My3sons's Personal Debt Cutters Thread

[My3sons]

Debt Cutters

How much debt do you need to reduce?

$9,242

How did you get in debt?

credit cards (spending more than we make), car loan

You've accrued debt. What are the main factors that keep you from reducing it now?

income restraints

Have you created a budget?

yes

List your top 5 budget busters?

not budgeting for home repairs, services, tags, etc. - we are going to save for those things now.

What is your plan to get out of debt?

payoff van first, use that $200 a month to help payoff credit card, then save up enough money to payoff 401 (k) loan in a lump sum.

List your debt with balance, monthly payment, and interest rates.

Van - 6.49% - $796
Visa - 6.99% - $2,876
401(k) loan- 3.51% - $5,570

How much will you try to reduce your debt by this year?

all of it! :)

What kind of support do you need from fellow Debt Cutters to help keep you on track?

encouragement

[My3sons]

Also, we have an emergency fund goal: increase from $300 to $2000.

[Spanelli8706]

I think it was a good idea to start a fresh thread for your new goal. Your van balance is pretty low! You'll have it paid off in no time!

[My3sons]

Spanelli, Thanks, just a few more months and it will be gone!
I'm contemplating letting the 401(k) loan be paid off through regular payroll deductions instead of a lump sum. Thoughts?

[Spanelli8706]

Are there any benefits to taking it as a payroll deduction? For example, My husband is a veterinarian. If we purchase, say, dog shampoo and they take it out as a payroll deduction vs us paying the shampoo balance later, we don't pay taxes on it. Make sense? So any time we purchase anything from the clinic, they just automatically deduct it from his paycheck and then pay him the remainder. How would you benefit from the 401k loan being paid via regular payroll deductions?

[Saving2retire]

Spanelli, Thanks, just a few more months and it will be gone!
I'm contemplating letting the 401(k) loan be paid off through regular payroll deductions instead of a lump sum. Thoughts?

I'm not an financial adviser but i work setting up 401ks for retirees. One of the best things you can do is pay a loan off asap. We always suggest not borrowing for a 401k to begin with. Sure you are paying yourself back with interest. But the compound interest potential you lose out on by the funds not being in the account already are is much greater. You also save a little bit by paying it back early in a lump sum compared to reg. pay deductions

[amylynne01]

You can do this! I can't wait to hear that in a year, your debt is GONE!

[My3sons]

If you want to payoff a 401(k) loan, you must save up the entire remaining balance and send it to them all at once.

My balance is $5573. They wont let me send them $200 extra a month, they will only accept my payroll loan payments (about $165 a month) or a check for $5573.

I was thinking of just saving money for an emergency fund, down payment for a house, saving for a new vehicle, family vacation...

The 401(k) loan isn't on your credit report and doesn't show up as debt since you borrowed it from yourself.

Yes, the money is out of the market and not earning interest and dividends. I'm leaning toward saving money for the previous mentioned list instead of saving $5000 to payoff the 401(k) loan, then having nothing saved for those future items.

[My3sons]

You can do this! I can't wait to hear that in a year, your debt is GONE!

Thanks! I can't wait either!

[Spanelli8706]

Well, you could let the regular payroll payments continue for now. Put your extra money into a savings account, growing interest hopefully. And if at some point you get to $6000 and want to be done with the 401k loan...you can always go and make a lump sum payment of the current balance if you decide that's what you want to do with the savings. It's great that it doesn't effect your credit score! I would probably just put the extra money in an undesignated savings account and decide later on what to do with it.