Recently divorced trying to clear all of my credit card debt.

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Topic Author
ecastro314
Posts: 4
Joined: Tue Feb 06, 2018 11:02 am

Recently divorced trying to clear all of my credit card debt.

Post by ecastro314 »

Recently divorced and finally having to do a financial reckoning after all the dust has settled.

Will provide the basic below but essentially I have a pretty moderate amount of CC debt, the balance of which hasn't been going down.

Currently owe about $27k across 6 credit cards. APR ranges from 10.99% to 18.99%.

Pre-tax income: $84,500
Currently contribute 6% to 401k to get the full employer match ($5,070)
Currently contribute the max to my HSA family account ($5,900 + $1,000 employer contribution)
Bi-weekly take home pay is about $2,200

Expenses
Child Support: $950/month
Rent: $900/month
Utilities: $70
Car/Fuel/Insurance: $400
Cellular: $80/month
Internet: $60/month
Food: $250/month
Life Insurance: $60/month
Entertainment: $200/month

Retirement / Savings
Emergency Fund: $2,000
IRA: $110,000 (80% equities /20 bonds)
401k: $15,000 (80% equities /20 bonds)
Taxable: $1,500 (individual stocks)

1) Thought about just cashing out a significant portion of my IRA in order to just wipe the slate clean, clear off all high interest balances and free up cash flow to save again. It'll be a huge setback in terms of my retirement but gives me a solid ground to rebuild again.

2) Cut my expenses to the bare bone and just try to devote the next 24 months to paying off all my debt and living like a monk.

Any advice or insights is greatly appreciated. Thank you in advance.
Olemiss540
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Re: Recently divorced trying to clear all of my credit card debt.

Post by Olemiss540 »

Dave Ramsey. Check out The Total Money Makeover from the library and work his plan (on debt reduction). Once out of debt with 3 months emergency fund, come back here for investing advice.

Beans and Rice, Rice and Beans. Live like noone else so that later you can live like noone else.

DO NOT CASH OUT YOUR RETIREMENT ACCOUNTS FOR AN EASY SOLUTION THAT WILL END UP COSTING THE FUTURE YOU HUNDREDS OF THOUSANDS OF DOLLARS.

Also become a frequent at MrMoneyMustache (blog and forums) on ways to DRASTICALLY cut living expenses to work the above plan.
Last edited by Olemiss540 on Tue Feb 06, 2018 11:44 am, edited 1 time in total.
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.
Nummerkins
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Re: Recently divorced trying to clear all of my credit card debt.

Post by Nummerkins »

1) DO NOT cash our your retirement account. You will pay taxes plus penalties on it.

2) Sounds like a plan. I would take the money from your taxable account and put it into your Emergency fund. You have 1+ month of expenses saved if you lose your job. You could also cut down the entertainment to shorten the payback time.

In less than 24 months you will be out of debt.
Today's high is tomorrow's low.
DavidW
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Re: Recently divorced trying to clear all of my credit card debt.

Post by DavidW »

Olemiss540 wrote: Tue Feb 06, 2018 11:43 am Dave Ramsey. Check out The Total Money Makeover from the library and work his plan (on debt reduction). Once out of debt with 3 months emergency fund, come back here for investing advice.

Beans and Rice, Rice and Beans. Live like noone else so that later you can live like noone else.

DO NOT CASH OUT YOUR RETIREMENT ACCOUNTS FOR AN EASY SOLUTION THAT WILL END UP COSTING THE FUTURE YOU HUNDREDS OF THOUSANDS OF DOLLARS.

Also become a frequent at MrMoneyMustache (blog and forums) on ways to DRASTICALLY cut living expenses to work the above plan.
Sorry to hear what is going on.

I agree that Ramsey's plan is probably the most practical out there. Just list your debt from smallest to largest (in $ amount) and go after one at a time. In no time, you will be working off the largest one...

You may want to consider putting a freeze with the 3 credit bureaus so that you don't add more debt. A bit inconvenient to unlock but it will save you in the long run...
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Pajamas
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Re: Recently divorced trying to clear all of my credit card debt.

Post by Pajamas »

Another vote for #2.

Don't cash out your retirement accounts. You will regret that later and it's just not necessary.

Living like a monk will be good for your soul as well as your wallet.

Pay off the credit card with the highest interest rate first and then move onto paying off the one with the next highest rate. It makes no sense whatsoever to go by balance owed for someone who has half a brain. That just costs you more money and makes it take longer overall to pay off your debt. Dave Ramsey, like many other people who make their living peddling financial advice, gives some good advice but also a whole lot of bad advice along with it. Since you've already figured out what you need to do, stay away from peddlers of bad advice.

