Accumulated a lot of Debt - What should I do?

[Reyaj]

Without getting into how I acquired the debt here is my situation:

I have 90K in debt scattered among different credit cards.
I make 80K a year (obviously I take home a hell of a lot less after taxes)
I have a 401K plan worth 40K
I don't really have any savings.

I have some 0% promotions on these cards but they will expire. I have at least 30K of the debt where I am getting charged the normal CC interest.

What would my best course of action be and why?

 

[Billtx49]

If you are in that deep vs. that income level, consult with a good bankruptcy attorney. He will give you your options per the state or country you live I've. Any advise from the Internet is useless to you at this point.
If indeed you have to file, you can regain good credit after 7 years, and use those intervening years to do some spending introspection.
Probably not what you want to hear, but that is what I would do under that financial condition.
At some point the money juggling act has to stop and seek a good long term solution.

 

[BlueAlpha1]

Without getting into how I acquired the debt here is my situation:

I have 90K in debt scattered among different credit cards.
I make 80K a year (obviously I take home a hell of a lot less after taxes)
I have a 401K plan worth 40K
I don't really have any savings.

I have some 0% promotions on these cards but they will expire. I have at least 30K of the debt where I am getting charged the normal CC interest.

What would my best course of action be and why?

If it's possible, I'd clear out the 401k and pay off some of the debt. That is a MOUNTAIN of debt (I have 29k from a student loan and I worry) but 50k is much better than 90k. You're halfway to debt free.

Some people here will tell you this is terrible advice because 401k is for "retirement", but that's an uncertainty these days. I can tell you what your company is matching on your 401k is probably barely keeping up the interest you pay every month on a debt like that.

I'd rather have less debt and less assets than more of both. A few mistakes or emergencies and the assets are gone but the debts are still there.

Also consolidate if possible. One payment of $350 is easier than three payments of $117, in my opinion.

 

[Billtx49]

If it's possible, I'd clear out the 401k and pay off some of the debt. That is a MOUNTAIN of debt (I have 29k from a student loan and I worry) but 50k is much better than 90k. You're halfway to debt free.

Some people here will tell you this is terrible advice because 401k is for "retirement", but that's an uncertainty these days. I can tell you what your company is matching on your 401k is probably barely keeping up the interest you pay every month on a debt like that.

I'd rather have less debt and less assets than more of both. A few mistakes or emergencies and the assets are gone but the debts are still there.

Also consolidate if possible. One payment of $350 is easier than three payments of $117, in my opinion.

$90,000 at $350/mo payments (without interest) is over 21 years of payments.
Would anyone want to mortgage their future for past debt like that ?
A lot talk about moving on emotionally from failed and/or bad relationships and doing what is in our own best interest on this forum. Does that not apply to a very bad financial situation as well?
Bottom line, if CC debt exceeds your yearly income, you are in deep shvt.

 

[synergy1]

I don't know your situation at all, but I would come up with a plan to pay that down and budget what you have to start increasing your cash on hand. Move someplace cheaper, cut unnecessary costs and the like. Really get into the details and figure out what you can safely pay off and stick to the plan. I won't advise to pay down the debt with a 401k mostly because you get penalized for withdrawing early...

 

[Bible_Belt]

Do you have any assets? House? Car? Anything of value that is not borrowed against? Value everything you own at yard sale prices, or must-sell-it-now value. What is your amount of total assets after that calculation?

Don't be embarrassed. The smaller that number is, the better, if you are looking at bankruptcy.

If you have no assets, quit your job and live off 401k withdrawals for six months. Then spend $350 to file Chapter 7. Your case is open and shut: no income, no assets means you get out of all of your unsecured debt. You don't need an attorney. I could have written a bankruptcy filing as a 3rd-grader. Any literate person can do it themselves.

If you don't want to quit your job, or if you have a house/car on payments you don't want to lose, then file Chapter 13. You'll get out of about 2/3 of the debt.

 

[Billtx49]

Do you have any assets? House? Car? Anything of value that is not borrowed against? Value everything you own at yard sale prices, or must-sell-it-now value. What is your amount of total assets after that calculation?

