Any one ever done Debt Settlement?

[dvcgirl]

The likely reason is that the interest rate on the debt is higher than the rate of return on the retirement funds, even if those funds are invested on a pre-tax basis. It's senseless to save money that earns a lower rate of return than any existing debt is costing you. For example, say you had $10,000 in credit card debt at 20%, and you had 10,000 you could invest at 10%. If you use the 10,000 to pay off the debt at the end of 1 year you have $0. If you invest (save) the 10,000, at the end of 1 year you'll have 11,000 in savings, but 12,000 in debt, so you'll be down another 1,000 by not paying the debt down with the funds you had available.

I don't want to get attacked again for not knowing all the exact numbers involved, but it is likely the OP would be further ahead by cashing out the 401k, even with the 10% penalty, because investment returns are currently low and the rates on her consumer debt are likely high. Also, the retirement funds are taxed at the current rates, and if they are down one job, their tax rates may be relatively low. It sounds like the perfect opportunity to cash out and smart money management to get back on course.

While you may very well be correct that they'd be ahead in the long run (without taking any time to run the numbers myself), I'm not a big fan of cashing in 401Ks to pay debt, or rolling debt into a mortgage...which I believe the OP has already done. Correct me if I'm wrong Magic. I think getting a job and paying this debt down (while not incurring any additional consumer debt) over time is the way to form new and lasting habits and turn your financial ship around.

 

[disneysteve]

I remember reading recently that you sold your home and were now renting. I remember that you weren't using CCs any longer....a very good thing. Now it sounds like you have an income problem...you need more of it.

I forgot all about that thread. I just went back and read your update from last month. Your plan was to live on your income and use your husband's to pay down debt. Obviously, losing your job wrecked that plan. Rather than doing any kind of debt relief program, you need to do everything you possibly can to replace your income. I don't know what you do or how the job market is in your area, but you need work ASAP, whether it is in your field or not. Around here, there are "now hiring" signs up everywhere you go. They may not all be great jobs, but they are jobs. Employers are desperate to find people to fill the vacancies who want to work and will be dependable.

Good luck finding something quickly. And the other side of the coin needs to be cutting all expenses to the bare minimum. Lots of good advice around here for that. Good luck.

 

[disneysteve]

it is likely the OP would be further ahead by cashing out the 401k, even with the 10% penalty, because investment returns are currently low and the rates on her consumer debt are likely high. Also, the retirement funds are taxed at the current rates, and if they are down one job, their tax rates may be relatively low. It sounds like the perfect opportunity to cash out and smart money management to get back on course.

That actually makes sense if it is accurate in this situation. If the OP and her husband would be earning a comfortable amount if not for the debt payments, and they are now living below their means so that there is no chance they will run up new debt once this is paid off, it might be the right way to go.

Although, I would still lean toward paying off the debt by the OP getting a new job if that is at all possible, and leaving the current savings intact.

 

[mickeyfan2]

Maybe your DH should stop putting into his retirement for now and this would free up some extra money.

Congrats on selling your home.

 

[CajunDixie]

Are your accounts individual or joint accounts? Perhaps if a majority is in one individual's name you could try it there then just not use that name in the future for any credit related activity.

Absolutely do not do this!!!!!! Whether young, happily married couples like to think about it or not divorce and deaths happen. Do not intentionally make one person's credit bad.

I highly suggest you visit creditboards.com

 

[nbodyhome]

I just saw that you had a 5 day trip to the WDW staying at the BC, a 7 day trip to WDW and a Daytona Beach/NASCAR/WDW trip in an 8 month period (Dec 05, May 06 and July 06 respectively). This probably added much to your debt and would be a great place to look for extra money. I love WDW and vacation there often, but this would be the first place to cut back on to get that extra money from.

If that is true, than maybe the May and July trips should have been cancelled?

A few years ago, I had 8000 or so debt on my Discover Card and very little income. I didn't know how I'd get it paid off, but once I found that a debt consolidation service might mar my credit worse, I stayed away from it (I never even wanted them to lower my CC bills, I figure if I charge something, I should pay it). I agree on calling the credit card, and working something out with them. I did that with Discover. It was still slow going, but I started making a little more money and then got married (and now it's paid off).
The debt was much due to something that happened (a financial hardship), but it made me feel MUCH better to pay it in it's entirety. It just doesn't seem right to me to not pay for something if I can - even if it took a long time. I think Mary Hunt used to be in major debt, and it took her like 7 years to get out? I'd do that before I didn't pay what I owed.

 

[corndog]

Absolutely do not do this!!!!!! Whether young, happily married couples like to think about it or not divorce and deaths happen. Do not intentionally make one person's credit bad.

I highly suggest you visit creditboards.com

Well, when the alternative is intentionally making both people's credit bad . . . (which is what the OP is proposing)

 

[Lulu's Mom]

First off I want to say that I am sorry that you and your family are put in such a difficult position.

In my opinion there are more important things in life than a credit score, I know I am speaking blasphmy. If this debt is causing you problems like not being able to sleep, not being able to provide necessaties for your family, shelter, food, heat, water, the it is best to just get rid of it in what ever fashion you deem is best for you and your family. Your happiness and health is much much much more important that a credit score. Plus a cedit score is just that a score, it can go up and down and you can help to make it better if it does go down.

No body here knows your whole situation and no one here can actually tell you what is best for you, that is you and your family to decide.

Good luck with making your decision and I am sure all things will work out.

 

[SarahKate]

My 2 cents worth....

Maybe you should at least look into Credit Counseling as a first step before doing anything too drastic. I definitely agree w/ other posters that you should try to find some sort of employment, although I am not aware of your current situation and if you're still recovering from surgery.

You have to be very careful with the consumer counseling organizations because now there are so many and not all of them are TRULY non-proft as they claim. One of the originals is CCCS (Consumer Credit Counseling Services). Several years ago (about 10 actually), I got myself into quite a bit of debt before I was married. I just scheduled a phone "interview" and aired all my accounts and balances. They then set up a payment schedule for me. It was LESS than what my normal payment would have been w/ all the payments combined. It allowed me to make ONE payment a month. CCCS was able to waive the interest payments on many of the cards so the balance got paid off quicker.

I also agree that you shouldn't cash in your retirement.....that is going to be your livelihood when you are done working and you really do get taxed out the wazoo! That would be a VERY last resort for us. And I know from experience, because my DH did it several years ago to help our dad w/ some expenses. Because it didn't get rolled over into another account and was just cashed out, I think it was around 25% that we had to pay in taxes and penalties.

I wish you luck, truly. Keep us posted as to what you end up doing.