how to use money to pay off debt

[turnera]

So, over $100,000 in CC debt, 5 years of my taking over the bills and unsuccessfully trying to pay down debt, 7 years of H having increasingly worse jobs so less income and increasing debt, I finally cashed out one of my 401Ks (prepaid the penalty and tax), and I have $30,000 to use toward the debt. H keeps saying he's approaching banks to take out a loan against the $30,000 so we can wipe out the CC debt all at once instead of me just paying down $30,000 of the CC debt; still waiting, a month later.

My question: has anyone else done this and if so, who do you go to with that money to ask for such an arrangement? Just a regular bank? Is there some other sort of organization who will do this? The only one I know for sure he's approaching is Merrill Lynch, where he has the bulk of his own 401K invested. I'm going to just go and do it myself.

[autoxer]

I don't know what you mean by taking a loan out against the $30k, but I know you can't borrow your way out of debt.

Don't cash out anymore 401k's. It isn't worth the penalties.

[Weird Tolkienish Figure]

So, over $100,000 in CC debt, 5 years of my taking over the bills and unsuccessfully trying to pay down debt, 7 years of H having increasingly worse jobs so less income and increasing debt, I finally cashed out one of my 401Ks (prepaid the penalty and tax), and I have $30,000 to use toward the debt. H keeps saying he's approaching banks to take out a loan against the $30,000 so we can wipe out the CC debt all at once instead of me just paying down $30,000 of the CC debt; still waiting, a month later.

My question: has anyone else done this and if so, who do you go to with that money to ask for such an arrangement? Just a regular bank? Is there some other sort of organization who will do this? The only one I know for sure he's approaching is Merrill Lynch, where he has the bulk of his own 401K invested. I'm going to just go and do it myself.

I would rather have declared bankruptcy than cash out a 401k to be honest.

[turnera]

Trust me, so would I. Doesn't answer the question, though. Oh well.

[bjl584]

So, over $100,000 in CC debt, 5 years of my taking over the bills and unsuccessfully trying to pay down debt, 7 years of H having increasingly worse jobs so less income and increasing debt, I finally cashed out one of my 401Ks (prepaid the penalty and tax), and I have $30,000 to use toward the debt. H keeps saying he's approaching banks to take out a loan against the $30,000 so we can wipe out the CC debt all at once instead of me just paying down $30,000 of the CC debt; still waiting, a month later.

My question: has anyone else done this and if so, who do you go to with that money to ask for such an arrangement? Just a regular bank? Is there some other sort of organization who will do this? The only one I know for sure he's approaching is Merrill Lynch, where he has the bulk of his own 401K invested. I'm going to just go and do it myself.

I've never heard of using cash as collateral against a loan. It may be possible, but they probably will ask why you need a loan if you already have a pile of cash.

Bankruptcy may be a better option.

[jamiesmoneyadvice]

Negotiate

If it truly all is credit card debt, you can negotiate. CC debt is unsecured. This means that they can't claim any assets so if you declare bankruptcy, they'll lose all of their money. You can call them and tell them you can pay them $30k to forgive the balance of the debt or else you're bankrupt. They might not agree to it but you may be able to give them $30k now with a $10k balance or something like that. It will kill your credit rating but will get you out of debt.

[snafu]

turnara welcome to SA. I guess you can tell we all wish you'd come to this site before taking $ 30K from a 401K with it's resultant penalty, tax consequences and damage it will do to your senior years. 1st before you tackle debt, Put $ 2,000. of that $ 30,000. into a savings account for a start point of an Emergency Fund. Understand that it can only be used for a serious emergency. 2nd, put a budget in place so you know how much you can spend in your categories based on net income.

If you're willing to give details about net income and spending in your regular categories like rent, utilities, cell, cable, internet, car payment/gas/insurance, food/restaurant, entertainment, clothes, etc. perhaps we can make suggestions that will help you get through this really bad patch. Have you already gathered up all the CCs and thrown them in the fridge freezer? Please include how much is owed on vehicles and that interest rate as well as each CC, balance and interest rate.

[corawhite07]

You must file for bankruptcy rather than cash out your loan. That would help you wipe out your debt.

[Eagle]

So, over $100,000 in CC debt, 5 years of my taking over the bills and unsuccessfully trying to pay down debt, 7 years of H having increasingly worse jobs so less income and increasing debt, I finally cashed out one of my 401Ks (prepaid the penalty and tax), and I have $30,000 to use toward the debt. H keeps saying he's approaching banks to take out a loan against the $30,000 so we can wipe out the CC debt all at once instead of me just paying down $30,000 of the CC debt; still waiting, a month later.