Don't be embarrassed. The smaller that number is, the better, if you are looking at bankruptcy.

If you have no assets, quit your job and live off 401k withdrawals for six months. Then spend $350 to file Chapter 7. Your case is open and shut: no income, no assets means you get out of all of your unsecured debt. You don't need an attorney. I could have written a bankruptcy filing as a 3rd-grader. Any literate person can do it themselves.

If you don't want to quit your job, or if you have a house/car on payments you don't want to lose, then file Chapter 13. You'll get out of about 2/3 of the debt.

Perhaps you can advise him on Calif. bankruptcy laws then, so he can file with his own best interest in mind.

 

[Bible_Belt]

Bankruptcy is Federal Court.

 

[Billtx49]

The laws vary by state also. In some states you have to give up home equity or they can take your house (homestead), in other states not.
There are location specific consequences depending on the state you live and file in.

 

[Reyaj]

If you are in that deep vs. that income level, consult with a good bankruptcy attorney. He will give you your options per the state or country you live I've. Any advise from the Internet is useless to you at this point.
If indeed you have to file, you can regain good credit after 7 years, and use those intervening years to do some spending introspection.
Probably not what you want to hear, but that is what I would do under that financial condition.
At some point the money juggling act has to stop and seek a good long term solution.

Bankruptcy.. I honestly wasn't even considering this. I am able to make my monthly payments right now, do you think I really should go this route? I know the big downside is that I can't have credit for 7 years so I wouldn't be able to get a mortgage on a house or something. I'd be more concerned if I got married that this would inhibit my future wife and I from purchasing something.

If it's possible, I'd clear out the 401k and pay off some of the debt. That is a MOUNTAIN of debt (I have 29k from a student loan and I worry) but 50k is much better than 90k. You're halfway to debt free.

Some people here will tell you this is terrible advice because 401k is for "retirement", but that's an uncertainty these days. I can tell you what your company is matching on your 401k is probably barely keeping up the interest you pay every month on a debt like that.

I'd rather have less debt and less assets than more of both. A few mistakes or emergencies and the assets are gone but the debts are still there.

Also consolidate if possible. One payment of $350 is easier than three payments of $117, in my opinion.

Well I was thinking I'd use the 401K to survive in case I lose my job or something. With my job I am able to make my monthly payments as of now.

I don't know your situation at all, but I would come up with a plan to pay that down and budget what you have to start increasing your cash on hand. Move someplace cheaper, cut unnecessary costs and the like. Really get into the details and figure out what you can safely pay off and stick to the plan. I won't advise to pay down the debt with a 401k mostly because you get penalized for withdrawing early...

I don't really want to change my lifestyle.. but I agree that I need a fundamental plan to make it better. I'd rather looking into different income streams than downgrade my lifestyle. I definitely need to cut expenses... I live ridiculously

Do you have any assets? House? Car? Anything of value that is not borrowed against? Value everything you own at yard sale prices, or must-sell-it-now value. What is your amount of total assets after that calculation?

Don't be embarrassed. The smaller that number is, the better, if you are looking at bankruptcy.

If you have no assets, quit your job and live off 401k withdrawals for six months. Then spend $350 to file Chapter 7. Your case is open and shut: no income, no assets means you get out of all of your unsecured debt. You don't need an attorney. I could have written a bankruptcy filing as a 3rd-grader. Any literate person can do it themselves.

If you don't want to quit your job, or if you have a house/car on payments you don't want to lose, then file Chapter 13. You'll get out of about 2/3 of the debt.

No assets... I rent my place and lease my car. If I quit my job and lived off my 401K, what the hell would I do when they ran out? At least with my job I could pay for my rent.
...

 

[Billtx49]

Bankruptcy.. I honestly wasn't even considering this. I am able to make my monthly payments right now, do you think I really should go this route? I know the big downside is that I can't have credit for 7 years so I wouldn't be able to get a mortgage on a house or something. I'd be more concerned if I got married that this would inhibit my future wife and I from purchasing something.



Well I was thinking I'd use the 401K to survive in case I lose my job or something. With my job I am able to make my monthly payments as of now.


