eddymvp wrote:
I'm planning on buying my first house by the end of the year. My current scores about EX: 598, EQ: 620, TU: 621. I owed about 20K in student loans and have an auto loan with the balance about 4K.
I have 3 credit cards:
HSBC: CL $1,700 Balance $1349.00
DCU: CL $1,000 Balance $566.00
Capital One: CL $1,000 Balance $386.00
I don't have any financial situation and I have improved my score by more than 50 points in the last 3 months. I got my job 6 months ago, I was able to move in to a nicer apartment and purchased new furnitures such as "bed room set, dining room set, living room set and a 42" inches plasma TV.
My goal is to have my fico score to 700 by the end of the year to be able to purchase my first home. I have a 401K from my previous employer with a balance of $1862.00 if I withdraw this money I have to pay a penalty and I will end up with about 60% of that money.
I would like to take that money and put it into the HSBC credit card to lower the balance and improve my score. I'm 25 years old and I'm not planning to put any money into the 401K until I'm 30 years old. Do you guy think this is a good idea to do this?
Message Edited by eddymvp on 03-18-2008 01:43 PM
Message Edited by eddymvp on 03-18-2008 01:45 PM
Nooooooooo! Don't do it! I'm probably going to repeat what others say (as I haven't read other posts), but it has to be said.
First off, you need to continue paying your debts as planned, but the only thing listed that impacts your score are your CC balances. Now assuming these are your only ones, your cards breakdown this way:
HSBC: 79.4% utilization
DCU: 56.6% utilization
CapOne: 38.6% utilization.
Total Util: 62.2%
FOR MAX IMPACT, your cards need to be like this (based on 7% (extra room for interest, etc)):
HSBC: $119
DCU: $70
CapOne: $70
Total: $259.
IN OTHER WORDS, you need to payoff $2,042 within the next nine months.
Can this be done? I'd say absolutely:
1) STOP contributing to a 401(k), temporarily. Doesn't make sense to save at a guesstimate of 12% when you have CC rates above 12% (HSBC and probably CapOne).
2) STOP using the CCs. Cut them up if you need to; you can always reorder them later.
3) Pay off $2042 in CCs. I'd pay at least one balance to $0 but pay by the end of month #8.
4) Before you even think that you can't get over $2k, think again!
a) Sell the TV. Which is more important: TV or the house? You could always buy another one later. Could the TV fetch at least $750?
b) Because there is no TV, cancel the cable. There's nothing good on TV anymore anyway. Is cable at least $50 per month? That is at least $450 saved!
c) Sell the furniture. You could always buy more later after you move into that new house. Could you get at least $1000 for all of it? Plus you save on moving costs.
d) Try a part-time job somewhere or work extra at the one you've got now. If you need $2k, a min-wage job (and I know you could do better) working only 10 hours per week for the next 36 weeks would produce over $2500 extra in income. Taxes might push it to $2k, but that is all you need.
e) Sell stuff. Put Ebay or Craigslist to work for you. If you are going to move, you'll probably have a bunch of useless junk to move anyway. Get rid of it and make some money.
f) Adjust your paycheck's witholding status. If you don't have anyone to take care of, put 2 or 3 dependents anyway. If you received a refund for 2007, you gave the govt. and interest free loan. Take some of that money back.
g) I could go on but you get the idea.
5) If you only need $2042, well, that's $256 per month for the next 8 months. With all the possibilities out there, do you think you can find $256 per month?
If you apply the suggestions above, you'll have over $4700 based on these conservative figures. That will give you over $2600 to do with as you need, like utility deposits, repairs, painting, moving costs, etc (new furniture, tv).
NOW, I'm going to go the other way....What will it cost you if you do use that 401(k) for debt?
You said 40%. That's high. It is actually more and here's how it is calculated. Let's assume you did cash it out and paid for your TV and furniture (the cause for the CC debt) with the 401(k) money. Yes, it's 40%, but it would have likely grown at a paltry 12% this year. You are now paying 52% for a TV and furniture!!! Would you ever use a CC with a 52% interest rate?!
It gets worse, had you kept that money in the 401(k), based on your $1862 figure growing at 12% per year without adding to it, and assuming you kept it for at least 40 more years, you would have $220,924.71!!!!!!!!!!!!!!!!! How do you like that TV and furniture now??? I hope that 42" is worth that! BTW, had you kept that money up to year 2062, you'd hit the $1,000,000 mark.
Just having fun. No criticisms. Good luck on the new home and whatever you do, we all wish you the best.
