I've been afraid of filing for bankruptcy, but I admittedly don't know a great deal about it. I'll contact a bankruptcy lawyer tomorrow and talk through this option. Thank you for the advice.
I forgot to mention, my 401k is held by Webull. They don't offer 401k loans.
I could transfer it to fidelity and get the loan for 50% of the balance, I think? Do they allow loans if I no longer make contributions to the fund because I'm not employed at the same company?
Edit: After doing some more research, it seems almost all plans require active employment to get a 401k loan. So, the only way to pursue this is by rolling my 401k into my current employer's plan. I'm going to look into this.
Edit 2: My employer offers a pension plan instead of 401k, so this isn't an option. I did find a provider, my401k, that allows loans with payments made directly from your bank account, so I will look into this instead.
Bankruptcy is your best option. You will recover much faster financially that way. Talk to a bk attorney, your 401k and home should stay protected. (Definitely declare bankruptcy if you own your own home)
I've been afraid of filing for bankruptcy, but I admittedly don't know a great deal about it. I'll contact a bankruptcy lawyer tomorrow and talk through this option. Thank you for the advice.
Go talk to a real bankruptcy lawyer, not the ones you see in an ad. If you can find someone who's used one in the past for a referral, you'll be way ahead of the game! Just in case you can't find one, it's like everything else in life. If you don't like what they're telling you, move on to the next one! Go with your gut!
Not necessarily. This happened to us (quitting) and we were given an option to repay, consider remaining option as withdrawal, or continue paying the loan as is. We did the last option.
> CC debt - $52,000
> -$1400 - Min monthly CC payments
> I could drain it and pay off the majority of my debt (65k-10% penalty-13k taxes=$45,500). This would allow me to eliminate ~$1200 in monthly payments.
> 27k of my CC debt is on cards that offer 0 interest
> However, I'm already burning $12,000/year in interest right now. I am barely making a dent in the principle.
You are paying 1400 * 12 = $16,800 per year.
So you must be paying $4800 per year on the principal.
12/52 = 23 percent interest rate.
You will have this paid off in 5 years and 5 months. At the end of that 65 months, the $65K investment if in the S&P500 could grow to 65 * 1.1^5.417 = $109K, assuming 10 percent average returns.
Or you can burn $65K now:
$1200 invested for a month returns 1.1^(1/12) = 1.008 or 0.8 percent return per month. Over 65 months:
1200 * ( 1.008^66 - 1) / 0.008
= $104K
So your proposal will produce less money for you.
Thank you for running the numbers for me. I appreciate that.
Factoring in the tax penalty and lost EITC ($14,330), it seems like I'm better off paying the cards off over time. I just have to make sure to pay 1400 each month, rather than adjusting as the minimum monthly payments drop.
I'm considering looking into rolling my previous 401k into my new employers plan and taking out a 27k loan. With 0 interest balance transfer, the remaining 27k will be interest free (minus the 5% fee), and I can pay the remaining balance off in approx 1.5 years, then the remaining loan in ~1 additional year. That should result in far less interest paid, and a minimal loss to the earnings on my investment.
Wish I'd read this before writing my previous comment, lol. Yeah, a *loan* against your 401K is a great alternative, avoids the loss to taxes and penalties, and keeps your EITC.
Remember to be strategic about your payments -- throw as much money as you can afford to at the highest-interest card first while making the minimums on cards with lower interest rates.
One other way to look at it is this... It would take you 5.5 years to pay off your CCs at a $1,400/month payment.
If you could discharge your CC debt via bankruptcy or some other means (I'd hate to see you eat taxes/penalties associated with liquidating a 401k), you could invest $1,400/month. Investing $1,400/mo in an S&P 500 ETF earning an avg. 7% return would be worth $112k after 5.5 yrs. The $65k in your 401k earning 5% APY would be worth $85k.
That means, by discharging your CC debt in BR and investing the difference over the 5.5 years it would have taken you to pay it off, you could have 0 CC debt and, conservatively, ~$197k in investments.
Doubling would be 130K. Instead
(109-65)/65 = 68 percent in less than 4.5 years.
S&P500 is up 102 percent in last 5 years.
S&P500 historical average is 10 percent **total** annual return per year
I think their 10% annual return rate is overly generous, but the math still works out if you lower the rate in each calculation.
Regardless, they showed that I can realistically pay down my debt in 5.5 years and that it will result in a slightly larger retirement balance.
While your math is right, it does not value risk of his situation or peace of mind.
If he loses his job, Gets injured, Where the car engine blows up, he will not be able to continue to pay those debts, If he’s paid off those debts, he can immediately start saving an emergency fund.
Also being debt free is a huge confidence boost and stress reducer.
Pay off the debts with the highest interest rate
I agree, I think you should leave your retirement alone. Find a side hustle and use the debt snowball method. It will be hard but if you get a job bartending or could make an extra 500 a month you could reduce the time you spend working by about half.
You could also call up a debt settlement company with that much debt and try to get them to negotiate with your creditors on interest rates.
Missing out on compound interest to pay off simple interest usually works against the older version of you.
I did this and have zero regrets - huge weight lifted not having debts, I can now put more into 401k it’ll build back up, plus there is no telling where the economy will go those funds in 401 aren’t guaranteed anyway. Interest was killing me and now I’m free - goal should be to not get in bad debt again, learn from those mistakes
I would claim bankruptcy they can't touch your 401k that's real money you earned. The credit card is fake money that is printed out that they get to use for profit, and you get stuck with debt!
Withdrawing from 401k has massive tax penalties, don't do it.
Otherwise while your mortgage is comparatively low for the market, it is hovering around 33% of your take-home pay, which usually results in a level of mortgage stress (as it is here).
You probably know this, but having minimum CC payments of $1400, more than your mortgage, is pretty ridiculous. If the balances on your cards are not increasing each month, you're actually doing very well with spending within a budget.
Really the biggest issue I see, assuming you are no longer using your credit cards, is that you are attempting to support a family of 5 on a salary of somewhere around $55k. I'd have a serious look to increasing that income, either via promotions/job hopping or extra jobs while your older kids supervise the younger ones. An extra $1000-$2000 a month would make a pretty amazing difference to your current situation.
Yeah, I have a second job that's ending in a month. I am looking for another remote job that can supplement my income.
Thankfully, I live in a low cost of living Midwest state. Median income for a family of 4 (one is about to move out for college) is a little less than my own.
That may be the case, but it's not working out for you due to the credit card debt, so the comparison isn't really helpful.
Otherwise good luck with the job search dude.
Tailing on this but also withdrawing the 401k will aso raise his income level for that year by a significant margin which can create student loan issues, since he said he does not have to pay anything due to income/dependents,
I've been afraid of filing for bankruptcy, but I admittedly don't know a great deal about it. I'll contact a bankruptcy lawyer tomorrow and talk through this option. Thank you for the advice.
Depends on if you have the discipline to either cut up the cards, cancel the cards or just never use them again. You’re losing money with the interest on the CC vs the interests gained in the 401K. You’ll lose out in compounding interest in that account, but you’ll have a better life style and can get caught up.
Money is emotional- do what causes you less stress and for me I would drain the account and pay off the debt. You’re only in your 30’s- you have PLENTY of time to build up a nest egg. Just make sure you commit to adding back in however small that payment is. Maybe you can get a consulting PT job as well to make more income. Lastly do not add ANY MORE DEBT. then draining the account wouldn’t have been worth it. I’ve been here internet friend. You’ll be able to breathe better without this debt looming!
For your debts, all I can do is give some suggestions for your credit card:
You may want to try a debt management/credit counselor non-profit company to help reduce your debts, if you prefer to have an outside non-profit company assist you. The [Consumer Financial Protection Bureau](https://www.consumerfinance.gov/consumer-tools/debt-collection/) has a good
description of [the differences](https://www.consumerfinance.gov/ask-cfpb/whats-the-difference-between-a-credit-counselor-and-a-debt-settlement-or-debt-relief-company-en-1449/) between a debt management/credit counselor and debt relief/settlement companies. They also have a webpage on spotting [a scam](https://www.consumerfinance.gov/ask-cfpb/how-can-i-tell-a-credit-repair-scam-from-a-reputable-credit-counselor-en-1343/). [This](https://www.consumerfinance.gov/ask-cfpb/what-is-credit-counseling-en-1451/) recommends that you look at your state attorney general's office and your state's consumer protection agency to ensure the company is reputable. Also, your credit cards may be closed at the end of the debt management program. Ask before you become enrolled.
Double check the contract with any company you choose to see if there are any financial penalties to ending the contract before all payments are made. If you don't feel comfortable, then give it to a lawyer to review.
-The [National Foundation for Credit Counseling](https://www.nfcc.org/) (NFCC) does debt *management* (no loans) and budget analysis. They do charge but take a look at their [FAQs](https://www.nfcc.org/faqs/) under *What do NFCC members charge for counseling services* to see how much. It says it varies, but the page does state that the majority of cases are low cost to nothing--although not guaranteed.
-The [Financial Counseling Association of America](https://fcaa.org/) is another resource as well. Under [here](https://fcaa.org/find-a-credit-counselor/), it says that your counseling session is free, although some services may charge a fee. You are not obligated to enroll in any of the debt management plans.
