I am $24,000 in debt and I have $5000 in a savings account and $10,000 in a 401K plan. What do I do?

Question

Of the $24,000... $11,000 is a car loan and $13,000 is credit card debt.

Answer 1

It's going to depend a lot on what interest rates you're working with and if you're currently struggling to pay things as they are (I'm assuming no to the latter due to you're savings).

We want to avoid pulling money out of the 401(k) plan because if the tax repurcussions. I WOULD stop putting NEW money into the account until the credit card debt is taken care of.

You could try a consolidation loan for the whole package, but I would recommend paying down the credit card debt ASAP.

Call your credit card with the highest available balance and the lowest APR, ask them if they would give you a promotional balance transfer rate if you were to transfer ALL your credit card debt to them - 90% of the time they will (as long as you haven't been defaulting - again assuming you're not because you have money saved up), ask for no fee and the lowest APR they will give you.

Once everything is transferred I would use $4000 of your savings (keep $1000 available for emergencies, and in REAL emergencies you can use your 401(k) money as a back up until you get this debt squared away) to put towards the credit card - this way you probably were given a $13k credit line, paying off $4k looks good in your credit report because you're using a smaller percentage of money towards the bill.

Email me if you have questions- i know it's a long response.

Answer 2

Unless you are 65 years old you can not touch your 401k without a penalty and then you still have to pay it back so don't so anything with it.
As far as your credit card debt see if you can find a credit card with an introductory APR at 0%. Some companies do this for 6 month or a year. At least you know your money is going towards the money owed and not just the finance charge. Good Luck

Answer 3

I was in the same situation. I don't know if your working or not but what I did was all the money I got from my business, (your work) I put it all into my debt or to pay off my credit cards. I was left with no cash, but I knew more would be coming in. At least I didnt have to worry about paying of more cards. I just needed a minimum of $5 for gas (I still live with my parents so food wasnt an issue) I would say PAY OF ALL YOUR DEBT well what you can of it and then keep putting as much as you can into it. After your done paying it of, never ever go into debt again. Use cash for everything you can. Even for a car save so you can pay for it cash. It makes you big man/woman on campus anyways lol. You'll feel good after you bring that down.

Answer 4

DO NOT TOUCH your 401K! You will regret that at tax time. I'm not completely aware of your complete financial situation, but what I would do is put a budget together. It can be as simple as putting all your debt into an Excel spreadsheet. Itemize all your monthly payments...everything from your monthly car payment to utilities to gas for the month to groceries, insurance, cell phone, credit card payment....EVERYTHING. Then, total all that up. Below that, put you monthly salary. Subtract your total monthly payments from your monthly salary. This will be you remaining monthly balance (hopefully not negative). Then wha you will want to do with that number is start subtracting out misc. things you may need during the month (i.e. dinner out once a week, lunches, etc). Once you have the final number, you can pretty much determine how much MORE you can pay towards you CC and/or Car. I would work of the CC's first. It's amazing how everything looks once you have it all on paper in front of you. It makes you wonder where all your money goes! GOOD LUCK!!!

Answer 5

Do not touch your 401k! That is my first suggestion. You will lose so much from the penalties and the taxes that your 10k will now only be 6k.

I understand this question to be a "Hey i want to get out of debt and i have these resources to do it what should i do?" question. If that is the case and you are wanting to reduce your debt, start making double and triple payments.

You can also check your bank and see if you can get a Debt Consolidation loan. That way you are making one payment instead of 3, 4, or even 5.

Personally i would keep your savings, you never know when you are going to need it. In the proverbial words S#!T happens!

So reduce the number of payments, increase the amount of your payments and keep your savings!

Answer 6

Don't cash out your 401K. That is a bad idea. Depending on your age, you will want that to retire. And don't use your savings.

Can you find a car that is less than the car you have now? Can you sell the car and get one that is cheaper and use the extra money to pay off your loan? Also, contact the credit card company. They can lower your interest rate and work with you to get you on track to reducing your debt.

You want to keep as much in your savings and retirement fund as possible incase you need it for an emergency. Work with your creditors, they will help you.

Answer 7

If you are working and managing to pay your bills I would try to pay extra on the credit card to reduce that as much as you can . Put that $5000 into an interest bearing account and use that interest to pay your credit card a bit faster.

If you need money for emergencies , take it out of savings , dont use the credit card anymore if you can avoid it.

The car loan should be a fixed term and fairly low interest, just keep paying it .

Answer 8

Don't use your savings and 401K to pay off your debt. You need savings as an emergency fund. Move your credit card debt over to a 0% interest rate, or low interest rate [or negotiate with your bank to lower the rate]. Set up a payment plan to pay off as much as you can each month. Don't buy more stuff you don't need!!!

Use MS money or Quicken to see where your money goes. Just by seeing this you will start to be more careful and start paying it down. My wife was $13K in the hole when i met her. Now she's way in the black!. You can get there.

Is your savings in Emigrant? or HSBC account earning 5%++? If not, move it over. No reason to earn just 2% in today's climate.

Answer 9

If you were able to save $5,000 in your savings account, then why in the world do you have $13,000 in credit card debt? Doesn't make much sense to me. The choice however, is obvious. Get rid of the credit card debt ASAP - the interest alone will suck the life out of you.

Answer 10

Get signed up for a credit card that lets you transfer other credit card bills to your new credit card and transfer the highest ones first. CITI Master Card let me do it and I have a year of no interest on the transfers and then you pay as much as possible per month to get it down and when the year is almost up find another card that allows you to transfer other credit card debt to it for a year or 6 months with no interest. It worked for me, saved me hundreds on interest.