I'm a newbie to this board and I must say I'm impressed with the quality of the questions and and answers.I'm looking for some alternative opinions about my plans. I hired an attorney to help guide me out of my mess. I always make better decisions after I listen to all sides of an issue. I would like some feedback other than my attorney's.In brief, I'm 34 years old with over $60K of CC debt. I didn't get there overnight. It took years of mismanagement, stress, floating checks, etc. to get there. I was running with deficit financing for a long time and didn't want to acknowldge it. I wasn't anything fancy either. A few car repairs, dinner here and there once in a while, lots of little things. It was mindless to do. I could make the monthly payments, what is a couple hundred more bucks a month gonna do? Besides, I had a flawless credit record and had never missed a payment in my life.Over the last three years things got tighter and tighter. Those monthly minimum payments increased until they were over $1000 a month. I found I didn't have enough left over to stock up the fridge and pantry for the month.The stress of paying my bills was killing me. I found my self having to pay the utilties as late as possible, because I had emptied out the account making a minimum cc payment.On New Years I decided to get off this crazy credit card machine no matter how much it hurt. I "woke up" in December when I saw that I could't even buy my wife a small x-mas gift without asking for a credit line increase, I decided it was time for a very fundemental change in the way I was running my life.So, I stopped making credit card payments. I balanced my budget, took that money I was paying, caught up my other bills, and started saving it.I've ruined my credit, but I'm sleeping at night now. Ironically I much happier now knowing that no one will give me credit anymore.You might ask, "If you were able to make payments", why can't you now?" (This is what the CC companies are asking me). Simple. I wasn't able to before. I haven't for a long time. I was borrowing to pay debts (not directly).I don't live an extravagent lifestyle. I drive a 10 year old car with 120K in it. I rent way below market value. I haven't had a vacation in 5 years. I work two jobs, 15 hours a day, 7 days a week. I rarely eat out. I simply don't make enough money to support my debt load.The only thing that has me worried is my 401K. I managed to save up over $250K to date, mainly through employee matching and some real lucky investments in this bull market. I refuse to touch that nest for 30 more years because no matter how bad things are now, blowing my retirement fund will only make things worse. Since that is my only assest, I'm concerned that I will lose some of it. That is why I hired a lawyer.My lawyer thinks I should file chapter 7, save up as much cash as I can for the next 10 years, then buy a house with a small mortgage. At this point, I'm inclinded to agree.So.... am I insane for going AWOL? I never want a loan again. ever.Any thoughts? Counterpoints?
Read today's (98/05/27) Fribble about bankruptcy. As I am listening to adive from various sources I also step into their shoes and ask, "What's in it for me?" In the case of your attorney you'll find that his advice is bias by his fee to file a chapter 7 bankruptcy. This bias isn't saying chap 7 may not be best, but it is saying he has a vested interest in your decision. A book you definitely want to read is "How to get out of debt, stay out of debt, and live prosperously -- Jerold Mundis" (hopefully I spelled his name right). This book should be available at a library as well as a book store. If you try to pay them off, and not use an attorney, or go bankrupt, I'm not sure how nasty the creditor(s) can get at coming after your 401(k). Any bankruptcy attorneys out there who can say how to protect the assets, not go bankrupt, and still pay everyone off?~~paul
If you have $250k in your 401k at 34 years of age, you have more than enough to borrow $60k, pay YOURSELF back over a 5 year period at significantly lower interest (presuming your plan permits it, which most do), end up debt free, save a bundle on interest, and preserve your retirement. Without intending to preach to you specifically, and since you asked, I think declaring BK on $60k of debt with $250k in a 401k is irresponsible. I'm a lawyer also, and would never counsel anyone to take that way out given the options you have to suck it up and pay your debts. I am about 3 years into paying off my own STUPID, STUPID $60k in irresponsible debt (its only down to $45k, but I'll get there), but it was my own fault and I'll pay every last penny of it. If you do the same, you'll be able to face anything life throws at you knowing that you don't duck your problems.I really didn't mean to be holier than thou here; you actually DO have a legitimate way out. Good luck.
<<If you have $250k in your 401k at 34 years of age, you have more than enough to borrow $60k, pay YOURSELF back over a 5 year period at significantly lower interest (presuming your plan permits it, which most do), end up debt free, save a bundle on interest, and preserve your retirement.>>I have to agree with jpg on this one. When I read your post, I asked the same thing. Why not just borrow from the 401K? Have you looked into this? Perhaps you weren't aware that this was an option?Good luck!Tony...but I still am...Off2Aruba
Hiring a lawyer and filing bankruptcy seems like the best idea in this situation.Creditors generally cannot go after retirement plans. 401Ks are protected under federal statutes and IRA s under state laws. OJ is living off his retirement distributions. Also I've worked very hard paying off every penny. My advice to everyone is DO NOT DEAL with collectors. Deal with the original companies. By and large they are dishonest and bend every law.
Paying it off is the honorable thing. it does take disipline and control.
Cable,Well I would have to agree with jpg and Tony on this and I'll add a few other comments...First at 34 with 250k in a 401K is awesome!!! Actully in a little bit of awe to tell you the truth. I am 30 and only have about 40-45k in mine, which I thought was pretty good. Anyways you really need to looking into takeing a loan on it from your 401k. Normally its not an ideal situation even if its not for the full 60k just enuff to get youback on track with all your bills & creditors and living within your means again. The big risk is your job security, If you dont feel you have it you might want to think twice. If you left or were fired/laid off you would have to make a huge ballon payment to cover the loan or it would be considered as an early withdrawl-and subject to the 10% penalty and tax. - Just one word of caution but I think that the 401k loan is a much better option than Chapter 7 any day.Personally... I think your laywer is only out to help himself at your expense. Taking this route will maximize his fees to you. Granted they he/she might not be able to collect - that is to be seen and how u have arranged to pay him/her. But this is at a much greater expense to you than just his fee. Sumthing that will cost you a long time to come. See todays Fribble too. Point being is he/she may not completely represent "Your* best intrest.Also I would call your creditors and send them sumthing to show you want to pay and are working to get back on track. Re-establishing a bad spell in your credit history is much easier than a bankrupcy any day. I understand your plight and sympathize with you. I was near the same amount of debt level you are at too and woke up about the same time you had. I didnt ruin my credit record but have scared my credit history - 3 late payments. I am Still not sure all the consequenses of that but it doesnt sound to bad.The last point is Chapter 7 might be too easy a way out. In that you might end up in another similar position again and again unless you stuggle your way out of it some how and do it yourself. There is alot of learning that I have done in the past 6 months now. I have to say I am a completly different person (so is my wife). It doesnt come over nite but the commitment is there to do it without taking the easy route. I will atest to you, it hasnt always been easy.I wish you the best of luck and there are ppl here Pulling for ya! Good LUCKBottlesRob
Cable666-You do not sound like a BK candidate for one reason--you were able to save the 250K in the good ol' 401k. For that reason, I believe you could take the loan, get rid of the debt, stay out, and pay yourself back, especially if you are only 30-something.By the way, I had a friend who filed BK. She had 10K less debt than you, no savings, and a low-pay job. Her friends spent weeks trying to get her to file, but her pride got in the way. Turns out she was drugged out, nearly on the street, and starving, literally, when she finally gave in.Thinking about her makes me feel bad when I remember my own contemplations of filing.Take the loan dude. Whatever gains you are getting in the 401K, you are paying now in CC interest.Good luck,MD2BE
Cable Triple Six: I have read and re-read you post. I get the feeling in reading between the lines that you really don't want to or plan on paying off the 60k. If you have no serious committment there then only one door is ajar. Best of luck, whatever you do.
