Financial issues

[Pokoloco 1,281]

Due to family circumstances we got ourselves into about 90K in CC debt.  I have a good job, have 500K in a 401K,  equity in our home at 250K. I've been making payments on everything for a while, with interest rates high, cashflow has become an issue.  My wife is hell bent on getting the house paid off, so she doesn't want me to refi the first. We have 24 months left to get it paid off. 

Any suggestions?  

[Gil Bang 25,987]

Can you borrow from the 401k?

[DalTxHornFan 3,114]

4 minutes ago, Gil Bang said:

Can you borrow from the 401k?

That or a HELOC.  Much lower interest rates either way.

[immamac 42,892]

401k loan is the answer here that's why it's there. Pay yourself back the interest. 

You can also do debt consolidation/refi your cc debt into a single payment that will give you a month breather and maybe drop the blended rate down substantially 

[Parliament 14,282]

Is it a ROTH 401k?  Follow the withdrawal rules and you can get money out for free.  Do that and tear up your cc.

[Guest]

1 hour ago, Pokoloco said:

Due to family circumstances we got ourselves into about 90K in CC debt.  I have a good job, have 500K in a 401K,  equity in our home at 250K. I've been making payments on everything for a while, with interest rates high, cashflow has become an issue.  My wife is hell bent on getting the house paid off, so she doesn't want me to refi the first. We have 24 months left to get it paid off. 

Any suggestions?  

Not quite clear -- are you paying more on the house than you need to each month to pay it off early?

[Nice Guy Eddie 13,516]

If your credit card debt is moved over to a HELOC, consolidation, or 401k loan, you have to promise yourself that there is no scenario where you run the credit cards back up again. Most people slowly start increasing up credit card debt again and then they find themselves with both the old loan and new credit card debt. Outside of food on the table and a car getting you to work, all other expenses should be avoided. Go watch a few Dave Ramsey videos of living when trying to get out of debt.

I would completely pause any extra payments on the mortgage, if you're doing that. No reason to become less liquid with so much credit card debt.

One word of warning on the 401k loan. Say you take out $90K, what are the terms? If it's 3 years at 4%, you will experience $2,600 less in take home each month. It will be like you just took a lower paying job and those 36 months of lower paychecks will feel like an eternity. and yes, you can pay it back early.

[Mother mopar 3,322]

As a financial planner, borrowing against retirement is usually a last resort and I recommend against it. There are a lot of factors at play here, penalties, opportunity cost, interest rates on debt, home, etc.

Then, this never addresses how you ended up in credit card debt to begin with. You have to fix that or you're right back here in X years later on.

[Mother mopar 3,322]

401k loan is the answer here that's why it's there. Pay yourself back the interest. 
You can also do debt consolidation/refi your cc debt into a single payment that will give you a month breather and maybe drop the blended rate down substantially 

Negative, it's there for retirement, it's literally in the name "Retirement savings plan". 401k doesn't turn into a personal piggy bank until RMDs are required and even then discipline needs to be exercised.

[immamac 42,892]

1 minute ago, Mother mopar said:

 

 

Negative, it's there for retirement, it's literally in the name "Retirement savings plan". 401k doesn't turn into a personal piggy bank until RMDs are required and even then discipline needs to be exercised.

 

it's why the loan option is there not 401k. It's there for situations like this so you don't get smoked on interest on debt that you could pay yourself back on from money you already have. 6.5% vs 29% is going to beat any market investment you have right now or really ever and is a sure thing especially if you can pay it back relatively quickly. 

If you can tell me how to beat 6.5% guaranteed in my 401k I'm all ears, but the market is absolute dogshit right now. 

[Native Horn 3,507]

Pretty sure max loan from a 401(k) is $50K.

[MonkeyDoughnut 10,340]

HELOC is definitely way to go currently for you.

