Seriously, what are the best ways to get out of debt??

[KELLYLYNN]

Originally Posted by Bizzymammabee

You get nailed if you take a hard amount out. You can also opt to pay that tax at the time you take the money so it's taken immediately.

I have taken money as a loan and repaid. Never the hard disbursement.

you have to pay taxes on that money you take out, it's considered income... my husband company only paid the IRS a percentage of the taxes, i got nailed this year with 8,000.. to pay back, plus 130.00 per month with penities and interest... i will never borrow from his 401 K again..... so i just got into more dept. than i wanted too.... his company told him the taxes will be taken care of... YA RIGHT !!!!!!! i wish i knew that then...

[Bizzymammabee]

Originally Posted by Erin

Isn't it easier to just stop paying into the 401K? I would love to save money, but it makes no sense to save until we are out of debt. Once we have paid off everything but the mortgage, THEN I will start saving for retirement, vacations, a bigger house, etc.

Actually paying into that 401k is very beneficial to you. First off if you look at your stub the money is taken pre-tax thus bringing down the amount of taxable income you have for the IRS to tax. If you don't opt for the 401k then your taxable income is higher and the IRS gets more and odds are you would still not see that money because they would suck a huge portion of it out anyhow.

Plus the added advantage is the free extra money you get. With my firm they do a matching up to 4% that we put into it with 2% percent of their money. So while I contribute 4% of my bi-weekly paycheck I actually get 6% put into my account bi-weekly.

Also a 401k is a good way to ensure you will be able to eat when you retire.

[Bizzymammabee]

Originally Posted by KELLYLYNN

you have to pay taxes on that money you take out, it's considered income... my husband company only paid the IRS a percentage of the taxes, i got nailed this year with 8,000.. to pay back, plus 130.00 per month with penities and interest... i will never borrow from his 401 K again..... so i just got into more dept. than i wanted too.... his company told him the taxes will be taken care of... YA RIGHT !!!!!!! i wish i knew that then...

A friend of mine took a hard disbursement. She opted to take the taxable percentage (usually what you would have paid according to your tax bracket which tends to be about 28%) out at the time she got the money. So the money she requested she got 28% less at the time and the deducted amount went to pay her taxes. She once opted to wait and pay it at tax time but that is bad becuase you tend to get socked.

This is the third time I have taken loans from my 401k. Never had any tax issues becuase it was a loan and I was paying it back into my account with an interest rate of 5.8%. Never owed any money at the end of the year because it's not a hard disbursement.

[Erin]

Originally Posted by Bizzymammabee

Actually paying into that 401k is very beneficial to you. First off if you look at your stub the money is taken pre-tax thus bringing down the amount of taxable income you have for the IRS to tax. If you don't opt for the 401k then your taxable income is higher and the IRS gets more and odds are you would still not see that money because they would suck a huge portion of it out anyhow.

Plus the added advantage is the free extra money you get. With my firm they do a matching up to 4% that we put into it with 2% percent of their money. So while I contribute 4% of my bi-weekly paycheck I actually get 6% put into my account bi-weekly.

Also a 401k is a good way to ensure you will be able to eat when you retire.

I don't have the option of being in a 401K, but I would do a Roth IRA or regular IRA IF my debt was paid off. I would take the match but that's it - although most matches require you to be at a company for a certain number of years and nothing guarantees that.

Sure it's pre-tax and it's great that they match, but unless the debt is interest free it really doesn't work out all to be that much better than paying off the debt. Plus, if you have to borrow from yourself could you really afford to contribute to it in the first place? It obviously doesn't grow interest when you borrow from it.

Once my debt is paid off I'll be able to fully fund emergency, savings and retirement accounts rather than paying $50/month.

I'm totally not trying to attack you at all. It just sounds like one of those situations where it sounds like it makes sense - like not paying extra on your mortgage because mortgage interest is tax deductible. In reality, having a mortgage just for the write off is like saying you are going to pay the bank $1 so you don't have to give the IRS 25 cents.

I just think it makes more sense to pay off the debt, not take out any more, and build up savings and emergency funds before trying to save for retirement.

