I apologize if this isn't meant for this forum.
I'm 26 years old and currently have $10k in credit card debt. The majority was accumulated while I was in college and right after (I know it's bad, but I can't change it now). I feel as though I'm never going to get this debt paid off. I have $15K in my 401k plan and was wondering if anybody had any advice because I've been considering withdrawing the funds to pay off the debt. I've normally been able to keep it under control, but since the new credit card laws went into effect, my minimum payments have increased (I always paid more anyway) and also most of my interest rates have increased. I am already freelancing and putting that money into a savings/emergency fund and putting it towards the debt, but estimates say that the debt won't be paid off for another 6 years. I would like to start saving to eventually buy a condo/house in the future (certainly not anytime soon). I do not have problems paying the debt and have never missed a payment (730 score). I also currently max out my 401k at 6% with a company match of the full 6%.
I'm aware of the penalties involved. It will not bump me into a new tax bracket.
I'd really appreciate the feedback or hear if anybody's done this. I like these forums because people don't pass judgement.
Starting Score: 703
I make $45K/year and thankfully have a secure job. My scores are actual FICO scores. I maybe have $50 left at the end of the money once bills are paid off (including credit cards). I usually pay another $50-100 on top of my minimum payment, which amounts to about $350-400/month. I save $150/month to put into an emergency fund, but it's not quite there yet so I don't want to stop contributing to that. Unfortunately, I already have a loan with my credit union as an auto loan, so I'm not sure if they'd be willing to give me more.
Perhaps calling local CU's... yours and others to inquire about products would help. I would try not to drain the 401K...
Options:
You can borrow half of it with a 5 year payback without penalty which gets you halfway there...
My local CU offers stock/fund secured personal loans... that would be a question to ask your locals.
If you can get a loan (or borrow from your 401k) to pay these cards down or off your best bet would be to keep them open but to get in the habit of keeping them paid off. If that happened... you would likely be in the 800 club in short order... and that house / condo would be reality.
I've been at my employment for 3 years.
Balance/Credit Line
CitiCard $5,100/$13,500 APR 13.24%, increased from 9.99 to 19.99% when new laws went into effect, talked them into lowering it, my oldest card
Chase $3,900/$7,000 APR $15.99%, increased from fixed 8.99% to V 15.99, refuses to lower, would only close NO WAY! haha
BoA $1,500/$7,000 APR 9.99% fixed, no problems with APR
I also have other credit cards with $0 balances:
Amex CL $10,000
Juniper CL $3,100
NY&Co Store Card CL $1,100
Best Buy CL $8,000
Home Depot CL $2,400
Discover CL $3,000
Thank you for your help. I really appreciate it! I'm not doing this anytime soon because I am weighing my options. I'm not taking it lightly, but if I do it, I'd probably do it after the New Year while in the new year, new state of mind theme, haha.
My Amex card's APR fluctuates now too during the law changes. It was 9.99% but it's 12.99% now. I'd rather not close any cards because of the history. Only two have been opened for about 2 years, all of the others about 5.
@tianapb725 wrote:I apologize if this isn't meant for this forum.
I'm 26 years old and currently have $10k in credit card debt. The majority was accumulated while I was in college and right after (I know it's bad, but I can't change it now). I feel as though I'm never going to get this debt paid off. I have $15K in my 401k plan and was wondering if anybody had any advice because I've been considering withdrawing the funds to pay off the debt. I've normally been able to keep it under control, but since the new credit card laws went into effect, my minimum payments have increased (I always paid more anyway) and also most of my interest rates have increased. I am already freelancing and putting that money into a savings/emergency fund and putting it towards the debt, but estimates say that the debt won't be paid off for another 6 years. I would like to start saving to eventually buy a condo/house in the future (certainly not anytime soon). I do not have problems paying the debt and have never missed a payment (730 score). I also currently max out my 401k at 6% with a company match of the full 6%.
I'm aware of the penalties involved. It will not bump me into a new tax bracket.
I'd really appreciate the feedback or hear if anybody's done this. I like these forums because people don't pass judgement.
Just wanna let you know how, if this was my situation, my 401k would handle it. First, I doubt anyone would ever recommend withdrawing from your 401k in this situation. Second, go find out if your 401k handles loans and what the terms are.
My 401k, if it was15k, would be handled this way. I would be able to ask for half my 401k and I could pick the terms. In your case, I would pick the longest amount of time to pay, thus the lowest payment. This would allow for more free money to go toward your credit cards. 15k would give me 7.5k leaving me with 2500 in debt on the credit card.
Next I would figure out what I spend per month that could be put on a credit card. Charge it on an account with zero balance and put a lot of your cash (that you would otherwise spend) put it on the cards that are carrying a balance. Write out a spreadsheet on paper or computer and line all your cards up by due date. Figure out your income vs your due dates on your credit cards with zero balance. Basically what you want to do is stop charging on one card when you have just enough money coming so that when it is due you can pay in full. When you stop charging on that card, then start charging on the next card that would have the due date the farthest out, preferrably right after the statement date which buys you the most amount of free money time. Repeat and move to the next card.
Another angle you could add is to charge only on your lowest apr card making only the minimum payment on that, then take all your cash you would have otherwise spent and pay it on your card that has the highest interest rate. This effectively transfers balances from a high rate card to a low rate card and does it free. Once you achieve the tranfer, you can use your high rate card in the mix of the previous paragraph.
I personally am working full time while attending school part to full time. I am in your exact situation except of course I'm not done with school. Using the above technique, I am floating around about 1500 per month free of interest and my balance is on a 5.9% card. If they rate jack me, I'll move what I owe free to somewhere else. If I'm short, I have a few friends who will give me cash and I do their purchase so I then have enough to pay in full on the card that I just ran up a bit and needs to be paid in full to avoid finance charges.
I'm also a math tutor, and this is prime example where decent math skills can help you in real life. Who says you never use math in real life? LOL. If you were to have couple friends who would help you out giving you cash and you charging, you could easily float your entire remaining 2500 every month interest free. Use the interest you save to pay off the remaining 2500 faster. When it's done, put more into your emergency fund till that balance is enough to pay the 401k loan, then pay the 401k loan in full. Use the 401k ability for a loan as an emergency fund till you are able to replenish your emergency fund. My 401k only allows the monthly payment to be made or a payment in full.
Hope this at least helps in giving you an idea of what you can actually mathmatically do. 