My question: has anyone else done this and if so, who do you go to with that money to ask for such an arrangement? Just a regular bank? Is there some other sort of organization who will do this? The only one I know for sure he's approaching is Merrill Lynch, where he has the bulk of his own 401K invested. I'm going to just go and do it myself.

Note: In no way is this legal counsel. Just some suggestions from what I've learned. Consult a lawyer and/or CPA for accuracy relating to the information below.

Sure you can negotiate the balances with your credit card companies as the debt is unsecured. It will kill your credit score though. I wouldn't go with a debt consolidation company but as you say "do it yourself" by negotiating direclty with the credit card companies after getting some education on the "how to" of the matter.

Call them and ask to speak to an account manager or someone who can negotiate the cost of your debt. You may be able to pay 50 cents or less on the dollar owed.

Whatever happens or is negotiated needs to be in writing.

DON'T GIVE THEM ACCESS TO YOUR BANK ACCOUNT. Pay with a cashier’s check or certified check. Keep your copies of the receipts.

If you tell the credit card company(s) you want to settle your debt they will probably freeze your credit card account. You might just want to close the credit cards accounts by calling them and asking them to send you written notification the accounts are closed.

If a portion of your debt is negotiated and forgiven it will likely be reported to the IRS via a 1099-C form. For example, a $2,000 payment to settle a $4,500 credit card bill -- you'll likely have to pay tax on an additional $2,500 in income next year.

Obviously seeking legal council is best as I suggested above... However, the Federal Fair Debt Collection Practices Act (or Wiki also explains the Act) is a law that outlines consumer rights and puts restrictions on creditor calls. Here’s some information on the act:

1. No harassing calls can be made.
2. Calls must be between 8 a.m. and 9 p.m.
3. Repeated calling and name-calling are prohibited.
4. If a collector is harassing you, put him on notice that you are taping the calls to ensure that he follows the act’s stipulations.
5. You can stop unwanted collector calls at your workplace by sending a certified letter (return receipt requested) to the collector in question. Just ask them to stop.
6. You are even allowed to send a cease-and-desist letter requesting that they no longer contact you in any way except to inform you of legal proceedings. Use this only in extreme circumstances.
7. No collector may garnish wages or attach bank accounts without first suing and winning. (The only exception is federal student loans that are in default.)

Legally speaking I believe you do have to make some kind of monthly payment to the creditor.


Realize it's likely going to be a long negotiation process. They're going to be mean, rude, and down-right nasty at times. They will try to prey on your emotions. They will use anger, fear, hate, and even attempt friendship. They will try to bluff you and play on your ignorance. So educate yourself! If you feel the conversation is becoming too emotional politely end the conversation and ask them to call you back when they are willing to treat you with respect. Talk to them once every two weeks. You will have to stick with your guns.

Hope this helps. Best wishes.

[hamchan]

7. No collector may garnish wages or attach bank accounts without first suing and winning. (The only exception is student loans that are in default.)

This also only applies to federal student loans. Private loans still have to sue you and win before garnishing wages or attaching bank accounts.

[Petunia 100]

So, over $100,000 in CC debt, 5 years of my taking over the bills and unsuccessfully trying to pay down debt, 7 years of H having increasingly worse jobs so less income and increasing debt, I finally cashed out one of my 401Ks (prepaid the penalty and tax), and I have $30,000 to use toward the debt. H keeps saying he's approaching banks to take out a loan against the $30,000 so we can wipe out the CC debt all at once instead of me just paying down $30,000 of the CC debt; still waiting, a month later.

My question: has anyone else done this and if so, who do you go to with that money to ask for such an arrangement? Just a regular bank? Is there some other sort of organization who will do this? The only one I know for sure he's approaching is Merrill Lynch, where he has the bulk of his own 401K invested. I'm going to just go and do it myself.

The mandatory 20% withholding does not necessarily cover the penalty and tax. The federal penalty is 10%, and the tax rate depends upon your total income.

Depending on where you live, your state may also want taxes and penalties.

You will settle up with both when you file your 2014 income tax return(s). So brace yourself, it may be an unpleasant tax year.

This was a very expensive decision.

If you use your 30k as collateral for a loan, you will then not be able to access the 30k. I don't see how this is a solution. Can you discuss your thinking here a bit more?

What caused all of this debt? Medical bills, unemployment, over-spending, other? Is the cause on-going? Is it 7 years of decreasing income without cutting expenses?

For the long-term, you have to adjust your expenses and spending to your new "normal". If Dh makes less money now, that is unfortunate, but that is where you are.

Have you made a budget? How much can you realistically afford to pay towards this CC debt each month?

[Eagle]

This also only applies to federal student loans. Private loans still have to sue you and win before garnishing wages or attaching bank accounts.

You are right HamChan. I edited my post.