Where I Stand
My introduction post dealt mainly with how I accrued my debt. To see the whole picture you need to see my savings and investments as well. I made some very stupid mistakes which caused me to get into debt but I also made some smart moves in saving for my retirement. Maybe they were too smart in that I put so much into investments that I didn’t have enough to live off of. Of course without having a budget I never even noticed it was happening until it was too late.
My finances are the following:
| Assets | Comment | |
| Checking | $2,131.30 | |
| Savings | $8,544.33 | from 401k loan, paid off other cards too |
| Small Business Checking | $2,210.50 | from rent received |
| Mutual Fund | $3,840.90 | |
| ING | $453.64 | |
| Scottrade | $323.76 | |
| Lending Club | $1,069.87 | |
| Apt #1 | $177,000.00 | Purchase Price (Sept 2005) |
| Apt #2 | $225,000.00 | Purchase Price (June 2007) |
| Roth IRA | $4,219.44 | I’ve invested more than this so I could withdraw my principal penalty free |
| 401K | $37,191.03 | If I didn’t take the 401k loan this would be at about $50k since the market went up ~20% after I took the loan |
| Total | $461,984.77 | |
| Debts | ||
| Credit Card #1 | ($13,769.43) | 3.99% rate for life of balance |
| Business Credit Card | ($2,688.19) | |
| Credit Card #2 | ($12,437.26) | 0% til end of July then 15.99% rate |
| Credit Card #3 | ($13.00) | Card I use when needed but I’ve been cash-only for over a month now |
| Apt #1Mortgage | ($134,351.86) | 30yr fixed |
| Apt #1HELOC | ($26,359.65) | |
| Apt #2Mortgage | ($195,725.36) | 30yr fixed |
| Apt #2HELOC | ($11,000.00) | |
| 401K Loan | ($8,743.25) | Paid to “myself” at 4.25% rate |
| Infiniti | ($4,527.68) | Lease payments end in October 2010 |
| Total | ($409,615.68) | |
| Net Worth | $52,369.09 |
From “Too Good” back to “Good”
You can see I have a decent amount of money invested and saved for retirement. My current thinking the past few weeks has been that I was doing the right thing by saving for the long term but also that I was being “too good” in doing that. I have a lot of debt that needs to be paid off so I’ve made the following changes to increase my cash flow until the debt is gone. My changes from “too good” back to “good”:
| Name | Previous | Current | Cash Flow Increase |
| Roth IRA | $25/wk | $0/wk | $25 |
| ING | $25/wk | $0/wk | $25 |
| 401k | 10% gross pay weekly | 6% gross pay weekly | $35 after taxes |
| Total Weekly | $85 |
Now I can attack my debt more aggressively!
All together this has increased my cash flow by $85/wk ($368/month!) but I’m still investing in my retirement. I lowered my 401k contribution to 6% because that is the maximum on which my company will match (I will not turn down free money!). If I decide to pay off my 401k loan now that will be another $49.95/wk ($216/month) to put towards conquering my debt. But it will also mean I cannot pay down CC#2 which will soon reset to 15.99%.
Some may not agree with these moves but I’m at the point where I want to pay off my debt as soon as possible. These changes will allow me to aggressively attack the debt but still save something for retirement. I’ve also been thinking about attacking my debt by what I’m calling the “clean slate” approach. I’ll talk about this more in my next article!
{ 6 comments… read them below or add one }
Good job on being aggressive with the debt! I’m not sure what kind of job you have or how secure it is, but just a word of caution on the 401k loan – If you lose your job or quit, that loan will be considered a full distribution and all taxes and penalties will be due. Just something to be aware of.
I’ve seen this happen with clients who then get slapped with a major tax bill and are scrambling to pay that as well.
Good luck with the clean slate!! Looking forward to watching your progress.
Hi
I think that cutting your contributions down to the level that your employer will match is exactly the right thin to do. It doesn’t make much sense to be investing a lot of money if you have debt, but in this case you are getting a 100% return on your investment immediately. As you say, you should never turn down free money.
@Neil, thanks. That was my thinking too. It’s good to invest but better to pay down debt first both mathematically and mentally. Once I’m free from debt payments and interest I will be able to focus on saving again.
@Redeeming Riches, my job has had some layoffs but we’re a huge company and I’ve been ok so far. My understanding is that if I lose my job I would have 60 days to pay the balance of the 401k loan in full before the penalties go into effect. I’ve taken this into consideration and you’ll be reading about it in my next post.
Wow, I felt like I was reading something that I wrote. While our debt is different, my husband and I did just about the same thing recently. We took a good hard look at all our debt and decided that while we were doing good by saving heavily towards retirement, we should pull back and focus on debt right now. So we’re leaving our 401(k)s alone (right with you, not turning down free money!) but we’re stopping our other investing which frees up almost $1000/month. That will go straight towards the debt and hopefully soon we’ll be debt free and can get back to saving.
Ok. from everything I saw you worked really hard to come up with your solution. its not the easiest thing to do. But what do you suggest for the average joe that has to use every bit of their income to survive and can barley do that and still has debt. I believe my total amount in debt is around 20,000. 15,000 of it is child support arrears that are being garnished from my check. if there was a way to get that off my credit I would have poofed it off of there a long time ago. but there is nothing i can do. i dont owe current support so i dont have to worry about it building any further. Im barley bringing home 1,300.00 home per month and with a family of 6 and 4 of them being children, it makes it almost impossible to do anything. cant even budget for needs or clothes or if something happens to my car, which if something does I wont have job. I would love to list out all the things that I have to pay for, include my room mates income so that maybe someone can show me how else to do this.
i’ve tried and tried and cant come up with anything that works.
sincerley
does anyone want to take my info
and help me?
After I thought about it, maybe what i need to do is work for you, so i can make at least double what im making now. it would be nice to go from 1,500 to 3,000. I could work with that…..