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Ellie

Dave Ramsey/Larry Burkett peeps: paying off credit card debt...

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The year of Mr. Ellie's unemployment just about did us in. We have no house payment, no car payment; we use the credit card for everything and pay it off every month....until the Year of Unemployment. His benefits were enough to pay for utilities, insurance, etc., but nothing else; If we also wanted to eat, we had to use the credit card. So now he's working again, but we have ginormous credit card debt. ACK

 

So, he has enough stock shares or options or something that we could cash in that would pay off the credit card. He is reluctant to do that, but I just don't know how on earth I'll be able to pay off the credit card otherwise. It isn't that we spend too much; it's the *interest* now that's killing me.

 

What to do, what to do?

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One thing you might do is call the credit card companies and discuss the situation with them. Ask if they can offer you a hardship plan. Sometimes that means that they close the account but fix the interest rate at a much lower rate, and then you know that you can afford the payments and get it paid off in a reasonable time frame.

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Whilst we are Dave Ramsey fans and followed his plan (debt free 2011- YAY!) I don't feel I have enough expertise to offer any wisdom, sorry. So, I'll be a 'bump' for the conversation. I hope that the Year of the Unemployment is quickly wiped away.

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I don't know how much debt and would feel impolite to ask, but if you're not making a dent at all due to the interest, can't make larger payments without using your assets, and wouldn't have to cash in all of your investment accounts to clear at least some of it off, I would personally pursue that option YMMV. I've never had a credit limit over $1k (how do people get tens of thousands of dollars worth of credit cards? Those companies must just not like me or something) nor been trusting enough in the market to invest so your investment banker may have more reliable information in that respect.

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When we were first married, we went to a Crown Financial Ministries program. Afterward, we sold most of the Boeing stock shares I had and used the money to almost wipe out my car payment (my biggest debt at the time). Shortly thereafter, we were able to finish paying it off, then rapidly used the money that HAD been going toward that to finish off debt repayment, then started saving it.

 

The savings that gave us has allowed us many freedoms since.

 

If the money you have is NOT retirement money, I'd cash it in and use it to pay off the debt now.

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I would err on the side of, if the options you have are not retirement, then go for it. If it is...I just don't know.

 

Just wanted to let you know you are not alone. Dh lost his job several years ago and one thing after another has kept us in frustrating circumstances. We're now trying to pay down debt, AGAIN. I desperately wish none of us would have had emergencies this past year and that dh didn't lose so much of his income due to scheduling and cuts.

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Feeling your pain. We went through 2 1/2 years of this and now that dh is employed again, have totally adopted the Ramsey approach.

 

Most credit card companies are willing to drop interest rates if they know the situation. I would try to work with them first. Are there any tax implications for cashing in the stock? Just something to consider...

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I have heard DR advise many, many times against cashing in retirement, due to the penalties. He'd recommend a diligent, gazelle intense debt reduction focus.

 

Ellie, since I know you are not as young as you used to me :ohmy: , I'd tend to agree with what I anticipate DR would say. He might recommend stopping *funding* retirement.

 

And that is where I might disagee with him, based on your season of life and circumstances.

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Instead of taking money out of retirement, what about getting an equity line on the house or a small mortgage? Rates are ridiculously low right now.

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Instead of taking money out of retirement, what about getting an equity line on the house or a small mortgage? Rates are ridiculously low right now.

 

This! Interest rates are so low right now. My SIL did this exact thing to help her handle her CC debt.

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Transfer to an interest free account if you can.

 

If you can pay off the amount before the interest free period is up, then I would go with this option. It is usually 3% to transfer, but it is worth it to get rid of the high interest rates.

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I love you guys. :grouphug:

 

FTR, the stock options are not our retirement. We do have a 401K, plus the measly social security.

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The year of Mr. Ellie's unemployment just about did us in. We have no house payment, no car payment; we use the credit card for everything and pay it off every month....until the Year of Unemployment. His benefits were enough to pay for utilities, insurance, etc., but nothing else; If we also wanted to eat, we had to use the credit card. So now he's working again, but we have ginormous credit card debt. ACK

 

So, he has enough stock shares or options or something that we could cash in that would pay off the credit card. He is reluctant to do that, but I just don't know how on earth I'll be able to pay off the credit card otherwise. It isn't that we spend too much; it's the *interest* now that's killing me.

 

What to do, what to do?

 

 

How much interest are you paying per month? Look at it from this perspective. How much are we earning each month to leave the stocks where they are? Chances are, if your interest rate is not really low, you are going in the hole...ie. earning FAR less on the stocks and paying FAR MORE in interest.

