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Author: JPinJC Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 308519  
Subject: looking for opinion Date: 6/6/2001 1:40 PM
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Hi,

I have $ 4,531.00 credit card debt on two separate cards (one with 9.90% int. and the other has 1.9% intro rate until November and 13% thereafter and the amount is pretty much evenly divded between two cards. Also $ 3,000 of that amount is medical realated charge, but it is cc debt now.)

I have about $ 2,500 in my savings account and $ 2,000 in stocks (which so far I lost about 20% of my initial investment on).

I was thinking cash out my savings and stocks to payoff the cc debt, but I like to have some money in my savings account although it is not very much. I have 401k account that I can take a loan from. Should I go that route? Or should I make fixed payment every month to pay those off in about a year and half?

Thanks

J.
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Author: JLizNY Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74860 of 308519
Subject: Re: looking for opinion Date: 6/6/2001 2:02 PM
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I think it is a matter of how comfortable you would be without that savings in the bank. You might want to take a bit of the money out of the savings and put towards the card with the higher interest rate right now (9.90%). I'm not sure about the stocks - whether you should take the loss right now and cash out or keep it there and hope the stock turns around.

But either way, you should snowball any extra money you can into the credit cards. First towards the one with the higher rate while paying the minimum on the lower rate card and then paying off the lower rate card.

JLizNY :)

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Author: Catleen Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74869 of 308519
Subject: Re: looking for opinion Date: 6/6/2001 2:24 PM
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JPinJC:

Personally, I think that every person should have a cushion or emergency fund. I understand that you are in debt and want it gone now. Let's face it, unexpected things happen. Have an emergency fund makes that easier to deal with.

I also think that cashing out your 401K plan is a bad idea. Even taking a loan is a bad idea. If you have not thought about your spending habits that put you in this position, then you will end up with the money gone, missing the interest from the money impacting your future and more cc debt. It is very important that you are able to discern WANTS from NEEDS. Having a budget also helps. The other thing about taking a loan against your 401k is in event you get laid off.

My opinon would be to make up a budget, cut back on stuff that you don't need and start paying it off every month. You can then throw any extra money against this debt. The quick fix is not always the best when dealing with things like this.

Catleen

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Author: milleniumfalcon Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74876 of 308519
Subject: Re: looking for opinion Date: 6/6/2001 2:41 PM
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J -

I have a little story from last year that may help you out.

Last year I was $8 grand in debt. I could have paid much more to my CC debts than I did, but I decided that it might be smart to put some cash in a savings account for emergencies.

Well in December of last year I had $1400 in that account.

Well, this month, I have to reopen a savings account.

Let's see:
There was the natural gas heating price explosion this winter.
There was a tax burden that I had to cover.
There was an emergency trip I had to take.

Without that account, I would have been way up that creek without a paddle.

milleniumfalcon

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Author: buckzimmer Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74878 of 308519
Subject: Re: looking for opinion Date: 6/6/2001 2:43 PM
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<<I was thinking cash out my savings and stocks to payoff the cc debt, but I like to have some money in my savings account although it is not very much.>>

J.,

Would you borrow money to put it in your savings account? Nope.

That's the way I look at what you are doing.

Don't get me wrong, with $4,531, you do need and emergency fund, but $1,000 should do. That gives you $1,500 to pay on a card. Are your stocks mutual funds? Are they long-term investments?

If they aren't (heck, even if they are), put that towards your debt. Pay off one credit card at a time. Don't divide payments. That leaves $1,031 to deal with as early as the end of this week.

It will be much easier to rebuild your savings with the CC debt gone. since you will need a larger more permanent emergency fund to prevent this from happening again. I don't think you are even near the desperation level borrowing from you 401K, plus that would give you inflexibility in the job market, because if you leave there that loan is to be PAID IN FULL.

Check out my intitial post to "It ain't (not 'aint't') rocket science", if you don't address issues brought up in that, then the rest of this advice is worthless.

