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Not sure what to do. In over my head.

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garetjax2002
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Not sure what to do. In over my head.  Reply with quote  

I should have came to this forum first, but earlier today I took out a 401k loan for $23,500. I took out this loan because I am running low on funds, and I make less money per month than the expenses I have. I know that this is only going to fix things for a while, and once this money is gone I am really going to be hurting. I will give you some additional details to facilitate your ability to give me the best advice possible. That is what I need right now. Some guidance. Some direction from someone that has been in similar trouble before, or just someone that is great with helping people figure out their debt situations.

I have a truck that I owe $14000 on ($229 per month). I have 10 credit cards that I owe a combined total of $25000 on (approximately $500 month). I have a debt consolidation loan that I owe $30,000 on ($750 per month). I have an existing 401k loan that I owe $4800 on (Bi-weekly payments of $87). I also have a house payment of $1011 a month. These are the debts that can be paid off. I also have cable ($85 per month), cell phone ($165 per month), internet ($74.99 per month), pest control ($45 per month), security system (49.99 per month), electricity ($200 per month average), water ($25 per month), garbage ($25 per month) bills that total $670 per month. That's approximately $3330 a month in bills and I only bring home approximately $2700 per month and I am about to start bringing home about $400 less per month when the new 401k loan payments start coming out of my check for the $23,500 401k loan I just initiated.

I have good credit. I have scores of 700-730 through all three credit bureaus. So I might be able to move some money around through loans or balance transfers.

Please I'm begging you to help me resolve this situation. I don't expect to be able to do anything about this quickly. I just need some guidance. I need to become more disciplined. Every time I pay off my credit cards I slowly start to use them again and before I know it I've put too much on them. I don't want to keep living my life this way. Please help.
Post Wed Jul 30, 2014 2:49 am
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oldguy
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The consumer debt is about $97,000. So you must have bought some toys over the years that you could sell?

The house and the truck seem to be in-line with your income - and necessary. And the utilities appear in-line and necessities. You could bundle the $325/m of TV/phone/internet and cut it in half. That would save $2000/yr, but that's not the real problem, that didn't cause the $97,000 problem.

What is your age and family size? (If you're 55 with 6 kids the answer is different than if you're 25 and single.) You said - "I pay off my credit cards I slowly start to use them again and before I know it I've put too much on them". So you must be young - an older person would say "I borrowed too much on CCs" rather than "I used my CCs", lol.

You'll need to go thru your expenses and learn where the 'big' leaks are.

Do a budget but use annual numbers and gross numbers. Your gross income is about $50,000. Your house payment is $12,132/yr and the truck payment is $2748/yr. Include Fed income tax, State tax, SS/Med, 401k costs in your expenses. Then do a 'descending sort' on your expenses, ie list the biggest expense at the top Probably the house, then your Fed tax. The expenses should add up to your gross income, about $50,000.

You'll see that about 80% of your costs are in the top 20% of the list. So that's what you have to work on - eg, if you spend $1000/yr on lattes if won't help your $97,000 problem much to quit lattes. Conversely, if you can cut the top 3 to 5 items in half, you'll probably knock it down by $15,000 or $20,000.
Post Wed Jul 30, 2014 9:38 am
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oldguy
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BTW, that is called "separating the insignificant many from the significant few". The analysis was invented by Pareto, sometimes referred to as a Pareto Analysis,
Post Wed Jul 30, 2014 9:50 am
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littleroc02us
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So your in a debt predicament. I've been there and it wasn't pretty or fun to resolve, but I did it. In my late twenties and early thirties I had a really good job going on and was making decent money. I decided that I needed toys and was going out a lot spending money on who knows what. Before I knew it I had a $415 lease on a stupid truck, a new snowmobile, credit card debt and student loans all adding up to around 50k or so. Then I lost my job in the tech bust.
I thought about bankruptcy, but I said "hell no, that's too easy". So I sent out a 100 resumes a month and finally got a good job. I worked fulltime for a school district as an IT tech, I ran cable tv broadcasts at night and I delivered pizzas. Eventually I was able to get the truck paid for, I listed the credit cards from smallest to largest and put it on the fridge and crossed each one out as I conquered them. When I got married we paid off the school loans and I sold the snowmobile. We were debt free by my late 30's. Now we have plenty of disposable income to invest in Roth IRA's, 401k's, Real estate investments and traveling. The biggest thing is we use cc's in a very limited capacity, just because I don't enjoy them at all, we use cash and our check card for just about everything. I even run my two businesses with a bank card.

So back to your situation. The first thing that jumps out at me is your mortgage. Your mortgage payment is 37% of your net income, whereas ours is only 15% of our take home pay and we live in a nice neighborhood but don't overdo the house. I think you should consider selling your home and renting. By doing this we are able to fulfill investment goals, buy rental properties, travel and pay off bills and still have enough to play with.
Second, I don't think having a car payment is smart, but sometimes necessary. I would either sell it and take a loan out for the difference and get a beater car until you pay off your debt.
Third, you cannot afford cable right now, you should be working 80 to 100 hours a week in order to pay off bills so you don't have time for tv.
Fourth, your cell phone bill is enormous. Straight talk has month to month contracts for $45 with unlimited everything for a smart phone.
Fifth, why is your electricity bill so high. We are in the middle of summer in our home and we run the air conditioner in a 1600 square foot house and our bill at it's highest has only been $130.
Sixth, your 401k debt scares me the most. If you lose your job or take another job your required to pay the bill back withing 60 days. That debt needs to be eliminated first IMO.

As for credit scores and cc's. Rip up the cc's and stop using them, you don't need more debt. And the credit scores aren't fixing your problem, so who cares.

Hope this advice helps some. It worked for me.

Risk comes from not knowing what you're doing. (Warren Buffet)
Post Wed Jul 30, 2014 5:20 pm
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garetjax2002
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hi  Reply with quote  

I've been busy working a lot of overtime this week. You guys should be proud of me. I have been thinking about my best course of action and have been reading your replies. You guys have given me a lot of great ideas. I thank you very much. I will give you a thorough update soon of what I have decided to do. Talk to you soon.
Post Fri Aug 01, 2014 1:38 am
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littleroc02us
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I'm so glad to hear that your working your butt off. You'll figure this out.

Risk comes from not knowing what you're doing. (Warren Buffet)
Post Fri Aug 01, 2014 3:38 am
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