[Bizzymammabee]

Originally Posted by Erin

I don't have the option of being in a 401K, but I would do a Roth IRA or regular IRA IF my debt was paid off. I would take the match but that's it - although most matches require you to be at a company for a certain number of years and nothing guarantees that.
You can do the roth or regular IRA on your own but it's good to take advantage of the 401k. My company only requires you passing your probationary period of 3 months of employment to enroll in the 401k plan or be 35 for it to be started immediately

Sure it's pre-tax and it's great that they match, but unless the debt is interest free it really doesn't work out all to be that much better than paying off the debt. Plus, if you have to borrow from yourself could you really afford to contribute to it in the first place? It obviously doesn't grow interest when you borrow from it.
Well the flip side is that you can pay off that high interest credit card debt, have the payments taken from your check pretax and pay a much lower interest rate which that interest charge goes back into your own personal 401k account...so the reality of it is you pay your self interest and not a bank. With market fluctuations you lose and gain on your 401k anyhow. If you read in the beginning I said if you were close to retirement then I wouldn't do it. I would only do this if you had years and years like I do (35) before I retire. Personally this worked for me. I was able to pay off my high interest rate credit card and then due to the fact that the interest on the loan I took out was so low I was actually able to pay off that loan in under a year whereas it would have taken forever to pay off that high interest rate credit card. Most people that have their 401k the money is taken immediately so you know that is not money you have so you don't think to spend it. That money never enters into my mind as though I have to so I techically have it but I don't if that makes any sense to you in regards to the not having it in the first place to save.

Once my debt is paid off I'll be able to fully fund emergency, savings and retirement accounts rather than paying $50/month.

I'm totally not trying to attack you at all. It just sounds like one of those situations where it sounds like it makes sense - like not paying extra on your mortgage because mortgage interest is tax deductible. In reality, having a mortgage just for the write off is like saying you are going to pay the bank $1 so you don't have to give the IRS 25 cents.

I just think it makes more sense to pay off the debt, not take out any more, and build up savings and emergency funds before trying to save for retirement.

She wants to pay off the debt that she owes not over pay on it. It's an alternative option if she doesn't want to go to a consolidation agency. I dont' see it as building up more debt. Your just readjusting where you pay the debt because no matter what it has to be paid but why pay a high interest credit card when you don't have to. It's just like doing a balance transfer to a much lower interest rate card.

[yorkiegirl83]

I don't have any credit cards and neither does DH. He ran them up years ago and paid most off and I was irresponsible with my one card and then paid it off and haven't gotten another.

I don't know how to get out of debt really, but I know that for us we just need to save so badly and I'm horrible at it.

I think the key is to just stop spending on anything other than neccessities, as much as it isn't fun. Because most of the time, when you borrow to pay the CC's down, if you don't cut them up and cancel them, there's such a high chance they will get run right back up again.

I watch this show Till Debt Do Us Part, and the woman on it suggests paying what you can extra to your debt, but also saving X amount for emergencies even if it means it will take you longer to pay off your debt. That way if something comes up you can use your savings, instead of going back into debt on the card.

[Erin]

I get what you are saying but I still think it makes more sense to get the banks to lower your interest rate on your current cards and close them and then methodically pay them off. There is something about paying off the cards rather than just transferring the debt. It's difficult, but it is such an accomplishment it makes you think twice about getting the card out next time you want something.

The cycle of people running up CC's and then doing a re-fi to consolidate is part of the reason we have this mortgage crisis. If people would just pay their mortgage rather than use it to consolidate debt we wouldn't have as many problems. If you consolidate or re-fi or borrow from a 401K you have to be committed to paying the stuff off and NOT charging again or you are right back where you started. Plus, we live in a culture of buying things we can't afford so you have to learn to look at things differently than the rest of the world. I think Dave Ramsey says "Normal is BROKE! I don't want to be normal."

I've paid off at least $40,000 in medical, CC, car loan and student loan debt in the last 3 years. I just have part of my student loan left and I want to get that paid off by next summer. If you think about it, I will then have almost $15,000 a year EXTRA that I'm not using to pay off debt. I will use that to invest and save once I'm not bogged down by payments.

We "live" on about half of what we make. And housing around here isn't cheap so most of that goes to pay the mortgage! Our 2nd car is 10 years old. We didn't take a honeymoon and we don't take vacations. We cook a lot and I take my lunch every day. We bought couches a whole year after we bought our townhouse and tables 2 years later. (We sat on the floor a lot!) I still don't have bedroom furniture - just a mattress & box spring and 2 ikea tables. It's REALLY hard, but I've been crunching the numbers and once we are done it will be awesome.

Once we cut our lifestyle and focused we found a few hundred dollars a month to pay off one debt. Then once that was paid off, with one less payment, we had $500/mo, then $700/mo after another was paid off, and finally I was sending nearly $1000/mo to the credit card until it was paid off.

My goal is to never have to take out another car loan. Those $500/mo payments eat up your income worse than anything else. I can't wait to just have my mortgage and true "bills" like utilities.

[Jenn218]

Thanks everyone...I have found everything very interesting and helpful!
Keep those suggestions and thoughts coming!
I do truly appreciate it!

[KELLYLYNN]

Originally Posted by Bizzymammabee

A friend of mine took a hard disbursement. She opted to take the taxable percentage (usually what you would have paid according to your tax bracket which tends to be about 28%) out at the time she got the money. So the money she requested she got 28% less at the time and the deducted amount went to pay her taxes. She once opted to wait and pay it at tax time but that is bad becuase you tend to get socked.