[Nice Guy Eddie 13,516]

Once I took out a 401K loan. The payback was about $900 per month, or ~10K annually for 3 years. It sucked having a smaller paycheck. I understood the details in advance so I wasn't surprised by the numbers but I wasn't prepared for the feeling of a continuous smaller paycheck. Not to mention that if I left my job, I would have had to pay it back immediately or face penalties. I ended up paying it back in 18 months instead of 36 because I was sick of the payment.

I agree with others in that you should avoid a 401k loan at all costs. I would recommend just sucking it up and paying back the credit cards directly. The pain of paying back those cards will help ensure you don't get into cc debt again.

22 minutes ago, immamac said:

If you can tell me how to beat 6.5% guaranteed in my 401k I'm all ears, but the market is absolute dogshit right now. 

I agree that a loan repayments are actually an unexpected way to grow your 401k account balance via new funding but I disagree that the market is dogshit right now. The S&P 500 is up 2.2% for 2024 alone. 6.5% in the last 6 months. If someone took out a loan a year ago, they lost out on some great returns.

[Mother mopar 3,322]

it's why the loan option is there, not 401k. It's there for situations like this so you don't get smoked on interest on debt that you could pay yourself back on from money you already have. 6.5% vs 29% is going to beat any market investment you have right now or ever and is a sure thing especially if you can pay it back relatively quickly. 
If you can tell me how to beat 6.5% guaranteed in my 401k I'm all ears, but the market is absolute dogshit right now. 

Nothing is guaranteed in a 401k, but if you're getting a 6.5% return in this market something is horribly wrong and your are literally losing money (inflation, fees, etc)

Last year alone Nasdaq and S&P were up double digits on return. So having a simplified index fund would have netted you in the mid-teens easily, eg VIGAX.

Depending in the tax setup of the 401k there are tax ramifications as well. Which could result in lost future earnings, penalties. But MM I'm paying myself the interest, haha. There's a sucker born ever minute and an ass for every seat.

[blacklab 11,942]

I agree you shouldn't borrow from your 401k unless you really need to, but the math says otherwise.

Lets say you have $50k in CC debt at 26%
Stock market averages 7% a year in returns
You have $100k in your 401k so you can pull $50k
You have to pay 10% for the loan
You're going to pay it off in a year, so $4396 a month
Money put back into 401k earns 7%

If you get a loan and pay it off at 10% at the end you'll have $54,768 replacing the $50k

if you just leave the money in the 401k you'll have $53,615 in the 401k, and assuming you paid the $4396 towards the cc each month you'd still have $5150 in cc debt. So your original $50k is now $48,463

If market is going down you'll have even more in your account at the end, if it's going up you'll do better on the leave in/pay cc plan.

 

[Guest]

1 hour ago, immamac said:

If you can tell me how to beat 6.5% guaranteed in my 401k I'm all ears, but the market is absolute dogshit right now. 

Que?

[Mother mopar 3,322]

Pretty sure max loan from a 401(k) is $50K.

This is correct and it has to be the vested amount, not the total. OP didn't specify whether he was or not, but every employer plan is different.

[Firemans4Horn 18,118]

4 hours ago, Pokoloco said:

Due to family circumstances we got ourselves into about 90K in CC debt.  I have a good job, have 500K in a 401K,  equity in our home at 250K. I've been making payments on everything for a while, with interest rates high, cashflow has become an issue.  My wife is hell bent on getting the house paid off, so she doesn't want me to refi the first. We have 24 months left to get it paid off. 

Any suggestions?  

 

Man, I don’t want to go full Dave Ramsey but is going on here?

Make some lifestyle adjustments, reduce your spending, and free up cash flow to pay down credit card debt. Otherwise you’ll be in this situation again in the future. 

Options in the shorter term: Look for a new credit card that has a limited time low interest period if you roll over your balance

No Intro Interest Credit Cards

HELOC and 401(k) loans as discussed above. Stop contributing to your 401k plans (beyond the company match) until the CC is paid off.