Fred

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Author: SpaceEngineer Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74884 of 308519
Subject: Re: looking for opinion Date: 6/6/2001 3:10 PM
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I was thinking cash out my savings and stocks to payoff the cc debt, but I like to have some money in my savings account although it is not very
much. I have 401k account that I can take a loan from. Should I go that route?


I'm with Fred.

Think of what might conceivably happen that will require money right now. Car needs $300 repair? Refrigerator breaks down? If you don't have a car, you don't have to worry about repair. If you rent an apartment, then the fridge is not your concern. Come up with a number for a single bad event and keep that in savings for now and use the rest to pay off debt. (You'll never keep enough to cover all possible contingencies.) For most people $500-$1000 until out of debt is enough. Once out of debt, striving for 3-6 months of living expenses is a good goal, but that is also dependent on how reliable your job is.

(I emphasize the living expenses because I sometimes see this misquoted as 3-6 months of salary. Hopefully, your living expenses are below your salary.)

I would not have recommended buying stocks with revolving debt over your head. If you have sound reasons for keeping them, then you may want to keep them to avoid commisions, taxes and such. But if you can't verbalize good reasons that you have those companies (and not "my spouse's cousin's hairdresser's uncle said this would be a good pick."), then dump them and get rid of the CC debt.

I really don't like going into 401(k), even loans, for any reason. I consider that an almost-last-resort just before bankruptcy. People who pay off debt by working at it and living within their means and budgeting their money usually learn better than those who shuffle one debt for another. Catleen pointed out that if you lose you job, or have another job opportunity that you want to pursue, you'll often have to repay the balance immediately.


Just throw all you can toward the monthly payments, and you'll probably be out of that $4500 soon.


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Author: aja91 Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74906 of 308519
Subject: Re: looking for opinion Date: 6/6/2001 4:10 PM
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Hi,

I have $ 4,531.00 credit card debt on two separate cards (one with 9.90% int. and the other has 1.9% intro rate until November and 13% thereafter and the amount is pretty much evenly divded between two cards. Also $ 3,000 of that amount is medical realated charge, but it is cc debt now.)

I have about $ 2,500 in my savings account and $ 2,000 in stocks (which so far I lost about 20% of my initial investment on).

I was thinking cash out my savings and stocks to payoff the cc debt, but I like to have some money in my savings account although it is not very much. I have 401k account that I can take a loan from. Should I go that route? Or should I make fixed payment every month to pay those off in about a year and half?


I'm a fan of keeping some money liquid and available in the event of an emergency. So my suggestion: don't cash anything out, but keep paying the cards down aggressivley until they are paid off. I strongly encourage you not to touch the 401(k). I'm not sure of your income situation but it sounds like you've figured it will take about 18 months to pay it off. Just be patient, and the 18 months will be over before you know it!

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Author: JPinJC Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74918 of 308519
Subject: Re: looking for opinion Date: 6/6/2001 4:28 PM
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Thanks all for advice.

I am leaning toward to keeping some money in the bank(I have not decide what to do with my stocks yet). I won't touch my 401k money. I wanted to get rid of CC debt right away, but I think a disciplined systematic way over a period of time to pay off the debt would do some good for me as far as handling finaces.

Thanks again.

J

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Author: TMF2Aruba Big funky green star, 20000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74941 of 308519
Subject: Re: looking for opinion Date: 6/6/2001 6:58 PM
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I have $ 4,531.00 credit card debt on two separate cards (one with 9.90% int. and the other has 1.9% intro rate until November and 13% thereafter and the amount is pretty much evenly divded between two cards. Also $ 3,000 of that amount is medical realated charge, but it is cc debt now.)

I have about $ 2,500 in my savings account and $ 2,000 in stocks (which so far I lost about 20% of my initial investment on).

I was thinking cash out my savings and stocks to payoff the cc debt, but I like to have some money in my savings account although it is not very much. I have 401k account that I can take a loan from. Should I go that route? Or should I make fixed payment every month to pay those off in about a year and half?


Hi JPinJC!

You've got some options here, and I commend you for wanting to hold on to that savings account. It's smart and Foolish to have an emergency fund to fall back on, even if it's small right now.