This is the third time I have taken loans from my 401k. Never had any tax issues becuase it was a loan and I was paying it back into my account with an interest rate of 5.8%. Never owed any money at the end of the year because it's not a hard disbursement.

i see what your saying, but i'll never borrow from a 401 k again... i'm getting out of this hole were in now, i have a very strick budget for the next 8 months until everything is repaid, i cut the credit cards up, and i pay for everything with good old CASH now, and if we don't have the cash we don't need it then, it can wait... His company did deduct and certain amount at the time of the loan, but what they did not explain to him is that there only responsible for a percentage of the tax payback and that HE had to make payment arrangement to pay the rest of the taxes owed, the one thing i don't understand is why it took the IRS almost two years to catch this, cause he got a tax refund last year, i guess they wanted the extra 130.00 a month in penilties and interest in there pocket,,, oh well i got it paid off, thanks to a family member that i borrowed the money off of with less of an interest rate than the IRS.... im just saying unless im really, really, hurting i rather go to a loan shark then my IRA... i almost died when i got that letter....

[Sukoshi's Mom]

First off Jenn, I think it's great that you're aware of your debt, and that you WANT to pay it off! That's the first step!!! My husband and I are currently focusing on paying off our debt, and let me just say that I think that is soooooo important to the whole process...that your husband and you are in it together. And YES, that means confessing to him that you owe more than the $8,000 that he is aware of! Matt and I are both spenders, but my first priority has always been to pay it toward our debt first, leaving a little left for "fun" at the end of the month. Matt's priority is to have fun, and then put a little toward our debt if there's anything left at the end . Well...when we first got married and I took over all our bills/money, I was almost trying to sneak extra money away to the credit cards, because I knew he would want to spend it if he knew we had it available! That really doesn't work! Since then, we've sat down and discussed the situation, I got him on the same page as me (agreed to spend as much as we could to the credit cards each month, promising him that I'd ensure there's money leftover for "fun" (i.e. eating out, Best Buy , etc.) within reason), and it's so much easier since we're both on the same page. For us, it's about realizing that we need to get out of debt if we hope to have bigger and better things in the future (house, better cars, etc.). We can keep each other in line with our spending (although he's so good to NEVER say anything negative when I buy more clothes for Sukoshi ), and we ONLY pay for stuff with our debit card or cash (the debit card because we earn airline miles, so it's more advantageous for us than cash, and it comes from the checking account just the same). I think it is sooooo important to STOP using those credit cards! And...I'm pleased to say...we had 4 credit cards (with large balances) when we first married, and we're down to only 2 now, and 1 of those will be paid off this month, and we don't have much left on the last one! So...we'll have our credit cards paid off by December, and that will just leave us with the car loans and student loans.

I did a lot of reading on Dave Ramsey's site (someone else recommended him in an earlier post), and I focused on getting the credit cards paid off in the order of highest interest rate first. That's what worked best for me because I hate paying interest to ANYONE ! Ramsey suggests for some people, it works better to pay off the smallest balances first (regardless of interest rate), so you can feel your achievements quicker and keep up the motivation. You have to decide what will motivate you more - knowing you're saving on interest, or paying off a balance entirely. It sounds like you have good deals with the 0% interest on 2 cards, so I'd focus on the 11% one if I were you.

And lastly...if at all possible, I think it is so important to have savings accounts as a net to fall back one day, because you never know when someone will lose a job, get terribly ill, etc. I know you're asking how you can afford to funnel money into a savings account when you're also supposed to be funneling it into your credit card companies, but it is my personal opinion (I'm sure others will disagree) that some savings is so important, even if you can only put away a little each month. Matt and I have 4 savings accounts - Regular, Christmas, Vacation, and Pets. We have the money automatically transferred to our savings accounts each month, so it is just another "bill" to us that the bank automatically pays from our checking. It is great because it doesn't require any thought (other than making sure there's money in the checking account when it drafts ), but it is there when we need it. By saving for Christmas and Vacation throughout the year, it makes it more affordable when the time comes to need it. And as for pets, we do that instead of getting pet insurance, so we have a fund in case anything goes wrong with the babies, but I don't feel like I'm throwing my money away with an insurance company if they don't ever need it. And the regular savings is just in case we ever lose our jobs or anything. It doesn't matter how much you save at first...it could only be $5/month if that's all you can spare...but get in the habit of saving! Coming from a spender, I know it's hard...but it is so good to have that net to fall back on!!

Again, these are just my personal methods and opinions, and you may not agree with them , but hopefully you'll find what will work for you and keep up the motivation!!! Good luck!!