I don't really want to change my lifestyle.. but I agree that I need a fundamental plan to make it better. I'd rather looking into different income streams than downgrade my lifestyle. I definitely need to cut expenses... I live ridiculously



No assets... I rent my place and lease my car. If I quit my job and lived off my 401K, what the hell would I do when they ran out? At least with my job I could pay for my rent.
...

Yes, I have no doubt you were not considering it. Yes, any credit you can get for seven years will be limited.
Now add up what your monthly payments are now and consider that amount as added cash flow for that seven years, if you can get complete liquidation of the past debts. That fact in itself over time will help you learn to live within a budget on more of a cash basis. Get an attorneys advice before doing anything.

 

[Billtx49]

Bankruptcy.. I honestly wasn't even considering this. I am able to make my monthly payments right now, do you think I really should go this route? I know the big downside is that I can't have credit for 7 years so I wouldn't be able to get a mortgage on a house or something. I'd be more concerned if I got married that this would inhibit my future wife and I from purchasing something.



Well I was thinking I'd use the 401K to survive in case I lose my job or something. With my job I am able to make my monthly payments as of now.


I don't really want to change my lifestyle.. but I agree that I need a fundamental plan to make it better. I'd rather looking into different income streams than downgrade my lifestyle. I definitely need to cut expenses... I live ridiculously



No assets... I rent my place and lease my car. If I quit my job and lived off my 401K, what the hell would I do when they ran out? At least with my job I could pay for my rent.
...

You mention a future mortgage possibility, do you really think that is an option for you based on your current debt to income ratio?
If you marry a woman in said future, she would quite possibly need to earn at least twice as much as you, depending on her personal debts, to qualify.

 

[Bible_Belt]

Yes, any credit you can get for seven years will be limited.

But with his current debt-to-income ratio, he's not going to get credit, anyway. I filed for a gf of mine a few years ago. Our mailbox was full of credit card offers immediately....all at high rates, of course. But that's better than he could get right now.

 

[Billtx49]

Yes, any credit you can get for seven years will be limited.

But with his current debt-to-income ratio, he's not going to get credit, anyway. I filed for a gf of mine a few years ago. Our mailbox was full of credit card offers immediately....all at high rates, of course. But that's better than he could get right now.

Yes he can still get high rate cards, but they should be used only for emergencies during the seven year period. He needs to go mostly cash and not borrow against tomorrow anymore.
Think bettors call it " betting on the come"

 

[Bible_Belt]

I disagree. The best use of the post-bk, 25% interest $500 limit cards he is going to get would be to max the card out while saving the cash to pay it off, let the balance carry one month, and then pay it off the next month. As soon as your payment hits, call the company and ask them to raise your limit. They will raise it 50% every time you do this.

Not using credit does not help your credit. The reporting agencies want to see you use it and then pay it off.

 

[Billtx49]

Agreed, but too many negatives in his report if he goes BK. Yes they will raise the limit over time with good payments, usually every six months or so. The question is, why would he want a high limit at those rates given his propensity to overspend?
I think he should get the spending under control on a mostly cash basis first, before seeking more credit.

 

[Bible_Belt]

why would he want a high limit at those rates given his propensity to overspend?

His credit score will go up, and better offers will start to arrive. And sure, he can be irresponsible and fvck everything up, but he's the only one who can control that.

 

[speed dawg]

You could try paying off your debt. Call the credit card companies and settle with them. I would not use your 401K, that 40K will be 20K when they get done with it.

First thing you need to do is chop up your credit cards.

 

[Reyaj]

Actually I just realized that most place to rent from want to do a credit check on you right? How would I live somewhere if I declared Bankruptcty?
I also spoke to a lawyer today he seems keen on pushing it... using one would be a rip off though if I plan to file right?

 

[Billtx49]

Actually I just realized that most place to rent from want to do a credit check on you right? How would I live somewhere if I declared Bankruptcty?
I also spoke to a lawyer today he seems keen on pushing it... using one would be a rip off though if I plan to file right?

You usually get what you pay for. Attorneys are professionals in their category of practice.
As far as rent credit checks, I think a BK could actually work in your favor because you would have more spendable income for rent. It's not like they are giving you a loan. They want to be certain you can and will pay them rent.