If you can pick up any extra income, that will make clearing your debt go a lot faster than just cutting expenses.

You might consider reducing contributions to your HSA temporarily. I'll let others address the wisdom of that as I have no personal experience with that type of account.

Also address whatever caused you to have credit card balances. It might have been avoidable or it might not have been so there is no need to discuss it, but you don't want to get in that situation again. An emergency fund might help prevent it from happening again and it's a good idea, anyway.
N10sive
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Re: Recently divorced trying to clear all of my credit card debt.

Post by N10sive »

Have you kept up on all payments to the credit card companies? At those rates and depending on how your credit is, you may want to look at consolidating it to get a lower APR. Even having all the debt at less than 10% will get you debt free faster. 19% is a lot and you wont get far unless you really buckle down.

There are plenty of 0% balance transfer cards but it will depend on your credit. You just have to be very diligent in paying it off.

I would probably stop your HSA contributions. Although it helps with taxes, getting rid of the debt faster will be more beneficial I believe in the long term. Unless you foresee many medical visits in the present.
Topic Author
ecastro314
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Joined: Tue Feb 06, 2018 11:02 am

Re: Recently divorced trying to clear all of my credit card debt.

Post by ecastro314 »

I've been able to keep up with all the CC payments, mostly the minimums on most and a concerted effort to pay down one at a time. Things have a tendency of popping up and going onto one of the cards.

The balance mostly built up during the separation (setting up a separate residence) and addressing some repairs on the primary residence as part of the settlement. Also unexpected medical bills with my child was likely to get put on a credit card before the HSA became available.

Balance transfer is an option but I'm not too keen on the 3% transfer fee.

I'll probably hit pause on the 401k contributions (or dial it down to 2-3%) just to free up some cash flow.

Thank you everyone for the clear consensus. It's obvious that I just need to buckle down and tackle this balance for 2018/2019.

Looking up some rice and beans recipe now and also the MMM website.

Looking forward to 2020 :)
mouses
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Re: Recently divorced trying to clear all of my credit card debt.

Post by mouses »

Besides not taking money from the retirement accounts and adding to the emergency fund, you have that $200 entertainment money that I would throw at the credit card debt for awhile. There are a lot of free things one can do for entertainment. I would also not dial down the 401k contributions.
Da5id
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Re: Recently divorced trying to clear all of my credit card debt.

Post by Da5id »

One idea if your retirement plan allows it is to borrow from your 401k to pay off your CCs, then pay yourself back. Provided you don't lose your job (may need to pay back loan immediately) and that you follow through on cutting spending, you can then pay yourself interest rather than pay a CC 11-19% interest. Just a thought. If you feel like you have trouble controlling your finances this may not be a good approach (not judging, but high CC debt may suggest such a problem?)
mouses
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Re: Recently divorced trying to clear all of my credit card debt.

Post by mouses »

ecastro314 wrote: Tue Feb 06, 2018 12:31 pm Balance transfer is an option but I'm not too keen on the 3% transfer fee.
Who's charging that fee? My credit card websites hawk balance transfers quite a bit and I have never seen them say there's a fee.
sport
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Re: Recently divorced trying to clear all of my credit card debt.

Post by sport »

To the extent that you are able, do not make new purchases on a credit card that has a balance. Once you carry a balance on a credit card, you are charged interest on new purchases from the day of the purchase. There is no grace period. Try to pay for things using checks or cash as much as you can.
Topic Author
ecastro314
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Joined: Tue Feb 06, 2018 11:02 am

Re: Recently divorced trying to clear all of my credit card debt.

Post by ecastro314 »

mouses wrote: Tue Feb 06, 2018 12:42 pm
ecastro314 wrote: Tue Feb 06, 2018 12:31 pm Balance transfer is an option but I'm not too keen on the 3% transfer fee.
Who's charging that fee? My credit card websites hawk balance transfers quite a bit and I have never seen them say there's a fee.
The few I looked at indicated a transfer fee of 3% when you get down to the nitty gritty while offering a 0% intro APR for 18 months.
N10sive
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Re: Recently divorced trying to clear all of my credit card debt.

Post by N10sive »

ecastro314 wrote: Tue Feb 06, 2018 12:31 pm Balance transfer is an option but I'm not too keen on the 3% transfer fee.

I'll probably hit pause on the 401k contributions (or dial it down to 2-3%) just to free up some cash flow.
Most would recommend not dialing back your 401k if you contributing the minimum to get the match, which I believe you are.