I guess to summarize the vast majority of the responses you have received - do not file bankruptcy. This both surprises and pleases me to no end given the spirited debate on bankruptcy that we had on this board a couple weeks ago. Count me in the same camp as the majority of your responders.If I were in your shoes, the first thing that I would do would be to stop contributing to the 401K and apply this additional money to your credit card payments. Don't charge any new items to the cards (In God we trust. All others - CASH).A couple of other options/suggestions for you to consider:1. Does your wife work? A couple hundred a month in extra income can go a *long* way.2. Call the credit card companies and try to negotiate a low/no interest rate plan. Inform them of your level of debt and income; tell them that you have been speaking to a lawyer who recommended filing a Chapter 7, and tell them that if they can't agree to a favorable repayment plan that you will have your lawyer file. If they hear this, they may be more willing to negotiate. (Better for them to get something than have to write off the debt.)3. Take a hardship distribution from your 401k or part HD and part loan. I think you may owe tax and penalty, but it wouldn't completely wipe out your 401k.4. Whatever course of action you take - make sure you've learned your lesson! No sense in going through this every 5 to 10 years.Best of Luck,Mike
If your 401K is growing faster than your credit card debt, more power to you.If you do attempt to file bankruptcy, your creditors may make the case that you can take out a hardship loan against your 401K and thus aren't truly in a dire position enough to justify bankruptcy... as far as I know, the judge doesn't have to allow you to receive Chapter 7 status, and you may be compelled to pay back the credit cards anyway. (I'm not a lawyer so I don't understand all this stuff, so don't take it as legal advice, please).
Welcome C6cubed,I don't envy your choices. A few weeks ago there was a fairly long thread about BK and personal responsibility (and a healthy dose of CC company bashing). See this message thread:http://boards.fool.com/Registered/Message.asp?id=1040004000358000&sort=idPersonally, I believe that BK is a very important part of our social safety net. However, . . . .1) Just because BK is legal doesn't mean it's the right thing to do.2) As others have already suggested, take the 401(k) loan if you can. Watch out for job security issues and balloon payoff requirements and really double check that info on hardship withdrawals.3) In most states, 401(k) / IRA monies are usually untouchable by ordinary creditors and are usually protected inside BK proceedings too.4) IMHO: Because of the enormous cash value in your 401(k), you are not a sympathetic BK candidate.5) I think it is *excellent* and very foolish of you to seek out alternative opinions. Therefore, I suggest that you should probably also talk to a financial planner rather than an attorney for advice. An attorney would probably just suggest the BK. From his point of view, it will solve your legal problems, give closure to your case, and generate some fees for him.Good Luck & Fool On!- ChicagoBobBTW: chap. 7 cases are not really that profitable, unless they do BK cases almost exclusively. According to my attorney friend, the "average simple" chap. 7 in Chicago costs around $700 total (atty. fees, filing fees, and court time included).
Thanks for the great responses! I agree that my laywer is probably biased towards a chapter 7. That is why I am seeking other input.There are some very good ideas, most of which I've thought of before.My wife can't work because of medical conditions. She can't hold a job. I support a family of three on one paycheck.Most responses seem to think that $250K in retirement is a lot, which suprises me. I feel it is underfunded and should be well over $300K. When I run the numbers through a retirement calcuator, I'm will be able to squeek by retireing at 63. Taking a chunk of out of this will seriously harm my ability to retire some day, if at all. I am of the generation that will most likely not get any SS, or medicare, or pensions, or any other benefit. My 401K is all I've got so I take this deadly serious. I wouldn't touch that money even if I was looking at living on the street. That money is the only future I have. If I get disabled, that is the only thing that will save me.My contributions to my 401K are only 6% of my pre-tax income, so it is not that much money out of my pocket.I can't borrow against my 401K primaraly because there is a high risk that I may have to switch jobs within the next 5 years. That would trigger a call on the loan, which would then default, trigger a distribution with taxes and penalties, which would destroy my ability to retire.One responded noted that he feels that between the lines I don't intend to pay the CC debt. He is correct. I don't intend to because I can't see how to. I've painted myself into a corner and no matter what, I'm going to loose big time. I have to take actions that will protect my long term interest, even at the expense of short term interests.Keep in mind that I haven't made the decision to file yet. I still think the best solution is a comprimise between all ideas. I hope that perhaps I can get a small 401K loan (which is all I can afford), settle with the CC's at a discount with that money, and try to get on with my life (sort of a private chapter 13). It depends on how the CC's want to work with me. So far, they don't. They have hinted at settleing for less than the full amount, but then refuse to follow up with serious negotiations. I guess they wan't to see how far they can push me first. I don't blame them. I wouldn't settle until I exercised all of my options first.
>> Why not just borrow from the 401K? ----------------------One reason not to borrow from your current employer's 401(k) is that if you leave that employer, you will probably have to repay the entire balance immediately. If there are funds still in a 401(k) from a former employer it's another matter.
