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So I just barely found this forum and read around a few threads and it looks like a great forum, I believe I came to the right place!
Little bit about me, I’m 28, I make about 40k a year, im not a beginner to personal finance but certainly not an expert. I took a few finance classes in college when I was 19 that taught me a lot about how I even got to where I am today. I have built an emergency fund of approx 8k that I Store in a high yield savings account. Since I was 21, I have been saving 20% of my income and have been putting all that money into a Roth which I have now accumulated approx 31k. 29k of which I put in and 2k or so from what I’ve earned in interest. All the money in the Roth is currently invested into stocks. When I was 21 up until about 25, I was a huge credit card person having about 17 credit cards and around a 790 credit score. I was always chasing rewards on every purchase, there wasn’t one thing I wasn’t earning rewards on for making that purchase. Also paying all balances in full at the time every month. Fast forward to today, I have approx 20 credit cards, most with 10k limits and higher.
Now to the VERY bad stuff. Within the last 3 years or so I’ve made some very bad mistakes financially that have landed me in a huge hole where I can barely breathe. I’ve accumulated around 35k in debt. At the moment I’ve been able to dodge interest rates by balance transferring between all those credit cards I had from before as I never use them so they are always sending me 0% apr for balance transfers and I just pay the 2-4% BT fee. So currently I have 7 cards that have balances from 2k to 6k and one at 9k.
Now I have been striving so badly to get rid of this debt and get back to how I was before. I have been running a few ideas in my head.
1. First idea is to take it slow and use the snowball method. Pay the smallest balance first as I’ll build momentum then pay the next lowest balance and snowball the rest until I have 0.
2. Second idea is to file bankruptcy which seems to be the easiest route getting rid of all the debt the fastest but possibly ruining my life for the next 7 years. With me having a Roth, none of the credit card companies could touch the money and with me being knowledgeable about credit, I’m was pretty sure I could build my credit again within a couple years. I’ve met with a bankruptcy lawyer and have decided this is not how I want to handle it.
3. Now for the last idea I have been strongly considering is to tap into my Roth. Sell all my stocks and take the money I initially put in, around 29k, and pay off my credit card debt with it. I would have about 6k left in debt which I would eliminate soon after. I would then save and built the money up again. The down side to this is I can only put in 5500 a year which it would take me another 5 years to save up 30k again in my Roth.
With that said, I have been really considering number 3, was going to pass it by a financial counselor but remembered how much I loved the credit card, Car, anything and everything forums and decided to search for a good personal finance forum which I am here today. I plan on being a long member as soon as I am able to get out of this mess myself. I do have the strength and plan not to get into this situation again as I have found out how terrible it is and how much stress it causes in my life.
Just a quick recap:
- I have 31k in a Roth, 29k which can be taken out if I’m not mistaken.
- 8k emergency fund which I do not plan to touch.
- 35k in credit card debt all cards with 0 interest rates currently.
I will now leave it up to you guys, thank you for all that stuck around to read my long rambling story. If any of you can give me some advice I would greatly appreciate it. What’s the best way to get out of this mess?
Start listening to Dave Ramsey and go to his sponsered seminars. Get a budget and a 2nd job and knock down that debt. Can you borrow against your Roth through work?
Get those 25% interest CC's paid off and tear them up.
If you've been putting 20% aside in a Roth invested in equities for 7 years how have you only made 2k in earnings?
Have you written out a budget? If no do it, if so post it
Well I haven’t put anything into it for about 3 years. That’s more then a 5% return on my money, doesn’t sound that bad. I may have earned closer to 2500, didn’t do exact numbers. I also have not done a real budget because my income is so up and down but I have gave myself an amount per month.
Quote:
Originally Posted by Rakin
Start listening to Dave Ramsey and go to his sponsered seminars. Get a budget and a 2nd job and knock down that debt. Can you borrow against your Roth through work?
Get those 25% interest CC's paid off and tear them up.
My Roth is personal, not through work, I’m not sure if I can borrow from it or not, may have to look into that. However I also mainly want to eliminate his debt not consolidate it.
My take
Why would you declare bankruptcy? You've got two great things in your side. Time and dedication. You've got a nice base already so I would just buckle down and bag out the debt.
No. 2 is the coward’s way out. You borrowed that money, so you should pay it back. Pay your debt. Don’t be a jerk.
Did you not read what he said - that he met with a bankruptcy lawyer and that's NOT how he wanted to handle it? How about some constructive advice?
OP, you are young and there is plenty of time for you to recoup your money. If I were you I would go ahead and pay it all off now. That will free up your cash flow to get started saving again. With the debt behind you, you will feel better and be motivated to save more. That's my opinion, I'm sure you'll get others.
I'm editing to add that I was once in a similar boat and I chose the first option, paying off slowly. I didn't start saving for retirement until I was 31- after I had freed up the money I was putting towards my debt. I still did OK, but if I had the chance to pay off the debt in one fell swoop and start the saving right away, I probably would have gone that route.
Last edited by Moonlady; 10-21-2017 at 08:52 AM..
Reason: additional info
Did you not read what he said - that he met with a bankruptcy lawyer and that's NOT how he wanted to handle it? How about some constructive advice?
OP, you are young and there is plenty of time for you to recoup your money. If I were you I would go ahead and pay it all off now. That will free up your cash flow to get started saving again. With the debt behind you, you will feel better and be motivated to save more. That's my opinion, I'm sure you'll get others.
I was strongly considering just buckling down and paying it off over the next 2-3 years up until recently when I started to consider what moonlady mentioned. If I just get rid of it now, that would free up a lot of my cash flow and I would be able to save again and most importantly I would have my life back, and would solve most of my stress in life currently. I have plenty of time to save and build my assets again to be even higher. Main thing I have to make sure I do not repeat this experience with debt.
Edit: Thank you moonlady. Personal Experience is always the best advice as if you could go back in time and have another chance at your decisions. So it would be best to take out all the money in my Roth, pay off the debt except 6k. Clear that and start savings again? I feel like it’s like hitting the reset button. After all as you mentioned, most people don’t start saving until late 20s to 30s I’ll consider me saving at 21 a get out of jail free card if you will. Although no longer ahead of the rest.
Well, I personally like #3. Get rid of ALL the debt ASAP and moving forward, never going into debt again and immediately saving and investing as much as humanly possible. I am sure I'm close to being alone on this option though. Most will tell you to keep your investments intact.
We didn't have consumer debt, but we used our taxable investments to pay off a mortgage. They were lousy, expensive products to begin with so I didn't feel much pain in selling them off and dumping our financial advisor. I don't regret it in the least. YMMV.
Well, I personally like #3. Get rid of ALL the debt ASAP and moving forward, never going into debt again and immediately saving and investing as much as humanly possible. I am sure I'm close to being alone on this option though. Most will tell you to keep your investments intact.
If the OP got into debt in the first place, killing off investments is likely to result in another equivalent debt and no investments. "I'm disciplined and I'll never do it again" = you weren't disciplined, and you haven't demonstrated you won't do it again.
I recommend starting with the debt snowball. IF that doesn't work consider going to #2. "Work" here is defined as in a year, are you in less debt than you started this process with?
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