My goal is to use my SM investment account to pay back my parents in 3 years. I borrowed 25K from them 2 years ago. Therefore, it is a 25K loan over 5 years at 4,80%. In 3 years, I will owe them 31K with interest.

As I want to keep up with my $1,500 project I need to increase my cash flow. The interest rate I pay on my debts are all minimal since I am working for a bank. I will leave my line of credit as is since I pay only 3,25% on it. My second best interest rate is my HELOC with 4,25% (Prime rate – 2). This is why I decided to have a second appraisal done on my property to pay off some debts. We will see the result tomorrow.

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As long as you’re aware of what you’re doing, it’ll be a good thing. Too many people just consolidate and think that the debt is gone and they can continue their out-of-control spending. It just doesn’t add up.

by: The Financial Blogger | November 28th, 2007 (4:00 pm)

FM, you are right about the “frenzy spending” most people have 😉 but I am doing it in another perspective 😀