[yorkiesmiles]

One of Suzy Orman's ideas that I found most helpful was write down your balances for each of your cards and your interest rates. Put with your bills - I kept a ledger and wrote in pencil, so I could easily change the dropping balance due -- I was always excited to see it knocked down! There is something about seeing the visual - like watching the scale go down when you're trying to lose weight.

I definitely agree with trying to be on the lowest rate cards as possible. Do you have some available funds on the 0% card that would allow you to transfer some of the debt from the higher interest card, without paying a big processing fee? It's heaven to have a 0% interest card!

I also would have a plan on how to pay down the cards, - take the one with the lowest balance and put as much toward it as possible, then when its paid off take what you would have pd on that card & add it to the amt you have available for the card with the next lowest balance due.

You have to be diligent. I do believe in keeping one card - there are somethings in this world you have to have a credit card for. Get rid of the rest, and file the one away for emergencies, airline tix, etc.

Do you have equity in your house?? This would be the best place to borrow, if you really had to -- but if you do this, don't go out and spend freely again.

Watch what you spend - for several years I kept track of every penny I spent, it was interesting to see where it was going, or how I could justify. Maybe tracking your expenses of 1-3 mths will show you a pattern of where you can cut back. I've never had cable/satellite so I don't think that is a necessity, can you read the newspaper online, cut out any extra expenses.

This all takes DISCIPLINE - something that is very difficult for many of us. I still struggle at times, luckily my favorite department store has a 0% interest credit card -- and sometimes I buy something, and keep it for several days in the closet and then get it back out and decide I don't really need it -- back to the store it goes!

[Bizzymammabee]

A good way to stop or curb the impulse buying I find is when I buy something I leave the tags on...and maybe three days later I take it out and look at it hard and really decide if I need or even like it. That way with the tags on I can return it.

It's amazing how easy it is to spend that money. CC's are bad but they are good as well. I know honestly I will never want to live within my means...if I did that they there would be no house because who has the $350k that I paid for my house.

The best thing honestly is to not carry those cards. I do at times like someone else here said go wandering around and put things in the cart and then just not buy any of it. A good way to not spend is to do something else when your bored than window shop. Also make that list and just get what is on it and don't stop and browse.

I don't regret borrowing from my 401k because what I did saved me money and I paid that off and didn't use my cards again. So for me it was a good thing to do. You have to be disciplined too and not use those cards because then you get double the bills.

I totally agree when you have money it's a good thing to auto designate direct deposit to savings accounts so you don't see that money or are able to spend it. That is a good way to force yourself to save.

If we look at what we really spend on there is so much things we can cut that are luxuries. Don't get me wrong we deserve some play but some things are really not necessary at all like that $5 cup of coffee at Starbucks.

I dont' think that the banking market is in the toilet because of people borrowing off of their houses. That thing is tanking because a lot of shady lenders and brokers helped people that had no business buying a house to buy them. I have heard of brokers that help people to falsify income so they can qualify for that mortgage. They also took advantage of people's wanting desperately to have a home and sold them on the interest only mortgages. The bulk of forclosures are from that...I see a lot of it because my lawfirm deals with a lot of financing issues for big lenders and a good friend of mine works at a bank and we just had a discussion about this same subject.

I do think that the practice of getting them to lower your interest rate and then paying off the smallest card and then moving on up goes well. It does give you that instant gratification that makes you feel good about what your doing.

[StewiesMom]

I'm not kidding you when I say... READ SUZE ORMAN'S Women And Money

[Bizzymammabee]

Originally Posted by KELLYLYNN

i see what your saying, but i'll never borrow from a 401 k again... i'm getting out of this hole were in now, i have a very strick budget for the next 8 months until everything is repaid, i cut the credit cards up, and i pay for everything with good old CASH now, and if we don't have the cash we don't need it then, it can wait... His company did deduct and certain amount at the time of the loan, but what they did not explain to him is that there only responsible for a percentage of the tax payback and that HE had to make payment arrangement to pay the rest of the taxes owed, the one thing i don't understand is why it took the IRS almost two years to catch this, cause he got a tax refund last year, i guess they wanted the extra 130.00 a month in penilties and interest in there pocket,,, oh well i got it paid off, thanks to a family member that i borrowed the money off of with less of an interest rate than the IRS.... im just saying unless im really, really, hurting i rather go to a loan shark then my IRA... i almost died when i got that letter....

Man I would have been so mad at this nonsense. That is horrible to get bitten two years later like that. Of course the IRS loves them penalties to rack up. How else can they afford to keep the senators in car services, expense accounts and their expensive lunches.

[Bizzymammabee]

Originally Posted by StewiesMom

I'm not kidding you when I say... READ SUZE ORMAN'S Women And Money

A good way to save is to go take it out of the library for free...lol.

I was at the library tonight and saw her newest book on the shelf. I had to rush out so I didn't get it but I will stop by the library at my job tomorrow and take it out.