I couldn’t tell from your initial post but based on your wives desire to pay down the house are you guys making extra payments to the house every month? If so, stop that immediately and put that towards credit cards.

If you drive expensive cars, I’d sell them. Drive a low cost, paid off car. 

Expensive gifts or vacation on the horizon? Cancelled until the CC is paid off.

 

 

[Bevo 13,592]

I have an idea that might help.

 

 

 

 

 

 

[immamac 42,892]

I think he alluded to family issues in his OP. I would assume some unexpected bills/expenses it didn’t sound like extravagant out of control spending. 

[elfenix 34,331]

are you in texas? file bankruptcy.  home equity is exempt as is the 401k.  if you can sneak into a 7 instead of getting means tested into a 13 it's almost painless. 

 

note: this is friendly advice i ain't your lawyer and i ain't seen your actual shit.

[TwiceHorn 31,519]

15 minutes ago, elfenix said:

are you in texas? file bankruptcy.  home equity is exempt as is the 401k.  if you can sneak into a 7 instead of getting means tested into a 13 it's almost painless. 

 

note: this is friendly advice i ain't your lawyer and i ain't seen your actual shit.

I'm gonna guess that if cash flow is just now becoming an issue while servicing the CC debt, they ain't passing the means test, so hello Chapter 13.

I suppose, though, that a Chapter 13 for someone who mostly actually has their financial shit together might be less austere than a 401k loan, for example.  You can kite those Helocs for a good long while, though, which might be a reason not to do it.

It's my observation that for the kind of people that are normally faced with a personal bankruptcy, a Chapter 13 plan is too much discipline and austerity too fast and people are bound to dismiss out of them.

[elfenix 34,331]

8 minutes ago, TwiceHorn said:

they ain't passing the means test, so hello Chapter 13.

actually it's probably the house being paid off in 2 years that's definitely hello chapter 13.  that payments due over 60 months figure is going to be very low without the mortgage extending out 5 years. 

[DalTxHornFan 3,114]

I don't know all the details, but the guy is two years from a paid off house, has a good job, has $90K in high interest debt -- allegedly from helping out family members in an emergency.

Bankruptcy is just about the last thing to even think about.  SMH.

[Nice Guy Eddie 13,516]

If you’re helping family members out in an emergency, what is their payment plan in paying you back? Even if it’s impossible for them to pay back the entire amount, they have to paying something back.  The one exception would be your elderly parents.

perhaps I’m a complete dick, but other peoples’ emergencies should not require someone else to go into almost 6 figure credit card debt.

if a sibling needed 90k for a surgery or a lawyer for their drug dealing kid, the sibling should now be working a second job even if it’s McDonald’s. Their mistakes shouldn’t drag you down as well, or at least they should be making it right ASAP.

[Dahobbs 17,634]

10 hours ago, DalTxHornFan said:

I don't know all the details, but the guy is two years from a paid off house, has a good job, has $90K in high interest debt -- allegedly from helping out family members in an emergency.

Bankruptcy is just about the last thing to even think about.  SMH.

On the other hand, it sounds like a guy who is less likely to need access to new credit in the near future and could probably take the credit hit pretty well if it would assist his current financial predicament. But I agree with @TwiceHorn that it also seems like a situation that would be destined for Chapter 13 and is unclear to me how Chapter 13 would be better than the other ideas mentioned in the thread. 

[DalTxHornFan 3,114]

 

It's a little more complicated than that.  Maybe I value my privacy too much, but having to publicly file all of the detailed schedules about your finances and possessions would make any kind of BK filing an absolute last resort for me.

[Guest]

So Poko does a drive by and in the meantime, we assume that he can't control a budget, needs a HELOC, is paying off his mortgage quickly, he should declare bankruptcy, and family members aren't paying him back for drug lawyers.  

[Pokoloco 1,281]

21 hours ago, Gil Bang said:

Can you borrow from the 401k?

only $49K

[Pokoloco 1,281]

21 hours ago, DalTxHornFan said:

That or a HELOC.  Much lower interest rates either way.

