Help needed

[HotMess]

I am 54 years old, divorced about 3 years. I was a Stay At Home Mom for most of the marriage, got an Associates Degree in 2008. Got a job and lost it when the economy tanked. The day before I lost my job I was in divorce court. Following the job loss I was mostly unemployed for over a year, I sold insurance part of the time though that was NOT sucessful. Finally I got a long term temp job, which will be ending in about three months. The job pays well enough and has good benefits, unusual in a temp job.

I do get spousal support, and until last January I was receiving child support. That was not enough to make ends meet, but it slowed the descent.

I have a Roth IRA with nearly $50,000, and I am part owner of a house that my ex tells me he will give me $5000 for my equity in. I have credit card debt of nearly $35,000. I have also been in major denial about how fast the debt was growing. My take home pay is about $2100 per month and $750 in spousal support. I have about $8000 in emergency funds.

My question is: would it be a wise move to use the IRA to pay off the credit cards? Without the credit card debt I can manage, but with paying the credit cards off I am digging the hole deeper every month.

[bjl584]

Usually it isn't a good idea to use retirement funds to pay down debt. Especially unsecured debt. I suggest that you post a detailed budget for us to look at and critique. There are tons of smart people here. We can help you cut expenses and boost income if we have more details.

[artwest]

I agree with bjl584. Post your budget and we can probably help you.

You should not cash out your IRA.

[HotMess]

Income: 750 spousal support, 2100 salary

Debt: Minimum payments on credit cards: $1177
Rent: 885 - lease is up at the end of March and I plan to move to something cheaper.
Utilities: 124
Cell phone: 61
Cable, internet, and landline 148
Savings: 300
Insurance - 145

[riverwed070707]

Originally Posted by HotMess

Income: 750 spousal support, 2100 salary

Debt: Minimum payments on credit cards: $1177
Rent: 885 - lease is up at the end of March and I plan to move to something cheaper.
Utilities: 124
Cell phone: 61
Cable, internet, and landline 148
Savings: 300
Insurance - 145

You're missing a lot of info -- what about daily living expenses? Groceries? Entertainment? Etc? With what you've listed, you shouldn't be in teh red each month.

How many people are living in your household? If you're spending more than you make, you need to cut cable and your landline. No reason to have a cell and a home phone unless you have small kids at home. Have you checked insurance prices lately?

What COL of area are you in? I don't think your budget is in too bad of shape and with how close you are to retirement I woudl def advise against tapping those retirement funds.

[artwest]

Thanks for posting your budget.

How many credit cards do you have and what is the balance on each card?

Please elaborate on the $145 insurance that you are paying. Is it homeowners, renters, car insurance, health insurance, life insurance...?

[HotMess]

The insurance figure is a combination of renters, car, and a $50,000 "dread disease" insurance. My auto and renters insurance combined is 529 per six months. Dread disease is about 55 per month.

4 major credit cards and I don't have all the figures here. Two with nearly 10,000, one with 6000
and one with 8000. I have a credit card account that is interest free for the next 18 months that will be paid off before that time is up.

I have some life insurance through my job, but it will go when the job goes. My health insurance is through my job.

I live alone at the moment, except for two fur kids. Hopefully my BF will be moving here soon. I am in the biggest city in Nebraska, in the suburbs, and the cost of living is pretty low out here. Gas is now $2.98 a gallon. My job is in the mid city area. My commute is about 13 miles one way. My car is paid for.

I have the landline because I am in an entry controlled apartment and will hopefully soon have a roommate. But I do think I could still let that go.

I spend about 300 or less per month on grocery and household items. 9 per month for netflix, about $60 per month in personal maintenance.

My goal is to get my financial house on track before this job ends.

[disneysteve]

Originally Posted by HotMess

$50,000 "dread disease" insurance.Dread disease is about 55 per month

This is a complete rip off. Cancel it today. Do make sure you have term life insurance, though, if there is anyone financially dependent on you.

Cancel cable and Netflix. I would seriously consider cancelling internet and just using the local library or WiFi spots if you have a laptop or smart phone.

[artwest]

I would suggest that you drop the "dread disease" insurance.

$148 for cable, internet and land line. This sounds like one of those triple play packages. If that is the case, and you have control over this, downgrade to basic cable. I would also suggest that you downgrade your internet. You should be able to get basic cable and internet for somewhere around $50-$60 per month in my opinion. Get rid of netflix.

It looks like the $300 per month that you are listing as savings is really going to grocery and household items, netflix and personal maintenance.

You also stated that you would be moving to someplace cheaper when your lease is up. That is an excellent idea!

Here is the budget I think I would be using based on your current situation. Total income $2850.

Rent: $885
Utilities: $124
Cell phone: $61
Insurance: $90
Grocery, household items and personal maintenance: $300
Cable, internet, land line: $100 (This is an estimate. I am assuming that you are stuck with the land line but can do something about the internet and cable)

That leaves $1290 per month for the credit cards. $1177 is the total of the minimum payments which means you will have an extra $113. You should throw that at the credit card with the SMALLEST BALANCE. You want to get that paid as quickly as possible. Then take the payment that you were making on that and apply it to your next smallest balance. Continue with this process until all of you debt is paid. This is called a "Debt Snowball".

If you can move to someplace cheaper and cut a couple of hundred off of your rent and get rid of your land line, you could free up an extra $350 or so to throw at your debt.