The hit of the balance transfer fee depends on the min payment your making.

Here is a calculator that bases the min payment on percent of balance, you'll have to play with it. But just looking at a 5k balance with a min 100 payment, you would pay 3k in interest if you just paid the minimum vs a 150 balance transfer fee and 18 months of 0%....Of course you would have to get accepted and have a high enough credit.

https://www.bankrate.com/calculators/ma ... lator.aspx

Just another option to look into, paying 10-19% interest will take you a long time to pay off. If you took that as 14% average across 27k, with a fixed payment of your $1400 left to pay debt thats almost 3.8k in interest, over two months of payments. 27k at 3% balance transfer fee is $810. Of course that is just an estimate as I dont know your exact details.
Last edited by N10sive on Tue Feb 06, 2018 12:54 pm, edited 1 time in total.
ThriftyPhD
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Re: Recently divorced trying to clear all of my credit card debt.

Post by ThriftyPhD »

ecastro314 wrote: Tue Feb 06, 2018 12:31 pm Balance transfer is an option but I'm not too keen on the 3% transfer fee.
If it's then 0% for 12 months, that's like going from a 18% interest card to a 3% interest card. The effective interest rate is even lower if the 0% APR lasts for more than 12 months. Why would you want to pay more interest?
ecastro314 wrote: Tue Feb 06, 2018 12:31 pm I'll probably hit pause on the 401k contributions (or dial it down to 2-3%) just to free up some cash flow.

Thank you everyone for the clear consensus.
I don't think that was even suggested, much less the consensus. Contributing enough to get the full employer match makes a lot of sense, I wouldn't cut below that.
Topic Author
ecastro314
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Re: Recently divorced trying to clear all of my credit card debt.

Post by ecastro314 »

Da5id wrote: Tue Feb 06, 2018 12:38 pm One idea if your retirement plan allows it is to borrow from your 401k to pay off your CCs, then pay yourself back. Provided you don't lose your job (may need to pay back loan immediately) and that you follow through on cutting spending, you can then pay yourself interest rather than pay a CC 11-19% interest. Just a thought. If you feel like you have trouble controlling your finances this may not be a good approach (not judging, but high CC debt may suggest such a problem?)
Just checked: I can borrow up to $3k from my 401k account. Loan fee is $60, APR is 4.5%. It would be subtracted from each pay cycle between 12 - 60 months.

A lot of the debt is probably me not dealing with the financial ambiguity of the divorce as it was happening… my ex piled a lot of expenses on my side of column as we worked through the settlement. Also I could have done more to ratchet down my expenses, lifestyle, and financial overview during the process. A lot of stuff happened on auto-pilot and it's all catching up with me now.

Also just found out I have about $2,500 in a recent employee stock purchase issued from a month ago. The shares are in CompuShare and they're marked “unqualified” at the moment. Not sure but I think I need to hold them a year at least to claim the gains as long term. The gains are pretty modest right now — 15% between the purchase price and current price.
chevca
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Re: Recently divorced trying to clear all of my credit card debt.

Post by chevca »

Is the IRA a Roth or Traditional account?

What about cashing out the $1500 in taxable? We're not big fans of individual stocks around here, and that money is likely better off paying down debt than hoping $1500 makes you rich.
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Nate79
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Re: Recently divorced trying to clear all of my credit card debt.

Post by Nate79 »

You can not borrow yourself out of debt. If playing around with interest rates is the only way you are going to get out of debt you are in deep trouble - this includes the piddly amount of interest saved by moving the debt around on 0% credit card rates or 401k loans. The 0% credit card transfers are fine to save a little bit of money but that isn't going to pay the debt off much faster.

I would stop 401k and HSA temporarily to clean the mess up. The behaviour aspect of forcing the pain of losing the regular retirement savings will force you to make more drastic budgetary changes. Especially cutting out the entertainment budget item. You are broke and need to live like it. You don't need to see the inside of a restaurant unless you are working there.

And no way, no way at all would I get a 401k loan.

And sell off the taxable stock positions and throw it at the debt.
ThriftyPhD
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Re: Recently divorced trying to clear all of my credit card debt.

Post by ThriftyPhD »

ecastro314 wrote: Tue Feb 06, 2018 11:26 am Cellular: $80/month
Internet: $60/month
Given the cellular is $80, I'm assuming you have a smartphone? You can use that as a hot spot for all your internet needs, and ditch the $60/month internet as well until the debt is cleared. That plus the $200/month entertainment will help you pay off over 11.5% of your debt in one year, in addition to the payments you're already making. This means more of your future payment also goes to principal.