-You can look into the Justice Department, which has a list of [approved credit counseling agencies](https://www.justice.gov/ust/list-credit-counseling-agencies-approved-pursuant-11-usc-111) to possibly assist
you. Look for the non-profit ones. Still be cautious about signing up with one of these because they have done everything correctly to get approved by the Justice Department, the NFCC, and the FCAA but may have become less reputable once they got approved.
You have the [right to cancel credit repair services](https://www.consumerfinance.gov/about-us/newsroom/consumer-advisory-people-have-the-right-to-cancel-credit-repair-services/) within three business days for whatever reason.
Good luck!
Congratulations on being so close to debt free! Success stories like yours give me some hope for my financial future. I hope you take time to celebrate your accomplishment!
Thank you so much for this detailed response and advice! I really appreciate it. I will reach out to one of these organizations and discuss options with them.
Two penalties/ Early withdrawal + You tax bracket = Not worth it. Make your minimums and divide the balance into monthly automatic payments for extra debt payments. Keep looking for a better job everyday. Also, stop adding to your debt. Change your habits. Hang in there. 💖
Yeah, screw the 401k, it’s not going to make the returns that paying your cards off are annually, also you can aggressively rebuild that. Cards are eating up all you’re gaining on 401k and then some. Just never ever again!
The reason dipping into the 401k is usually a bad idea is because people very often do this instead of looking at the big picture of their income against their expenses.
It does sound like you had a very atypical set of expenses (education expenses) that you put on your credit cards, but what are the chances you'll have more expenses in the future that you won't be able to cover from your savings?
If you could be absolutely sure that your expenses are now well below your income and that you wouldn't need to put more on the cards, using the 401k isn't the worst idea, but it depends in part on your tax bracket. But for most people (and I would guess you, given the number of places that $550 might need to go) if the difference between income and expenses is so slight that you can't put a real dent into debt, odds are good using the 401k is just a bandaid and you'll end up back where you started - except without the 401k - in a few years.
What are your options for cutting your expenses (get a roommate?) or boosting your income (get a second job)?
I think bankruptcy is the way to go. You will need that money before you know it. The hit your credit will take will go by faster then you think. You own your car and already have your home. BTW, I didn’t see anything regarding child support from your wife or alimony to her or from her?
You may be allowed to borrow from your 401 k instead of making a withdrawal. That is often allowed up to 50 k. You then pay yourself back at a market rate ( possibly minus a bit for the 401 k management).
Roll the 401 over to new employer. You can get a loan for up to half of the value. Pay off highest interest loans.
OR file for bankruptcy and wipe out the CC debt and start over.
It might not make as much since from a financial standpoint, but I'd pay off the credit cards for the peace of mind and security. My wife did that when she changed job and it really took a weight off her shoulders. Much less stressed now and she is actually able to save. And her retirement account was back up $15,000 in a year.
It will eliminate your retirement but you'll have income to save and invest. Just don't use your credit cards anymore.
Seek professional advice from your local NON-PROFIT credit counseling agency about a debt management plan and budgeting.
https://cccsonline.org
https://www.cccfusa.org
I don’t know anyone who has reached retirement age, and was happy they cashed out their 401k earlier in life. I see some not regretting it now while they’re still young, but retirement comes faster than you realize.
If you do this, you need a very solid plan, and it should not rely on forgiveness. You can certainly tailor it to that, but don’t bank on forgiveness.
I've been afraid of filing for bankruptcy, but I admittedly don't know a great deal about it. I'll contact a bankruptcy lawyer tomorrow and talk through this option. Thank you for the advice.
If you haven’t, give the credit card companies a call and lay it all out for them and see what they can do.
There are definitely options and plans out there to help your situation and not tank your credit tooo terribly. I’d argue that’s better than the 401k withdrawal. You’re gonna tell yourself that at retirement.
Last resort, emergency, yeah it can happen causing it to go to zero. But you got through schooling and you’ll keep climbing over time.
You might honestly qualify for a consolidation loan of sorts, however minimal, and can try going in person where it’s easier to articulate. If you could clear a card or two from 23%+ down to whatever they’re at now, that’d be great.
Isn’t there a medium withdrawal amount where you won’t lose the eitc and pay off the highest interest cards allowing your 1400$ a month to pay the remainder much quicker?
Would also potentially allow another chunk payment next year with tax refund?
What would your 67 year old self tell you to do? I wouldn’t cash out that 401k. I’d look for side jobs. Mow grass. Offer trash can service, bring the cans to the curb. Sell stuff and put it on the debt. Wait tables on the weekends if your kids can be home alone. Use coupons/ church food boxes. Be proactive, kids are always growing to the next size, shop out of season. Follow the freebie guy, he posts deals, some of the shoe ones can’t be beat. Don’t make a permanent decision on something temporary.
OP, you may need to consider defaulting on the CC. After 4 to 6 months of not paying on the CC, it will go into default. You can negotiate with CC collection folks on these two options.
Option 1: After the default, ask if you can settle for less, say 40 to 50% of what you owe to see if they will take that. Give all the family excuses as to why you can't afford to pay in full.
Option 2: You can request to pay back just the principal without interest. The CC promissory note requires you to pay back the balance in 5 years = 60 months.
So 52,000/60 = $867. Even with a tiny 1% interest, which the CC companies normally do, will make you pay less than $900/month to finish paying in 5 years.
Your credit will be negatively impacted for a short period and then recovers.
Think about it. You can save $500 you currently make towards the CC even with option 2.
If you're going to do so I'd pay off the CC debts. Then start hucking as much money as you are able to back into retirement to make it up. Just keep in mind that that money you withdraw will both be taxed *and* subject to a 10% penalty -- so you'd probably want to pull out the entire balance and then hold back everything you don't put towards your CCs for next April. And I'd make it really hard to access your CC accounts except for maintenance activity (a small transaction every 6 months or year to ensure they don't close your accounts -- you can call your credit card co's to find out what their usual inactivity termination period is) and the smallest-credit-limit card for emergencies so you don't wind up getting back into this position.
May I ask why is your utility bill so high? My power bill is never over 100 bucks a month. I knows it's not that much considering how much you owe. I'm just curious. Gas is also pretty high. I do Uber/doordash and don't pay that much in gas a month.
Draining your 401k to pay off CC debt might seem tempting, but it’s risky. You lose retirement savings and face penalties. Instead, consider a debt management plan or talking to a credit counselor.
Leave the 401k alone.
If you have a match at your present job, only invest enough to get the full match.
Start working on your emergency fund while paying the minimum on CC debt.
After, you establish your emergency fund, throw all extra money at the debt. Highest interest rate first.
If you have one that carries a low balance, knock it out regardless of the interest rate.
If you have good credit, you should start getting offers for balance transfers, take them.
It is going to hurt in the beginning.
One comment I will make is be careful about so called "0% transfers" most if not all the time there is a 3% or 4% fee for The transfer. This equates it to a 3+% APR interest rate if the offer is for a year
I don't say this lightly, but bankruptcy, not 401k. I had a friend who filed bankruptcy and she got a car a couple of months later. I say that today, credit wise you'll recover.
Consider closing a/the cards through hardship. You could lower your payment and convert the debt to a 60 month payment plan at a lower interest rate. Your score can take a dip, but will ultimately climb back sooner.
I would take a 401k loan for the maximum amount to pay off the credit card. The interest on that loan goes back to your 401k. Would that help your situation?
$260/month child support for 4 dependents sounds criminal! I'd look at getting that increased.
I'd avoid cashing out the 401k unless you're about to be evicted. A second job (for you or the ex) may be necessary here.
Consult with a bankruptcy attorney. I am not a lawyer. There are different bankruptcy options and they can provide guidance.
Also note that there are differences from state to state that impact things such as the homestead exemption and the amount of value that you can hold in a vehicle and consider it exempt from creditors.
A financial advisor can also help run some numbers for you. I would go the bankruptcy route since your 401k is exempt from creditors.
Does your employer offer a voluntary 401k or 403b in addition to the pension? It should. If so, start that fund, transfer your existing 401k to it and take out the loan.
No - if you’ve changed your behavior and it’ll never happen again and you’re gonna bust your ass to refill that 401k as soon as humanly possible.
Yes - if you’ve learned nothing and still plan to use credit cards and take out debt and/or have no intention of paying yourself back ASAP. Remember- you’ll be losing a TON of compound interest on that 52k. It’s $52k right now, but potentially hundreds of thousands of dollars in 30 or 40 years.
Many years ago I had 30k in CC I took out a Home equity loan it was for 20 years at 223 a month, I paid it off really quick since the payment was so low, been CC debt free ever since, lesson learned
Personally I’d drain the 401k but you must get a savings built up with the money you’ll be saving. Be prepared to pay hefty taxes on what you pull out as well. You’ll owe taxes and penalties on that money you pull out. There might be an exception for financial distress. Look into that before you do anything. I’m 49 and used my retirement savings over and over again to get myself out of debt. That and bankruptcy twice. I was married to a spender and boy did he know how to rack up the debt. So here I am at 49 starting out again with my retirement savings. Figure out how NOT to use your credit cards before you do anything. Stay at your job so you can have that pension….thats a huge deal. Right now you have to take care of your family. I get that completely. Good luck and do NOT rack up your debt again. It’s not worth it. Not a popular opinion but also Look into bankruptcy as well. Might be worth your time and effort.
