Financial Reality Check

Over the weekend (yes, I do work on weekends), I spoke with a gal in Battle Creek who was in need of a major “Financial Reality Check”.

She had fallen 6 months behind on her mortgage because of health issues (couldn’t work), but is now back to work. The problem is that the foreclosure sale is 14 days away and she needed about $6,000 to reinstate the loan.

(“Reinstate” means to bring the loan current and pick right back up where you were).

After talking for a few minutes she told me she really couldn’t afford her regular $600 payments, even if she reinstated it. Despite this realization, she decided to take a $6,000 hardship withdrawal from her 401(k) to save her house.

Here’s the problem as I see it: She can’t afford $600/mo and because of the late payments on her credit, she knows she won’t be able to refinance for at least 2 full years. She’ll end up in the exact same position in a matter of months (facing another foreclosure). Only at that point, she’ll have taken a major hit on her 401(k), which is supposed to be there for retirement – yikes!

She’s having a hard time giving up her house, even though deep down, she knows she can’t afford it. Why? Well, heck, it’s been her home for 36 years!

I can understand this; I just hope for her sake she quickly gives herself a financial reality check and walks away. Otherwise, she’ll be making her situation much, much worse.

Emily

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