Am I on the right track?

**jIM_Ohio** · 06-07-2010, 05:51 AM

I need more information

a) what the household budget
b) what is the household gross income and net income
c) how big is your normal tax return
d) the debt- how many cards do you owe on, and what are minimum payments and interest rates on each?

Most of my response will be along these lines...

1) Take $600 each time you get paid and move it to savings (or direct deposit to an account which is a savings account)
2) turn off atm card access to savings account
3) when credit card bill comes, send all $600 to bill with highest interest rate. 15k in debt should be paid off in 2 years, not 85, when you send in $600 above the minimum payment.
4) once highest rate card is paid off, send all excess to the other card.

5) if $600 is less than 20% of your gross pay, you need to free up more money in the budget. You should be sending at least 20% of gross to your credit card debt.

**jpg7n16** · 06-07-2010, 08:11 AM

Originally posted by neilgunt View Post

"Hi everyone,

My wife and I currently have $23,000 in credit card debt, which is eating us alive. Most of this was racked up during our college years as my wife had to put herself through school on her own. We are now both 27.

I started tracking expenses 2 months ago, after all the monthly bills are paid we have $600 left over- or should. The problem is the $600 gets eaten up by clothing for our daughter, toys, vet bills, all the random things that just don't get on the monthly bill list.

You're new to the whole tracking expenses game. It's gonna take some time, but you should have items like clothing, toys, gifts, pet expenses,etc. already included in the budget. Once you account for those, you'll have a better picture of how much is left over.

I contacted a national bank and requested a $23,000 personal loan to pay the credit cards off. They would only do $15,000 which would pay off the largest credit card we have. The interest rate is 9.9% and would save us $50 a month- and be paid off in 5 years vs 85!

This leaves us with $8000 in debt.

No, that still leaves you with $23,000 in debt - you've just moved it to a new place. Instead of owing credit card companies 23k, you now owe them 8k, and you owe a bank 15k. Please make sure you put the $15k from the bank towards the highest interest rate debt - and then cut up the cards so you don't use them again. The only way this will be good for you is by reducing the interest rate as much as possible.

And the goal shouldn't be to see how much you can "save" each month (you mean cashflow) - it should be how much you can pay each month. The more you pay, the faster the debt is gone and the less interest you'll end up paying.

I have 3 options here:

-Apply for another personal loan at a different bank (doubt they would give me one?)

Decent option if they'll approve you at a rate less than what you're currently paying on the cards.

-Ask for a loan from a family member.

-Ask my parents to take a home equity loan out for the full $23,000 and let us make the payments. I do not know if they would help us like this or not, their house is paid for and has been for awhile. The payment would be low enough that defaulting should not be a concern.

Terrible options. While it may seem to make mathematical sense, there are relationship issues involved with this that it's better that you don't even get into. Do not borrow from family.

I also have $70,000 +/- in a 401K but have been told I can not take a loan out against it (due to program rules?). We are very responsible with our money, but can't seem to get these cards behind us.

Another bad idea. Say everything worked right and you got the loan and paid it all off. If something went wrong and you got fired, you would be required to repay the entire loan almost immediately, and if you couldn't you'd get taxed and penalized for the whole amount. You'd be looking at a 30-40% tax hit on the whole amount of the loan.

Do not borrow from your 401k.

Any thoughts out there?"

See Jim's post about getting us some more info and we'll get you some help with your budget. Then you can start getting this debt out of your life for good!

**Hector** · 06-07-2010, 11:04 AM

If I were you, I would stop contributing to my 401k beyond matching till I become debt free.

**buildmybudget** · 06-07-2010, 04:39 PM

You forget an additional alternative: find a way to earn more! Whether it means getting a second job or finding some project work, additional income could help your situation. However, what you need is a good budget that shows you:

-your income and expenses
-where your money is being spent
-how much is being spent needlessly
-how to direct extra income towards your debt
-and how long it will take you to get out from under the debt!

You need to start with your budget! The key to sound financial management is to simply spend less than you earn and to maximize the gap between your income and expenses. Try to cut out all the fat and you may find some additional alternatives.

**agape71** · 06-08-2010, 04:06 AM

"NO. It doesn't. That leaves you with the same $23,000 in debt but instead of owing it all to credit card companies you owe some to the credit cards and some to the bank. It does nothing to reduce your debt. It just shuffles it around a bit.

You can not borrow your way out of debt. Not from a bank. Not from a family member. Not from a retirement plan. You just can not borrow your way out of debt.

The only two ways to get out of debt are 1) increase income and 2) decrease spending. Number 2 is generally the easier of the two to accomplish. You have at least $600/month going to ""random things."" That needs to stop. You and your wife need to sit down and go through the budget with a fine tooth comb and cut out all unnecessary spending - new clothing, toys, entertainment, cable tv, fancy phone service, gym membership, haircuts, charitable donations, dining out, etc. As for number 1, go through the house room by room and collect anything that you don't need and can sell either on ebay, craigslist or a yard sale. I've read that the average family can make at least $1,000 by doing that. I don't know how old your daughter is but sell all of her outgrown clothes and toys she no longer plays with and books that are below her reading level. Sell tools you never use, wedding gifts that have never come out of their boxes, unwanted holiday gifts that you never got around to returning. Anything and everything that you can live without needs to go. The other piece of number one is working more. Do both of you work now? Get second jobs. Turn a hobby into a business. Whatever it takes.

Don't forget to look at every possible expense. Get new quotes for auto, home and life insurance and see if you can get cheaper policies. Buy more store brand groceries and clip more coupons to cut the food budget. Be more mindful of your driving to conserve gas and make sure you know which stations in your area tend to have the lowest prices. Lots and lots of ways to trim spending that can all add up to big savings.

What shouldn't you do?

DO NOT borrow from family.
DO NOT borrow from retirement plans."

Here you can find debt settlement reviews: debit-free.us/2010/06/03/how-to-save-more-and-better/

**Seeker** · 06-08-2010, 07:47 AM

Originally posted by neilgunt View Post

I also have $70,000 +/- in a 401K but have been told I can not take a loan out against it (due to program rules?). We are very responsible with our money, but can't seem to get these cards behind us.

Another option would be to STOP contributing to the 401k for a period of time. Not an ideal option, but one that can be considered as a last resort to help income for a short period of time.

**disneysteve** · 06-08-2010, 08:36 AM

How much do you both earn? You are both 27 and already have $70,000 in retirement accounts. That's great but points to a pretty decent income. In other threads, you are asking about filing bankruptcy and looking into debt settlement. Seems to me that a young couple that has managed to accumulate 70K in retirement already should have the means to pay off 23K in debt in a reasonable period of time. How about posting your income and expenses for review?

Am I on the right track?