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Old 09-11-2011, 02:57 PM
 
30 posts, read 60,412 times
Reputation: 37

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Here is our dilemma:
Due to a job layoff and a new job that pays half as much, we are finding ourselves falling farther behind in debt and we have not been able to contribute to our 401k for over two years. Our cash flow will soon go negative if we donít make some major changes. We already have stopped using the credit cards and only pay cash for the routine expenses, so the card debt is not increasing but the $500 minimum payment is draining us. We have two car payments and two other financed items along with the total card brings our debt to $50k, not including the house mortgage. We have approximately $110k in the 401k and as I said, it has not been contributed to for several years.
Here is what we are thinking:
Take the money out of the 401k and payoff the $50k long term debt. This will rectify the negative cash flow. This will then allow us to now contribute back to the 401k at a rate greater than ever. If we donít stop the debt and get into a positive cash flow situation, the 401k funds really are doing nothing for us. If we wait to use the 401k at retirement we will be so far in debt that the debt will be more than the 401k amount. I realize this is a drastic action and goes against the basic idea of a 401k, but what else is there? We have to stop the bleeding.
Your feedback is appreciated.
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Old 09-11-2011, 03:15 PM
 
Location: Oakland CA
7,551 posts, read 10,483,857 times
Reputation: 8205
You're going to have a million people saying to not do this. BUT -- I don't think we have enough information.

How old are you? How stable is your job situation? Do you have an accountant who can give you good figures -- because (and I'm assuming here) you can't do a loan against your 401K if you no longer work there, so you're going to have to come close to liquidating the whole magilla to cover taxes and penalties on the 401K and the resulting income it will generate -- even if at the end of you have no cash.

And most importantly -- have you really tightened your belt as much as it can go?

If you are young enough to do this, you have to make a strong commitment to rebuilding your 401K, and savings in general which means cutting up those credit cards if you are addicted to them. If you can handle them, keep them. If you can't but want to keep one, slice a slot into an empty milk carton, put slide the card in the carton, fill it with water and freeze it.

And the other part of this equation -- is your spouse on board with this?
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Old 09-11-2011, 03:22 PM
 
32 posts, read 36,914 times
Reputation: 29
I would seriously consider bankruptcy. They cannot touch your 401K, which will then be saved, but you could get rid of your debt. Think of it as a busnedd decision.

I am so sorry that I pulled out my 401K to pay my bills and then had to declare bk anyway because I have not been able to find a job. Wish so much that I hadn't done that - and for what? To pay off credit cards who could care less if I lost my job.
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Old 09-11-2011, 04:44 PM
 
30 posts, read 60,412 times
Reputation: 37
I am 52, wife is 43. She is on board with the decision. The 401k is not a company account it is with Allianz Life Insurance Company.
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Old 09-11-2011, 04:56 PM
 
Location: The Triad (nc)
17,420 posts, read 23,253,598 times
Reputation: 14563
Quote:
Originally Posted by U-R-Y View Post
...but what else is there?
As has been said: Bankruptcy.

Quote:
the house mortgage. <-- Get to Keep
$110k in the 401k
<-- Get to Keep

the card debt <-- Gone
...the $500 minimum payment
<-- Gone
two car payments <-- Gone
... two other financed items <-- Gone
our debt to $50k<-- Gone
As the dust settles...
you'll have a place to live, a (beater) car, a job,
a pile of cash for later, and most important... a chance

Good luck.


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Old 09-11-2011, 05:05 PM
 
Location: Aiken, South Carolina, US of A
1,357 posts, read 1,371,598 times
Reputation: 2411
U-R-Y
Don't you dare touch that 401K money.
You will have to pay a 20% penalty on the amount that you withdrawl.
You will have to pay ordinary income taxes on the amount also, you will be hit twice!
Don't do it! Leave it alone!
File Bankruptcy, period.
It's not personal, just business.
If you just can't bring yourself to file bankruptcy, sell your house.
Now, before judgements are filed against you for the debt you will eventually not be able
to pay. Look for a small cheap apartment, and pay off your debts.
Those are your options.
Personally, I would rather file bankruptcy, your probably under water on your house
anyway.
Good Luck!
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Old 09-11-2011, 05:25 PM
 
30 posts, read 60,412 times
Reputation: 37
If bankruptcy is decleared we will never ever be able to borrow money again, correct?
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Old 09-11-2011, 05:29 PM
 
20,940 posts, read 16,389,436 times
Reputation: 9739
Quote:
Originally Posted by U-R-Y View Post
If bankruptcy is decleared we will never ever be able to borrow money again, correct?
It will be near impossible for seven years. After that it will ease up, but you'll have to build your credit from scratch... so you're looking close to 10 to 12 years before you have access to cheap loans again.

Personally, I feel that you can get out of your situation without bankruptcy.

Tell us about your cars.
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Old 09-11-2011, 05:30 PM
 
Location: Florida
2,150 posts, read 2,314,002 times
Reputation: 4582
Quote:
Originally Posted by U-R-Y View Post
If bankruptcy is decleared we will never ever be able to borrow money again, correct?
Wrong will remain on your credit report for approx. 7 years. If you keep your credit clean from here on you may get credit extended before that.
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Old 09-11-2011, 05:40 PM
 
30 posts, read 60,412 times
Reputation: 37
Quote:
Originally Posted by NJBest View Post
It will be near impossible for seven years. After that it will ease up, but you'll have to build your credit from scratch... so you're looking close to 10 to 12 years before you have access to cheap loans again.

Personally, I feel that you can get out of your situation without bankruptcy.

Tell us about your cars.

The car payments are a) $200/mon and b) $257.00/mon and both will be paid off in three years. We are upside down in payments so selling one would not get us anywhere. We can't sell the other two items we owe on, they are fixed property.
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