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Hi. I'm hoping you can help me with CC debt. We make 100 G/year
and are in the 28%/32% tax bracket. Have been late with payment for AmEx a couple of times, once missed payment, but never have been delinquent or had collection agencies call us. Some of the tips I've read say to call the CC company, ask for reduced interest rate- would that apply in our situation? We are $55 000 in the hole. Would we benefit from using our 401K/403 b retirement funds to pay it off?

Thanks!
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How do i get out of this mess???.... Welcome paks!
First things to do (if you already haven't)not necessarily in this order...
1. Write down ALL of your debt. Post it here- with card companies and interest rates. This makes it real. It also makes it $53816.45 instead of "about 55K" You will then find out from our viewers which companies are more likely to deal and which are not (as far as rate reduction)
2. Put all your numbers into the Snowball calculator (to the right inside the yellow box)- see what that has to say about how long your debt will remain with you.
3. Make a Budget. Stick to it...
budget Everything down to the extra soda you get with each gas fill up. This way you know how much extra can go towards pay down each month.
What can you eliminate? DO you have 2 car payments? Can you sell one car, get used and use the payment $$ towards the debt...
Do you have 2 cell phones? too many cable channels you don't watch....

Would we benefit from using our 401K/403 b retirement funds to pay it off?

here you must ask yourself some questions

4. How much is in the 401K? How much are these funds making? How much is in there?is this more /less than the interest rate on the cards? How comfortable are you with doing this? Are they your only emergency fund?

5.What steps are you taking to ensure that you will not just ring up more debt if you pay it off in one lump some ?
Again post these for us to see and comment on - again- makes it more real.
We are nosy and the details will help the very thorough throw a plan your way ...Did i mention Budget?

peace & payoffs
t
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We are $55 000 in the hole. Would we benefit from using our 401K/403 b retirement funds to pay it off?

----

Howdy Paks,
Welcome to the Fool! First step away from the 401k. Don't even think about touching it! The 401k is for your RETIREMENT and unless you and your SO are 59 1/2 you are going to be hit with huge penalities if you get laid off, lose the magic of compounding, and probably won't learn financial responsibility. I have been there I raided by 401k to try and pay off loans. What happened? Now I have the 401k loan and the cc debt! If I had left the 401k alone and just snowballed (You can read about this in FAQ and throughout messages posted on this board!) I would have been out of debt about 1 1/2 ago. Now I am on schedule to be cc debt free in Dec 2000. At one time I had over 50k in debt and made about 65k at that time. First you have to establish your outgo and stop the leaks! Read the following post. This guy was 84k in debt!

http://boards.fool.com/Message.asp?mid=14796459&sort=recommendations

There are numerous other stories like this! Just step away from the 401k! I am warning you!
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Hi. I'm hoping you can help me with CC debt. We make 100 G/year
and are in the 28%/32% tax bracket. Have been late with payment for AmEx a couple of times, once missed payment, but never have been delinquent or had collection agencies call us. Some of the tips I've read say to call the CC company, ask for reduced interest rate- would that apply in our situation? We are $55 000 in the hole. Would we benefit from using our 401K/403 b retirement funds to pay it off?
_______________________
If you're in good standing for the most part and the accounts are still open, sure, why not call your credit cards and ask them to lower the interest rates. The worst they can do is say no.

As others will tell you, DO NOT DO NOT DO NOT raid your retirement funds, even if using them to pay off your debt seems like a noble use for them. First, you'll get totally hammered with taxes and penalties for cashing them in; second, you'll no longer have the money you've been saving for retirement, and time/value being what it is, you won't be able to make up for it; third, there is more than a grain of truth (in my experience, anyway) to the idea that paying off your debts in one fell swoop isn't necessarily the best way to go if you don't address the behaviors that got you into debt to begin with.

Have you looked into your expenditures and thought about where you can cut back, in order to free up more money to pay your debt? Putting together a budget for yourself/family might be a good place to begin if you haven't already done so-- it sounds like you need to figure out where your money is going. There's a Budgeting board on TMF, and there's also the (in)famous Living Below Your Means board, where you can learn a great deal about ways to save money.

