Need advice on debt

[cleanslate]

I'm hoping someone can help me out here. I need some advice on paying the following debt off, as in which order and such. I am thinking about taking about $20k out of my retirement to pay some of this off. Here is my layout of finances:

Debt
1. Credit card: $4,500 @ $200/mth @ 21%
2. Loans:
Car $ 9,116 @ $326/mth @ 4.75%
Truck $15,477 @ $450/mth @ 6.39%
Consolidation $14,525 @ $520/mth @ 13.40%

Monthly Bills
Electricity $ 75
Utilities $225
Internet $ 75
Cable $125
Cellphone $145
Fuel $400
Groceries $500
Rent $500
Misc. $500

Total debt & bills: approx. $3,500/mth

Net Salary
$5,000/mth

[Jluke]

Thanks for posting.

first, do you have any cash savings - as in an emergency fund?

I don't think using retirement funds is the way to go, but others can chime in on that.

The credit card has to go.

if you truly have 1500 extra per month, I would pay $500/mo at least towards the credit card. even 1000/mo.

any chance you qualify for a promotional credit card balance transfer? this is only to ease the hurt of the interest rate, not to delay paying that off.

do you need two vehicles?

anything you can sell?

2nd job?

have you heard of dave ramsey? the above is kind of his approach to debt.

[snafu]

Welcome to SA. You'll find we're a diverse group with different backgrounds and experiences. Please understand the cost in penalties and income tax of using retirement funds is staggering. Even worse, the damage to your lifestyle long term as a retiree is horrendous. Retirement sums need time and major run ups to compound sufficiently to support you long term according to current actuarial reports.

I'm confident if your are willing to make a few short term changes to lifestyle, you can change your trajectory. Are you paying rent or mortgage? Are you willing to give every dollar of take home pay, 'a job!' I suggest you 1st add up how much of your net income has been used up in interest payments to Consolidation loan, credit card sum owed, truck loan and car loan during 2017.

Jluke makes excellent points.

[cleanslate]

Thanks for posting.

first, do you have any cash savings - as in an emergency fund?
Yes, I have $1k in savings.

I don't think using retirement funds is the way to go, but others can chime in on that.
My thoughts are doing this short term. This is an option that would basically be a loan to myself, as I have to pay it back to my retirement at 2.6% rate.

The credit card has to go.
Yep, that's what's going to happen.

if you truly have 1500 extra per month, I would pay $500/mo at least towards the credit card. even 1000/mo.
Forgot to mention that my rent is $500/mth.

any chance you qualify for a promotional credit card balance transfer? this is only to ease the hurt of the interest rate, not to delay paying that off.
I'm ignorant on this...not sure what this is.

do you need two vehicles?
Yes, me and my wife both need a vehicle for work.

anything you can sell?
No...we sold and downsized tremendously prepping up to this point, so we're finished selling.

2nd job?
I work 100 hours every two weeks @ 12 hrs/day so I'm pretty maxed out.

have you heard of dave ramsey? the above is kind of his approach to debt.
Yes, I'm trying to tackle things by his method.

Thanks for your reply.

[cleanslate]

Welcome to SA. You'll find we're a diverse group with different backgrounds and experiences. Please understand the cost in penalties and income tax of using retirement funds is staggering. Even worse, the damage to your lifestyle long term as a retiree is horrendous. Retirement sums need time and major run ups to compound sufficiently to support you long term according to current actuarial reports.
I'm prepared to take a temporary hit, but the rate of 2.6% loan to myself is better than any other loan I'd be doing elsewhere, and I'm stipulated by the rules to pay it back out of every paycheck with automatic payments.

I'm confident if your are willing to make a few short term changes to lifestyle, you can change your trajectory. Are you paying rent or mortgage? Are you willing to give every dollar of take home pay, 'a job!' I suggest you 1st add up how much of your net income has been used up in interest payments to Consolidation loan, credit card sum owed, truck loan and car loan during 2017.
I'm paying $500/mth in rent. My net income after bills will be around $1k.