>> I wouldn't touch that money even if I was looking at living on the street. ------------------------Let's get this clear. You somehow think that even though you owe $60,000, you should not have to use your 401(k) money to pay it. So you want some kind of magic formula that will allow you to walk away from your debts?As others have said, having that much in the 401(k) will not make you a sympathetic candidate for bankruptcy. Both the creditors and the judge may argue that you should withdraw funds and pay the tax penalty.Expect some serious trouble from your creditors. How will your employer react when they attach your wages? Many employers leap at the first excuse to fire an employee who gets into that situation--it's a nuisance for them, and they figure that anyone who gets into that situation is unreliable, dishonest, or an addict (to gambling, cocaine, whatever).
<<If you have $250k in your 401k at 34 years of age, you have more than enough to borrow $60k,...>>You may have to look into this but the max I can borrow from my 401(k) plan is 50k. --Dave
The first thing you need to do is determine how much you can afford to put into reducing debt every month. Is it $800, $1200, $1500, etc?Once you determine that, divide it by 60. Call your creditors, tell them you've got a heap of debt and that your attorney is suggesting Chapter 7. Then tell them that you can pay X a month for every $1000 for the next 5 years. (X is your monthly allowance/60).If you can pay $1200-$1500/month, you're in good shape. You can then offer $20-$25/month per $1000 of debt for 5 years. That's a low interest rate, and most creditors will rather take that than your BK. I'm not sure many creditors would take less than $20.
I have to agree with jpg1 here. If you can do it yourself, do it yourself. Save your credit rating -- if it's really that bad, how does that lawyer expect you to get a mortgage?I have 2 ways I would likely go about taking care of this problem:1) If there is anything left of your credit rating, take advantage of it to get a low-rate CC and transfer as much of your highest-rate CC debt over to it as possible. This may not work as well with $60k in debt, but for Fools with less debt it might be an option. Or, as an alternative to this one, get back into gear making payments again, even if you can't always make the minimum. Just get it down as much as you can, and go to the issuing banks to beg for lower interest rates. If you're making payments, however minimal they may be, the banks may be more willing to cooperate than if you aren't making any at all.2) Like jpg1 said -- get a loan to consolidate those bills. Cut out dinners out and little things you can live without (or at least minimize the daylights out of them) and pay off as much as you can.GOOD LUCK! And keep us posted on your progress!KaitiJedi in orbit.PS -- If you or anyone else wants it, I do have a basic little Excel spreadsheet I cooked up some time ago to figure out approx. monthly payments and interest. It's not exact (I calculated interest monthly, whereas CCs do it daily), but it works well for a basic comparison. If you want a copy, just send me an e-mail (TMFJedi@aol.com) and I will be happy to send it to you. Or if you don't have Excel, just send me the needed info (starting balance, interest rate(s), and monthly payments) and I will cook something up for you.Also, some other people on this board have cooked up some other spreadsheets that they may be willing to share as well.
Cable666,First I congratulate you on atleast entertaining options or seeking options out where you dont see any. <<One responded noted that he feels that between the lines I don't intend to pay the CC debt. He is correct. I don't intend to because I can't see how to. >><<I'm will be able to squeek by retireing at 63. Taking a chunk of out of this will seriously harm my ability to retire some day, if at all. >>A few comments you have made have really bothered me. Namely the comment about not intending to pay you debt back. I had to go back to your original message to re-read it again that comment so bothered me...<<In brief, I'm 34 years old with over $60K of CC debt. I didn't get there overnight. It took years of mismanagement, stress, floating checks, etc. to get there. I was running with deficit financing for a long time and didn't want to acknowldge it. I wasn't anything fancy either. A few car repairs, dinner here and there once in a while, lots of little things. It was mindless to do. I could make the monthly payments, what is a couple hundred more bucks a month gonna do? Besides, I had a flawless credit record and had never missed a payment in my life>> (Original Post)You didnt get into that much debt overnite and your not gonna get out of it overnite. You have the means to repay that debt or atleast make it manageable to where you can restore regular payments via a loan from your 401K. It seems you just dont want to sacrifice your potential retirement. That to me is stunning.... We all get into debt for one reason or another. Its now time to pay for all of those Past Sins! Not to be to religious (which I am not very but the analogy applies). If be financially/fisically responsible means pushing back your retirement 2-3 years then that is just Pennance time for all those Past Sins. You have the ability to pay off your CCs in one fell swoop where as many dont. It will myself about 2 maybe 3 years if I am lucky to pay my debt off the hard way. You might just endup paying for that time when your in your 60s verus your 30s by doing this.Second, your not losing that money from your 401K if you take a loan against your. You pay yourself plus intrest (7-8% or so). What you do lose is compounding of that money at the Fund that it was in, which does sound good (15-20% or more). If you leave before full repayment its only the remaining balance which is considered to be a penalty if you couldnt repay it.Personally I think its time for you to pay for your Past sins... Or own up to them, which is sumthing I have heard you say. On the side note - I doubt the CC Companies will work with you. They will push for you to repay the debt in full. I wish you luck but I think its time you accept responsibility and make the necessary actions to resolve it. the option you outlined sounds like a good start but I would barrow enuff to allow myself to get back on my feet and live within my means. That is reducing the min payments enuff on the card(s) that I can pay off the remaining debt and live. Not necessarily the entire 60K of debt financed through a 401K loan - just enuff to live and pay off the cards completely. I dont know how much that would be... But if it means staying the job for another few years... *Past Sins... *Good Luck and please post what you actully did.RobBottles
<<I can't borrow against my 401K primaraly because there is a high risk that I may have to switch jobs within the next 5 years. That would trigger a call on the loan, which would then default, trigger a distribution with taxes and penalties, which would destroy my ability to retire. One responded noted that he feels that between the lines I don't intend to pay the CC debt. He is correct. I don't intend to because I can't see how to. I've painted myself into a corner and no matter what, I'm going to loose big time. I have to take actions that will protect my long term interest, even at the expense of short term interests.>>How about this: take out a smaller loan to pay off part of the debt (since I don't know the full details of your situation, I am assuming you have multiple cards at various rates of interest). Perhaps just enough to pay off one of the higher interest cards, or perhaps one with a lower overall balance, or maybe all of a smaller one and part of a bigger one. This serves a few purposes: 1) reduces the loan strain on your 401(k) to a more managable level; 2) hope vs. despair -- it's amazing what that little glimmer of light at the end of the tunnel will do for you. 3) It's that much less debt to accumulate interest, allowing you to concentrate on getting rid of other debts. Your situation is NOT hopeless. Lots of people have found themselves in similar doggie doo to yours, and have gotten out. Sure, it's tough (like boot camp), and sure it's tight for a while. But you are only 34. Think of what you can do with that 401(k) when you're not buried by debt. And think of what an ego boost paying off all those cards will be in the end. Lots of people here can testify to that one.You can do it!Good Luck!Kaiti
>If you can do it yourself, do it yourself. Save your >credit rating -- if> it's really that bad, how does that lawyer expect you >to get a mortgage?I asked him that question. He said if you give a mortage company a 50% down payment, wait 5 years past filing, and don't do any more damage, it will be no problem.