You also should look around and see if there is anything you can sell to get some extra cash plus maybe find a part time job somewhere.

[HotMess]

I'd like to thank everyone for their input. It has given me some excellent food for thought.

[photo]

I learned something from you: dread disease insurance. I'd never heard of it before your post.

Sorry to sound like a broken record, but I agree completely with the others. Your insurance payments sound quite high, especially for someone in the midwest, and if you owe any credit card debt, you cannot afford the high cable and other entertainment expenses. If you have a DVD or VHS player, you have free titles from your local library. Same with internet service. And while you're at the public library, check out a copy of the book Tightwad Gazette by Amy Dacyczyn. If you can incorporate even a small percentage of her extraordinary frugal ideas, you'll have more money than you ever dreamed.

[asmom]

Also: regarding this $5000 in equity your husband is going to pay you. How much does the house actually have. Is it only 10K? If it's more than that, I would hold out for my fair share. If he doesn't want to pay it, you need to sell it. How is the real estate market in your area?

Also re: the insurance. Look hard at the renter's and auto insurance, deductibles and what not. Shop around if you have to.

If you have any other 0% offers you can transfer your other credit cards to, do it. You will pay off your balances that much quicker.

It goes without saying that at your age, using your IRA to pay bills should not be under consideration.

[Shewillbemine]

Some sound advice in here--but no matter what you implement, if you cannot curb your credit card spending (which is out of control btw) you will never dig out of the hole.

Cut up the cards TODAY.

[maat55]

While the urge to use roth funds to payoff high interest debt is tempting, those funds cannot be replaced. You should trust future return potential and remember that those funds, staying where they are, have an undetermined tax savings in the future.

Fighting through the 35k as quickly as possible, any other way, is likely the better option longterm. One thing is for sure, you need time to establish better financial habits and see sound proof of change in your spending and saving habits before you consider any shortcut method using retirement savings to pay down debt.

Do not make the mistake of taking an easy way out in the shorterm by using retiremnt funds. You need at least six months history of steady debt reduction to even decide if it may be a nuclear option later.

[MoneyMogul]

How do you feel about bankruptcy? It isn't fun, but it can sometimes help people get out of debt.

[PetMom]

HotMess you appear to have a pretty good set of spending habits and things in your favor:
Paid for car.
Low cost area.
No college kids that will need help with loans (would start a small vet emergency fund).
Possibly a roommate moving in.

Seem to have modest expenses in entertainment such as Netflix. Are you near a library where you get DVD's, books, some let you check out magazines all for free? Get your budget and needs as low as possible now.

First rule:
Do not ever take your retirement or IRA and pay off credit cards. That is protected from creditors and even in a bankruptcy.

The reason why these credit card bills seem to be sinking you is they have such punitive hefty intereest rates and charge big late fees (some are known to 'sit on' a payment a couple of days to run it into the 'late fee' category).

As one poster suggested: I would consider bankruptcy as opposed to disposing of your retiremnt to pay off creditors. That is a big decision to thoroughly research, but giving up your reitrement would leave you to an uncertain future and creditors would not be forgiving and give you all sorts of credit just because you did that.

Then again bankruptcy would be on your record for 7 yeears.

But better that than trying to catch up with your IRA especially in these economic times.

Things to consider: how old is your car. Is your bf going to be habitating with you for long? in some states this is a common law marriage which can mean comingling of community property - does he have stable financial situation? Get an emergency fund going immediately, even if only a couple of hundred dollars - you have got to that and keep seperate and don't spend (actually mine is mainly for dogs and any car repairs). You don't need to answer these here just consider it.

Again never cash in a retirement fund to pay credit card people.

[LivingAlmostLarge]

Tell us more about this house that you have equity. I would make ex sell it and split proceeds. Is $5k really half of equity?

[sblatner]

I would call the credit card companies and negotiate lower interest rates, a payoff balance or a payment plan. Sometimes you can get lower interest and lower payments.

[Brownstone]

Originally Posted by sblatner

I would call the credit card companies and negotiate lower interest rates, a payoff balance or a payment plan. Sometimes you can get lower interest and lower payments.

This. If this doesnt work, there's bankruptcy as others have mentioned. With your monthly minimums, you are paying alot in interest payments.

You shouldnt need a landline. I am in a similar situation and the calls for my unit go to my cell phone. Cut the cable too.

How is the job search going?

[HotMess]

Originally Posted by asmom

Also: regarding this $5000 in equity your husband is going to pay you. How much does the house actually have. Is it only 10K? If it's more than that, I would hold out for my fair share. If he doesn't want to pay it, you need to sell it. How is the real estate market in your area?

Also re: the insurance. Look hard at the renter's and auto insurance, deductibles and what not. Shop around if you have to.

If you have any other 0% offers you can transfer your other credit cards to, do it. You will pay off your balances that much quicker.

It goes without saying that at your age, using your IRA to pay bills should not be under consideration.

The house has been on the market for over a year. We bought in 2005 at $299,900, and it has been sinking in value since then. Our reator told us we'd have to drop it another $15000 to $240,000 to get it sold this spring. So we did work out an agreement that he is refinancing and will pay me off. It is not as much as I wanted, but it is cash now.

I will look to see if I can find a 0% offer on a credit card.

Thanks!