Chase and Wells Fargo don't do HELOC's apparently. I bank with both. any recommendations?

[Pokoloco 1,281]

19 minutes ago, FirstTimeCaller said:

So Poko does a drive by and in the meantime, we assume that he can't control a budget, needs a HELOC, is paying off his mortgage quickly, he should declare bankruptcy, and family members aren't paying him back for drug lawyers.  

Yeah, we kept throwing money at my son from College days to drug lawyers, to DUI lawyers... he's 30 now and will be a guest of the state of Oklahoma for a while.

[Pokoloco 1,281]

12 hours ago, elfenix said:

are you in texas? file bankruptcy.  home equity is exempt as is the 401k.  if you can sneak into a 7 instead of getting means tested into a 13 it's almost painless. 

 

note: this is friendly advice i ain't your lawyer and i ain't seen your actual shit.

Oklahoma.

[Pokoloco 1,281]

We're not making extra payments on the mortgage.  We had a 15 year, my wife has never really worked since we had the kids, she has a part time job now and makes about $7000 a year. After all the potluck lunches and chipping in for gift baskets and other woman bullshit at her job, she brings home a lot less. 

 She wants to make sure she has a house free and clear when I'm dead in the next 20 years.  

[Pokoloco 1,281]

17 hours ago, Firemans4Horn said:

 

Man, I don’t want to go full Dave Ramsey but is going on here?

Make some lifestyle adjustments, reduce your spending, and free up cash flow to pay down credit card debt. Otherwise you’ll be in this situation again in the future. 

Options in the shorter term: Look for a new credit card that has a limited time low interest period if you roll over your balance

No Intro Interest Credit Cards

HELOC and 401(k) loans as discussed above. Stop contributing to your 401k plans (beyond the company match) until the CC is paid off.

I couldn’t tell from your initial post but based on your wives desire to pay down the house are you guys making extra payments to the house every month? If so, stop that immediately and put that towards credit cards.

If you drive expensive cars, I’d sell them. Drive a low cost, paid off car. 

Expensive gifts or vacation on the horizon? Cancelled until the CC is paid off.

 

 

Been living the Dave Ramsey life.. We both drive old cars 2006 and 2008.

[ChickenSandwich 9,848]

20 minutes ago, Pokoloco said:

Chase and Wells Fargo don't do HELOC's apparently. I bank with both. any recommendations?

Local credit union?

[UTPhil2006 3,809]

10 minutes ago, ChickenSandwich said:

Local credit union?

This. I’ve got a line out now to see if there’s a good referral fo

[Firemans4Horn 18,118]

Thanks for the info; sorry to hear about your son’s issues. 
 

I’d take the $49k 401k loan and put it directly towards the credit card principal. Then I’d try and roll the remaining $40k credit card debt to a low interest credit card. The interest rate on the 401k loan will be a lot lower than the current CC interest rate. 
 

If your wife could go from $7k a year to $20-30k a year that would give you more breathing room on paying down the debt. Even if it’s only for 2 years. 

[Incredulity 11,681]

50 minutes ago, Pokoloco said:

Yeah, we kept throwing money at my son from College days to drug lawyers, to DUI lawyers... he's 30 now and will be a guest of the state of Oklahoma for a while.

So sorry to hear that.  Fuck, what a nightmare.  

 

[DalTxHornFan 3,114]

56 minutes ago, Pokoloco said:

Yeah, we kept throwing money at my son from College days to drug lawyers, to DUI lawyers... he's 30 now and will be a guest of the state of Oklahoma for a while.

I had a cousin who went down that path.  His Momma was always glad when he was incarcerated.  She could sleep well at night not worrying about him getting into more trouble!  The family had to cut him loose financially regarding bail or lawyers after a couple of trips to Huntsville.