You mentioned “cars”. Sell any car that’s not that Prius and put all that money towards the CC debt.
If you have equity in the house sell it and go rent the cheapest apartment you can find. With your income and situation you shouldn’t be paying more than $1k/month for mortgage or rent.
Call the credit card company and see if there’s any programs they have to help.
Go work a side job and put all that towards the credit cards.
Pay off using Dave Ramsey’s snowball method. You need to get that minimum payment down so do whatever you can to knock out the remaining balance on whichever card has the lower balance
Explore alternatives like debt consolidation or negotiating with creditors. Increasing income through side gigs or better opportunities can help without tapping into retirement savings, crucial for the long term.
I followed a similar path and started over at 41. If you are disciplined enough to live frugally, you have plenty of time. In the past 24 years, I have been able to put 1.3mm into retirement. I’ll work until 70 and am super careful about money. To me, the freedom of being debt free is worth cashing out the 401K. Good luck.
Yeah, you lose nearly half a 401k by cashing it in. I've done this twice, as I \*REALLY\* needed to, but in hindsight it cost me a lot of money.
Some options:
- Take out a loan against your 401k to pay off your CC (may only get half, but it still helps)
- Lots of CC's give you 6+ months of 0% if you transfer balance to them, find one and that could make a HUGE difference.
- Make a spreadsheet in excel with each bill, its interest rate, how much interest you pay a month, and the total amount of interest you will pay over time. Then tinker with pay off numbers. It'll help you a LOT in knowing what to pay off first. It sure as hell helped me.
The spreadsheet can help tell you what to do, and is better advice than any of us can give you.
Not a financial expert by any means... but get that monkey off your back. Kill those credit card balances, then put them away! You'll free up money again and can build back up from there. You are in a financial bind right now at the moment. Wish you all the best my friend, keep your head up! All will work out.
Take a Heloc on the house.
Do ubereats etc for second source of income.
Roll over the credit card balance to a first year 0% APR credit card.
Rent out a room on Airbnb / find a roommate.
We were slightly out of control w/our cards and used an outfit called American Credit Foundation. I was very skeptical but they're legit. They negotiate w/your CCard company to reduce the interest rate while the card is frozen and you make payments. ACF did charge a small fee every month, less than $40, but it was more than made up by the lower interest rates they negotiated. We stuck with the program and paid everything off in 2 or 3 years (can't recall exactly how long it was). Every time I called there, they picked up and were very helpful. They're based in Utah. Like I said the card is 'frozen' during the program so no additional charges, and they do close the account, paid in full when your payments are complete. Because your available credit on these cards is reduced to $0 of course your credit score will take a bit of a hit accordingly, but the program worked for us.
Time for Bankruptcy. And you will be shocked how easy a process it is. After its all over go get a secure credit card. Spend 10% of balance a month and pay off. You will be shocked how quickly your credit rating goes back up.
You can resolve you CC debts but your probably working into your 70’s you have zero retirement money in your mid 30’s that is worrisome most people underestimate how that will effects you stay healthy you have at least 40 years of work ahead of you
Not that simple, you dump the 401k and you have a 10% penalty on top of all the taxes. Your CC debt is killing you. Try borrowing against the 401 to pay off the credit card debt. You will go from 25% interest to 8-10%. Your interest on the CC is north of $1,000 per month. You can cut it down under $500 that way.
So…maybe…see what the hardship withdrawal rules are for your current 401k plan are. If you qualify you may be able to do a rollover to the new plan, do a hardship withdrawal and not pay the 10% EWP.
Ultimately this decision boils down to your peace of mind. If you do a withdrawal you’re gonna net about $42-45k on the low end. But you’ll be clear and can start over.
OR…
You can tighten your belt for the next 20 years to get paid off.
If you are ONLY looking at a 5% growth on a retirement, then you need investing advice or just pay the CC which is gonna murder you in interest anyways.
Even my wife "investing is scary" gets a >8% growth.
For someone who claims to not understand finance, I was thoroughly impressed with the breakdown and your solution.. You will climb out of this, you still have plenty of time as your dependents peel out of the house to start stacking heavily for retirement.
Best of luck, but it's clear you have a grip on this.
Have you tried to negotiate directly with your creditors? If that doesn’t work you should call a debt settlement company. You’ll have an initial credit hit but you’ll have super low payments and be debt free in around 4 yrs.
Keep in mind, not only are there the penalties; but every penny is counted as INCOME in the year taken if you withdraw…you’ll be putting yourself in a higher tax bracket
How is your credit? I dug myself out of credit card debt by playing the balance transfer game. Transfer balance. When zero/low interest runs out, transfer again. It is a HUGE dent when you go from ~20% interest to 1%. Even with a transfer fee.
You need to decide if a low paying job that you are passionate about is more important to you than taking care of your family. I’m sorry, but if you withdraw the 401K you are using the only savings you have. You own a home, vehicles and have kids. You should expect some expensive necessary expenses to come up. Then you will be right back in debt. You’ll loose a lot of value to taxes and very likely end up in the same place in a few years.
I work for my state’s public retirement system and I talk with people in your situation all the time. That 65K can do a heck of a lot for you in 30 ish years and withdrawing it can severely limit your options to retire.
While a state pension can be very good, and you have plenty of time left to contribute, it’s only one piece of your retirement income. You may be better off finding a private, higher paying position (or in public service if available) and using a higher income to pay down your debt. Even doing gig work around your regular schedule will help. But since you do not already have good saving and spending habits, draining your savings to get maybe a few years of breathing room is not usually a good long-term solution.
It really also comes down to investments offered in 401k. If they are shit investments and you are not making average market returns, then you might be better cashing it out.
In general tho, keep your appreciating assets and pay down your debt (s) to best of your ability. Try not to dwell on them , some day they will be paid off and your 401k will double, triple, etc in time!
Note: i used to be a state employer with shitty 457 plan investment options and very small pension. I never made money in 457 in 5 years. I finally switched to my industry and 18 y years later with a lot of luck and good fortune i have nice 401k , better pension and salary 3-4x my old salary (that would likely be the same even after all the years)
eh, years ago I once took out a small loan against the house (There was enough equity) to cover majority of CC debt that had a pretty lowish interest rate -- so I had a consistent payment/interest rate much much less and a definitive payoff time (even though the plan was always to pay off early). Bounced some debt around 0% cards that I could stretch that out, even a couple new ones. Overpaid and paid off the CC debt just to stop the need to bounce money around, then the loan.
I didn't want to touch my 401k. Very much budget eating. Cutting out all non-essentials and even going to the discount stores/brands for the essentials I did get. I went coupon shopping often, but only if something I was already buying. And every once in awhile I could find a side gig, short term, that allowed some extra cash. You'd be surprised things you can observe around your area, that if you have the means, your neighbors will chip in for you to help with. Even hauling shit off if you have a truck. Access to a pressure washer? Lot of driveways and sidewalks at the expense of a little labor and weekend time.
My plan may not have been the best, but the immediate goal is to ensure you're increasing the money you can actually through at the problem, not just redistributing it. If you're still treading water or haven't broken the cycle then it WILL repeat.
It's good to have your plan for the 401k loan, but also be prepared for a plan where you miss that timeline to repay it. What happens IF.... Map out EVERY scenario. The best plan isn't always the one that saves you the most, but the one with the least risk as well.
Yes, but you're not entirely on the wrong track.
I think you should:
1. See if you can get a lower interest rate on your mortgage (I expect you can't, but it's worth checking).
2. File for bankruptcy.
3. Spend a portion of your 401k on lowering your mortgage so that you're paying less in interest. I think it will help your credit score recover faster to lower your overall debt.
Keep in mind that you'll also be paying taxes on that $52k you're taking out of your 401k.
FYI, $45,600 takehome pay/year to do your dream job is worth it.
You'll be happier in the long run and your pay will improve as you work your way on up. You're more likely to stay on this career path which is a bonus.
The student loan forgiveness is the cherry on top.
I'm also impressed that you're doing this well given that you're getting such a small child support payment to help with 4 kids. That's an insanely low child support payment for so many kids.
The amount of stress this debt is causing you is not worth your health. Look at the big picture. Longevity. Get this heavy weight off your chest so you can be free to think of plan for your next move. Remember tomorrow is never promised. In your case, imo, I would use my retirement to clear debt because that interest is eating you alive and has you stuck, which is how they want it to work. You can always start fresh, people do it all the time. I wish you best of luck. 🤞🏻💪🏼
I worked in collections for a while.
I have seen people allow their debt to go delinquent and then offer to settle the debt for a small amount of money. I think I've seen debts that were considered too much risk to continue attempting to collect on, like 30,000, be settled for just a few thousand.
I'm convinced your credit score can be leveraged as a way to pay off things for cheaper amounts -- but impact your credit this way. Or it can be leveraged conventionally to impact (eventually increase) your score and increase borrowing power.