Any room to trim in the car? $400/month is high unless you're still paying the car off.

Might be some room to trim in the food budget too. See https://www.cnpp.usda.gov/sites/default ... ec2017.pdf If you were at the thrifty level, it would be $185/month, though this will likely have some regional variation. That's another ~$65 that could help... Rice and beans do go a long way for a small amount of money. Pay attention to sales, buy what's cheap, and the main thing is eat whatever you buy. Americans waste a TON of money throwing food away, you can't afford that. Make you eat well enough to stay healthy. Focusing on whole ingredients cooked from scratch will probably be healthier than most people, and cheap too.
ThriftyPhD
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Re: Recently divorced trying to clear all of my credit card debt.

Post by ThriftyPhD »

Nate79 wrote: Tue Feb 06, 2018 1:06 pm You can not borrow yourself out of debt. If playing around with interest rates is the only way you are going to get out of debt you are in deep trouble - this includes the piddly amount of interest saved by moving the debt around on 0% credit card rates or 401k loans. The 0% credit card transfers are fine to save a little bit of money but that isn't going to pay the debt off much faster.
I understand the behavioral argument, but as a point if he could move the $27k from 18% interest to 3% interest (3% being the balance transfer fee), he would save $4k in interest payments.

On it's own, no, that won't get OP out of debt. But cutting all unnecessary spending, paying as much as possible, while trying to save on interest seems like a good plan.

Also agree that taxable going towards the debt is a great idea, and 401k loan being a bad idea.

Contributing to HSA makes sense even with the debt if he's actually using the HSA to pay for medical bills. As the OP stated, before the HSA he was using credit cards to make these payments, which is both after tax money, and then costs interest. The HSA is a much better option in this regard.
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Nate79
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Re: Recently divorced trying to clear all of my credit card debt.

Post by Nate79 »

ThriftyPhD wrote: Tue Feb 06, 2018 1:16 pm
Nate79 wrote: Tue Feb 06, 2018 1:06 pm You can not borrow yourself out of debt. If playing around with interest rates is the only way you are going to get out of debt you are in deep trouble - this includes the piddly amount of interest saved by moving the debt around on 0% credit card rates or 401k loans. The 0% credit card transfers are fine to save a little bit of money but that isn't going to pay the debt off much faster.
I understand the behavioral argument, but as a point if he could move the $27k from 18% interest to 3% interest (3% being the balance transfer fee), he would save $4k in interest payments.

On it's own, no, that won't get OP out of debt. But cutting all unnecessary spending, paying as much as possible, while trying to save on interest seems like a good plan.

Also agree that taxable going towards the debt is a great idea, and 401k loan being a bad idea.

Contributing to HSA makes sense even with the debt if he's actually using the HSA to pay for medical bills. As the OP stated, before the HSA he was using credit cards to make these payments, which is both after tax money, and then costs interest. The HSA is a much better option in this regard.
Agreed. You make a good point about the interest savings which on the OP's budget would make a good amount of difference.

I would contribute to the HSA just enough to cover medical bills to get the immediate tax savings. I would not overfund it as a savings account until the debt is cleaned up.

ecastro314, is this the only debt that you have (wondering about car loan for example)? If not you should list ALL the debt.
chevca
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Re: Recently divorced trying to clear all of my credit card debt.

Post by chevca »

ecastro314 wrote: Tue Feb 06, 2018 11:26 am Bi-weekly take home pay is about $2,200

Expenses
Child Support: $950/month
Rent: $900/month
Utilities: $70
Car/Fuel/Insurance: $400
Cellular: $80/month
Internet: $60/month
Food: $250/month
Life Insurance: $60/month
Entertainment: $200/month
Just ran the number here. You have about $2970/month in obligations and take home about $4400/month. Why can't you knock down, or make progress on the CCs?
N10sive
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Re: Recently divorced trying to clear all of my credit card debt.

Post by N10sive »

chevca wrote: Tue Feb 06, 2018 1:22 pm Just ran the number here. You have about $2970/month in obligations and take home about $4400/month. Why can't you knock down, or make progress on the CCs?
I think as he stated due to unexpected expenses each month he just puts it on the CC. Its a habit that will need to change but most likely is the transition from being married to single. And possibly two income streams to one with child support. So while those are the expected expenses I assume other expenses are added each month.

Not knowing his exact situation as far as interest rates and debt, Most likely anywhere from 200-300 a month is going just to interest. Maybe more.
tesuzuki2002
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Re: Recently divorced trying to clear all of my credit card debt.

