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After getting screwed over by some "0% interest" credit cards, and other things of the like recently, I decided it is time to finally eliminte this kind of debt once and for all, especially because I dont want this debt which is now manageable to become a major problem later on.
Right now, I have a HELOC of about 4,000 @ 2.75 interest, and a 0% credit card of about $3,000 at obviously no interest, but it involved a balance transfer which cost me 3%, and I had to change cards after I made a typo on my check and paid the wrong amount...
At any rate, I got into the debt partially due to a divorce. I am 30 y/o,, have a house with about 20-25K equity, and my biggest burden is probably child support payments which is $425-mo, but it could go up when I figure out a permanent custody order. I hope it doesnt go to court since that will cost another 5 grand...
I also religiously contribute to my 401k at $7,800 per year. I also have a state pension fund which gets contributions. I also contribute a marginal amount into my kids college fund, which I want to increase.
So, what do I do now? I wasnt bothered by the credit card debt until I got screwed over by the credit card company. I am cutting back on eating out which was a suprisingly large amount of $. I am also being much more careful at Costco, since that ate up considerable money.
So, what to do? I am bothered by the 0% credit card thing I have, and I would like to eliminate my HELOC, but I dont really know what to do other than spend less, which is hard to do, but I am trying, or to cut back on my 401k contributions, but that is sort of like cutting back on my money.
Short of getting a second job, cutting spending and building savings is what you'll have to continue doing. I think I would be hesitant to pay off any big chunk of money until you know if you will need the $5K for court. If you deplete savings to pay off debt then get hit with that bill, you'll be right back where you were.
Depending on your percentage of equity and the mortgage rate and payment you have, you could look at refinancing your mortgage - more knowledgeable people than I can tell you if that's right for your situation.
On a side note, it's not clear from your post how credit card companies screwed you over.
I made a spreadsheet to record ALL my income and spending. I keep receipts and record everything. This helped me find the excesses and eliminate them. I learned that eating out for lunch was costing nearly $50 per week. I suggest getting a debit card and keeping a positive balance. Keep a credit card as an emergency source of cash with a minimum balance. Pay off any car loans. Then start making extra payments on the principal of your mortgage.
Above all, shouting, DO NOT BUY WHAT YOU DO NOT NEED AND ALWAYS PAY CASH. Learn to live frugally. That is the key to saving money.
In a nutshell you need to cut all extras at least for a little while until you get back on track. There is nothing more freeing than being debt free.
It sounds like you make good money so you should be able to budget and get rid of your debt.
Stop eating out.
Make coffee at home.
If you want to see a movie rent a DVD.
Cut the extras on your phone, cable, internet etc.
Use your local library.
Carpool if that helps.
Stay out of stores.
Re check all of your insurance polices and start calling for better options and quotes.
Stay home more.
Learn to enjoy the free things in life.
Make a list and track where all of your money goes. I have a book and I write down every item even a 50cent paper. It really helps to figure out where you need to cut back.
Good luck and pay off that debt. That's like having an anchor around your neck. Make sure you also have some cash reserves for emergencies.
Actually what you need to do is contribute less to your 401k, and get rid of your HELOC and credit card.
You obviously know where you were blowing money in the past and know how to fix that part. You need to contribute $50 a month to your 401k, and then $600 to your credit cards until they are paid off.
You cannot afford to contribute $650 to your 401k right now with all your other debts. Plus the stock market is really unstable right now.
I made a spreadsheet to record ALL my income and spending. I keep receipts and record everything. This helped me find the excesses and eliminate them. I learned that eating out for lunch was costing nearly $50 per week. I suggest getting a debit card and keeping a positive balance. Keep a credit card as an emergency source of cash with a minimum balance. Pay off any car loans. Then start making extra payments on the principal of your mortgage.
Above all, shouting, DO NOT BUY WHAT YOU DO NOT NEED AND ALWAYS PAY CASH. Learn to live frugally. That is the key to saving money.
Greg's advice is excellent. You need to pinpoint exactly how much money is coming in and exactly where it goes out. From there, you can formulate a plan.
I'd also like to hear about how the credit card company "screwed" you. It sounds like you paid a 3% transfer fee (that you weren't aware of) to get your 0% APR. I'm sure that 3% fee was written into the agreement that you signed off on. If that's the case, you need to take ownership of the situation and quit telling the world that a credit card company screwed you.
There was the 3% transfer which I knew about, but then I entered in the wrong payment one month, and they took away the 0% APR. At any rate, it was my fault, which is why I dont want to put in the position again.
I am massively cutting back on $$, especially eating out and I am using up all the food in my freezer before I buy much of anything else. I probably just spent $70 on groceries in the past month!
But, what about reducing my 401k contributions? I am putting away about $325-month in that, but if I cut it back to say $100 per month, I will have to pay more taxes out of that extra money I get in the paycheck, so I dont really know if I should cut back on the 401k contributions. Do you concur with a previous poster that the contributions should be reduced for at least the time being?
Depending on your bracket, the tax savings on $325 per month vs $100 vs $0 will be minimal. I think that money will benefit you more if applied towards your debts right now - especially since you're only 30.
That debt is active, so it's guaranteed. Not to sound morbid, but your retirement isn't...
There was the 3% transfer which I knew about, but then I entered in the wrong payment one month, and they took away the 0% APR. At any rate, it was my fault, which is why I dont want to put in the position again.
I am massively cutting back on $$, especially eating out and I am using up all the food in my freezer before I buy much of anything else. I probably just spent $70 on groceries in the past month!
But, what about reducing my 401k contributions? I am putting away about $325-month in that, but if I cut it back to say $100 per month, I will have to pay more taxes out of that extra money I get in the paycheck, so I dont really know if I should cut back on the 401k contributions. Do you concur with a previous poster that the contributions should be reduced for at least the time being?
I'm not just the previous poster. I'm the poster with the RIGHT answer.
I'm not going to try and tell you how to save money etc. You know how to do that already. You know what mistakes you were making. Pay off your credit card and HELOC first, after you do that go right back to contributing to your 401K.
I am confused about one thing though. You said you were contributing $7800 a year to your 401k. That would come to $650 per month. Where does the $325 number come from that you just posted? Thats half.
Actually what you need to do is contribute less to your 401k, and get rid of your HELOC and credit card.
You obviously know where you were blowing money in the past and know how to fix that part. You need to contribute $50 a month to your 401k, and then $600 to your credit cards until they are paid off.
You cannot afford to contribute $650 to your 401k right now with all your other debts. Plus the stock market is really unstable right now.
I agree cut back on most of it not ALL of your 401k contributions and pay off all of your unsecured debt. As soon as you pay off the last penny, then plunk that $650 back into your 401k.
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