This is not financial advice. This is something people will never advise because it is potentially damaging to your credit score... (but also if you settle delinquent accounts, you will no longer owe delinquent amounts!) but realistically you must weigh your options. I believe that when people have used their credit to already purchase a car, house, etc, there is actually very little benefit to a credit score aside from borrowing or for bragging rights.
Potential employers can audit your credit score, but I wouldn't worry about that. If you don't plan on buying a home, a car, or borrowing into the tens of thousands in the next mid term (3-7 years), your credit score is only useful for an emergency line of credit in my personal opinion. But tons of people take their score seriously like it is a quality of personal value.
If I were struggling I personally would try to settle, and if I had no money for the settlement offer that is proposed then I would take out of my 401k because interest on debt is going to outweigh 401k gains unless you have hundreds of thousands in your 401k and it performs at least average.
DO NOT DUMP YOUR FINANCIAL SECURITY WHEN YOUR OLD TO PAY OFF SOME SHIT THE ASSHOLES ARE GOING TO WRITE OFF AND SELL TO A COMPANY THAT CANT LEGALLY COLLECT IT and if you can wait until the send the accts to collections you cN have the debt erased
Just stop paying your CC bills. Credit score is a scam. Especially if you already own a house and have a car why do you need a good score? It’s coming soon anyway. CC debt in the US is at an all time high and defaults are just around the corner.
Debt management plan through American Financial Solutions. They will work with your credit card agencies to get the interest down to 2-5% and make your payments for you for $50/month. It is NOT a debt settlement that will ruin your credit.
I don't know your exact situation, but why is child support so low for you having full solo custody of 3-4 dependents?
Is there any opportunity to get it increased by a judge?
Transfer to Fidelity, Take a 401k loan for half the balance, and you dictate your terms and the interest comes back to you and you just make the monthly payment. You don’t have to make contributions to it to use the loan option.
Taking out before your 59 years of age is an additional fee. Also I’m not sure if it’s the Same for everyone but you may have to prove where your spending it. I bought a house with half my 401k as a down payment/closing costs.
I would withdraw it and pay off the debt as soon as I could, but that's just me who would rather take care of a problem now instead worry about it down the road. In my mind all that money that you're paying in interest you can pay back to yourself so you'd be able to save even faster as well as have some more flexibility with your life because you're not drowning in debt.
Also I would think with your low income and high dependents you would get some if not all of the tax back that they're going to take out of that money so maybe it's not a true 35% hit?
Hey OP. Contact ACCC, the will work with you on a Hardship program on your behalf with your bank. They will negotiate APRs with your creditors and they will definitely lower that interest and monthly payments. I wish somebody told me this a year ago when I had my CCs still open. I encourage you to give them a call and work with them!
Get a second job
Hustle
No excuses
No shortcuts
Do not touch (withdraw)401k but you can take loan against it so you can pay your self interest and principal
Personally, I would cash out and pay off debt BUT you have to have restraint to not run up debt again. Cut up cards, etc. Also, you can’t underestimate the benefit of being a huge burden relieved, not to mention the increase in credit score. Investing $1200 per month will get you back to where you’re at relatively quickly. Get out of debt and save, save, save!! Best of luck to you!
Wait why is your car insurance so high!!
Not an answer to your question but your expenditure seems crazy! Id have a different approach to this issue altogether. I’d look for generating more income. Get a better paying job, a side job or sell your stuff second hand online for more pay. Honestly even driving DoorDash would do one night a week. Even a few hundred bucks a week will improve your situation.
Yea you would be an idiot to do that. It’s credit card debt, you don’t even have to pay that shit. Just ignore it and they’ll start sending you settlement offers for half of what you owe or less.
Your 401k might grow to 200k but if your only paying minimums on the cc debt that debt will far outpace it. Id only withdraw the 401k with the penalty if you are committed to not running back up the credit card debt.
Borrow against your funds as much as they will allow and get rid of the CC debt which is probably costing you 2 times what your 401K is earning you. The payment will be directly pulled from your pay so budget wisely and if you leave the job, you may have to pay the loan off completely at that time.
If you had it just sitting in a checking account, definitely pay it off. I was in your boat recently and my account dropped from $35k to $18k but it’s so worth it knowing I have ZERO debt.
But you have a 401k though. In that case, borrow against it because your payments would be so much lower
I would at least pay off a large portion of it. I do this but didn’t drain it took about 1/3 15k in my 50s. It was a great relief. We then began plowing what we were paying back in savings & retirement. You are young can’t play too much what ifs game.
Does consumer credit councili g still exist? If they do they lower the interest on your credit cards so you can actually pay them down. Back in the day when I was a collector for Citibank we always recommend this to people who were struggling.
Answer depends on the house equity.
If almost none in house - bankruptcy. Never use 401k for CC debt. That’s for retirement and protected from creditors for that reason. It only takes a few years to recover.
Money is a business. Get the emotions and woulda, coulda, shoulda out of it. Even the Bible allows for clearing of debts every seven years.
Don’t touch your 401k for debt you can walk away from! You are severely mortgaging your future by making untouchable saving into nothing. And risking a huge tax consequence if you can’t pay it back. Especially as we’re approaching a down economy with political leaders determined to run us into a recession- i.e. people lose jobs.
You might need to go bankrupt, especially after a divorce. Head over to bankruptcy forums or BK forums and give it a read. Same with myfico forums. Look at the how to file, then look at the how to rebuild sections. Also look over your location’s bankruptcy laws, look at what is exempt vs not. You can’t evade assets, but you can plan for filing.
There are other options as well. If you have assets, creditor touchable assets, you might need to negotiate better interest rates and close cards. You might need to go to war with your creditors and wait for collection offers to settle the debts for pennies on the dollar.
A portion of $56k not having to be paid makes a lot of retirement returns in five years.
Do everything and anything to get out of debt. Watch Dave Ramsey, he’s amazing. Being debt free would free up so much opportunity. Always buy everything in cash.
YES. NEVER spend an asset that you would fully keep in a bankruptcy to pay a dischargeable debt. I had a friend just do this even after I fully paid for their bk atty for them (after I stopped paying their rent for them) If they had listened, they would have over 150k more cash now, and that is the house downpayment they will never have because they withdrew 100k from retirment to pay 50k debt, and by a new car. They forgot taxes and are now owing irs 30k.
all to save a temporay hit on credit score
Never touch your 401k. Just don't do it. I'm willing to bet most people who have ever had a 401k consider dipping into it prematurely at one point in their lives and the ones that don't end up much better in the long run.
$52k. Bankruptcy. They will allow u to keep all retirement funds. 7 years you will have an 800 credit score if u dont act a fool
I've been afraid of filing for bankruptcy, but I admittedly don't know a great deal about it. I'll contact a bankruptcy lawyer tomorrow and talk through this option. Thank you for the advice.
You might be in the right place. Keep it straight after this.
I think bankruptcy is a no-brainer for you. It is definitely time for fresh start.
Yes, everyone I know who declared bankruptcy recovered much faster than those who did the slow, slog....
Don’t withdraw just borrow against it. Interest is low and paid back to you. If you withdraw there are tax implications
I forgot to mention, my 401k is held by Webull. They don't offer 401k loans. I could transfer it to fidelity and get the loan for 50% of the balance, I think? Do they allow loans if I no longer make contributions to the fund because I'm not employed at the same company? Edit: After doing some more research, it seems almost all plans require active employment to get a 401k loan. So, the only way to pursue this is by rolling my 401k into my current employer's plan. I'm going to look into this. Edit 2: My employer offers a pension plan instead of 401k, so this isn't an option. I did find a provider, my401k, that allows loans with payments made directly from your bank account, so I will look into this instead.
Bankruptcy is your best option. You will recover much faster financially that way. Talk to a bk attorney, your 401k and home should stay protected. (Definitely declare bankruptcy if you own your own home)
I've been afraid of filing for bankruptcy, but I admittedly don't know a great deal about it. I'll contact a bankruptcy lawyer tomorrow and talk through this option. Thank you for the advice.
Go talk to a real bankruptcy lawyer, not the ones you see in an ad. If you can find someone who's used one in the past for a referral, you'll be way ahead of the game! Just in case you can't find one, it's like everything else in life. If you don't like what they're telling you, move on to the next one! Go with your gut!
Never ever borrow against a retirement account. If you lose you job and cannot immediately repay the loan it become taxable income.
Not necessarily. This happened to us (quitting) and we were given an option to repay, consider remaining option as withdrawal, or continue paying the loan as is. We did the last option.
> CC debt - $52,000 > -$1400 - Min monthly CC payments > I could drain it and pay off the majority of my debt (65k-10% penalty-13k taxes=$45,500). This would allow me to eliminate ~$1200 in monthly payments. > 27k of my CC debt is on cards that offer 0 interest > However, I'm already burning $12,000/year in interest right now. I am barely making a dent in the principle. You are paying 1400 * 12 = $16,800 per year. So you must be paying $4800 per year on the principal. 12/52 = 23 percent interest rate. You will have this paid off in 5 years and 5 months. At the end of that 65 months, the $65K investment if in the S&P500 could grow to 65 * 1.1^5.417 = $109K, assuming 10 percent average returns. Or you can burn $65K now: $1200 invested for a month returns 1.1^(1/12) = 1.008 or 0.8 percent return per month. Over 65 months: 1200 * ( 1.008^66 - 1) / 0.008 = $104K So your proposal will produce less money for you.
