Okay all you budget gurus - Are we nuts?

[singnring]

Bad advise withdrawn.
Don't know where my brain was while posting this!

 

[loveysbydesign]

Do you own a home?

Is it possible to get a home equity loan to pay off the debt? At least then you would have a reasonable int rate.

Not sure what equity rates are currently, but I am certain they are less than the CC!

That's not a good idea....not good to trade unsecured debt for secured debt. Then if something would happen and they couldn't pay they could take away the house!

 

[bettymae1121]

If I had ZERO other options AND I was young enough (ie still in your 30's), I might do what you're suggesting. You'll get killed on penalties but your getting killed with interest too.

HOWEVER....

That said, what I would try first is CCCS credit counseling through the United Way. Totally on the up and up and they can usually get your rates cut to something a lot more manageable. With lower rates you should be able to knock out that debt in a few years without touching the 401k. You'll get the best of both worlds, CC debt free and a flush retirement account.

PLEASE look into this option first before cashing in your retirement.

 

[mrsklamc]

I still find it odd that the OP seems to be ignoring the suggestion of opting out of the rate change. Although, from the way it's worded maybe they are still depending on that card for living expenses?

 

[3boymthr]

Our only option for opting out of the rate change is to close the account. To close the account we have to pay it off. Can't do that unless we drain the 401(k).

ETA - We don't own our home - and we're not using the cc to live on. We've gotten past that point.

 

[mrsklamc]

Our only option for opting out of the rate change is to close the account. To close the account we have to pay it off. Can't do that unless we drain the 401(k).

No- they HAVE to let you opt out of the rate change. They can close the account to new charges but they have to let you pay off the existing debt with the existing rate, assuming this is a new change. You do have to notify them within a certain period of time that you are opting out of the rate change.

http://credit.about.com/od/usingcreditcards/qt/optoutinterest.htm

 

[Disney-Kim]

Our only option for opting out of the rate change is to close the account. To close the account we have to pay it off. Can't do that unless we drain the 401(k).

ETA - We don't own our home - and we're not using the cc to live on. We've gotten past that point.

you don't have to pay it off to opt out but you do have to close it. and there is usually a time frame to opt out.

try calling your credit card first and see what your optoins are.

what are you going to do if you use all your 401k and then something happens where you really need the money, something more important that a credit card...like health costs or your home....

its just bad to use all your savings just to save your credit card...its not the end of the world if you close it or lose it

 

[apnep]

Unfortunately, a 401(k) loan is not an option at this time.

First, you need to call all your current credit card banks and aks them for a lower rate. THEN ask them if they have any 0% balance transfer offers. If they don't, you need to find a new credit card offer that offers you a 0% APR and just do balance transfers until you can pay it off. That is what my husband and I did to get out of debt. We get offers in the mail almost every day on CCs offering these.

Also, do not clear out your 401K. You did not say whether hubby is still making monthly contributions or not? STOP your contributions and use that to pay down the debt.

Last, get rid of cable, stop eating out, stop anything you possible can live without and use those funds to pay down debt. Can you guys share a car? Sell one of them and carpool or something...

Good luck. I would not clear out your retirement account though.

Ang

 

[minnie1928]

Here's my two cents:

1. Stop contributing to the 401k
2. Call the CC, opt out of the interest rate increase. Let them close the card to new charges.
3. Attack this debt with a vengeance! Use the 401k contribution, cut your expenses, whatever it takes to throw as much money at this as you can.

I would not pull money from the 401k, it's one of the most expensive options that you have.

Use this as an opportunity to turn your finances around, to show your kids how to live responsibly, and to create a better future for yourselves.

 

[puffkin]

Nopt sure how old/young you are...but if you are quite a bit aways from retirement age and this is the only option you have then I say do it. Only you have to live your life and you will reap the benefits/consequences!

I agree.

We just did something similar. Was it the right financial choice, no. But it will make our lives much easier and less stressful in the long run. I was literally sick with worry over our CC bills and ours wasn't even that much. You would not believe what a HUGE weight off my shoulders this has been since we decided to cash in the 401k.

We made a couple stupid purchases and dug ourselves a little hole. Then I lost my job. I am working again (FT plus a PT job), but at a 30% paycut. We ate through our savings. We are also young (30) and have a kid in daycare so mucho bucks there. We cashed in my 401k and paid all our credit card bills off. We have made a lot of positive budget changes in the past year and except for an unexpected vet bill (my beloved cat had $1000 of work done on her) we have not added to the debt but couldn't pay it down much. Now with that debt gone we only have our mortgage, one $200 car payment (done in 11 months) and my very low interest rate student loan ($100 mo) in debt. We are living frugally but comfortable....we can get a pizza if we want on the weekend without worrying it will break us and we are slowly putting away savings. We don't have much, but it is something. We really changed our habits and have vowed to never have that happen again. So yes, it isn't the smartest long term financial decision to make, but for us it made life so much easier and stress free!

 

[labdogs42]

We really changed our habits and have vowed to never have that happen again. So yes, it isn't the smartest long term financial decision to make, but for us it made life so much easier and stress free!

And that sometimes makes paying those kinds of penalties worth it. The stress can be a real problem. Sometimes you do need to make tough decisions to get through and if cashing in the 401k is going to fix the problem, I say do it. Keep in mind that you probably did make some interest on that money over the years, so some of the penalty isn't coming out of your pocket. You can also have them hold the $$ for the penalty and taxes, so you won't get another huge bill at tax time. Good luck with your decision, OP, I know it isn't easy!

 

[jodim]

Have you contacted the CC companies and asked them to put you on a hardship program?

Most CC companies offer it (although some are total buttheads and wont) and that will help you tremendously.