Cable666 wrote: (edited)First off, I am really impressed with your nest egg, an admirable amount for a 34 year old.However, I am somewhat baffled by your reluctance to dip into it. I slapped together a little spreadsheet in Excel, and plugging in the numbers, (190K now (250K minus the 60K of debt) using a conservative 10% annual return, and contributing 2K a year, you still end up with over 3 Million dollars. Not exactly scaping by, in my book.Michael
"First off, I am really impressed with your nest egg, an admirable amount for a 34 year old. However, I am somewhat baffled by your reluctance to dip into it. I slapped together a little spreadsheet in Excel, and plugging in the numbers, (190K now (250K minus the 60K of debt) using a conservative 10% annual return, and contributing 2K a year, you still end up with over 3 Million dollars. Not exactly scaping by, in my book"A couple of small flaws in your calculations.(1) I would have to withdraw about $100K to get $60K after taxes and penalties.(2) I compute my retirement assumptions with a lifetime average return on 8.5%, inflation at 4.5%, and the money having to last until age 98. Using these numbers, $3Mil only last 10-15 years in future dollars.
If you have a financial emergency is there still the penalty for withdrawing from the 401K ? I ask this because I have an IRA (my only source for retirement so far) and at first I was putting in small amounts each month because I felt I could never touch it. But then my Dad told me that wasn't true, he ran out of money one time and went to the bank, told them, and withdrew his IRA money with no penalty. It wasn't for a house or medical expenses, or anything else that the law says you can withdraw for. He just plain ran out of money.Now I'm paying my debts off first, then putting money in for retirement.It sounds like you don't want to deal with this problem, it might be helpful to get your wife, a relative or a friend to sit down and just make a game plan for you and you follow it if it is bothering you emotionally this much. We are not the sum of our retirement fund, or our debt; money is just money.funkychair"This is not Armageddon."
<<First off, I am really impressed with your nest egg, an admirable amount for a 34 year old. However, I am somewhat baffled by your reluctance to dip into it. I slapped together a little spreadsheet in Excel, and plugging in the numbers, (190K now (250K minus the 60K of debt) using a conservative 10% annual return, and contributing 2K a year, you still end up with over 3 Million dollars. Not exactly scaping by, in my book.>>And, it sounds to me like that didn't even take into account the fact that he would get the $60k back in his 401(k) down the road! So while it may not be earning the 10% (or however much) for the next 5 years, after that you can add it back in!Cable666, I wish I had your retirement problems. KaitiJedi in orbit.
<<A couple of small flaws in your calculations. (1) I would have to withdraw about $100K to get $60K after taxes and penalties. (2) I compute my retirement assumptions with a lifetime average return on 8.5%, inflation at 4.5%, and the money having to last until age 98. Using these numbers, $3Mil only last 10-15 years in future dollars.>>Good points. Although there may be ways around #1 (or at least ways to minimize it) -- perhaps someone else knows of something here -- and if you can do better than 8.5% average return (which is certainly possible!), then that 10-15 years can be extended quite nicely.Also, you're not LOSING the money, be it $100k or $60k or whatever k -- what has been suggested here is essentially a loan to yourself, as I understand it. Granted I am no expert, but that money isn't really saying "good-bye" from your 401(k), it's taking a vacation and will return to continue earning in the future.But like I said, I am no expert -- if there are flaws in my reasoning here, please feel free to let me know. But it just seems a shame to me to take the easy way out when there are so many other, more honorable options available.Whatever you do, best of luck to ya!KaitiJedi in orbit.
Cable, you certainly sparked a lively discussion on this board, which is great. I am amazed at how anyone, especially your age, can rack up 60k in credit card debt. I have a son a bit younger than you who I thought was a champ at CC usage. His problem is his expensive toys which he must have today not later (difference between a man and a boy is the cost of his toys). I don't mean to get personal or nosy (Oh hell. Yes I do!) But I am interested in how a person manages to accumulate 60k in high interest CC debt. You mentioned a car repair here, a dinner or two there, but I would think it would take some serious efforts to accumulate that much in CC debt. I thought it might be instructive for those on this board to know how you did it and now in looking back what the pitfalls were. I imagine a major factor is the easy access to unsecured debt, plus moonshot interest rates.There isn't a week that goes by without having my mailbox spammed with credit card company solicitations--all now platinum. Junk the gold. We had my mother-in-law staying with us on an extended visit. While here I set up a bank account for her at my bank so she could take care of her monthly obligations. The account came with a credit card. She had never had one before (a real rarity). She is 68. An emphesema patient with not too long to go. And a social security recipient for her sole source of income. Recently she moved again to live with another daughter going to Nevada for the better quality air which is beneficial to her illness. Bank account was closed. Credit card which she used several times at local stores on a monthly payoff is cancelled. And she is receiving an average of one CC soliciation a week by mail with unsecured credit of $5,000 to $8,000 per card offered.So thought it would be instructive, in your case, to know the history of the accumulation of your deft as an example of how-not-to-get-into-such-a-fix (without getting too personal about it). Has anyone else on this board managed to accumulate such a debt load, and if so, what was your wiggle-out strategy. Imagine you are overdosed on suggestions by now Cable. But it presents a very interesting case history on the problems of credit cards and easy debt. Best of luck to you!