 

I am of the opinion that the economy is not going to improve any time soon. If anything, everything is just going to continue to be more expensive while wages continue stagnating. Being debt free will be the single biggest factor in weathering the storm well because when you aren't chained to the payments, you have some financial freedom.

 

We are actually not Dave Ramsey or Crown Financial fans because in both cases, sometimes they take their advice to extremes that also aren't healthy. However, much of what they say is solid. Interest needs to work for you, not against you and credit card debt works against you. I know of what I speak. When we bought this building to renovate we got a mortgage on it, borrowed extra against it, still didn't end up having enough working capital to get it all done, and ended up running up two credit cards to get it to the place we could move in and then sell out other house. Those two credit card balances were large and draining. Any pittance he might have made on his 401K was nothing in comparison to what we paid out in interest on those cards and on the mortgage. So, we borrowed as much as we could from the 401K, paid off one card, paid down the balance on the other, and then stopped his 401K contribution and put it towards the mortgage. This has been a HUGE blessing. 10 months from now we will be entirely debt free and the amount of money he can then sock a way for retirement will be very handsome without making us tight. It's quite freeing actually. The interest on any investment we make from that point forward will work for us.

 

We did negotiate with the cc companies through our investment advisor for a lower interest rate. He was able to get them to lower it several percentage points and that is what made it possible to pay it off very quickly.

 

Faith

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In order of preference, I would:

 

1-Call the CC company and try to negotiate.

2-Transfer to a company with a better offer. You can check out some options at Bank Rate.

3-Try to do a home equity loan, so at least your debt stops growing.

4-Get a personal loan to pay off the CC debt, so at least your debt stops growing.

 

I wouldn't cash in retirement, if you are close to retirement age.

 

Can either of you make some extra money right now?

 

I'm sorry about the Year of Unemployment. Good for you for treading water during a difficult time.

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Instead of taking money out of retirement, what about getting an equity line on the house or a small mortgage? Rates are ridiculously low right now.

 

It is virtually impossible to get a line of credit around here these days. Other states may be different, but the repossession rate in Michigan is so blooming high, that the banks have "battened down the hatches" on these particular types of loans.

 

Faith

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I love you guys. :grouphug:

 

FTR, the stock options are not our retirement. We do have a 401K, plus the measly social security.

 

 

I'd still try to get a loan, rather than cash in stocks. That way, you'll be able to pay the beast off, instead of watching it grow.

 

Best wishes to you!

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I think you should cash in the stocks. Dave Ramsey would have advised you to have done this instead of using the credit cards in the first place. Stocks (non-retirement) are savings. People save so that they can eat/pay bills if something unexpected happens. That is what it is for. Do not feel guilty in the least. Dave Ramsey would say, "Would you borrow money to buy stocks?". This is essentially the same thing. (Not that Dave Ramsey is the last word in finance or anything, but you mentioned him. I have a finance degree and agree with him as well.). The bottom line, though, is whether you will feel better with the saving. Does the debt make you anxious? How much savings will you have left after the debt is paid off? For me, I would rather have no debt than savings.

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I think you should cash in the stocks. Dave Ramsey would have advised you to have done this instead of using the credit cards in the first place. Stocks (non-retirement) are savings. People save so that they can eat/pay bills if something unexpected happens. That is what it is for. Do not feel guilty in the least. Dave Ramsey would say, "Would you borrow money to buy stocks?". This is essentially the same thing. (Not that Dave Ramsey is the last word in finance or anything, but you mentioned him. I have a finance degree and agree with him as well.). The bottom line, though, is whether you will feel better with the saving. Does the debt make you anxious? How much savings will you have left after the debt is paid off? For me, I would rather have no debt than savings.

 

I agree so much with this.

 

Also, credit cards are revolving debt. The way the interest is compounded is not simple. This is why it is so difficult to pay the debt off and it's designed that way because that is how banks make such an extraordinary profit on that debt...far, far more than they'd ever make on that same principle loaned out to you in a "normal" method. Generally speaking, unless one has managed to invest in a stock that is absolutely skyrocketing and likely to remain very, very high regardless of the economy, the net loss between maintaining credit card debt while earning a small amount of interest in the investment, is rather startling. Most people never actually do the math in order to find out just how much they are going in the hole each month on that credit card balance vs. their savings and investments.

 

Faith

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Instead of taking money out of retirement, what about getting an equity line on the house or a small mortgage? Rates are ridiculously low right now.

 

This.

 

I wouldn't take it out of your retirement.

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