Jluke makes excellent points.

Thanks for your reply. I'm trying to sort out my idea and see if it's feasible given the interest rates and such.

[cleanslate]

Jluke, I typed out a response to you and it says a moderator is waiting to approve it, but I answered you in that. Until it shows, I basically answered this:

I do have $1k in savings; the reason I am considering borrowing off retirement is because I get a 2.6% rate in which repayment is done through automatic payments every paycheck, and that's a better rate than I'd get anywhere else; the plan is already in place to eliminate the cc; I forgot to add the $500 rent to my list (edited it to reflect), so I actually have approx. $1k leftover net; I'm not sure what a promotional balance transfer is; I need two vehicles for my wife's and my work; we already sold a tremendous amount of stuff to set us up for this stage, so we're done selling; I work 100 hours every two weeks at 12 hrs/day, so I'm fairly burnt out with my work schedule; yes, I've heard of Dave Ramsey, which is why I'm trying to work on his methods.

[sblatner]

First, you should edit your first post to include rent (which I know you added) in the total debt/bills to be approx. $4,000/mo not $3,500. (or else people are going to question your adding, etc.).

As for your question,

The problem with a loan from retirement is is that if you quit or lose your job, you have to pay it back pretty quick or it becomes a withdrawal and taxes have to be paid.

What is the consolidation loan for? This is an important question.

Do you have an emergency fund?

Do you normally get a tax refund?

Without knowing those answers, I would suggest -

If you really have an extra $1000 per month and you said you have a plan to knock out the credit card, take the credit card minimum and the $1000 and add it to the $326/month on the car. That will be a $1526 payment to the car which will have it paid off in six months.

Then take the $1526 you were paying towards the car and the $520 to the consolidation loan and pay the total to the consolidation loan which will be knocked out by the end of the year.

Then take the $2000 you were paying towards the consolidation loan and the $450 on the truck and pay $2500 per month towards the truck. It will be done before June of 2019 (since you will have been paying $450 per month towards it for a year already).

Boom - you are debt free in the next 18 months.

Others will tell you to cut your expenses which you might be able to.

Others would say to pay off the consolidation loan first which would be okay...I usually like to do smallest to largest so you can get momentum but since the amounts aren't that much different (it's not like one is $3k and one is $15k), highest to lowest interest rate would be okay, too.

If you could get a second job delivering pizzas or Uber or something like that, you could be done a few months sooner. I know you said you work a lot but if you could do it for even just a month or two, you might find it exciting to see your loan balances go down and want to work extra even more.

You can do this without taking a loan from retirement.

[disneysteve]

I'm hoping someone can help me out here. I need some advice on paying the following debt off, as in which order and such. I am thinking about taking about $20k out of my retirement to pay some of this off.

Thanks for your reply.

have you heard of dave ramsey? the above is kind of his approach to debt.
Yes, I'm trying to tackle things by his method.

Hi. Welcome to the site.

Let me start by saying that if you are following the Dave Ramsey method, your original post doesn't really make sense. DR's system is very clear on order of debt repayment and he is 100% opposed to borrowing more money to pay off debt so the retirement plan loan would be out. So if you are doing Dave Ramsey, you don't need our advice. Stick to his plan and you'll be fine.

Now if you are looking for alternative views, you should absolutely, positively NEVER borrow from your retirement plan unless it is a true catastrophe such as a life-threatening situation or something equally dire.

You earn more than you spend. Put every spare penny toward the debt, starting with the highest interest rate and working down to the lowest, so credit card then consolidation then truck then car.

[Gailete]

Welcome

Besides the potential tax consequences of tapping your retirement account, you would also be losing the power of compounding over the amount of time you will need to take to get it all paid back. One of my posts here showed the difference between my IRA and my husbands when they were only changed by about a $50 difference in contributions. My IRA is currently worth over $900 more. I'm already at retirement age, but hopefully won't have to tap that account for some years yet, but it sure would be interesting to see how much of a difference there would have been in 10-20 years! But it is something that should make you pause before touching any retirement money.