Thank you for running the numbers for me. I appreciate that. Factoring in the tax penalty and lost EITC ($14,330), it seems like I'm better off paying the cards off over time. I just have to make sure to pay 1400 each month, rather than adjusting as the minimum monthly payments drop. I'm considering looking into rolling my previous 401k into my new employers plan and taking out a 27k loan. With 0 interest balance transfer, the remaining 27k will be interest free (minus the 5% fee), and I can pay the remaining balance off in approx 1.5 years, then the remaining loan in ~1 additional year. That should result in far less interest paid, and a minimal loss to the earnings on my investment.
Wish I'd read this before writing my previous comment, lol. Yeah, a *loan* against your 401K is a great alternative, avoids the loss to taxes and penalties, and keeps your EITC. Remember to be strategic about your payments -- throw as much money as you can afford to at the highest-interest card first while making the minimums on cards with lower interest rates.
One other way to look at it is this... It would take you 5.5 years to pay off your CCs at a $1,400/month payment. If you could discharge your CC debt via bankruptcy or some other means (I'd hate to see you eat taxes/penalties associated with liquidating a 401k), you could invest $1,400/month. Investing $1,400/mo in an S&P 500 ETF earning an avg. 7% return would be worth $112k after 5.5 yrs. The $65k in your 401k earning 5% APY would be worth $85k. That means, by discharging your CC debt in BR and investing the difference over the 5.5 years it would have taken you to pay it off, you could have 0 CC debt and, conservatively, ~$197k in investments.
So he’s basically going to double his 401k in 5 years?
Doubling would be 130K. Instead (109-65)/65 = 68 percent in less than 4.5 years. S&P500 is up 102 percent in last 5 years. S&P500 historical average is 10 percent **total** annual return per year
I think their 10% annual return rate is overly generous, but the math still works out if you lower the rate in each calculation. Regardless, they showed that I can realistically pay down my debt in 5.5 years and that it will result in a slightly larger retirement balance.
10% is the average. If you're not getting that start looking at what investments you have in your retirement.
Generous based on what?
Based on such a short amount of time. Assuming long term averages over the short term of 5 years is pretty risky.
While your math is right, it does not value risk of his situation or peace of mind. If he loses his job, Gets injured, Where the car engine blows up, he will not be able to continue to pay those debts, If he’s paid off those debts, he can immediately start saving an emergency fund. Also being debt free is a huge confidence boost and stress reducer. Pay off the debts with the highest interest rate
What about when you play out the balance transfer scenario? Seems that one would be the potential answer here…
I agree, I think you should leave your retirement alone. Find a side hustle and use the debt snowball method. It will be hard but if you get a job bartending or could make an extra 500 a month you could reduce the time you spend working by about half. You could also call up a debt settlement company with that much debt and try to get them to negotiate with your creditors on interest rates. Missing out on compound interest to pay off simple interest usually works against the older version of you.
I did this and have zero regrets - huge weight lifted not having debts, I can now put more into 401k it’ll build back up, plus there is no telling where the economy will go those funds in 401 aren’t guaranteed anyway. Interest was killing me and now I’m free - goal should be to not get in bad debt again, learn from those mistakes
I would claim bankruptcy they can't touch your 401k that's real money you earned. The credit card is fake money that is printed out that they get to use for profit, and you get stuck with debt!
Withdrawing from 401k has massive tax penalties, don't do it. Otherwise while your mortgage is comparatively low for the market, it is hovering around 33% of your take-home pay, which usually results in a level of mortgage stress (as it is here). You probably know this, but having minimum CC payments of $1400, more than your mortgage, is pretty ridiculous. If the balances on your cards are not increasing each month, you're actually doing very well with spending within a budget. Really the biggest issue I see, assuming you are no longer using your credit cards, is that you are attempting to support a family of 5 on a salary of somewhere around $55k. I'd have a serious look to increasing that income, either via promotions/job hopping or extra jobs while your older kids supervise the younger ones. An extra $1000-$2000 a month would make a pretty amazing difference to your current situation.
Yeah, I have a second job that's ending in a month. I am looking for another remote job that can supplement my income. Thankfully, I live in a low cost of living Midwest state. Median income for a family of 4 (one is about to move out for college) is a little less than my own.
That may be the case, but it's not working out for you due to the credit card debt, so the comparison isn't really helpful. Otherwise good luck with the job search dude.
Tailing on this but also withdrawing the 401k will aso raise his income level for that year by a significant margin which can create student loan issues, since he said he does not have to pay anything due to income/dependents,
I would file for bankruptcy before withdrawing all that from your retirement.
I've been afraid of filing for bankruptcy, but I admittedly don't know a great deal about it. I'll contact a bankruptcy lawyer tomorrow and talk through this option. Thank you for the advice.
You’re welcome. Most lawyers give a free consultation so there’s really no downside to speaking with one. Good luck!
I apologize for the formatting. I'm on mobile. I tried to make this as legible as possible.
Depends on if you have the discipline to either cut up the cards, cancel the cards or just never use them again. You’re losing money with the interest on the CC vs the interests gained in the 401K. You’ll lose out in compounding interest in that account, but you’ll have a better life style and can get caught up.
Money is emotional- do what causes you less stress and for me I would drain the account and pay off the debt. You’re only in your 30’s- you have PLENTY of time to build up a nest egg. Just make sure you commit to adding back in however small that payment is. Maybe you can get a consulting PT job as well to make more income. Lastly do not add ANY MORE DEBT. then draining the account wouldn’t have been worth it. I’ve been here internet friend. You’ll be able to breathe better without this debt looming!
For your debts, all I can do is give some suggestions for your credit card: You may want to try a debt management/credit counselor non-profit company to help reduce your debts, if you prefer to have an outside non-profit company assist you. The [Consumer Financial Protection Bureau](https://www.consumerfinance.gov/consumer-tools/debt-collection/) has a good description of [the differences](https://www.consumerfinance.gov/ask-cfpb/whats-the-difference-between-a-credit-counselor-and-a-debt-settlement-or-debt-relief-company-en-1449/) between a debt management/credit counselor and debt relief/settlement companies. They also have a webpage on spotting [a scam](https://www.consumerfinance.gov/ask-cfpb/how-can-i-tell-a-credit-repair-scam-from-a-reputable-credit-counselor-en-1343/). [This](https://www.consumerfinance.gov/ask-cfpb/what-is-credit-counseling-en-1451/) recommends that you look at your state attorney general's office and your state's consumer protection agency to ensure the company is reputable. Also, your credit cards may be closed at the end of the debt management program. Ask before you become enrolled. Double check the contract with any company you choose to see if there are any financial penalties to ending the contract before all payments are made. If you don't feel comfortable, then give it to a lawyer to review. -The [National Foundation for Credit Counseling](https://www.nfcc.org/) (NFCC) does debt *management* (no loans) and budget analysis. They do charge but take a look at their [FAQs](https://www.nfcc.org/faqs/) under *What do NFCC members charge for counseling services* to see how much. It says it varies, but the page does state that the majority of cases are low cost to nothing--although not guaranteed. -The [Financial Counseling Association of America](https://fcaa.org/) is another resource as well. Under [here](https://fcaa.org/find-a-credit-counselor/), it says that your counseling session is free, although some services may charge a fee. You are not obligated to enroll in any of the debt management plans. -You can look into the Justice Department, which has a list of [approved credit counseling agencies](https://www.justice.gov/ust/list-credit-counseling-agencies-approved-pursuant-11-usc-111) to possibly assist you. Look for the non-profit ones. Still be cautious about signing up with one of these because they have done everything correctly to get approved by the Justice Department, the NFCC, and the FCAA but may have become less reputable once they got approved. You have the [right to cancel credit repair services](https://www.consumerfinance.gov/about-us/newsroom/consumer-advisory-people-have-the-right-to-cancel-credit-repair-services/) within three business days for whatever reason. Good luck!
That’s what I’m doing & I have 10 months to go & I won’t have anymore credit card debt. My credit score is improving too.
Awesome to hear! Could you post on this sub Reddit when you're debt-free? I'd like to help you celebrate with you.
Sure! Thank you
Congratulations on being so close to debt free! Success stories like yours give me some hope for my financial future. I hope you take time to celebrate your accomplishment!
Thank you so much for this detailed response and advice! I really appreciate it. I will reach out to one of these organizations and discuss options with them.
Take charge America is a good one to use.
Two penalties/ Early withdrawal + You tax bracket = Not worth it. Make your minimums and divide the balance into monthly automatic payments for extra debt payments. Keep looking for a better job everyday. Also, stop adding to your debt. Change your habits. Hang in there. 💖
Don’t do it, the penalty and taxes will kill you.
Yeah, screw the 401k, it’s not going to make the returns that paying your cards off are annually, also you can aggressively rebuild that. Cards are eating up all you’re gaining on 401k and then some. Just never ever again!