Usually I am sympathetic with fellow Fools, but I can't be this time. Yours is an example of why there is proposed changes in the bankrupcy system.Here are the facts as I have read them.34 years old, $250,000 in 401K, $60,000 in CC debt, desire to retire at 63 years, your calculations assume 8.5% return and 4.5% inflationYou say you got here through daily expenses. Well, you either ran up the cards over a long time or lived way above you means. You are an intelligent person (systems programmer). You should have realized what was happening a long time ago, say $30000 ago.It appears through several of your posts that all you care about is retirement. You have built the current nest egg by ignoring your daily obligations. Then you say you are actually underfunding it and barely squeek by at 63. Why choose such a low average return of 8.5% ? You state you had great returns in the past, yet are pessimistic about the future. If you take the $250,000 and not anything else, when you are 63, it will be worth $1.0 million in todays money at 10% return and $1.8 million in todays money at 12% return assuming 4.5% inflation. I know quite a few Fools who could easily retire on that.It also appears by reading between the lines that retirement is so important that after you declare bankrupcy, you will continue adding to the 401K because you think what you have in it is inadequete. By the numbers above, you already have enough. No one promised that retirement meant having a house at the beach and mountains and belonging to the local country club.Many Fools like myself live within our means by sacrificing some of the luxuries in life. We carry our lunch to work, eat at home, go to garage sales, and skip alot of entertainment. When my second daughter was born, I reduced my retirement savings knowing full well that meant working a little longer.You have nickel and dimes yourself to death with your CC's. You amassed a good sum for retirement along the way. You have consciously decided that retirement savings is more important than daily obligations. Now you want a get out of jail free card. Maybe it is time to pay your dues and spent some time in the credit card jail and rehabilitate yourself.To my fellow Fools, I appologize now for being so hard on someone here. I know it is proper to attack the messege and not the messenger. But sometimes there is a need for tough love.
Now I will be more civil.For fellow Fools to help you, we need some more information. I agree with DonRay that we need to know how you spent your way into this situation. Also how much can you divert from 401K monthly savings to credit card debt? You said it was small but not how much. I would assume you have a good income as a systems programmer due to the demand for programmers. Where is this income going? It doesn't appear to be car payments. What is the size of the apartment and can you get a smaller one?Give out any important facts that you feel comfortable giving in a public forum.
>> There isn't a week that goes by without having my mailbox spammed with credit card company solicitations--all now platinum. -------------Hey, last week I received an offer for a Titanium Card! When those were mentioned on this board, I thought it was a joke.I'm holding out for the Plutonium Card.
Whatever your interest rates are, don't forget that much of this 60K is from compounding finance charges. Say that you do nothing (let's hope not!) to this 60K in the next year, at a 10% APR- that's $6000 in interest charges!!! $500 of your hard-earned money EVERY month goes to just the interest. At a higher 18% APR, that's almost $11,000 a year or $900 a month in interest charges. So this 60K is only going to increase with time...
This is very good thread The consensus so far is that I am sufficiently funded retirement wise to stop contributions, and to even take a large chunk from my nest egg. I'm sure a lot of people are in a similar situation: Do I fund my retirement? Or do I pay down debt? Perhaps we should move this thread to the retirement board?My assumptions about retirement funding are being faulted as flawed, selfish, and irresponsible. Perhaps they are. In my defense, I would like to explain my reasoning:(1) Contributions to 401K:I only contribute to my 401K to the point of matching funds. In my case, 6% of gross pay. In 1997 that was $3827. I've participated in retirement board for a long time, and the consensus there is always contribute to your 401K to the point of no match first before paying debts. It is very "unfoolish" to walk away from free money.(2) My "large" current balance:My nest egg only got to $250K because I started early, invested in high-risk funds, and got lucky. The "success" is due to a small number of very sucessful stock. The same factors that gave me success on paper can just as easliy turn around and bit me. I anticipate that my portfolio will make a few major corrections over the next 60 years. I only happen to be "up" today. Tomorrow my portfolio could be down 30% or more.(2) My retirement model assumptions:I agree that my numbers seem too conservative, but I stand by them. I reached these numbers after building a very complex retirement model that I felt realistically reflected my plans and assumptions. The retirement calculators I tried were too simple, so I built my own.After three years of fine tuning and experiments, I came to the following conclusions:(A) It is not how much you contribute that makes or breaks you, it is two other factors, when you start, and the rate of return on your investments. A small and regular contribution started early enough and in the right investments will beat anything you start in your 40's, no matter how much money you throw at it.(B) Inflation in the later years of retirement takes a huge toll on your nest egg. Even very moderate inflation will wipe you out given enough time.That is why I started early, invested high risk, and assume I need a nest egg of at leat $3mill the day I retire.In my defense, my model does not plan for a beach home, country club retirement. Far from it. I assume that I will need 70% of my pre-retirement income, most of which will gradually be spent on medical care. According to discussions on the retirement board, this is a prudent number.(3) Investment Rate Of Return:I project that my average rate of return on my investments gradually drops from 12% today to a low of 6% at age 80 as my portfolio shifts from high risk to low-risk over my life time. My model adjusts the returns every 5 years to reflect the shift to conservative investments designed to preserve principal.(4) Inflation:I assume an inflation factor of 4.5% over my lifetime. Again, this is based on discussions from the retirement board. I think it is a prudent number.(5) Social Security/Medicare:I assume that I will not get anything from SS or medicare. I think that by the time I get the age when I can ask for benefits, I will be means tested down to a token amount of money. I assume there will be no medicare.(5)Cost of living:Because I assume I will not have any medical insurance help (medicare), any savings from no mortgage will be eaten up by increased medical expenses. My model starts my retirement income at 70% of my last annual wage, and then keeps pace with inflation. Most retirement calculators do not do this.(6)Salary:My model assumes a modest 3% annual increase in income between now and the day I retire. This is below my model's inflation rate and so far has right on.(7)Lifespan.My model assumes that I will need to fund myself and my wife (same age) to age 99. Most of our families live well into their 90's. I do not plan to leave a nest egg, unless I die early.(8) Future dollarsKeep in mind that 1 million dollars in 2040 will not buy you very much. Yea, you could retire very, very well on a million today. Try it in 2040 and make it last 20 years.So do any of these factors seem out of line to you?Beyond the factors of my retirement calculator, I have more personal and deep rooted reasons for refusing to tap my nest egg. The reason is my deepest fear of not being in command of my destiny when I reach my 60's. I base this fear on seeing what is happening to family and friends that are reaching that age without preparing themselves financially. I don't know any retired people that retired on their terms.I'll give you specific examples.My mother is approaching 60, has only $20K in her 401K, and is dumping 15% of her salary into it. When my father died of cancer 4 years ago, she was left with nothing. No life insurance, no estate, no nest egg. They had spent all of their money paying off credit cards. Now she is working herself to death trying to catch up. She feels she has to work twice a hard as everyone else in her office because of her age. She feels that as an older worker, the company would love to replace her with a cheaper, younger person. She does good work, but the pace and the pressure is making her ill. It breaks my heart to see her pushing herself to exaustion every day.A friend of mine is a 57 year old pilot with a major airline. He hurt his back in a car accident 10 years ago and finds it difficult to work with out a lot of back pain. He can't quit because he is not vested in his pension plan for 5 more years. He is not in control, his pension rules are.My best friend's father retired after working 30 years for the same company with a nice retirement pension. In the 80's, KK&R(??) bought out the company, looted the pension fund, and delared bankruptcy. He lost his retirement income for years, had to sue, and ended up with 50 cents on the dollar. He is not living the retirement he planned.My ex-girlfriend's mother is a 73 year old real-estate agent. Not because she wants to be, but because she has to work to pay the mortgage. She spent her years paying for cars, credit cards, college, etc. She works her self to death, even though her health is poor. It is sad to watch. She despertly wants to retire, but she can't.My greatest fear is not having the security of working as much or as little as I want at a point in my life when I am least able to do anything about it. There are too many things that can derail the best layed plans. I don't want to be beholden to any person, pension, company, or goverment agency just to keep a roof over my head or to see a doctor when I need to. If I get hurt and can no longer work, I want to know I have an option.
