Bills VS car with 457

[DW0378]

Here is my story I got in way over my head after my last child my wife came off payroll way earlier than expected and I lived on CC until I could arrange a second job.

I racked up about 35,000 in debt in a real short time losing a second income really hurts.

So here is my question MY wife has finally left her job to be a stay home mom and I have picked up a second job to make up some of the income. So she has a 457 that's getting cashed out valued at 27,000 and I am looking for advice on what to do with it. I know I can roll it over or should I pay off my existing debt currently not paid for about 3 years or buy my my wife and myself car's?

A little back history My car had 350,00 miles on it and is on it's last leg and she just totaled hers public transportation is not an option as it is almost non existent here. I work 2 jobs and travel about 100 miles a day round trip so buying used and cheap get's expensive in the repair department.

My thought is 2 civics nothing special probably about 22,000 each 10,000 down on each and finance the rest. this will leave me about 7000 to negotiate with my current creditors.

I am already approved for the loans at a high but not too high considering 4.5 interest rate. I would like a lower rate but you have to pay the piper for your mistakes.

I would appreciate any advice.

I know this is probably not a debt management question in itself but I have to start somewhere every time I seem to start to get ahead something else falls on me for example car breakdown (mine) of my wife totaling her's.

MY thinking is like this pay the first year on time at 4.5 then try to refinance at lower rate to help save some money then I can concentrate on trying to get the bills in order if they don't have me in court before then. Also in the next year I will have a loan that is taken automatically from my check end freeing up about 300 a month to start working the bills.

[disneysteve]

1. DO NOT cash out the retirement plan!!! That will be the biggest mistake you've ever made.

2. DO NOT buy 2 new cars!! Are you nuts? You want to spend $44,000 on two new Hondas! You need to be buying a couple of functional used cars, maybe $5,000-$7,000 each tops.

3. The two of you really need to think about if you can afford for her to be a SAHM right now. It's great to do if the money works but it isn't always feasible.

4. Whether she works or not, you need to get yourselves on a budget that has you spending no more than 70-80% of your pay and using the remainder for savings and debt repayment.

ETA: The 457 should be rolled over into a rollover IRA. It should be a direct transfer from the old company to the new company. Don't have them send the money to you first. Contact the new company where you will be establishing the IRA - Vanguard, Fidelity, T. Rowe Price are all good choices - and they will handle the transfer for you.

Also, if she totaled her car, how much is the insurance company giving you for that one?

[Bob B.]

I'll chirp in and say that my wife also left the work force when we had our first child 12 1/2 years ago.

We had a big adjustment to make. We also got into a lot of debt as a result of losing her income.

So, I see the value of having a stay-at-home parent.

But, I came to realize that if you cannot balance your budget at home, you cannot afford the luxury of having a stay-at-home parent.

Is there anything your wife can do from home to pick up some income?

Have you cut your spending to bare bones necessities?

You wrote that you drive 100 miles a day. Do you need to move closer to work?

I agree that cashing out the retirement savings is a bad idea. If you plan to retire some day, you'll be glad you have that money saved.

Look at cheaper vehicles. Look at moving closer to work. Cut your spending. Increase income.

[bjl584]

I agree with Steve.

You are about to make two huge mistakes. Cashing out a retirement account and buying two brand new cars is the worst thing that you can do right now.

[DW0378]

Thank you all foe advice so far. I disagree on the car part and not because I want a new car Hell I would love to be payment free there. however when you but a 5-7000 car there are way too many variables that may cost you in the long run which is why I was considering new in the first place. 1 I do occasional work on the side working on cars for a family friend who owns a shop the amount cars that come through the shop that have some sort of damage from hurricane Sandy amazes me and scares me when thinking about buying a used car as some are very hard to detect until there is an issue. Also most cars in the 5-7000 range are going to be running close to or over 100,000 miles already and then me adding 25,000 or so a year to me just adds up to more repair bills since this is the point where big things start to go ( timing belt, transmission emission stuff and electrical ). Used car repairs tend to snowball at least for me they do MY 2001 civic was at about 150,000 miles and started having small issues like the alternator and starter nothing I really minded doing or paying for as needed as they are wearable items they wear out. Then after doing both plus routine brake work the motor unexpectedly took a dump. I know the car i maintained it so I have a motor put in ( can only afford this option because my friend owns the shop and I could pay it off) great should have a car forever two months later the transmission decides it does not like the new motor and walks off the job also. so now what to do I have the transmission rebuilt and off we go again now into the car for well over 6500.00 how long do you do this with a used car before you give up?

As for cashing out the 457 yes I could roll it over but we both have pensions I have a 457 presently with about 150,000 in it so i figured the 27000 while a lot of money would be better spent on cars and them using the remaining 7000 to try and negotiate with the old debt. I have no outstanding overdue new debt all bad debt is from 2011 when we first got into this mess. With the exception of those cc debt I stopped paying completely all active debt is current and paid on time. That included rent the car that was totaled (now paid off by insurance) best buy CC ( only use for Christmas and birthdays for the kids which are usually more expensive stuff they want and I only use it when I get a no interest offer and pay it off as quick as I can internet direct TV ( canceled last month to try and start getting things in line) electric, 2 personal loans ,car payment, car insurance, Netflix hulu plus and amazon prime, cell phones, and have come out finally having a small savings of 800.00.

I am not looking for anyone to tell me this is a good idea I am actually strongly considering your advice. However no matter what I do I am going to need cars used or new makes no difference in the fact that I need to keep the 457 money and not roll it over as I do not have a sufficient cash backup right now to even replace my wife’s car.

[JoeP]

Let's see...2 cars at $22k each is $44k you'll have tied up in depreciating assets and then being hit for financing.

You could buy 3 nice used cars with 30k-40k miles for about $10k each and come in way under as far as depreciation hit, and have a spare car for "when" one of them breaks down. It might take a while to find the right car, so patience is important. Maybe you can put the word out to your friends and family to be on the lookout for a single-owner used car.

[disneysteve]

I disagree on the car part

You've come to the wrong place if you expect anyone to support your plan to go out and spend $45,000 on 2 new cars that you can't afford. I bought my current car, a 2006 Camry, in summer of 2012 after having my previous car, also bought used, for 14 years.

As for cashing out the 457 yes I could roll it over but we both have pensions

Do you watch the news? Lots of people have seen pensions disappear or have seen "guaranteed" benefits cut. I wouldn't base my retirement planning on a pension.

i figured the 27000 while a lot of money would be better spent on cars and them using the remaining 7000 to try and negotiate with the old debt.

Do you understand that if you have $27,000 in the account, that isn't how much you're going to get. After taxes and penalties you will likely walk away with $15,000 or $16,000. You will "donate" the other $11,000 to Uncle Sam. While that's very kind of you, it isn't too bright if you ask me,

[corn18]

Why does your wife need a new car? Will she also be driving 25,000 miles / year?

[disneysteve]

Why does your wife need a new car? Will she also be driving 25,000 miles / year?

Even someone driving 25K/year doesn't need a new car (especially if they can't afford it). I bought my car with 26,000 miles on it so basically one year's worth of driving for OP. However, that car was 6 years old and about $14,000 less than a comparable new model.

There is no logical way to justify buying a new car. There are lots of excuses and rationalizations one can make but none of them make sense financially speaking.