Debt Plan #294

I feel like I keep making and remaking the plan for my debt, but here it goes ya’ll, my current debt repayment plan. Now with more aggression than ever before!

  • Current credit card balance: $14,194.
  • Current E-fund balance: $140 (recently had car expenses that the E-fund paid for)

Part 1: I should be receiving a $1,400 reimbursement check from my school to pay for my moving expenses. Since this money came out of my emergency fund I’m going to put it back in to my emergency fund, to get it up to the level of $1,000. Thus, ~$540 put on my credit card debt.

New balances after Part 1:

  • Credit card balance: $13,654
  • Emergency fund: $1,000

Part 2: Sell my stocks and mutual funds. I’ve been hanging on to these for sentimental value (as they are all I have left of my mom and brother passing) and as a back-up “omg life is falling apart” Emergency fund The fact of the matter is that I need to get out of debt and both of them would support me in this. I’ve decided to see all but one share of each of the funds that I have left so that I can keep that remaining share as a tribute to them. Total value of non-retirement stocks and mutual funds to be applied to credit card debt: $6,000 (depends on value of closing that day, but will be approximately this amount).

New balances after Part 2:

  • Credit card balance: $7,654
  • Emergency fund: $1,000

Part 3a: Check into the roll over plans from changing jobs. I know I have $327 I can cash out from my job two jobs ago. I also have around $11,000 that I need to roll over to my new jobs plan. I have 50% of my retirement in Fidelity and 50% in TIAA-CREF. My new job I only have TIAA-CREF. So the plan is to roll my TIAA-CREF funds to my new retirement plan and cash out my Fidelity retirement money (again, if I can). This would give me $6,255 to put on my credit card.

New balances after Part 3a:

  • Credit card balance: $1,399
  • Emergency fund: $1,000

Part 3b: Check into the roll over plans from changing jobs. If the tax penalty is too great or I can’t just cash out my retirement from Fidelity put can only roll it over I’ll just cash out my $327. Not as significant of a value, but I’ll take it!

New balances after Part 3b:

  • Credit card balance: $7,327
  • Emergency fund: $1,000

Part 4: Finish paying off the debt. I’ll switch all of my E-fund money contributions ($100/month) on to my credit card payment. Bringing me up to $750/month. If I’m able to do Part 3a, I’ll be finished paying off the debt in TWO MONTHS. If I’m doing Part 3b, then it will take me 11 months to pay off the debt.

I had contemplated for a long time just getting myself down to $6,000 and THEN taking the money out of the mutual funds and stocks. There are pros and cons to this.

Pro: Keep my mom/brother’s money for as long as possible.

Pro: The economy might get better by that time.

Con: I’ll accrue interest on a larger debt for a larger period of time, causing me to pay more.

Con: At my current repayment rate it will take me 14 months to get to $6,000. Thus paying this amount up front means that I’ll be in debt for a shorter period of time.

I’m still not 100% at pulling out my retirement money instead of rolling it over to my new job (and the tax penalties that go along with that), but I also have to keep in mind that I current can’t contribute to an IRA right now because of the debt. So once my debt is gone I’ll be able to contribute more to my retirement than I currently am. My high credit card interest rate is way more detrimental than losing $5,000 in retirement funds would be I think. Especially since I plan on maxing out my IRA once I get out of debt (there by contributing back that $5,000 in the first year I’m debt free).

So that’s my plan. It is scary. I’m losing things that mean a lot to me. I’m losing things I’ve seen as security blankets. BUT, I know that at the end of the day I’ll gain a lot more security by being debt free. I’ll be able to save a lot more money that will create new, real security for me. So I think this is the best thing for me to do. But as always, I’d appreciate your thoughts, concerns, considerations.

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11 Responses to Debt Plan #294

  1. Dave says:

    I’m NOT a CPA or tax attorney at all. But I believe that if you withdraw from a retirement account prior to 59 1/2 you’ll pay your current tax rate on it PLUS a 20% penalty. If you roll it direct from one retirement account into another you won’t pay taxes on it. Sounds like you’ve got a great get out of debt plan. Keep it up!

  2. Amber says:

    In my opinion – what is the point of saving for retirement if you’re in debt – you’ll just spend that much more time working to pay off your debt. At least, that’s how I thought about it when I was paying everything off. I just contributed the matching and no more. So, I think you’re right – you might as well get your debt paid off now and worry about retirement later. I feel like we can’t really advance financialy until all our debts are paid off, so I totally agree with what you’re doing here. Yes, you’ll get hit with taxes…. but you would have been hit with them anyway had you not contributed that to your 401K….

  3. 2blu2btru says:

    This is a big girl moment for you. I wish I had some extra cash handing to pay down my debt like that. It seems you have you eyes planted firmly on getting the ball rolling. Are you planning on taking all of the allotted time to pay back your student loans? I noticed you didn’t mention it here.

    I have no credit card debt, just student loans and my car. I’m still deciding how best to attack this debt, other than paying the monthly installments.

    • SS4BC says:

      You’re right, I’m not addressing my student loans. And to be honest, I doubt I will ever aggressively pay them down.

      Why?

      They’re at 2.25% interest, fixed. That rate is low. I can get more out of investing any extra money than I would by paying off my loans early. I may up my payments from $116/month to $200, but nothing more aggressive than that until I have other financial goals made, namely:

      1. $10,000 E-fund
      2. $50,000 down payment on a house
      3. $20,000 buy a new car
      4. Contribute $5,000 per year to my IRA

      Once those goals are accomplished then I’ll be more aggressive on my student loan debt, but to be honest, since my repayment plan is 15 years and I’ve been paying on it for 3 years now, the above goals and the repayment period will probably be accomplished around the same time.

      So yah, to make a long story short, I’m taking all the allotted time on my student loans.

      • 2blu2btru says:

        Wow, that’s a really good rate. My rates varied. I am having them consolidated, but I owe quite a bit more than you do. I am one of those people who would rather get out of all debt NOW if at all possible. I have my regular retirement contributions and savings, but my primary push will be debt until I’m free of it. I have a long time before I retire (at least thirty years), whereas I need to improve my credit now to position myself to buy a home, get married without debt weighing us down, travel, etc.

        But your plan seems to work well for you. I wish you the best of luck with it!

  4. Jennifer says:

    I bet your mom and brother would be pleased that they were able to help you get out of debt – and I love the idea of keeping one share for sentimental reasons. I think you have a great plan!

  5. erika says:

    Keep up the great work… you will pay it all off before you know it! 🙂

  6. I’m down with your plan. It even makes me wonder if I should cash out my company stock from my old company (about $8k) and pay off my debt/start a good emergency fund with it….hmmmm…

    Thought-provoking post. 🙂

  7. Great plan! I stumbled on your blog after reading “Life as a Purse” last post. I know it’s got to be hard to make all of these big decisions, but I agree with Amber- there is no point in saving for retirement if you are in debt. Get out of debt, then save. Good luck!

  8. Alice says:

    Check with an accountant or other professional. See how much the tax cost would be. Put that aside from cashing out the retirement and then pay off the credit cards with the rest. You’re young and have plenty of more years to save for retirement. And I also love the idea of keeping a share in memory of your brother and mom. I’m sure they would love to know their money helped you to financial freedom!

  9. Pingback: The E-Fund «

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