Good luck! You'll get many more responses, I'm sure.
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Hi and welcome!

You will hear great advice from a lot of people on this board, but I want to throw in another vote (I know there will be many) AGAINST you using your 401K to pay your debt.

Have you read the FAQ in this section? It is full of good information - skip around if you don't want to read the whole thing right now.

You can try to call and have your interest rate lowered, although I'm not personally familiarwith AmEx. My personal motto is "ALWAYS CALL." It can't hurt your credit, and the worst they can do is say no. Usually they give you advice on when to try again, if they won't lower it right away.

Order your credit report. Check for errors and try to clear up anything that isn't correct.

Stay with this board. Many many many of us have been in similar situations or still are. I feel comfortable speaking on behalf of everyone to say that the support and advice you will get here will be so worth it - in the meantime, you should also check out the Living Below Your Means board (affectionately known as LBYM).

Please keep us informed of your progress. We all act as friends here and we're a collective little angel on your shoulder - I can't tell you how many times I've been in a situation, ready to make a purchase that I can't really afford, and all I could think of was my Foolish friends and what they would suggest/advise. This has saved me over the past couple of years.

Good luck!!

Deb
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No. of Recommendations: 9
Asking for relief: Normally CC companies do not offer any relief until you are already delinquent. Asking for relief can be harmful. They view it the same as bankruptcy, and will treat you as such. They may even raise your rates because they now consider you to be high risk (I know, it is stupid).

Tapping 401K: Avoid this unless they have a gun pressed against your skull. Seriously. This is a really stupid idea. It is very expensive money to take.

I look it this different than most people here. And most people here really disagree with me. I've been in your shoes and made all the mistakes.

You have to remember that your 401k is one asset that can not be taken from you by creditors. It can not loose it with a judgement. No one, except you, can take it. So if you loose everything, your job, your house, your car, your saving, you will have that. It is protected by federal law ERSIA. This is the same law the prevents Ron Goldman from getting his hands on OJ Simpsons retirement millions.

Second. I don't believe in making two mistakes if you can prevent it. I look at it like this: Would your rather be broke and in financial trouble when you are young and can work and recover over time, or when you are old and can't do anything about it? For me, I rather pay the penalty now and get on with my life knowing that I won't be forced to starve and live under a bridge when I am old just cause I wanted to "Do The Right Thing" when I was young and stupid.

Third. If you tap your retirement assets without addressing the underlying cause of the debt, you have simply condemned yourself to a life of working till the day you die. That would be a real shame.

So forget about your 401k as a way out of debt. In fact, I recommend that you maximize your contributions to your 401k to protect yourself as much as you can. Don't roll your 401k into an IRA if you don't have to. IRAs do not have the same level protection in some states.

It sounds like you can still recover. First do some serious attempts at reducing your spending. Trying to increase your income often causes more problems than it solves.

Strive for a cash-n-carry lifestyle. Stop worrying about your credit report and instead focus on a credit free lifestyle where you don't have to go around begging vendors for credit. It is actually very nice to be able to pay cash for things that you used to have to charge. The vendors should be begging you for your business, not the other way around.

Good luck.
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No. of Recommendations: 12
Hi paks!

First, I see that you are new here, and I want to welcome you to this board, and to The Motley Fool! We're glad you're here!

You've come to the right place because it means that you're serious to address your debt. That's the first step. You can work that debt down but it takes determination and diligence and even sacrifice. It will take time, and involve making changes in your lifestyle, but it's one of the most important things you can do.

Now, you certainly have nothing to lose by calling your credit card companies and attempting to negotiate lower rates. However, you need to be prepared that your chances will be very slim because of the late payments on your record. Additionally, the amount of debt you owe will very likely be another roadblock in getting the rates lowered.

Using retirement accounts is almost always the worst move. By cashing out those accounts, you end up paying 10% penalties, and taxes that will end up costing you even more, and certainly undoing any good those accounts may have done, as well as forfeiting all of the future compounding the accounts will enjoy. You may be thinking that with the current market those accounts are lousy now anyway, but my guess is that you've got many, many years ahead before retirement, and I can all but guarantee that the with the market being cyclical as it is, those accounts will turnaround and become very rewarding for your future.