Post by tesuzuki2002 »

ecastro314 wrote: Tue Feb 06, 2018 11:26 am Recently divorced and finally having to do a financial reckoning after all the dust has settled.

Will provide the basic below but essentially I have a pretty moderate amount of CC debt, the balance of which hasn't been going down.

Currently owe about $27k across 6 credit cards. APR ranges from 10.99% to 18.99%.

Pre-tax income: $84,500
Currently contribute 6% to 401k to get the full employer match ($5,070)
Currently contribute the max to my HSA family account ($5,900 + $1,000 employer contribution)
Bi-weekly take home pay is about $2,200

Expenses
Child Support: $950/month
Rent: $900/month
Utilities: $70
Car/Fuel/Insurance: $400
Cellular: $80/month
Internet: $60/month
Food: $250/month
Life Insurance: $60/month
Entertainment: $200/month

Retirement / Savings
Emergency Fund: $2,000
IRA: $110,000 (80% equities /20 bonds)
401k: $15,000 (80% equities /20 bonds)
Taxable: $1,500 (individual stocks)

1) Thought about just cashing out a significant portion of my IRA in order to just wipe the slate clean, clear off all high interest balances and free up cash flow to save again. It'll be a huge setback in terms of my retirement but gives me a solid ground to rebuild again.

2) Cut my expenses to the bare bone and just try to devote the next 24 months to paying off all my debt and living like a monk.

Any advice or insights is greatly appreciated. Thank you in advance.

You're income is good! Pick up a little extra work and put you tax refund towards the debt.. you should have most of that paid off this year.
chevca
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Re: Recently divorced trying to clear all of my credit card debt.

Post by chevca »

Oh yeah, I just noticed he didn't even put CC bills in the monthly obligations. :oops: That's probably a good part of the leftover cash going that way.

That's why I asked about the IRA being a Roth or Traditional. A Roth can be part of one's emergency fund, and I'd consider this an emergency. Personally, I'd dip into retirement savings to wipe out this debt. In fact, I did after a divorce. Well, it was cash out a pension I wasn't vested in yet. I paid taxes and the penalty on it, yes. Was that the optimal thing to do? No. Did it feel great to wipe out my debt after a divorce and start fresh? Absolutely.

Sometimes not doing the optimal thing is well worth it.
WhiteMaxima
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Re: Recently divorced trying to clear all of my credit card debt.

Post by WhiteMaxima »

Cut cell phone to very basic save $60
Cut internet to basic save $40
Cut life insurance, you don't need it
Cut car spending, car pool or take public transport save $300
Reduce Entertainment to $100

You already have $500 savings. Use it pay debt or increase retirement saving (Roth IRA, do you hear?)
THY4373
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Re: Recently divorced trying to clear all of my credit card debt.

Post by THY4373 »

WhiteMaxima wrote: Tue Feb 06, 2018 1:48 pm Cut cell phone to very basic save $60
Cut internet to basic save $40
Cut life insurance, you don't need it
Cut car spending, car pool or take public transport save $300
Reduce Entertainment to $100

You already have $500 savings. Use it pay debt or increase retirement saving (Roth IRA, do you hear?)
I agree with most of your points but they may be stuck with life insurance. My ex and I agreed not to require each other to carry life insurance because we both had significant resources post divorce but it is common for life insurance to be required to cover your obligations in the event of your untimely demise.
Last edited by THY4373 on Tue Feb 06, 2018 2:17 pm, edited 1 time in total.
THY4373
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Re: Recently divorced trying to clear all of my credit card debt.

Post by THY4373 »

OP I recently went through a divorce and I know it is rough but it will get better, I am truly loving my life these days. My advice would be to do the monk life style, focus on reducing your debit, improving your self mentally and physically and if possible try to find a side gig to make some extra money. I have my son 50% of the time so post divorce I have a lot of free time to spend on improving myself and pursuing side gigs to make me money/save money during the weeks I don't have him. Spend the next couple of years focusing on your and improving your finances you will be in a whole better place after that.
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dm200
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Re: Recently divorced trying to clear all of my credit card debt.

