| What is the best option??? |
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Tiffany
First Time Poster
Cash: $ 0.25
Posts: 1
Joined: 12 Mar 2005
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| What is the best option??? |
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I hope someone out there can give me a little advice. I recently received a letter from my Visa credit card company stating that they are changing the minimum payment requirments from 2.5% to 5%. Therefore my credit card minimum payment will be doubling and I can hardly afford the minimum as it is now. I am frustrated with my financial situation and any advice would be appreciated.
This is what I currently have:
1st Mortgage = $98,000/5.375%/30 years
2nd Mortgage = $44,000/7.99%/30 years
Visa = $12,700/25% (asked them to lower my interest, they declined)
Discover = $6,200/12%
Options I have available:
-Increase 2nd mortgage to $56,000/10%/15 years
-Borrow from 401k- I have $22,000 (I am 30 years old)
Anyone out there with some good advice and encouragement? Thanks!!!
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Sat Mar 12, 2005 7:10 pm |
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BlankenshipFP
Money Talk Advisor
Cash: $ 79.56
Posts: 390
Joined: 05 Oct 2004
Location: Illinois
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Okay - first of all, I wouldn't use either of your options that you listed last - that of raiding your 401(k) or borrowing more on the 2nd. You don't want to sabotage your retirement account in order to get out of this short-term situation, as you'll be giving up the penalties, future growth, and the like, that goes along with the good start you've made with your 401(k).
Expanding your 2nd mortgage would have the effect of "institutionalizing" your short-term debt. Effectively, what you would be doing is taking the payments for all the things you bought on your credit card (gasoline, clothing, what have you) and extending out the time you're paying it back to 30 years. In addition, you'd be increasing an already high interest rate to a ridiculous rate for long-term debt.
The answer to this situation is to confront yourself with how you got into this situation to begin with. Understand what actions you took to get here, and figure out how you can stop this from continuing. It's not fun, but it's the only way I know of to stop the cycle from continuing.
In the meantime, if you can get another card or loan with a reasonable rate on it that you can move the debt to (so that you can afford the payments), do so. Then get rid of the original card(s), so that you won't be tempted to charge anything on them.
Next, determine how to begin knocking down that balance. Consider your income, how to increase it. Maybe you take on a second job, or take overtime when available. Also consider your expenses. How can you cut other expenses in order to free up more cash to make bigger payments? Maybe you need to take the bus instead of driving, or take your lunch to work instead of going out. There are many ways to free up funds if you're motiviated. Make a spreadsheet of your balances and record each new balance as you make your payments, and soon you'll begin to see headway. It takes time and dedication, but it will last and the habits you develop will serve you well.
Good luck, and I hope this helps -
Jim Blankenship, CFP�, EA
Blankenship Financial Planning, Ltd.
www.BlankenshipFinancial.com
Standard IRS Circular 230 Notice Applies
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Sat Mar 12, 2005 9:19 pm |
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Rolo
Yo' Daddy
Cash: $ 309.70
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Joined: 13 Mar 2005
Location: Colorado/Florida
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quote:
Originally posted by BlankenshipFP
You don't want to sabotage your retirement account in order to get out of this short-term situation, as you'll be giving up the penalties, future growth, and the like, that goes along with the good start you've made with your 401(k).
Definitely...especially when you are young.
quote:
Originally posted by BlankenshipFP
Expanding your 2nd mortgage...you'd be increasing an already high interest rate to a ridiculous rate for long-term debt.
Yup...you would be reducing the interest rate on a small amount and increasing the interest rate on a much, much larger amount. Not a viable option. More true if your 2nd mortgage is a variable rate.
*IF* you can get a HELOC at a better rate for $63K and payments you can afford, consolidate everything. If you get a solid offer, take that to your current 2nd mortgage holder and give them a chance to beat it.
quote:
Originally posted by BlankenshipFP
In the meantime, if you can get another card or loan with a reasonable rate on it that you can move the debt to (so that you can afford the payments), do so. Then get rid of the original card(s), so that you won't be tempted to charge anything on them.
Right. I get a million "zero interest balance transfer" offers from my existing credit cards and new credit card offers. Take one up on it to get rid of that 25% APR card.