[Pokoloco 1,281]

13 minutes ago, DalTxHornFan said:

I had a cousin who went down that path.  His Momma was always glad when he was incarcerated.  She could sleep well at night not worrying about him getting into more trouble!  The family had to cut him loose financially regarding bail or lawyers after a couple of trips to Huntsville.

He's hitting us up for commissary now. Also phone calls aren't free.  

[Pokoloco 1,281]

48 minutes ago, Firemans4Horn said:

Thanks for the info; sorry to hear about your son’s issues. 
 

I’d take the $49k 401k loan and put it directly towards the credit card principal. Then I’d try and roll the remaining $40k credit card debt to a low interest credit card. The interest rate on the 401k loan will be a lot lower than the current CC interest rate. 
 

If your wife could go from $7k a year to $20-30k a year that would give you more breathing room on paying down the debt. Even if it’s only for 2 years. 

Thank you, good advice here.

She hates her job now. No way is she going to get one with a $20-30K responsibility.  I spoiled here for too long. 

[Pokoloco 1,281]

51 minutes ago, UTPhil2006 said:

This. I’ve got a line out now to see if there’s a good referral fo

We're members at one here, going by there today. 👍

[Gil Bang 25,987]

1 hour ago, Pokoloco said:

only $49K

So borrow the 49k, and pay off credit cards in order from highest interest to lowest interest, until the 49k is gone.   That should help a ton with your monthly nut, freeing up funds to double down on the remaining cards. 

[Nice Guy Eddie 13,516]

16 minutes ago, Pokoloco said:

He's hitting us up for commissary now. Also phone calls aren't free.  

Not that you're asking but I had a nephew who would constantly hit up my mom (his grandma) for commissary money. I forced my mom to put him on a monthly allowance that was sent via jpay the same day each month. I didn't want my mom getting random calls for money. 

Sorry that you and your wife are going through this.

[Pokoloco 1,281]

38 minutes ago, Nice Guy Eddie said:

Not that you're asking but I had a nephew who would constantly hit up my mom (his grandma) for commissary money. I forced my mom to put him on a monthly allowance that was sent via jpay the same day each month. I didn't want my mom getting random calls for money. 

Sorry that you and your wife are going through this.

This is his first time in real prison, not sure what to expect.  We have 2 other kids, both solid citizens, never gave us trouble. He was our oldest and we missed the signs of mental illness all along. We would always say, ah, normal teenager- he'll out grow it etc..   oof.

[thunderlounge 7,904]

Biggest thing is to cut him off monetarily, immediately.

Sounds harsh, but pick your poison. 

[Nice Guy Eddie 13,516]

11 minutes ago, thunderlounge said:

Biggest thing is to cut him off monetarily, immediately.

Sounds harsh, but pick your poison. 

I understand this opinion and it's my first inclination in having a family member in prison but I've come to learn that prisons give very little to prisoners. You get soap, clothes and a toothbrush. You want toothpaste or deodorant you have to buy it at the commissary. At least in Texas.

[thunderlounge 7,904]

So add more debt, on top of the 90k?

 

[Pokoloco 1,281]

51 minutes ago, Nice Guy Eddie said:

I understand this opinion and it's my first inclination in having a family member in prison but I've come to learn that prisons give very little to prisoners. You get soap, clothes and a toothbrush. You want toothpaste or deodorant you have to buy it at the commissary. At least in Texas.

He had to buy a pillow and bowls, plates, etc.  Also, they hit you for 10% when you add anything to his account. Crazy.

22 minutes ago, thunderlounge said:

So add more debt, on top of the 90k?

 

Same debt, just restructured.

[JesusSweatDuck 17,795]

Not to pile on, but once you have a plan for the immediate financial problems you need to be prepared for when he gets out.  My brother basically bankrupted my dad multiple times because of his drug issues.  It took a couple decades for my father to cut him off and he paid the price greatly with his retirement (and me and my sibling's college funds).

 

HELOC seems like the easiest play here.  Whatever you do, get out from under that high interest debt.