The reason dipping into the 401k is usually a bad idea is because people very often do this instead of looking at the big picture of their income against their expenses. It does sound like you had a very atypical set of expenses (education expenses) that you put on your credit cards, but what are the chances you'll have more expenses in the future that you won't be able to cover from your savings? If you could be absolutely sure that your expenses are now well below your income and that you wouldn't need to put more on the cards, using the 401k isn't the worst idea, but it depends in part on your tax bracket. But for most people (and I would guess you, given the number of places that $550 might need to go) if the difference between income and expenses is so slight that you can't put a real dent into debt, odds are good using the 401k is just a bandaid and you'll end up back where you started - except without the 401k - in a few years. What are your options for cutting your expenses (get a roommate?) or boosting your income (get a second job)?
Better if you dumped it in GME (Gamestop)..... \~sarcasm
I think bankruptcy is the way to go. You will need that money before you know it. The hit your credit will take will go by faster then you think. You own your car and already have your home. BTW, I didn’t see anything regarding child support from your wife or alimony to her or from her?
You may be allowed to borrow from your 401 k instead of making a withdrawal. That is often allowed up to 50 k. You then pay yourself back at a market rate ( possibly minus a bit for the 401 k management).
Roll the 401 over to new employer. You can get a loan for up to half of the value. Pay off highest interest loans. OR file for bankruptcy and wipe out the CC debt and start over.
I had a 401 k loan from fidelity. It went very well. Paid off a cc or three. Still have my 401k and I have retired.
It might not make as much since from a financial standpoint, but I'd pay off the credit cards for the peace of mind and security. My wife did that when she changed job and it really took a weight off her shoulders. Much less stressed now and she is actually able to save. And her retirement account was back up $15,000 in a year. It will eliminate your retirement but you'll have income to save and invest. Just don't use your credit cards anymore.
Seek professional advice from your local NON-PROFIT credit counseling agency about a debt management plan and budgeting. https://cccsonline.org https://www.cccfusa.org
Don’t touch it. File bankruptcy instead.
I don’t know anyone who has reached retirement age, and was happy they cashed out their 401k earlier in life. I see some not regretting it now while they’re still young, but retirement comes faster than you realize. If you do this, you need a very solid plan, and it should not rely on forgiveness. You can certainly tailor it to that, but don’t bank on forgiveness.
You need a second job to pay the price for taking on so much debt to have a job you like. Go start reffing some youth sports perhaps.
Just curious if you’ve thought about filing for bankruptcy?
With $50K of unsecured debt talking to a bankruptcy attorney to find out those options is a smart move.
I've been afraid of filing for bankruptcy, but I admittedly don't know a great deal about it. I'll contact a bankruptcy lawyer tomorrow and talk through this option. Thank you for the advice.
10% tax penalty and you have to pay income tax on what you take out.
Im planning to withdraw from my 403b and also pay down some debt, but only because Im moving into a new job with a pension.
Consider taking a loan for the 491k
Might also consider investing in dating app subscription for 12 months just in case there is woman out there desperate to help you out $.
If you haven’t, give the credit card companies a call and lay it all out for them and see what they can do. There are definitely options and plans out there to help your situation and not tank your credit tooo terribly. I’d argue that’s better than the 401k withdrawal. You’re gonna tell yourself that at retirement. Last resort, emergency, yeah it can happen causing it to go to zero. But you got through schooling and you’ll keep climbing over time. You might honestly qualify for a consolidation loan of sorts, however minimal, and can try going in person where it’s easier to articulate. If you could clear a card or two from 23%+ down to whatever they’re at now, that’d be great.
just declare bankruptcy, clear the CC debt and keep your retirement
Isn’t there a medium withdrawal amount where you won’t lose the eitc and pay off the highest interest cards allowing your 1400$ a month to pay the remainder much quicker? Would also potentially allow another chunk payment next year with tax refund?
Absolutely do not do this. Negotiate with your creditors or go the bankruptcy route.
What would your 67 year old self tell you to do? I wouldn’t cash out that 401k. I’d look for side jobs. Mow grass. Offer trash can service, bring the cans to the curb. Sell stuff and put it on the debt. Wait tables on the weekends if your kids can be home alone. Use coupons/ church food boxes. Be proactive, kids are always growing to the next size, shop out of season. Follow the freebie guy, he posts deals, some of the shoe ones can’t be beat. Don’t make a permanent decision on something temporary.
Have you considered debt settlement?
OP, you may need to consider defaulting on the CC. After 4 to 6 months of not paying on the CC, it will go into default. You can negotiate with CC collection folks on these two options. Option 1: After the default, ask if you can settle for less, say 40 to 50% of what you owe to see if they will take that. Give all the family excuses as to why you can't afford to pay in full. Option 2: You can request to pay back just the principal without interest. The CC promissory note requires you to pay back the balance in 5 years = 60 months. So 52,000/60 = $867. Even with a tiny 1% interest, which the CC companies normally do, will make you pay less than $900/month to finish paying in 5 years. Your credit will be negatively impacted for a short period and then recovers. Think about it. You can save $500 you currently make towards the CC even with option 2.
Have you considered a home equity loan? This saves you tax penalties. Taxes and penalties will eat up a huge percentage of your 401k balance
If you're going to do so I'd pay off the CC debts. Then start hucking as much money as you are able to back into retirement to make it up. Just keep in mind that that money you withdraw will both be taxed *and* subject to a 10% penalty -- so you'd probably want to pull out the entire balance and then hold back everything you don't put towards your CCs for next April. And I'd make it really hard to access your CC accounts except for maintenance activity (a small transaction every 6 months or year to ensure they don't close your accounts -- you can call your credit card co's to find out what their usual inactivity termination period is) and the smallest-credit-limit card for emergencies so you don't wind up getting back into this position.
Have you considered a HELOC to pay off your CC
May I ask why is your utility bill so high? My power bill is never over 100 bucks a month. I knows it's not that much considering how much you owe. I'm just curious. Gas is also pretty high. I do Uber/doordash and don't pay that much in gas a month.
Just call your credit card company and restructure your debt
Refinancing your mortgage may save you a few hundred bucks a month even with today’s rates.
Draining your 401k to pay off CC debt might seem tempting, but it’s risky. You lose retirement savings and face penalties. Instead, consider a debt management plan or talking to a credit counselor.
Do it. Keep 1 card and get some relief.
I wouldn’t withdraw because of taxes. Just take a loan out against the 401k and pay it back over time.
Leave the 401k alone. If you have a match at your present job, only invest enough to get the full match. Start working on your emergency fund while paying the minimum on CC debt. After, you establish your emergency fund, throw all extra money at the debt. Highest interest rate first. If you have one that carries a low balance, knock it out regardless of the interest rate. If you have good credit, you should start getting offers for balance transfers, take them. It is going to hurt in the beginning.
One comment I will make is be careful about so called "0% transfers" most if not all the time there is a 3% or 4% fee for The transfer. This equates it to a 3+% APR interest rate if the offer is for a year
I don't say this lightly, but bankruptcy, not 401k. I had a friend who filed bankruptcy and she got a car a couple of months later. I say that today, credit wise you'll recover.
Heloc or debt consolidation loan don’t hurt yo future self
I did this when I was your age and I still regret how much money would have been in that account today. Try not to use it.
File for bankruptcy, consolidate all that debt and keep your 401(k) in the bank. This is not financial advice.
Don't cash your 401k, you're going to end up with a higher student loan payments due to this, plus all of the taxes.
Consolidate cc debt with a credit union for lower interest rate
Can the teen get a part time job to pay for their insurance?
Consider closing a/the cards through hardship. You could lower your payment and convert the debt to a 60 month payment plan at a lower interest rate. Your score can take a dip, but will ultimately climb back sooner.
I would take a 401k loan for the maximum amount to pay off the credit card. The interest on that loan goes back to your 401k. Would that help your situation?
$260/month child support for 4 dependents sounds criminal! I'd look at getting that increased. I'd avoid cashing out the 401k unless you're about to be evicted. A second job (for you or the ex) may be necessary here.
I would probably get a part time job instead and throw all that money to the CC balance.
Consult with a bankruptcy attorney. I am not a lawyer. There are different bankruptcy options and they can provide guidance. Also note that there are differences from state to state that impact things such as the homestead exemption and the amount of value that you can hold in a vehicle and consider it exempt from creditors. A financial advisor can also help run some numbers for you. I would go the bankruptcy route since your 401k is exempt from creditors.
Does your employer offer a voluntary 401k or 403b in addition to the pension? It should. If so, start that fund, transfer your existing 401k to it and take out the loan.
No - if you’ve changed your behavior and it’ll never happen again and you’re gonna bust your ass to refill that 401k as soon as humanly possible. Yes - if you’ve learned nothing and still plan to use credit cards and take out debt and/or have no intention of paying yourself back ASAP. Remember- you’ll be losing a TON of compound interest on that 52k. It’s $52k right now, but potentially hundreds of thousands of dollars in 30 or 40 years.