Post by dm200 »

ecastro314 wrote: Tue Feb 06, 2018 11:26 am Recently divorced and finally having to do a financial reckoning after all the dust has settled.
Will provide the basic below but essentially I have a pretty moderate amount of CC debt, the balance of which hasn't been going down.
Currently owe about $27k across 6 credit cards. APR ranges from 10.99% to 18.99%.
Pre-tax income: $84,500
Currently contribute 6% to 401k to get the full employer match ($5,070)
Currently contribute the max to my HSA family account ($5,900 + $1,000 employer contribution)
Bi-weekly take home pay is about $2,200
Expenses
Child Support: $950/month
Rent: $900/month
Utilities: $70
Car/Fuel/Insurance: $400
Cellular: $80/month
Internet: $60/month
Food: $250/month
Life Insurance: $60/month
Entertainment: $200/month
Retirement / Savings
Emergency Fund: $2,000
IRA: $110,000 (80% equities /20 bonds)
401k: $15,000 (80% equities /20 bonds)
Taxable: $1,500 (individual stocks)
1) Thought about just cashing out a significant portion of my IRA in order to just wipe the slate clean, clear off all high interest balances and free up cash flow to save again. It'll be a huge setback in terms of my retirement but gives me a solid ground to rebuild again.
2) Cut my expenses to the bare bone and just try to devote the next 24 months to paying off all my debt and living like a monk.
Any advice or insights is greatly appreciated. Thank you in advance.
Maybe aim for a 3 year payoff target. Pay off the lowest balance one first - then - use that card for any charge card activity - and pay off each month with zero interest.
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Watty
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Re: Recently divorced trying to clear all of my credit card debt.

Post by Watty »

Two things I have not seen mentioned;


1) Call your credit card companies and ask them to lower your interest rate. I have seen posts by people that had success with this and the worst thing that that can happen is that they say "no".

2) If you have a paid off car or a lot of equity in your car then check to see if you can get a new low interest rate loan on the car. This would be at a normal lender and not some title loan type of ripoff place. Even if you don't have a lot of equity you might still be able to get a longer loan with a lower payment so you could pay off some of the high interest debt.
mptfan
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Re: Recently divorced trying to clear all of my credit card debt.

Post by mptfan »

How old are you?
mptfan
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Re: Recently divorced trying to clear all of my credit card debt.

Post by mptfan »

ecastro314 wrote: Tue Feb 06, 2018 12:31 pm I'll probably hit pause on the 401k contributions (or dial it down to 2-3%) just to free up some cash flow.

Thank you everyone for the clear consensus.
This really made me laugh! Not one person suggested pausing 401k contributions before you wrote that, and you said there was a clear consensus?
:oops:
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dm200
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Re: Recently divorced trying to clear all of my credit card debt.

Post by dm200 »

If you have a paid off car or a lot of equity in your car then check to see if you can get a new low interest rate loan on the car. This would be at a normal lender and not some title loan type of ripoff place. Even if you don't have a lot of equity you might still be able to get a longer loan with a lower payment so you could pay off some of the high interest debt.
Yes - very good idea. Check with a credit union.
omeganuts0213
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Re: Recently divorced trying to clear all of my credit card debt.

Post by omeganuts0213 »

I would look into signing up those promo 0% credit cards for 12 - 18 months ...
Da5id
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Re: Recently divorced trying to clear all of my credit card debt.

Post by Da5id »

omeganuts0213 wrote: Tue Feb 06, 2018 2:50 pm I would look into signing up those promo 0% credit cards for 12 - 18 months ...
High percentage of credit utilized and other factors may make it difficult to get new cards at all, especially with those terms? But maybe.
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BL
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Re: Recently divorced trying to clear all of my credit card debt.

Post by BL »

Also just found out I have about $2,500 in a recent employee stock purchase issued from a month ago. The shares are in CompuShare and they're marked “unqualified” at the moment. Not sure but I think I need to hold them a year at least to claim the gains as long term. The gains are pretty modest right now — 15% between the purchase price and current price.
From
https://us.etrade.com/knowledge/educati ... chase-plan
How sales of shares from your ESPP are taxed depends on whether the plan is qualified or non-qualified. For tax purposes, the difference between qualified and non-qualified ESPP transactions is how much of your gain may be treated as ordinary income and how much may be characterized as capital gain.
I think you need to find out what is the soonest you can cash these in. I wouldn't wait for long-term in your case. My guess is it is non-qualified and may mean you would have Capital Gains, not ordinary income, when you sell.

Don't carry or use any CC you are carrying a balance on, that would also be charged that high interest. Maybe freeze them in a block of ice and keep in your freezer until you are out of debt.

Here is a great pdf booklet with investing and other advice by a recommended author:
https://www.etf.com/docs/IfYouCan.pdf
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Pajamas
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Re: Recently divorced trying to clear all of my credit card debt.

Post by Pajamas »

Yeah, don't reduce contributions to retirement accounts below the level needed to get the maximum employer match. It is self-defeating to leave that money on the table and walk away, especially in a retirement account. That would leave you worse off in the long-run, not better off.
omeganuts0213
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Re: Recently divorced trying to clear all of my credit card debt.