Concerning the requests for details, and how I get in the jam I'm in.I have to catch a flight to Miami for a business trip. I'll get back next week, compose it, and post it as a new thread called "Crazy machine - part II". Check for it after June 4th.This has been very informative. I have a lot to think about while I'm gone. Thanks!
As more food for thought on what an adaquately funded retirement looks like see today's workshop http://www.fool.com/Workshop/1998/Workshop980528.htm.~~paul
<<I asked him that question. He said if you give a mortage company a 50% down payment, wait 5 years past filing, and don't do any more damage, it will be no problem.>>And if you can make a 100% down payment, you don't have to worry about getting a mortgage.Bottom line, at some point you have to pay the piper. BK is legal, and easy for us lawyers to recommend as an easy solution, but it just doesn't seem right when you have $250k sitting in an account. Sorry, just my opinion.
<<Hey, last week I received an offer for a Titanium Card! When those were mentioned on this board, I thought it was a joke.I'm holding out for the Plutonium Card.>>Do I see a Kryptonite card on the horizon?
The common threads here seem to be poor planning( which you are trying to illustrate ) but also poor debt management. The debts are what prohibited most of these people from realizing their dreams. You are looking forward with a fine understanding of compounding in your favor. Realize that compounding is also working against you as you are paying big bucks to rent other people's money. Clear the debt and you will be able to secure your future.Sam4d
I also thought titanium was a joke.Now my feelings are hurt.Offering me just platimunPlutonium would be real class.
I can't carry a Krytonite one, they make me feel weak all over.Sam4d
Cable,<<My assumptions about retirement funding are being faulted as flawed, selfish, and irresponsible. Perhaps they are. In my defense, I would like to explain my reasoning:>>Your points are all valid and well. In fact I look at taping my retirement fund as an Absolute Last resort. In your case from the picture you painted... You are there. I avoided it since my wife was able to get a job with little/no benefits and 2x the pay. She is a software contractor versus a direct hire. The money that is spent on benefits comes to you in the form of cash. That has made it possible for us to do alot of debt reduction. Had sumthing like that avenue been available to you I think most people would be steering you that way. Since it isnt and no viable option other than dipping into your retirement funds... I would pick every other means available to pay that debt back at the terms already agreed too over going to CCC or Bankruptcy. Since This appears to be your only real viable option before either of the latter Hitting the 401Ks would be it. Plus its not like your losing it. Only a few percentage points on the return if its a loan. After about 5 years its back plus more and making the higher return (Hopefully as you point out) Plus moving the 60K atleast protects some of you investment from Market flucuations since it wont be in the market.There is an intersting trade that would be hard to do perhaps... You might want to try it... The trade off is:1. Assume you declare bankruptcy and try to calulate all the costs that means... Higher interst costs, lawyer fees, anything... perhaps a job. Who knows. Talk to ppl that have declared CHpt 7 and ask them what has happened and the costs both emotionally and financially. Factor as much as you can... - Versus - 2. Assume you took the full 60K loan (if you can or the max you can) from you 401K and calculate the lost income in your retirement years if only that 60K earned 8% or whatever your employer charges you for the loan over the 5 year life or so of the loan. You can also see the difference of your assumed retirement nest egg w/o the loan and w/ the loan. I think you might be surprised. Personally for me, I would never have to do such a trade. I believe in owning up to my debts w/o any help. In your case if it means I have to throw more money in you 401K plan for those 5 years to make up the loss to your orginal (if your that bent on sticking to that plan that regimently) retirement plan then so be it. Or do the best you can. With you income around 63K or so a year you do have the means to do both. Granted you living off a family of 3. One other note. Your little one, How are you paying for his education? Are you as determined that he/she get some help through college as you are about ensuring that by the age 58 or 61 (forget that age u mentioned) have 3 mil in the back and kick back and enjoy life??? While what you state about retirement is true and many ppl dont plan enuff in advance. You have a great leg on many ppl it should and cannot be your only financial focus as it appears now. Also Why put yourself through 10 years of pain versus 5 years??? Do you enjoy torture? Enoy your trip and Good luckBottlesRob
This seems like such a no-brainer that I keep coming back to the same thought...I truly believe that Cable666 knows what he is doing is wrong but is hoping that someone posts a message on here that justifies his walking away from his debts. Not one person has bought into his theory but give him credit, he is arguing his point till he's blue in the face. If one person agrees with his thinking, then it almost qualifies as "permission."I currently owe $20k on CC debt and never even considered bankruptcy. I got myself into my own mess and unless I work to pay it off, I couldn't look at myself in the mirror everyday. No wonder my interest rates are in the 20's, I am stuck making up for lost $$ by people who run up their cards with more than the occasional dinner and impulse purchase.The kicker is the $250k in the 401k. I am not at all familiar with the loan system and how they affect retirement funds but it seems fairly simple to me...if I have more than I owe available to me, then pay off the debts. They are yours, not mine.I apologize if I am out of line but CC debt has been a sensitive issue lately. I spoiled myself to get this far in debt. I am "paying the price" right now for my actions over the last ten years. To see someone charge 3 times more than I did and simply ignore their mistakes seems a little more than irresponsible and selfish to me.Rich
Rich,I can't Agree more with you! 100%. I dont think your out of line at all. I think you said what I have been trying to say so much more succiently Than I could.I dont think anyone would learn from past mistakes if they can simply walk away from them... Alot of us here are paying for out Past Sins.... With the acceptance that we have to pay for them! ThanksRob Bottles