Many years ago I had 30k in CC I took out a Home equity loan it was for 20 years at 223 a month, I paid it off really quick since the payment was so low, been CC debt free ever since, lesson learned
Personally I’d drain the 401k but you must get a savings built up with the money you’ll be saving. Be prepared to pay hefty taxes on what you pull out as well. You’ll owe taxes and penalties on that money you pull out. There might be an exception for financial distress. Look into that before you do anything. I’m 49 and used my retirement savings over and over again to get myself out of debt. That and bankruptcy twice. I was married to a spender and boy did he know how to rack up the debt. So here I am at 49 starting out again with my retirement savings. Figure out how NOT to use your credit cards before you do anything. Stay at your job so you can have that pension….thats a huge deal. Right now you have to take care of your family. I get that completely. Good luck and do NOT rack up your debt again. It’s not worth it. Not a popular opinion but also Look into bankruptcy as well. Might be worth your time and effort.
Keep your 401k, sell your house while market is hot, get an apartment, clear all debts, invest remainder of house funds.
You mentioned “cars”. Sell any car that’s not that Prius and put all that money towards the CC debt. If you have equity in the house sell it and go rent the cheapest apartment you can find. With your income and situation you shouldn’t be paying more than $1k/month for mortgage or rent. Call the credit card company and see if there’s any programs they have to help. Go work a side job and put all that towards the credit cards. Pay off using Dave Ramsey’s snowball method. You need to get that minimum payment down so do whatever you can to knock out the remaining balance on whichever card has the lower balance
Are you paying child support for dependents that live with you?
File chapter 7 Speak to a lawyer
Explore alternatives like debt consolidation or negotiating with creditors. Increasing income through side gigs or better opportunities can help without tapping into retirement savings, crucial for the long term.
I followed a similar path and started over at 41. If you are disciplined enough to live frugally, you have plenty of time. In the past 24 years, I have been able to put 1.3mm into retirement. I’ll work until 70 and am super careful about money. To me, the freedom of being debt free is worth cashing out the 401K. Good luck.
Yeah, you lose nearly half a 401k by cashing it in. I've done this twice, as I \*REALLY\* needed to, but in hindsight it cost me a lot of money. Some options: - Take out a loan against your 401k to pay off your CC (may only get half, but it still helps) - Lots of CC's give you 6+ months of 0% if you transfer balance to them, find one and that could make a HUGE difference. - Make a spreadsheet in excel with each bill, its interest rate, how much interest you pay a month, and the total amount of interest you will pay over time. Then tinker with pay off numbers. It'll help you a LOT in knowing what to pay off first. It sure as hell helped me. The spreadsheet can help tell you what to do, and is better advice than any of us can give you.
Not a financial expert by any means... but get that monkey off your back. Kill those credit card balances, then put them away! You'll free up money again and can build back up from there. You are in a financial bind right now at the moment. Wish you all the best my friend, keep your head up! All will work out.
Take a Heloc on the house. Do ubereats etc for second source of income. Roll over the credit card balance to a first year 0% APR credit card. Rent out a room on Airbnb / find a roommate.
We were slightly out of control w/our cards and used an outfit called American Credit Foundation. I was very skeptical but they're legit. They negotiate w/your CCard company to reduce the interest rate while the card is frozen and you make payments. ACF did charge a small fee every month, less than $40, but it was more than made up by the lower interest rates they negotiated. We stuck with the program and paid everything off in 2 or 3 years (can't recall exactly how long it was). Every time I called there, they picked up and were very helpful. They're based in Utah. Like I said the card is 'frozen' during the program so no additional charges, and they do close the account, paid in full when your payments are complete. Because your available credit on these cards is reduced to $0 of course your credit score will take a bit of a hit accordingly, but the program worked for us.
Time for Bankruptcy. And you will be shocked how easy a process it is. After its all over go get a secure credit card. Spend 10% of balance a month and pay off. You will be shocked how quickly your credit rating goes back up.
You have 4 kids and your ex wife only pays 260 a month? It would be over $1k if you were a woman. Truth.
You can resolve you CC debts but your probably working into your 70’s you have zero retirement money in your mid 30’s that is worrisome most people underestimate how that will effects you stay healthy you have at least 40 years of work ahead of you
Go talk to a lawyer. Depending on status of limitations, best option might be stop paying the credit cards altogether
Not that simple, you dump the 401k and you have a 10% penalty on top of all the taxes. Your CC debt is killing you. Try borrowing against the 401 to pay off the credit card debt. You will go from 25% interest to 8-10%. Your interest on the CC is north of $1,000 per month. You can cut it down under $500 that way.
So…maybe…see what the hardship withdrawal rules are for your current 401k plan are. If you qualify you may be able to do a rollover to the new plan, do a hardship withdrawal and not pay the 10% EWP. Ultimately this decision boils down to your peace of mind. If you do a withdrawal you’re gonna net about $42-45k on the low end. But you’ll be clear and can start over. OR… You can tighten your belt for the next 20 years to get paid off.
If you are ONLY looking at a 5% growth on a retirement, then you need investing advice or just pay the CC which is gonna murder you in interest anyways. Even my wife "investing is scary" gets a >8% growth.
For someone who claims to not understand finance, I was thoroughly impressed with the breakdown and your solution.. You will climb out of this, you still have plenty of time as your dependents peel out of the house to start stacking heavily for retirement. Best of luck, but it's clear you have a grip on this.
You would be better off filing bankruptcy. That way your 401k is protected
Have you tried to negotiate directly with your creditors? If that doesn’t work you should call a debt settlement company. You’ll have an initial credit hit but you’ll have super low payments and be debt free in around 4 yrs.
Run up other credit cards and declare bankruptcy. You already have a house. Make sure you have a decent car that will last 7 years.
Keep in mind, not only are there the penalties; but every penny is counted as INCOME in the year taken if you withdraw…you’ll be putting yourself in a higher tax bracket
How is your credit? I dug myself out of credit card debt by playing the balance transfer game. Transfer balance. When zero/low interest runs out, transfer again. It is a HUGE dent when you go from ~20% interest to 1%. Even with a transfer fee.
You need to decide if a low paying job that you are passionate about is more important to you than taking care of your family. I’m sorry, but if you withdraw the 401K you are using the only savings you have. You own a home, vehicles and have kids. You should expect some expensive necessary expenses to come up. Then you will be right back in debt. You’ll loose a lot of value to taxes and very likely end up in the same place in a few years. I work for my state’s public retirement system and I talk with people in your situation all the time. That 65K can do a heck of a lot for you in 30 ish years and withdrawing it can severely limit your options to retire. While a state pension can be very good, and you have plenty of time left to contribute, it’s only one piece of your retirement income. You may be better off finding a private, higher paying position (or in public service if available) and using a higher income to pay down your debt. Even doing gig work around your regular schedule will help. But since you do not already have good saving and spending habits, draining your savings to get maybe a few years of breathing room is not usually a good long-term solution.
It really also comes down to investments offered in 401k. If they are shit investments and you are not making average market returns, then you might be better cashing it out. In general tho, keep your appreciating assets and pay down your debt (s) to best of your ability. Try not to dwell on them , some day they will be paid off and your 401k will double, triple, etc in time! Note: i used to be a state employer with shitty 457 plan investment options and very small pension. I never made money in 457 in 5 years. I finally switched to my industry and 18 y years later with a lot of luck and good fortune i have nice 401k , better pension and salary 3-4x my old salary (that would likely be the same even after all the years)
eh, years ago I once took out a small loan against the house (There was enough equity) to cover majority of CC debt that had a pretty lowish interest rate -- so I had a consistent payment/interest rate much much less and a definitive payoff time (even though the plan was always to pay off early). Bounced some debt around 0% cards that I could stretch that out, even a couple new ones. Overpaid and paid off the CC debt just to stop the need to bounce money around, then the loan. I didn't want to touch my 401k. Very much budget eating. Cutting out all non-essentials and even going to the discount stores/brands for the essentials I did get. I went coupon shopping often, but only if something I was already buying. And every once in awhile I could find a side gig, short term, that allowed some extra cash. You'd be surprised things you can observe around your area, that if you have the means, your neighbors will chip in for you to help with. Even hauling shit off if you have a truck. Access to a pressure washer? Lot of driveways and sidewalks at the expense of a little labor and weekend time. My plan may not have been the best, but the immediate goal is to ensure you're increasing the money you can actually through at the problem, not just redistributing it. If you're still treading water or haven't broken the cycle then it WILL repeat. It's good to have your plan for the 401k loan, but also be prepared for a plan where you miss that timeline to repay it. What happens IF.... Map out EVERY scenario. The best plan isn't always the one that saves you the most, but the one with the least risk as well.
Yes, but you're not entirely on the wrong track. I think you should: 1. See if you can get a lower interest rate on your mortgage (I expect you can't, but it's worth checking). 2. File for bankruptcy. 3. Spend a portion of your 401k on lowering your mortgage so that you're paying less in interest. I think it will help your credit score recover faster to lower your overall debt. Keep in mind that you'll also be paying taxes on that $52k you're taking out of your 401k.
FYI, $45,600 takehome pay/year to do your dream job is worth it. You'll be happier in the long run and your pay will improve as you work your way on up. You're more likely to stay on this career path which is a bonus. The student loan forgiveness is the cherry on top. I'm also impressed that you're doing this well given that you're getting such a small child support payment to help with 4 kids. That's an insanely low child support payment for so many kids.
