Balloon Loan

If the second mortgage is half or less than your annual salary, Dave says to put it in Baby Step 2.

QUESTION: Bob filed for bankruptcy a year ago and closed his business. He has a $35,000 home equity loan and owes $10,000 on a car. The home equity loan is a balloon loan and he’s on Baby Step 2, making $61,000. Should he put the home equity loan on Baby Step 2 or Baby Step 6?

ANSWER: Normally, I say if the second mortgage is less than half your annual income, then you put it in the debt snowball. Since this is more than half, I’d put it in Baby Step 6. What I would recommend here is that you pay off the car and get after paying off the second mortgage. If you can get rid of that, you’ll get your life back.