Many, many Fools have turned around huge debt, and often, debt that was much higher than yours. As an example, here's a post from the past of one Fool who's success story offers great inspiration:
http://boards.fool.com/Message.asp?mid=14796459

The first thing you need to do, which I'd bet you haven't yet done is to create a budget. You need to know, down to the penny, exactly how much comes in, and how much goes out on a regular basis. In other words, you need to start identifying exactly where you stand financially. How can you know where you're going if you don't know where you've been or where you are now?

To do this, you want to track all of the income--from every source you have. Then, you need to list absolutely every place where you spend. That's more than just the monthly bills. It includes what you spend on lunches, even that mocha latte you picked up at Starbuck's. Keep track of everything.

You can track your expenses on programs like Quicken, Microsoft Money, or a simple spreadsheet. Heck, you can even just use pencil and paper, just as long as you do it.

Once you have all of the expenses accounted for, you want to begin cutting, cutting, cutting. Anything that's not absolutely essential gets cut, and the savings from those things get tossed at the debts. You'll need to make some [temporary] life changes, but it's worth it. You can bring your lunch instead of buying, you can rent a video instead of a night at the movies. You can plan a picnic in the park instead of an expensive restaurant, you can buy less expensive brands in the supermarket--become creative. :)

A next step is to find more sources of income to throw at those debts. Sound impossible? It's not.

The simplest answer here is to get a temporary 2nd job. That's always the best and fastest way. While it may sound painful at first, there's almost always time in the day or night when you can find a few hours where part-time work is possible. Running a register, stocking shelves, flipping burgers--it doesn't matter. The income you bring in will make an incredible difference when adding it to the debts. You'll see the balances dropping faster than you can imagine.

Another suggestion is to do some spring cleaning. Look around the house, the attic, the basement and identify all of the items that you no longer need or use. What you consider junk is someone else's treasure, and you can sell that stuff through a garage sale, or even easier, through eBay. Have books or videos you no longer want? Sell them at half.com, and wait for the checks to arrive.

Paks, your situation is far from impossible. You just need to be determined and dedicated to reaching your goals. It won't happen overnight, but it will happen. And we'll be here to help you along the way.

Good luck to you, and again, welcome!

Tony
...but I still am...

Off2Aruba
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Strive for a cash-n-carry lifestyle. Stop worrying about your credit report and instead focus on a credit free lifestyle where you don't have to go around begging vendors for credit. It is actually very nice to be able to pay cash for things that you used to have to charge.

Cable666,

What a simply-stated and low-stress philosophy! I recall a furor over your first message(s) (was it years ago?) and am happy to see you offering your experience-laden advice. I'm glad you stuck around.

The simple message strive for a cash-n-carry lifestyle gives me pause. I've used a rebate credit card for normal expenses for a few years and will rethink this habit. Heck, I'll just rethink it here on this board (in another message).

Thanks for your ideas!

Good luck,

Bruce
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I think that the advice that you have received thus far is perfect.

Don't borrow from your retirement account.

De-clutter and sell items around the house in a garage sale, consignment stores and ebay.

Create a budget. It will take a few months to work it out. Stick to it.

Reduce your spending. I have written a post some time back about ways to cut costs http://boards.fool.com/Message.asp?mid=17344818

Quit using the cards!

Call and ask for a reduction in the rates. BT when possible (no fees, etc.), and pay on time. If they won't lower it now, call after paying on time for a year. Keep trying!

Snowball!

The only way that you will pay this off is to live on less than you make, reduce your spending, and don't create more debt. Be creative. There are many ways to cut costs and save. You can live without cable, newspaper, cell phones, yard service, house cleaning service, vacations, etc.

Good luck!

L
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Hi. I'm hoping you can help me with CC debt. We make 100 G/year
and are in the 28%/32% tax bracket. Have been late with payment for AmEx a couple of times, once missed payment, but never have been delinquent or had collection agencies call us. Some of the tips I've read say to call the CC company, ask for reduced interest rate- would that apply in our situation? We are $55 000 in the hole. Would we benefit from using our 401K/403 b retirement funds to pay it off?