Have you tried to get a 0% or low % card and transferring the balance to it?

 

[englishteacha]

My husband and I paid down $15K of debt on $30K income in 2 years. If we can do that, you can pay off your debts.

I know some people don't like Dave Ramsey, but his advice is solid. I recommend his books. I also agree with selling everything that's not nailed down. Cut back on everything you can. Yes, it will be tough. But wouldn't you rather live frugally now than eat Alpo when you're 70?

 

[bumbershoot]

Sounds like you CAN meet the new minimum, but it's the principle of the thing that's bugging you.

I worry that you're about to cut off your nose to spite your face, by devastating your 401k to get the CC out of your lives.

Instead, keep sending that extra 100.

Stop *contributing* to the 401k. But let the balance sit there. Take the money you were contributing, and add it to the payment you send the CC company.

Continue doing those side jobs, but instead of it going towards parties and such, put as much as you can't towards the CC.

It'll start going down, despite that interest.

And as someone else said, opting out and closing the account doesn't mean you have to have a lump sum; you just have to pay it down and cannot use it. If you do this, make SURE you have taken any autopays off of that CC. I know you said you're paying cash, but just in case you have car insurance as an autopay, etc etc, do NOT let those continue, or they will sneakily open the card back up and then you'll be in trouble.

You've been doing well. I think you can keep on doing well. Channel the anger that's making you want to harm your 401k account, and put it towards finding other money to put towards the cards.

Many of the people on this board are also on llnoe.com (though many other different names, like me). That's a site where normal people talk about the Ramsey stuff; I find it much easier to "hear" from normal people rather than the dude himself. I recommend checking it out!

 

[3boymthr]

We did look at other cards but have been denied because of our high debt load. It's a vicious cycle.

One of the reasons we want to pay this off now is because of the uncertainty with my job situation. While I could work all my scheduled hours, if this summer is anything like last summer, there is also a very good possibility that there will be weeks this summer when I work an hour or maybe two or not at all (reducing our income by about $700/wk ). I have to pay for summer camp up front and it's non-refundable an expense of about $5,000 for three kids - we do rec camp ($150/wk/kid) and boy scout camp which are the cheapest options available. All my free cash right now is going into an account for this expense.

For that matter already this week I've almost gone home twice because I had nothing to do. I'm looking at my income potentially dropping from $50,000 last year to about $15-$20,000 this year.

It is in large part the stress of the uncertainty of our income that's driving us to this decision.

 

[mjkacmom]

A few years ago DH and I got into debt as a result of lousy cars, bad teeth, a lay-off and well some bad decisions, and an attempt by DH to get his own company off the ground that didn't work out. So quite a bit of debt (in excess of $25,000 ).
late on cc payments.

What do you think are we crazy?

I think the majority of PP think taking the money out of your 401K is a bad idea, and you have mentioned making bad financial decisions in the past. Why don't you close your credit card account, and then the interest rate will go back to what it was, as well as your minimum payment? My DH is a CFP, so he handles the financial decisions (yet I pay the bills). He says it's very rare that closing out a 401K is ever a good idea. I think you need to find a professional to find your solution.

 

[mrsklamc]

We did look at other cards but have been denied because of our high debt load. It's a vicious cycle.

Do you NEED a card to live on?

Don't forget too- is it possible you will need to file bankruptcy?

 

[ceecee]

I would only do that as a last measure. Sounds like you're making strides just keep at it. It took a while to get into debt and it will take a while to get out. It may not be a quick fix.

 

[HeyIt'sMe]

Just a question -- is your DH employed and taking the 401(k) funds out of his current 401(k)? I ask because I don't know how you can take money out of your DH's 401(k) unless it is a loan or a hardship withdrawal. It sounds like you want to do an in-service withdrawal (?). Or is this a 401(k) from an old job?

With my company's 401(k) plan I couldn't just ask for a distribution. With our plan you can do a loan or request a hardship withdrawal (and pay the taxes+penalty) but you must submit proof of need and the allowable reasons are very specific (set by IRS and/or DOL) - medical expenses, purchase of a primary residence, prevention of foreclosure/eviction, secondary tuition expenses, funeral expenses and certain expenses for the repair of damage to primary residence. Paying off credit card debt is not one of the allowable reasons for a hardship withdrawal. This is what I know of my company's 401(k) plan; maybe your DH's plan allows for in-service distributions?

ETA: I thought of one other comment - - with our plan if an employee does take a hardship withdrawal they cannot contribute to the 401(k) for 6 months.

 

[Arielle22]

Just a question -- is your DH employed and taking the 401(k) funds out of his current 401(k)? I ask because I don't know how you can take money out of your DH's 401(k) unless it is a loan or a hardship withdrawal. It sounds like you want to do an in-service withdrawal (?). Or is this a 401(k) from an old job?

With my company's 401(k) plan I couldn't just ask for a distribution. With our plan you can do a loan or request a hardship withdrawal (and pay the taxes+penalty) but you must submit proof of need and the allowable reasons are very specific (set by IRS and/or DOL) - medical expenses, purchase of a primary residence, prevention of foreclosure/eviction, secondary tuition expenses, funeral expenses and certain expenses for the repair of damage to primary residence. Paying off credit card debt is not one of the allowable reasons for a hardship withdrawal. This is what I know of my company's 401(k) plan; maybe your DH's plan allows for in-service distributions?

ETA: I thought of one other comment - - with our plan if an employee does take a hardship withdrawal they cannot contribute to the 401(k) for 6 months.

I was going to post something similar. My company's 401k plan does not allow for complete withdrawal if you are an employee. You can get a loan up to 50% of the value of your contributions or a hardship withdrawal. Based on the OP's post I don't see any qualifying factors for that.