I graduated in May with a master’s degree, but I am currently unable to find full time work in my field. Soon I will be on the hook for my first student loan payment of $628 a month and I will have 10 years of payments. Because I am only working part time, I will not be able to cover that payment along with my other living expenses. Should I cash out my 401k from a former job? It is worth about $46,000 right now, and that would almost cover all of my student loans. —Name withheld, Boston
Source: cnn.com
On FreeMoneyFinance a little while ago a reader shared the story of their finances They were currently working on paying down their credit card debts. Paying off your credit cards is of course a very good idea. However they were not saving anything for retirement in order to have more money to throw at the debt. The thought occurred to me that they may be foregoing a 401k employer match in order to pay off credit cards. That employer match is worth 100% of your money while paying off a credit card only saves you the 15-30% interest the credit card charges. It doesn’t make sense to give up getting 100% free money to save 15-30% interest for your dollar. Better yet if you save money in your 401k then you can take a loan against that 401k money and use the loan to pay off your credit cards. Yet another bonus of saving money in retirement is the Savers Credit that you may be eligible for. There is a tax credit for lower income earners such that you can get 10-50% tax credit on your first $2000 of retirement savings. Lets say you are married with $50,000 net income and you have $25,000 in credit card debts. You have an extra $1000 at the start of the year from your IRS return. You could either take that $1000 and pay down your credit card or use to to put towards your 401k savings. Your employer matches your savings 100% up to the first 5%. Option A : pay down credit card and neglect retirement savings You take your $1000 after tax dollars and put it towards your credit card debts. This will save you 20% interest for the year. At the same time you put $0 into your 401k. Net result = You save $200 in interest. Net benefit $200. Option B : save in your 401k, get a 100% match, then use 401k loan to pay off credit card You contribute $1,333 to your 401k. This will cut your tax bill by $333 due to the pre-tax nature of the money. Your employer matches the $1,333 due to the 100% employer match. You’re in the 25% bracket so if you put $1,333 into a 401k in pre-tax dollars then thats equivalent to $1,000 in post tax money. You now have $2,666 in the 401k between your $1,333 and the employer match. The federal government will match your $1,333 due to the savers credit. You get a $133 tax credit. Take the $133 and pay down your credit card. This leaves you with $867 on the credit card. Take a $867 loan against the 401k and use that to pay off your credit card. At the end of the year you’ll have $2666 pre-tax balance in your 401k and a $867 loan against the 401k. Lets say you had to cash out the 401k money to repay the 401k loan. This would force you to pay 25% taxes and a 10% penalty. You would need to cash out $1333 form the 401k to pay off that $867. So we’re now left with $1333 in the 401k account and the 401k loan paid off. If you were desperate and had to cash out the entire 401k then you’d be left with $867 after the 25% taxes and the 10% penalty. Net benefit $867. In the end you’d be looking at Option A = $200 or Option B = $867. A few things to be aware of :
Source: freeby50.com
If you do decide to suspend 401k contributions, you must make sure that you are only using those funds to pay down your debt. If you end up spending that money on frivolous purchases or don’t even account for the extra money, you will be giving up more than just the face value of that allocation. Remember that 401k contributions are tax-free and you are making a very valuable investment by building up that account. Stopping payments towards this account and just spending the money now will have a negative impact on your financial future. As long as you are putting the entire sum towards your debt payoff strategy, you will be putting yourself in a much better financial position in the long-run.
Source: my401kadvice.org
so i paid off my last credit card payment on september 15, 2011. then on september 17, 2011, i fell and broke my leg and had to take a bunch of time off work and racked up some medical bills. go me. regardless, my financial situation is still better than it was during my credit card debt days. one thing i realized that i truly learned to do was to live within my means, something i had maybe never known how to do prior to making a budget. during the last year or so of paying off debt, i really didn’t even have to consult my budget because i had just changed my lifestyle and purchasing habits so completely that i knew instinctively how to stay within it. now that i no longer have to pay off debt, i find that i have extra money at the end of each month, and i have also started saving a significant chunk of my monthly pay for retirement which is kind of mind boggling to even think about. here is what i am doing with my money (all amounts are per month): income:
Source: blogspot.com
Want a chance to win a Discover® prepaid debit card each week? Learn more about. DebitSavvy.org’s Twitter Giveaway Trivia Contest. Life Insurance provided by USAA. Home Loan Comparison – Find and compare the best home loans in Australia. See one of the best promotions on forex trading by Trader’s Trust. Apply for one of our low rate credit cards in Australia. Silver Prices continue to trend higher. Bad Credit Loans from specialist lender Provident. Discover insurance quotes online & get cheap rates. Save money when shopping online, visit couponcroc.co.uk for the latest discount codes Apply for cash loans from cash-loans.co.uk.
Source: financialsamurai.com
Filing for Bankruptcy- It’s very rare that anyone is in debt deep enough that they can’t work their way out of it. Filing bankruptcy can be a bad mojo that will follow you for as long as 10 years. It can keep you from being able to rent or buy a home, and these days it can even keep you from getting a job because many potential employers will check your credit score before hiring you. If you’re so deep in debt that you think you can’t get out, find a reputable debt counselor instead of a bankruptcy attorney. Either way can be a tough road, but working your way out of debt with a rational plan is always better than bankruptcy in the long run.
Source: lifeandmyfinances.com
Tags: credit card charges, credit card debts, Match, money, student loan payment
No comments:
Post a Comment