Post by omeganuts0213 »

Best thing is to call each card n see if a credit limit can be raised then consolidate all six cards into one card. All card companies balance transfers promo rates or a fixed rate for x number of months usually 12 months or more. Even if it is not 0% it is still better than what you are currently paying. Obviously there is a balance transfer fee, usually at 2-5% depending on the card.
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Index Fan
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Re: Recently divorced trying to clear all of my credit card debt.

Post by Index Fan »

$80 monthly cell phone bill-

Get a Tracfone and a minimum yearly plan that will cost about $8 a month, plus the occasional addition of $10 data purchases and phone minutes (if you need them). You'll save a lot.
"Optimum est pati quod emendare non possis." | -Seneca
WhiteMaxima
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Re: Recently divorced trying to clear all of my credit card debt.

Post by WhiteMaxima »

If you have credit card loan which carries 15%~16% interest, you would have cut entertaining expense, life insurance or even stop contribute retirement (just contribute enough to get the match). If you company offer Roth 401k, you should get it depend on your tax bracket. The CC payment is like 15%~16% after-tax return. Pay off CC 1st !! sooner the better. You can also borrow from you 401k (3.5% interest paying to yourself, in this market, it will against down risk). While you still paying your CC. Put your CCs in ice maker and put them in your fridge.
smitcat
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Re: Recently divorced trying to clear all of my credit card debt.

Post by smitcat »

WhiteMaxima wrote: Tue Feb 06, 2018 6:36 pm If you have credit card loan which carries 15%~16% interest, you would have cut entertaining expense, life insurance or even stop contribute retirement (just contribute enough to get the match). If you company offer Roth 401k, you should get it depend on your tax bracket. The CC payment is like 15%~16% after-tax return. Pay off CC 1st !! sooner the better. You can also borrow from you 401k (3.5% interest paying to yourself, in this market, it will against down risk). While you still paying your CC. Put your CCs in ice maker and put them in your fridge.
Agreed with most but its not likely a god idea to cut life insurance when you have young children.
Jim Beaux
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Re: Recently divorced trying to clear all of my credit card debt.

Post by Jim Beaux »

Expense wise, there is some fat you can reduce.

1. Look for cheaper rent

2. Reduce your utility usage. Raise the thermostat in summer & lower it in winter. Do not run the water 5 seconds more than you need to, be a miser with the electricity.

3. If you own your phone out right find a cheaper cell phone provider. (Straight Talk is $38. mo with 4g's of data) If youre under contract with your phone provider call and ask for a better rate. Tell them that you are in a bind & just might be forced to break the contract. (Be nice & dont threaten, ask for help)

4. $60 for internet has some fat that can be cut. Go bare bones basic or contact the provider & tell them you are in a bind & will probably have to drop your subscription. They often have a special plan that reduces rates for 12 months. They just may surprise you.

5. Car Ins- Shop your current carrier when insurance comes up for renewal. See if you can raise the deductible on your comp & collision. I carry $1000 deductible. Preferred, GEICO & Farm Bureau have lowest rates in Texas.

6. Considering your current situation, $200 mo for entertainment is too much.

Lastly go to HR & discuss your situation. Run a few scenarios by them & see if its advisable to reduce your contributions to the 401 or the HSA for a year. Reducing your contribution to the 401 by 1% would give you $845 mo ($10140 yr). You gotta stop the bleeding & the max 401 contribution is not helping your current situation today.

Good luck friend. It will get better.
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whodidntante
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Re: Recently divorced trying to clear all of my credit card debt.

Post by whodidntante »

I would liquidate the taxable investments and put my emergency fund toward the credit card debt. But I think high interest debt is a reasonable definition of emergency. You can consider stopping the HSA contributions temporarily, thought that is pretty costly tax wise.

You could cut the entertainment and the Internet, and there are cheaper options for mobile plans now. Why do you need to spend $60 for life insurance?

What options do you have to increase your income? I would recommend using skills you already have, instead of manual labor or trying to develop a skill you don't have.

Is there anything stopping you from refinancing the debt at a lower rate? I can think of several ways, but I don't know if any are an option for you.

Bottom line is you're likely paying 4 grand a year in interest. That's bad, but it's not life changing bad. It sounds like you just want the monkey off your back. Just take it seriously until you get rid of it. You'll be fine.
Carter3
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Re: Recently divorced trying to clear all of my credit card debt.