Another option to explore is a credit management service, such as genus.org, to have them negotioate terms for your credit card debt. I used them several years ago to gain control of my debt; they knocked all my interest rates down to 6%-12% and provided me a clear plan to pay everything off with a montly amount less than I was currently paying.
Blankenship stated it precisely: make a spreadsheet with all of your income/expenses and design a plan to take care of everything. Make a plan, improve the plan, and stick to the plan, then, you know exactly what is going on and nothing is so out-of-control. It is not something for people only in a financial bind to do...it is a must everyone to do, regardless of financial shape.
Also, what you do not want to do is trash your credit report; don't let things go.
Last edited by Rolo on Sun Mar 13, 2005 11:53 pm; edited 1 time in total |
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Sun Mar 13, 2005 10:16 pm |
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BlankenshipFP
Money Talk Advisor
Cash: $ 79.56
Posts: 390
Joined: 05 Oct 2004
Location: Illinois
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Excellent points, Rolo - and welcome to the board!
Jim Blankenship, CFP�, EA
Blankenship Financial Planning, Ltd.
www.BlankenshipFinancial.com
Standard IRS Circular 230 Notice Applies
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Sun Mar 13, 2005 11:34 pm |
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Rolo
Yo' Daddy
Cash: $ 309.70
Posts: 1551
Joined: 13 Mar 2005
Location: Colorado/Florida
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ty, Jim. Sarah told me about this site...looks really cool and I like phpBB.
heh...a few years ago, I kept an interest-free loan going for two years with those offers. My 3 credit cards keep enticing me to write those checks. Nuh uh...I am done with carrying a balance.
Oh! One more thing along the credit report subject: Do not use services like LendingTree. They submit your information to four banks, who, in turn, each run a credit check. Four credit checks in a two-week period with no new accounts hurts your credit score for a while. Know your credit score and be frank with the lenders to get precisely what they have to offer. Only when you want to open an account as agreed do you let them run a credit check. Doing that paid off on my last mortgage since one extra check would have put me in the less-than-perfect category.
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Mon Mar 14, 2005 12:01 am |
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LottomagicZ4941
Senior Member
Cash: $ 1.66
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Joined: 02 Dec 2004
Location: Earth
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As long as it is tempoary raiding the 401K may not be as bad as you think.
In the 90s I had credit card debt (should not have financed my final year of schooling on the credit card)and when no one would deal with me on rates I borrowed out of the 401K.
As soon as I did that I was again in the land of very low intrest rates.
So I borrowed back off the credit cards and paid the 401K back.
My plan permits loans at 5.5% currently.
I've dropped full coverage on the car as if I wreck my car I'll raid the 401k again.
Hope I don't have two but raiding the 401k can be a tool. Can't raid the 457b so it is not that I don't still have savings.
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Tue Mar 15, 2005 9:47 am |
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KenshiSoro
New Member
Cash: $ 1.05
Posts: 5
Joined: 06 Apr 2005
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refinance through a credit union they can save you like 50%!
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Wed Apr 06, 2005 5:03 am |
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SOLNET5
Member
Cash: $ 3.40
Posts: 15
Joined: 16 Apr 2005
Location: NEW JERSEY
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If you have equity in your home, pay off all your credit card debt, and car payments.
A properly structured debt consolidation can pay off these loans and merge them into your house payments and save you hundreds per month.
This is another option. If you like more infomation you can email.
Hope this helps.
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Sat Apr 16, 2005 2:28 am |
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BankruptcyOnline
Contributing Member
Cash: $ 9.90
Posts: 48
Joined: 16 Apr 2005
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Refinancing with our Credit Union was an answered prayer for us and we hadn't even thought of it since we don't do our regular banking with them. Good Luck!
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Sat Apr 16, 2005 4:01 am |
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William Bobo
New Member
Cash: $ 1.05
Posts: 5
Joined: 08 Aug 2005
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I'm not so sure if its a good idea to "borrow" from your 401k and then pay it back. The reason is you are paying the penelty to borrow but you are repaying the loan with after-tax money. So that money will be taxed twice, first when you earned it and second when you finally cash in your 401k.
I am not even close to being an expert on this so please correct me if I am wrong.
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Mon Aug 08, 2005 4:21 pm |
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