Sblatner had some good advice on getting those paid off without touching your retirement money. Do those numbers include your wife's income and all expenses for bother of you?

[cleanslate]

sblatner, thanks for your reply.

First, you should edit your first post to include rent (which I know you added) in the total debt/bills to be approx. $4,000/mo not $3,500. (or else people are going to question your adding, etc.).
I was typing things out, so I missed adding the rent, which I went back and added very shortly after.

As for your question,

The problem with a loan from retirement is is that if you quit or lose your job, you have to pay it back pretty quick or it becomes a withdrawal and taxes have to be paid.

What is the consolidation loan for? This is an important question.
The consolidation loan was for a double-family emergency that took place at the same time.

Do you have an emergency fund?
I have the $1k in savings, but no emergency fund.

Do you normally get a tax refund?
Yes, I get roughly $2k.

Without knowing those answers, I would suggest -

If you really have an extra $1000 per month and you said you have a plan to knock out the credit card, take the credit card minimum and the $1000 and add it to the $326/month on the car. That will be a $1526 payment to the car which will have it paid off in six months.
Great advice, thanks.

Then take the $1526 you were paying towards the car and the $520 to the consolidation loan and pay the total to the consolidation loan which will be knocked out by the end of the year.
Again, great, I like this route.

Then take the $2000 you were paying towards the consolidation loan and the $450 on the truck and pay $2500 per month towards the truck. It will be done before June of 2019 (since you will have been paying $450 per month towards it for a year already).
I see what you're doing here...I really l like this tactic.

Boom - you are debt free in the next 18 months.

Others will tell you to cut your expenses which you might be able to.

Others would say to pay off the consolidation loan first which would be okay...I usually like to do smallest to largest so you can get momentum but since the amounts aren't that much different (it's not like one is $3k and one is $15k), highest to lowest interest rate would be okay, too.

If you could get a second job delivering pizzas or Uber or something like that, you could be done a few months sooner. I know you said you work a lot but if you could do it for even just a month or two, you might find it exciting to see your loan balances go down and want to work extra even more.
I live in a rural area, so I still think it's out the realm of possibility due to length of commute where I could do this without making pennies on the dollar, literally.

You can do this without taking a loan from retirement.
Super advice, thanks for your help!

[cleanslate]

Welcome

Besides the potential tax consequences of tapping your retirement account, you would also be losing the power of compounding over the amount of time you will need to take to get it all paid back. One of my posts here showed the difference between my IRA and my husbands when they were only changed by about a $50 difference in contributions. My IRA is currently worth over $900 more. I'm already at retirement age, but hopefully won't have to tap that account for some years yet, but it sure would be interesting to see how much of a difference there would have been in 10-20 years! But it is something that should make you pause before touching any retirement money.
Understood. It was just a consideration, but I am leaning hard not to touch it, now.

Sblatner had some good advice on getting those paid off without touching your retirement money. Do those numbers include your wife's income and all expenses for bother of you?

Yes, it was great advice...it's a plan I like very much.

[msomnipotent]

Do you know what your credit score is? Are you able to open a new credit card , or transfer balances to an old card with a promotional rate? You might be able to get a 0% interest for 12 months and knock out the credit card while working on the consolidation loan.

I would also consider borrowing against your 401k as long as your job is stable and you are not living above your means. I did it before a few times during the internet bubble and it worked out well for me. However, my husband took out a huge loan when he worked for a start-up (and the normal job), and then the normal job decided that the start-up was a competitor and fired him. We had to pay a penalty and taxes when he didn't have an income and wound up owing the IRS something like $30,000 or $40,000. But the IRS was reasonable and we worked out a payment plan of $100 per month and made a balloon payment once we had enough to pay the balance. It was definitely sub optimal, but it wasn't the end of the world. It was incredibly stressful for us, though.