No. Leave those funds be. What you need to do is to get on a budget and figure out where all this money is going. Once you know where it's going, you can stop the bleeding and begin to look at scrimping and saving to free up money to put towards debts. Most people here have done it on far smaller incomes, so I know you can do it to. All it takes is a little planning and a lot of willpower.

Leviathan
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I'm joining the chorus. DO NOT TOUCH THE 401K. DO NOT!! <Pardon the yelling but this is important>

Do whatever else you have to, cut up the credit cards, sell the cars, whatever, just don't mess with your retirement fund.

Topaz12
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Sorry, forgot to mention interest rates. AmEx is 19%, as is Optima, Mastercard 8%, Visa 9.9%, consolidation loan is 11.9%
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Here goes

Optima Platinum $7030.34 at 15.99% (mine)
Optima Platinum $6610.17 at 13.72% (husband)
American Express $5250.34 at 14.74%
Optima consolidator $8200.13 think rate is 12%
PFCU Visa $18 334.63 at 10.9%
SS Mastercard $8300.59 at 8%

Also have consolidation loan for $15 861.55 at 12.9%
Line of credit $7253.51 at 14.99%
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Paks,

Why don't you try re-posting this as a new topic and explain again what you want help with. You are sure to get lots more responses.

That being said, here's my 2 cents.

$76,841.26 Total Debt

Debt in order of highest interest rate. To do the snowball you will pay off in order of highest interest rate. You pay minimums and apply all extra funds to the target of the moment. As time goes on you will probably retire some smaller debts, you add that amount to your snowball.
Optima Platinum $7030.34 at 15.99% (mine)
Line of credit $7253.51 at 14.99%
American Express $5250.34 at 14.74%
Optima Platinum $6610.17 at 13.72% (husband)
Also have consolidation loan for $15 861.55 at 12.9%
Optima consolidator $8200.13 think rate is 12%
PFCU Visa $18 334.63 at 10.9%
SS Mastercard $8300.59 at 8%

Debt by amount owed. Some people like their target to be the lowest amount card so that they can have a snowball almost immediately, or so that they feel that they are making some process. Your lowest card is $5250, so I don't know if that will provide any immediate gratification.
PFCU Visa $18 334.63 at 10.9%
Also have consolidation loan for $15 861.55 at 12.9%
SS Mastercard $8300.59 at 8%
Optima consolidator $8200.13 think rate is 12%
Line of credit $7253.51 at 14.99%
Optima Platinum $7030.34 at 15.99% (mine)
Optima Platinum $6610.17 at 13.72% (husband)
American Express $5250.34 at 14.74%

Ideas on how to get out of this mess.
1)Call up your creditors and see if they will lower your interest rate. You didn't mention if you were close to the max on any of these cards, but hey a phone call can't hurt.
2)Make a budget, cut out extras for a month. If you used to go to the movies once a week, stop going for a month or two. Send that extra money to the CC's. Find as much money as you can to send off to your CC's and loans.
3)Get your dh (dear husband) on board, if you are both committed you will be debt free that much faster.
4)Stop charging! Pay cash for everything. Evaluate what is a need and what is a want.

Good luck, post often with updates so you can get feedback and suggestions. Share with us your happy dances (good things that happen, like paying off a card or getting below a certain amount).

Megan








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<<$76,841.26 Total Debt>>

Does that include auto? What about your cost of living (mortgage, food, etc.)? All that figures into the budget that you mentioned earlier.

With your income, you can do this. It won't be easy. It will take changes in lifestyle and habits. The less you change, the longer you will be in debt.

With that CC debt, you must have a lot of stuff--anything that you can sell?

Live like you make $50k instead of $100K and you can probably get out of this in a couple of years. If you file bankruptcy or do debt consolidation without changing your spending habits, then you will probably be back to where you are now in a couple of years. How you want your 2004 to look is up to you. Good Luck!

Fred
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No, still owe $338.39 a month for another 18 months, also pay
$1712 monthly for house, have 25 years 5 months left at 7.5%
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