Exactly......but for those of us who pay for those past sins, we learn from the experience....and will doubtful be repeat offenders.Those who just walk away from them did not have to suffer through the lean times neccesitated by having to scrimp, budget and save to repay the debts THEY created, and are more likely to be repeat offenders, because they can take the easy way out again.v/rMichael
<< I can't carry a Krytonite one, they make me feel weak all over. >>So you'll just have a blast with the Plutonium one? <G>
<<Hey, last week I received an offer for a Titanium Card! When those were mentioned on this board, I thought it was a joke.I'm holding out for the Plutonium Card.>>Do I see a Kryptonite card on the horizon?I'm waiting for a Dilithium card. Hopefully with a picture of the Enterprise on the face and a button to fire a phaser on it...Rogue31
Just my two cents. Cable66 is a guy making around $63,000.00 a year. Even supporting a family of three, this is good money. We are not talking about a college student here, with no current income who racked up $ 60,000 worth of debt, but a thirty-four year old with an income a lot of people aspire to. I'm not saying that he's Rockefeller here, but he's obviously well-trained, well-educated, intelligent (in matters other than debt management) and will probably always be able to get a job. It's not like he's working construction which tends to be cyclical in nature. Although I'm a lawyer, I don't do bankruptcy law, but I have a feeling that his creditors and the bankruptcy court are not going to make it easy for Cable66 to walk away from this. He hasn't got much of a defense. The bankruptcy court hears sob stories everyday, and trust me, his situation is rosy compared to some of the folks that file; some have had ex-spouses run up the debts out of spite, etc. I agree with others on this board that Cable66 wants to file bankruptcy and wants someone here to give him permission. Which ever way he goes, it's going to be a tough row to hoe.
<<<-<<Hey, last week I received an offer for a Titanium Card! When those were mentioned on this board, I thought it was a joke. I'm holding out for the Plutonium Card.>> Do I see a Kryptonite card on the horizon? I'm waiting for a Dilithium card. Hopefully with a picture of the Enterprise on the face and a button to fire a phaser on it...>>>ACK!!! think we're giving the CC Companies WAY to many Great Marketing Ideas. No matter how Humorous they may seem (or intended for), I can see someone taking it and running with itBottlesRob
This post got me thinking about what it I had put my money into retirement. Well, it's not too late. I have become very disciplined with my money and so in 2 and 1/2 years I will be debt free. So I went to the retirement calculator and looked to see if I always invest the money each year, that I am now currently paying on debts, how rich will I be? Well it looks like at age 46 I would ba a millionaire. Check it out. http://www.fool.com/retcalcs/ret2.html
To get to the million point so quickly I did not count in for new cars, houses, clothes, or children, so as unrealistic as it may be, I am very excited that I can have control over my money. I also assumed all stocks that I will invest in will increase at 11%.
Isn't it grand? I too am excited about my ability to accumulate adequate funds for a comfortable retirement. I even built a spread sheet that I could run what-if scenarios, inputting present value, yearly contribution, and anticipated return. It is amazing how quickly monies accumulate. The power of compounding at it's finest.Incidentally, if you look at some funds and stocks historical performances, 11% is a rather conservative amount. Since the inception of the S&P 500, in 1972, it has returned 14.3% annualized. I am currently invested in an index fund that mirrors the S&P, and it has returned an annualized 18.73% for the last 10 years...Plug that figure into a calculator and watch the numbers climb!!!v/rMichael
<<Do I fund my retirement? Or do I pay down debt? Perhaps we should move this thread to the retirement board?>>Please do post in the retirement board. It is always Foolish to seek more advice and you have a different set of experts to answer your questions.<<(1) Contributions to 401K: I only contribute to my 401K to the point of matching funds. In my case, 6% of gross pay. In 1997 that was $3827. I've participated in retirement board for a long time, and the consensus there is always contribute to your 401K to the point of no match first before paying debts. It is very "unfoolish" to walk away from free money.>>Your contribution means you have a salary of approximately $63,000. You will find many Fools in here paying off their debts while funding their retirement at that salary or lower. There was a whole discussion about people earning $40,000 being able to fund a Roth IRA.Also, I think you have misunderstood the consensus. The consensus would be to contribute to your 401K to the point of no match first before paying EXTRA to your debt. I don't think Fools would say to ignore your debt to fund your 401K.<<(8) Future dollars Keep in mind that 1 million dollars in 2040 will not buy you very much. Yea, you could retire very, very well on a million today. Try it in 2040 and make it last 20 years.>>If you reread my calculations, you will see that I stated my numbers in today's dollars. I never said 1 million dollars in 2040. In 29 years, your $250,000 should be $6.7 million future ($1.8 million today) at 12% return and $4.0 million future ($1.0 million today) at 10% return. Inflation rate = 4.5%.I understand your deep fear of coming up short in retirement because of past family experiences. I would say that all Fools have that fear. But you cannot let this fear make your investments one dimensional and forget your other obligations. I suggest more reading of financial guides to help you see the whole picture. If you cannot overcome this fear, I suggest that you seek out a fee-only financial planner to help make unemotional decisions. If you declare bankrupcy and do not overcome this fear, my fear is that you will fall into the same trap in the future.Good luck!
Rich (Punchy19),I don't think you are out of line. I loved your response.Fool on!
I'm waiting for a Dilithium card. Hopefully with a picture of the Enterprise on the face and a button to fire a phaser on it...If you call for an increase in your limit they'll say;"We canna doe it capitan. She's a givin ya all she's got now!!!"
