Job loss and debt???

[EKCWMI]

I am not sure how to handle my recent situation. We have been living month to month with just enough income to get by. My wife makes about 24K/yr in a public service state job. I just got laid off my job about a week ago. We have been paying down our credit card debt by paying over the minimum payment required. Our current cc debt is about 17K on about 4 accounts, none of which we pay interest yet due to taking advantage of balance transfers with no interest. We used one card for all expences and paid it off monthly to get the rewards, until now. We get our credit report and score annually and in June my FICO score was 784. We also have a home equity loan with a balance due of about 75K. Our home is worth about 450K. I also have a small building lot valued at about 30K which I have put for sale but am not counting on a sale anytime soon due to the market. I have a 401K valued today at 15K and an IRA (Mutual Funds) valued today at 110K and dropping. We have no other savings. I will not be able to make my payments on these obligations within a very short period of time. We are not extravgant in our style of living. Here is my question. Do I notify my credit card companies of my job lose and inability to pay until I get a new job and back on my feet? Should I take the hit of penalties and interest and take money from my IRA and 401K and pay down these debts? Being 53 years old I will not have enough years left to build my retirement back to anything substaintial. Would you advise trying to sell our home? FYI-We are in a lakefront home that has been going through a 3 year drought and the values are down due to low lake levels. I still think it would bring in about 375K. What advise do you have that would have the least affect on my credit rating? Any advise would be greatly appreciated.

[noppenbd]

I am wondering why at a time like this you are concerned about your credit score. I think that should be one of your lower priorities. Your first priority should be paying that HEL (assuming you don't have a mortgage, which you didn't mention). If you can't pay the CCs, well, then I guess they don't get paid. Yes your credit score will take a hit but at least you will still have your house. I would not liquidate the 401ks/IRA to pay the CCs. I would be working at McD's before I would do that.

[Obiwan]

If you have no other debt, I would cut the lifestyle down even further. Get on a beans and rice budget and try to get any kind of job to generate income while you look for the ideal job (maybe delivering pizzas).

I would NOT liquidate my retirement accounts to pay credit cards, probably not a good idea to sell the house right now, since the values are down (provided you only have the $75k HEL). List your bills in order of priority, and whoever does not get paid, just does not get paid. I would go food, shelter, lights, basic transportation, then pay the HEL and if you can get to the CCs then fine, if not, they just don't get paid.

Also, maybe start thinking of garage sales or anything that can raise $$ in the short term. What are your vehicles worth? Any debt on them? $25k is not alot to live on, even short term...

[MYOM]

Adjusting my budget would be my first priority. I would cut discretionary spending to zero. You can get by on next to nothing if you try. Sign up for unemployment until you can find work. It should not take more than three months to find a new employer. By the way, most employers look at your credit rating. I would keep that spotless or you might be considered a loser. If you have to, use your 401k to pay off the credit cards. Interest you won't have to pay might cover a good part of the 401k-penalty tax. Next, I would cut up all of the credit cards.

That is plenty to chew on for now.

Good Luck!

Dan Clemons retired Certified Financial Planner

[creditcardfree]

You should be spending 40 hours a week looking for work. What was your income/job situation prior? Do you know how long it might be until you find a job?

I personally would sell my home before I ever took money out from retirement investing and I'm only 35.

Paying for food, lights/heat, and house payment are always your first priorities. Credit cards are the last to be paid. You are now to only pay the minimum and find any and all areas of expenses that can be cut. Find ways to bring in extra cash while you are job hunting...garage sales, ebay, odd jobs for neighbors...anything you can think of.

Best wishes!!

[maat55]

If you want to keep your home, I agree with MYOM that you could use your 401 to payoff the CC's, as a last resort. If you are not married to the house, I would sell it. It is important at times like this to have a healthy EF.

Things I would do now:

Cut budget to the bone( Cells, cable, habits etc.)
Sell anything possible
Take any job you can find temporarly
Sell house or cash in 401 to pay CC's only if budget cuts won't do.
Once on track, prioritize EF first.

[Fern]

Tough situation. I'm not sure I'm qualified to give you advice on the many aspects of your circumstances, except to say that i would NOT use 401k or other designated retirement money to pay off debt! Never, ever do that.

Put aside your pride and get the best job you can. Sell the house if you think you can. Downsize. Credit card companies are ruthless. You are just an account number. They don't care about your personal situation, so i doubt that calling them to inform them of your circumstances will do anything, but you're free to try.

[cicy33]

when you signed up for your credit cards did you elect an option that will pay your payment for so many months if you become unemployed? I would check on that. Definitely apply for unemployment. I am sure that you are looking for work but being 53 is going to limit that a little, scary thought as I am gaining on that soon! Without knowing the bills and items spent all one can do is suggest to cut spending down to only what you need. Going back to school is always an option at any age. Good possibility to learn something to help you find a job. I wish you much luck and so sorry to hear about your job.

[tripods68]

First you thing you do: You should asked your wife to increase exemption to 9 temporarily until you land your next job. This will increase the size of her paycheck. I've actually done this in the past. Even if you don't land a job in full year of 2009. Your tax liability after deductions and exemptions will probably zero.

2nd. Do not use your retirement to pay of your HELOC especially if short sale or bankruptcy is part of your plan. Your house seems a bit high.
Even better if you can sell your house at current value. But in today's market, i doubt you'll break even. Instead I would rather see you find a second job even for just temporary work to make your necessary payments.

3rd. Review all your expenses for the last few months to find out what you can cut off. No more dining out, basic cable only, no entertainment expenses, or gifts for christmas.

4th. I agree with cicy33 think about going to school to upgrade your skills.

5th. Last but not least, your credit score should be your last worry.

[Alex_Adviser]

Well i dont think that there is any need to think about your credit score at this point of time. As your are already 53 years old, it would be a better option that you have a word with the credit card issuers about your situation and ask for a payment holiday period, if they dont agree, you can ask them to continue to pay a very minimal amount with your wife's salary. Ask for a holiday period for at max 6 months and search for a job aggressively. Selling a house or disturbing your retirement benefits would not be a good option and you are very near to your retirement and would be a tough job to save again now.

All the best

[MoneyTrev]

Work on managing your finances.

Strip down to the bare minimum if you need to save money. You gotta do what you gotta do. It will be hard but you have no other choice.

[Tree0164]

I am wondering how this couple is doing... only one post. I am sure many other families are going through the same thing.

It really shows you living within your means, having a good emergnecy fund are even more critical in days like today.

[creditcardfree]

I'd like to know, too!

Save up your cash if you think there's a possibility of layoff...and even if you don't think you will be.

[williamsnancy]

You have answers already. Do notify your credit card companies and inform them that you have recently been laid off from your job and your inability to pay as of the moment, until you've had your new job.

[bjl584]

7 year old thread alert.

Locked!