If you don't feel that the stock you have is a viable holding now, you might consider using that toward the debt. Keep in mind though, that if you have a gain on that investment, you'll have a tax liability in capital gains.

Whichever way you go, my suggestion would be to trim other expenses in your life--even get a 2nd temporary job if you want, to toss as much as you can toward the debts and make sure that you don't add to the charges at all. Refrain from using he cards.

I urge you to not consider a 401(k) loan. Your debts are small, and borrowing that money could become a problem if you change jobs, which would require that you repay the loan in full.

Good luck!

Tony
...but I still am...

Off2Aruba

Ready to Begin? Check out our upcoming seminar, "Choosing Stocks with The Motley Fool"!
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Author: fredinseoul Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74948 of 308519
Subject: Re: looking for opinion Date: 6/6/2001 7:34 PM
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You don't mention your salary, and not to be nosy, but how much of the debt can you attack within your salary?

If you have a good plan to pay off your debt within your salary, then the 1500 or so that you can move from savings can only help. It makes a lot of sense to put 1500 on the 9.9%. That would wipe out that debt almost completely. Then, you could really whack out the other one while it has a low apr. By November you should be nearly done.

For the rest of things, I agree with space Engineer completely.

fredinseoul

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Author: warrl Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74996 of 308519
Subject: Re: looking for opinion Date: 6/7/2001 12:13 AM
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Based on what you've said, I recommend that you sell your stocks, and supplement that with JUST ENOUGH cash from savings to pay off your higher-interest-rate credit card.

Then put your former monthly payments from BOTH cards onto the one remaining card.

This leaves you a small-but-reasonable emergency fund in savings. And you'll be paying substantially more than the minimum monthly payment on your remaining card, so you will get it paid off fairly quickly.

THEN, once that is done, you can increase your emergency fund to more generous proportions, and finally you can start on long-term investing.

However, I'll toss one thing in: if your employer matches your 401(k) contributions, and you are NOT taking FULL advantage of this, then start doing so - in preference even to paying more than the minimums on the second card.

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Author: LuluB Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 75008 of 308519
Subject: Re: looking for opinion Date: 6/7/2001 9:04 AM
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I agree with warrl's advice. Dump the stock, take out *some* of your savings and pay off the card with the higher interest rate. Then attack the other card with every dollar you can muster, every month.

If you are contributing to your 401K you can reduce your contributions to the company match (why pass up free money) until your debt load is more favorable. Then, contribute all youcan to your 401K. DO NOT touch the 401K, meaning, do not cash it out or take out a 401K loan.

Louise

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Author: WalStMonky Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 75025 of 308519
Subject: Re: looking for opinion Date: 6/7/2001 10:07 AM
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"Would you borrow money to put it in your savings account? "

I would, and do. Why the heck wouldn't you borrow as much money at 1.9% or less as the banks are willing to lend?

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Author: ScrapinBy Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 75066 of 308519
Subject: Re: looking for opinion Date: 6/7/2001 12:41 PM
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Dump the stock, take out *some* of your savings and pay off the card with the higher interest rate.

Maybe I'm just a freak, but I never want to cash out my savings and investments. Even if it makes mathematical financial sense, I'm still against it, because it's so hard to save in the first place.

My advice, would be to scratch up some extra income or sell some stuff and keep your stock and savings going. You will be out of debt soon enough and then you will still have your stock and e-fund.

Bret

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Author: buckzimmer Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 75069 of 308519
Subject: Re: looking for opinion Date: 6/7/2001 12:48 PM
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<<Even if it makes mathematical financial sense, I'm still against it, because it's so hard to save in the first place.>>

Not if you're debt free it isn't.

Fred



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Author: kmustack One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 75357 of 308519
Subject: Re: looking for opinion Date: 6/8/2001 10:44 PM
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Use your savings to pay off some of the debt. If you can bring yourself to do it, sell your stock to pay off the remainder. You can start rebuilding your savings with the payments you will no longer owe. A savings account will never earn you as much interest as you are paying on a credit card.

Keep your money in your 401K. It will be there for a rainy day until you can build your savings again.

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