Post by Carter3 »

whodidntante wrote: Wed Feb 07, 2018 12:26 am I would liquidate the taxable investments and put my emergency fund toward the credit card debt. But I think high interest debt is a reasonable definition of emergency. You can consider stopping the HSA contributions temporarily, thought that is pretty costly tax wise.

You could cut the entertainment and the Internet, and there are cheaper options for mobile plans now. Why do you need to spend $60 for life insurance?

What options do you have to increase your income? I would recommend using skills you already have, instead of manual labor or trying to develop a skill you don't have.

Is there anything stopping you from refinancing the debt at a lower rate? I can think of several ways, but I don't know if any are an option for you.

Bottom line is you're likely paying 4 grand a year in interest. That's bad, but it's not life changing bad. It sounds like you just want the monkey off your back. Just take it seriously until you get rid of it. You'll be fine.
Check your decree but many times life insurance is a stipulation the cover alimony and child support obligations.
gotester2000
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Re: Recently divorced trying to clear all of my credit card debt.

Post by gotester2000 »

omeganuts0213 wrote: Tue Feb 06, 2018 2:50 pm I would look into signing up those promo 0% credit cards for 12 - 18 months ...
I agree - and I will try as hell to payoff the debt in 12-18 months. I dont see why OP can't do it with his salary and debt - stop all other contributions if needed during this period - focus on wiping off the debt and not adding more again.
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Watty
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Re: Recently divorced trying to clear all of my credit card debt.

Post by Watty »

Jim Beaux wrote: Wed Feb 07, 2018 12:10 am Lastly go to HR & discuss your situation. Run a few scenarios by them & see if its advisable to reduce your contributions to the 401 or the HSA for a year. Reducing your contribution to the 401 by 1% would give you $845 mo ($10140 yr). You gotta stop the bleeding & the max 401 contribution is not helping your current situation today.
Your math is incorrect. The OP makes $84,500 so a 1% reduction would free up $845 a YEAR and after paying taxes might might net in the ballpark of $600 a year in take home pay. That is about $50 a month.

The OP is also only contributing enough to get the employer match so they would lost that match too.

The HR department will also likely be prohibited from giving much specific advice because the company could be sued for giving bad advice. Even if they could give they would be about the last place I would want to discuss my financial situation. In additional to them often being surprisingly unknowledgeable about finances talking to them about having tight finances could cause all sorts of problems since they could be concerned that you will somehow steal from the company or be otherwise untrustworthy. The HR department is not your friend. Their sole reason for existence is to protect the company's interests which will often be different than the employees.
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djpeteski
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Re: Recently divorced trying to clear all of my credit card debt.

Post by djpeteski »

The way I see it, you can be debt free without really trying.

27K in CC debt in 24 months is 1125 per.

With the budget you listed you have 1430 or so of free cash flow. That gives you 305 per month extra. This should more then cover CC interest, which will be drastically going down each month. You could "wander" out of debt if you stick to the plan, but 24 months is a long time. I would want to greatly reduce that.

Here is the things I would do:
1) Borrow no more. Do not use CCs for points or whatever.
2) Do a fresh budget at the start of each month. Kids birthdays, Christmas, higher utility costs for the specific season, etc will need to be factored in.
3) Consider using cash for Groceries. On pay day withdraw the amount of cash budgeted for groceries. That has to last until the next payday. You will be surprised how little you spend and how much you have left over. That left over amount goes to debt.
4) List your bills smallest to largest, pay them off in that order. Pay the minimum on all but the target. Then kill the target debt. Any left over money attacks it.
5) Consider liquidating your taxable stock to kick start this program.
4) Consider reducing your HSA contributions.
5) Consider getting a second job. Even delivering pizzas on non-visitation weekends will earn you roughly $500 per month. That increases your free cash flow by over 33%. It will reduce your pay off time to 16 months, and in reality probably more like a year. Once you get some momentum going it will feed upon itself.
6) If you want to get really radical then reduce or eliminate your 401K contributions and shoot to have this CC debt taken care of in a year. It will be tough to do, but if you commit to doing this now, and stick to the plan, you will probably be out of debt in 10 months. The 10 months or so of missing the employee match will not change your world. Being out of CC debt in 10 months will.
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dm200
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Re: Recently divorced trying to clear all of my credit card debt.

Post by dm200 »

If not already prepared for, I suggest being prepared for a "request" for increased child support as the OPs financial condition improves. A former coworker, who was divorded and paid child support, made 100% sure he had a lot of outstanding debt and required monthly payments. It was his belief (and resultant actions) that if he had little or no debt, his ex would be successful in getting a judge to increase his required child support.

Perhaps consulting an attorney would be worthwhile on this issue.
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