Personally, I would focus on the credit card and then the consolidation loan first due to the interest rates. The auto loan rates are not that bad, and there is a finite term to them unlike the credit card. I would leave your $1,000 alone for now just in case. And if your credit card is paid off, you can use it instead of looking for another loan if you absolutely must. Once the credit card was paid, I would start adding a little more to savings while paying off the personal loan before trying to knock out the auto loans. Chances are good that you will need repairs or another car before the car loan is paid off, so it is best to start saving now. You can still add a little more to the principal payments on the auto loans and it would still help, but I would focus on the other loan and savings.

Good luck!

[MatthewDouglas]

Is all that your own debt or shared with someone else? Is the truck and car both for you? Do you have equity in either the car or truck? Depending on the equity or negative equity situation I would trade them both in and get a much cheaper honda or toyota with higher miles that is a 1 owner and is taken care of. A tip is to look for a gold or white one that was owned by an older woman who drove it to the market. Do a search within 150 miles of your area for 7-8 year old honda or toyota car that has 60-90k miles. You can pick one of these up for 7-8k (think like corolla, yaris, honda fit, etc) If you have enough equity you can pay cash and if not have a super low loan and payment. Again this all depends on the equity you have. If that works then you have a reliable car that taken care of can go 250k miles and you eliminated 25k in debt and almost $800 in monthly payments. Hope this helps!

[cleanslate]

To answer some of your questions:

Do you know what your credit score is? Are you able to open a new credit card , or transfer balances to an old card with a promotional rate? You might be able to get a 0% interest for 12 months and knock out the credit card while working on the consolidation loan.
My credit score is 708. I don't want to get another credit card because I'm getting away from them (I only have this one left).

I would also consider borrowing against your 401k as long as your job is stable and you are not living above your means. I did it before a few times during the internet bubble and it worked out well for me. However, my husband took out a huge loan when he worked for a start-up (and the normal job), and then the normal job decided that the start-up was a competitor and fired him. We had to pay a penalty and taxes when he didn't have an income and wound up owing the IRS something like $30,000 or $40,000. But the IRS was reasonable and we worked out a payment plan of $100 per month and made a balloon payment once we had enough to pay the balance. It was definitely sub optimal, but it wasn't the end of the world. It was incredibly stressful for us, though.
My job is stable.

Personally, I would focus on the credit card and then the consolidation loan first due to the interest rates. The auto loan rates are not that bad, and there is a finite term to them unlike the credit card. I would leave your $1,000 alone for now just in case. And if your credit card is paid off, you can use it instead of looking for another loan if you absolutely must. Once the credit card was paid, I would start adding a little more to savings while paying off the personal loan before trying to knock out the auto loans. Chances are good that you will need repairs or another car before the car loan is paid off, so it is best to start saving now. You can still add a little more to the principal payments on the auto loans and it would still help, but I would focus on the other loan and savings.

Good luck!
Thanks! I'm trying to move in the right direction.

[cleanslate]

Answers to your questions:

Is all that your own debt or shared with someone else? Is the truck and car both for you? Do you have equity in either the car or truck? Depending on the equity or negative equity situation I would trade them both in and get a much cheaper honda or toyota with higher miles that is a 1 owner and is taken care of. A tip is to look for a gold or white one that was owned by an older woman who drove it to the market. Do a search within 150 miles of your area for 7-8 year old honda or toyota car that has 60-90k miles. You can pick one of these up for 7-8k (think like corolla, yaris, honda fit, etc) If you have enough equity you can pay cash and if not have a super low loan and payment. Again this all depends on the equity you have. If that works then you have a reliable car that taken care of can go 250k miles and you eliminated 25k in debt and almost $800 in monthly payments. Hope this helps!
It's my debt exept for the car (my wife's). I probably have equity in the vehicles. I need them both. I like your tactic for looking for a certain color vehicle, though, it makes sense. Thanks for your advice!