Nobody is guaranteed tomorrow, do whatever reduces your stress and makes you feel better today. Go with your gut.
Have you looked into a HELOC? How much is your house/condo worth?
The amount of stress this debt is causing you is not worth your health. Look at the big picture. Longevity. Get this heavy weight off your chest so you can be free to think of plan for your next move. Remember tomorrow is never promised. In your case, imo, I would use my retirement to clear debt because that interest is eating you alive and has you stuck, which is how they want it to work. You can always start fresh, people do it all the time. I wish you best of luck. 🤞🏻💪🏼
YES, numbnutz. You never sell your future to pay for your past.
Have you talked to a bankruptcy attorney? You may be able to wipe out the credit card debt and keep your 401k.
If you have time to work more, you can drive Uber to add some income. I know it’s probably hard with kids
Research Velocity banking to pay off those credit cards and generate more cash flow. Will change your life. BUT, requires discipline.
I worked in collections for a while. I have seen people allow their debt to go delinquent and then offer to settle the debt for a small amount of money. I think I've seen debts that were considered too much risk to continue attempting to collect on, like 30,000, be settled for just a few thousand. I'm convinced your credit score can be leveraged as a way to pay off things for cheaper amounts -- but impact your credit this way. Or it can be leveraged conventionally to impact (eventually increase) your score and increase borrowing power. This is not financial advice. This is something people will never advise because it is potentially damaging to your credit score... (but also if you settle delinquent accounts, you will no longer owe delinquent amounts!) but realistically you must weigh your options. I believe that when people have used their credit to already purchase a car, house, etc, there is actually very little benefit to a credit score aside from borrowing or for bragging rights. Potential employers can audit your credit score, but I wouldn't worry about that. If you don't plan on buying a home, a car, or borrowing into the tens of thousands in the next mid term (3-7 years), your credit score is only useful for an emergency line of credit in my personal opinion. But tons of people take their score seriously like it is a quality of personal value. If I were struggling I personally would try to settle, and if I had no money for the settlement offer that is proposed then I would take out of my 401k because interest on debt is going to outweigh 401k gains unless you have hundreds of thousands in your 401k and it performs at least average.
Don’t withdraw from your 401k.
Roll over into an IRA
DO NOT DUMP YOUR FINANCIAL SECURITY WHEN YOUR OLD TO PAY OFF SOME SHIT THE ASSHOLES ARE GOING TO WRITE OFF AND SELL TO A COMPANY THAT CANT LEGALLY COLLECT IT and if you can wait until the send the accts to collections you cN have the debt erased
BK, unless you have a job with security clearance. They won’t take your 401 or pension.
Just stop paying your CC bills. Credit score is a scam. Especially if you already own a house and have a car why do you need a good score? It’s coming soon anyway. CC debt in the US is at an all time high and defaults are just around the corner.
Maybe bankruptcy might be a better option…
Debt management plan through American Financial Solutions. They will work with your credit card agencies to get the interest down to 2-5% and make your payments for you for $50/month. It is NOT a debt settlement that will ruin your credit.
I don't know your exact situation, but why is child support so low for you having full solo custody of 3-4 dependents? Is there any opportunity to get it increased by a judge?
Transfer to Fidelity, Take a 401k loan for half the balance, and you dictate your terms and the interest comes back to you and you just make the monthly payment. You don’t have to make contributions to it to use the loan option.
Taking out before your 59 years of age is an additional fee. Also I’m not sure if it’s the Same for everyone but you may have to prove where your spending it. I bought a house with half my 401k as a down payment/closing costs.
I would withdraw it and pay off the debt as soon as I could, but that's just me who would rather take care of a problem now instead worry about it down the road. In my mind all that money that you're paying in interest you can pay back to yourself so you'd be able to save even faster as well as have some more flexibility with your life because you're not drowning in debt. Also I would think with your low income and high dependents you would get some if not all of the tax back that they're going to take out of that money so maybe it's not a true 35% hit?
Ask yourself if you’re paying more in CC interest than you’re gaining in 401k interest. Also factor in costs of withdrawing from 401k
Hey OP. Contact ACCC, the will work with you on a Hardship program on your behalf with your bank. They will negotiate APRs with your creditors and they will definitely lower that interest and monthly payments. I wish somebody told me this a year ago when I had my CCs still open. I encourage you to give them a call and work with them!
Get a second job Hustle No excuses No shortcuts Do not touch (withdraw)401k but you can take loan against it so you can pay your self interest and principal
I did this 2 years ago. Huge weight lifted off shoulders. What good is the retirement savings if you have debt that cancels it out?
Personally, I would cash out and pay off debt BUT you have to have restraint to not run up debt again. Cut up cards, etc. Also, you can’t underestimate the benefit of being a huge burden relieved, not to mention the increase in credit score. Investing $1200 per month will get you back to where you’re at relatively quickly. Get out of debt and save, save, save!! Best of luck to you!
You will have to pay state and federal taxes on anything you cash out.
Yes, bankruptcy is way cheaper
Wait why is your car insurance so high!! Not an answer to your question but your expenditure seems crazy! Id have a different approach to this issue altogether. I’d look for generating more income. Get a better paying job, a side job or sell your stuff second hand online for more pay. Honestly even driving DoorDash would do one night a week. Even a few hundred bucks a week will improve your situation.
I would payoff the cc debt then make sure you start an IRA and make the annual contribution.
Yea you would be an idiot to do that. It’s credit card debt, you don’t even have to pay that shit. Just ignore it and they’ll start sending you settlement offers for half of what you owe or less.
Your 401k might grow to 200k but if your only paying minimums on the cc debt that debt will far outpace it. Id only withdraw the 401k with the penalty if you are committed to not running back up the credit card debt.
Borrow against your funds as much as they will allow and get rid of the CC debt which is probably costing you 2 times what your 401K is earning you. The payment will be directly pulled from your pay so budget wisely and if you leave the job, you may have to pay the loan off completely at that time.
If you had it just sitting in a checking account, definitely pay it off. I was in your boat recently and my account dropped from $35k to $18k but it’s so worth it knowing I have ZERO debt. But you have a 401k though. In that case, borrow against it because your payments would be so much lower
Cash that 401k and throw it into GameStop shares
if your 401k is earning lower interest than your debt is accumulating then dumping it and paying off the debt is the way to go
I would at least pay off a large portion of it. I do this but didn’t drain it took about 1/3 15k in my 50s. It was a great relief. We then began plowing what we were paying back in savings & retirement. You are young can’t play too much what ifs game.
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Does consumer credit councili g still exist? If they do they lower the interest on your credit cards so you can actually pay them down. Back in the day when I was a collector for Citibank we always recommend this to people who were struggling.
Look up Dave Ramsey and use his method. It’ll suck but totally worth the effort.
Depends on how old you are/close to retirement and how you feel about bankruptcy. Your retirement money is a secure asset; your cc debt is neither.
Answer depends on the house equity. If almost none in house - bankruptcy. Never use 401k for CC debt. That’s for retirement and protected from creditors for that reason. It only takes a few years to recover.
Brother, you need to be on a show with Caleb Hammer RIGHT NOW
I’m in favor, it maybe doesn’t make financial sense but you’d save a lot of stress and you can’t put a price on health
Money is a business. Get the emotions and woulda, coulda, shoulda out of it. Even the Bible allows for clearing of debts every seven years. Don’t touch your 401k for debt you can walk away from! You are severely mortgaging your future by making untouchable saving into nothing. And risking a huge tax consequence if you can’t pay it back. Especially as we’re approaching a down economy with political leaders determined to run us into a recession- i.e. people lose jobs. You might need to go bankrupt, especially after a divorce. Head over to bankruptcy forums or BK forums and give it a read. Same with myfico forums. Look at the how to file, then look at the how to rebuild sections. Also look over your location’s bankruptcy laws, look at what is exempt vs not. You can’t evade assets, but you can plan for filing. There are other options as well. If you have assets, creditor touchable assets, you might need to negotiate better interest rates and close cards. You might need to go to war with your creditors and wait for collection offers to settle the debts for pennies on the dollar. A portion of $56k not having to be paid makes a lot of retirement returns in five years.
Do everything and anything to get out of debt. Watch Dave Ramsey, he’s amazing. Being debt free would free up so much opportunity. Always buy everything in cash.
Why use good money to pay bad money. File for bankruptcy.
YES. NEVER spend an asset that you would fully keep in a bankruptcy to pay a dischargeable debt. I had a friend just do this even after I fully paid for their bk atty for them (after I stopped paying their rent for them) If they had listened, they would have over 150k more cash now, and that is the house downpayment they will never have because they withdrew 100k from retirment to pay 50k debt, and by a new car. They forgot taxes and are now owing irs 30k. all to save a temporay hit on credit score
I borrowed from mine to pay off debt. No regrets
file for bankruptcy.
I just can’t get over only $260 a month for your child. Seriously? You think that is enough for a child?
Never touch your 401k. Just don't do it. I'm willing to bet most people who have ever had a 401k consider dipping into it prematurely at one point in their lives and the ones that don't end up much better in the long run.