Since you asked: First off I am not a lawyer, nor do I play one on TV.Here are my thoughts:I had to change jobs in my company and took a pay cut in the process. Belt tightening carried me through. I had about $20K in CC debt and a car payment to boot. I cut up all but one of my credit cards. I kept the one with the $500 limit. I got the debt reduced down to $10K. I had surgery, which turned out to me more complicated that it should have been and was laid off about a month later. I got a good severance package and continued to pay my cards down. But due to the layoff I was not able to make a significant dent in my CC debt. I paid about $5000 and reduced my debt about $2000. I still had $7000 in CC debt to pay off. I was again laid off. Then I got Appendicitis. I was out of work for about three months. I could not claim unemployment due to a medical inability to work.This led me to the Bankruptcy road. I had contacted my three CC lenders to work something out. They all said no, get the card current or face collection. Up until the layoff I had excellent credit.My biggest difficulty was trying to work something out with the creditors. I finally gave up and simply quit paying the CC bills. I did not file bankruptcy.If you talk to a lawyer about filing bankruptcy and he says how easy it is, run!!! Stay away from the yahoo's that advertise easy bankruptcy on the TV.I talked to a lawyer that recommended against filing bankruptcy. He also referred me to a book by Benjamin F. Dover. The title is “Back Off.” The book takes the position that since I (you) ran up the debt I (you) need to pay the bills. The book also recognizes that we are human and we do make mistakes. The book provides some guidelines on how to recover from those mistakes. Nolo Press also has a good book out on bankruptcy. I mention these books because they take some of the mystery out of the Lender System as well as the bankruptcy system. If you have to make a decision, at least be informed about what the consequences of your actions will be.There is always Consumer Credit counseling. But be careful, the credit card companies (lenders) fund them and their alliance is with the lenders. If you drop out of their program, they will in all likelihood pass the information they got from you onto the credit card companies.I would see you being hard press to get a judge to accept your petition for bankruptcy of $60K when you have an IRA of $250K. Lenders are getting tired of bankruptcies and are starting to dig a lot further into a person's assets before giving the big BR okay. OTOH, there are so many bankruptcies that it is very difficult for the lenders to dig very far. If you do file bankruptcy, they may come after your IRA. Whether they get it or not, is the judges discretion. And whatever you do, NEVER, NEVER lie in court.Also keep in mind that some employers do run credit reports.I did take a loan out against my saving plan (not sure if it is 401(k) or not) and I have been allowed to pay it back even though I am no longer employed at that company. Talk to you plan specialist. There maybe something they can do for you.Unless you can afford a bill consolidation loan, I totally disagree with taking out another commercial loan to pay credit card debt. You're only putting off the inevitable.The Dover book also tells you how to work with creditors in repaying the debts.You position is different than mine. I had sold most of my assets and all but completely wiped out my savings accounts when I hit “credit bottom.” Good luck.
I may be wrong, but seems I saw somewhere that if you paid the creditor something, even just five or ten bucks a month, they were precluded from any collection actions. Maybe someone else knows if this strategy is valid. It doesn't get you out from under and the interest will be eating you alive, but if so it would give some breathing room until you were re-employed and able to get squared away.
<<>If you can do it yourself, do it yourself. Save your >credit rating -- if> it's really that bad, how does that lawyer expect you >to get a mortgage?I asked him that question. He said if you give a mortage company a 50% down payment, wait 5 years past filing, and don't do any more damage, it will be no problem.>>It amazes me that your lawyer said this. Even in a low cost area, a decent house can cost $80,000. So, in five years after going bankrupt you would have $40,000 saved for a house? That's pretty difficult to do for most income levels, when you still have to pay rent, car payments, etc. Also, figure in closing costs too. Maybe it's "no problem" for a lawyer to come up with $40,000 or so cash, but for many of us, that's a lot of money.George
George:Unless you are a Trump or his ex-wife, 40 grand is a lot of money to anyone.
<<I may be wrong, but seems I saw somewhere that if you paid the creditor something, even just five or ten bucks a month, they were precluded from any collection actions.>>Don, This may keep the creditors at bay for a while, but as you know, the problem would still be mounting with the building of interest, and the hole would continue to get deeper.People need to at the very least, pay the minimum amount due on the card.Tony...but I still am...Off2Aruba
cable666 replys:<<I asked him that question. He said if you give a mortage company a 50% down payment, wait 5 years past filing, and don't do any more damage, it will be no problem.>>George (TMFRunkle) responds:<<It amazes me that your lawyer said this. Even in a low cost area, a decent house can cost $80,000. So, in five years after going bankrupt you would have $40,000 saved for a house? That's pretty difficult to do for most income levels, when you still have to pay rent, car payments, etc. Also, figure in closing costs too. Maybe it's "no problem" for a lawyer to come up with $40,000 or so cash, but for many of us, that's a lot of money.>>My response:George, you gave a good response to a thread I have followed and you gave me something to think about. If you look at cable666's profile, he is from CA. That $80,000 will only buy him a shack out there. So he may need more than $40,000 to be saved up after 5 years for the downpayment. If he can do this, my question is why does he want or need to declare bankrupcy in the first place.By the way, I bet $80,000 still buys a decent house in Pittsburgh. I grew up there.
PSUEngineerFool wrote:<So he may need more than $40,000 to be saved up after 5 years for the downpayment. If he can do this, my question is why does he want or need to declare bankrupcy in the first place.>He probably can do this (with BR). If you note in his first post, he was able to make $1K minimum payments to the CC companies. $1K per month invested at zero interest ends up at $60K. As to why he needs bankruptcy, the debate continues. I have a hard time trying to sympothize with someone that can generate that amount of free cash flow with one stroke of a judge's pen. No wonder the CC companies want means testing.Mike
DonRay Wrote:I may be wrong, but seems I saw somewhere that if you paid the creditor something, even just five or ten bucks a month, they were precluded from any collection actions.HiNrg Replies:That is incorrect. The creditor is in no way bound to accept anything less then the minimum payment.One is bound by a signed a contract that states a minimum payment of so much per month or a minimum payment calculated on the end of cycle balance, or some other method of calculation. Failure to make the minimum payment allows the lender to take legal action against the borrower. Actions taken maybe simply adding on late-fee, additional interest charges - and of course pursuing aggressive collection. But It is ultimately up to the lender to accept arrangements outside of the written contract.
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