My husband and I have faced a significant and unfortunate legal situation over the last three years that not only had us feeling totally wronged but has messed up our finances in a big way. Because all of our money aside from housing and food was paying attorneys, we put a lot more than we should on credit cards. We kept thinking it had to end, but did not and so this has built up to about $45K on 4 cards or so since 2007.
We make good money, but also live in a high cost area with a good size mortgage and have three kids to support. We make our payments plus some extra and are never late but I feel like we are treading water, though and cannot save – even though we do not charge to the cards now. I am not happy with the position that we are in, and the hold it has put on our lives – and saving for college, replacing the old truck etc.
What is the best way for us to get rid of this debt and get on with our lives? Should I take all the cash I have on hand – maybe $8K – and sell some stock – worth about $15K – to get it down by that much? Really it would leave us with no reserves – that’s the emergency fund.
I have also thought about taking out a loan against my 401K, which has about $160K in it at least to pay off one of the cards, for like $20K. Do I do all that and then start from scratch – or do we just plod on through month after month with the payments as they are. Probably got a good 3 years or so to work this down in that case. Appreciate your time and advice…
When Steve asked me if I would be willing to help answer financial questions on his website, I was very hesitant. The reason being is that this type of forum is fine for straight forward questions, but in most situations I always have to begin with, I don’t know enough about your situation to give you a specific answer, but here is some general information that may or may not help.
Given the major financial decision you are trying to make, it would be a disservice for me to attempt to tell you the best moves to make without having a better understanding of your situation.
It may be that taking a loan from the 401K and paying it off is best. It may be that you should settle the debt and minimize the amount you borrow from the 401K. It may be that you can get the rates lowered and realistically pay off the debt with your current cash flows over the next few years. It certainly doesn’t make sense to eliminate your cash reserves to just pay off some of the debt, or all of it even for that matter. Every single option and several others that I didn’t mention have pros and cons. They have opportunity costs. There is no 1 right answer. What is right for you, might be completely wrong for another that is in a very similar financial circumstance.
You mentioned things like college, replacing the truck etc. How you decide to deal with the debt will affect these things and everything else. So we need to be able to talk about how you feel about different options and “war game” different options.
I recommend you contact me through my website and schedule a telephone consultation. I will have you fill out some financial worksheets before the call so I have a complete picture of where you are at and where you need to be. Then during the consultation we can put together a step by step plan that is both financially feasible and within your comfort zone.
Damon is a talented independent debt coach that provides in-depth assistance and consultations for people struggling with debt. If you want a personal debt coach to help you through a difficult situation or want assistance to find secret discounts offered by debt settlement companies I think Damon Day is an excellent person to contact for advice and assistance. He can be reached directly at DamonDay.com
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