Posted on 02/27/2009 6:57:02 PM PST by Washi
cut up the cards, sell the car.
I think you have a period of default above and beyond missing one payment, and if you remain in default, you get a tax bill on the unpaid balance.
Eat,prayers,(((((Hugs)))))
I was told things would settle down in 9 months.That was 6 weeks ago.We are hanging in.
Dave Ramsey’s financial advice works well (his books are on Amazon)
I would leave it alone. It has gone down so far now, you should wait. Just continue paying your loans and CC as much as you can afford.
And buy some ammo.
FWIW, Bill Gross at PIMCO has been talking about some once in a lifetime opportunities in the debt market, specifically, corporate bonds. Your 401k and IRA probably have several bond funds to choose from. Look at your investment options, and check your prospectus to see what the sales charges are, as you don’t want your returns to be eaten up by excessive fees. Go to the carrier’s website and look for a link. It shouldn’t be too hard to find.
It is important to make changes in your investments when changes are called for. Re-balancing your accounts should be a regular part of your review and maintenance of your accounts. It forces you to do what does not come naturally - buying low and selling high.
This stuff isn’t rocket science, but it does take some time to make informed choices. Consider your age/years till retirement, and remember what these accounts are for—retirement! Keep in mind that the decisions that you make right now will have a profound impact years down the road.
The biggest mistake most of us make in bad times is that we end to think it’s always going to be bad. We’re in a tough time, that’s for sure. It may even get much worse before it gets better. But, that’s the thing: history tells us that it has always gotten better.
In my view these are the pros and cons:
Pro: Debt free, cash available for old fashioned “investing”. Big pro: you know what the tax rate is today so you know what the hit will be.
Cons: 10% is poof....gone.
I am reminded that most investment firms who tell you to buy and hold are not themselves buyers and holders. They use our 401k money to move in and out of the market as often as they want. In an up market they may be making 20% off their trades using our cash but all we see is the percentage is “close” to the historical return for a particular fund. And in a down market, all we see is “down”.
I’m leaning toward the idea that the 401k is a suckers game because you cannot write off losses and you have to hope like hell taxes will be lower when you get to the point you can withdraw it without penalty. I don’t trust these clowns.
It may make sense to delay paying off long term debt (e.g. mortgage) with the expectation that inflation will mean you are paying back expensive dollars with cheaper ones. Definitely pay off all revolving debt.
Inflation will screw all our creditors and unfortunately it will whack us as well.
Or I could be completely wrong and everything will be great in 5-10 years!
Yes, it comes due. If you can't pay it back, you will have to pay the tax.
You didn't say how much credit card debt you have and why. If you pay your credit card debt with your retirement account(s), and you rack up the credit cards again, you'll be in a worse place than you are now.
You might want to consider quitting depositing anything into your 401(k) and taking that money and use it to slowly pay down the credit card debt.
If it were me, I'd cut up the credit cards, no more charging ANYTHING. I'd pay down my credit card debt over time but as quickly as possible by cutting down on spending, i.e., cut out any Starbucks, stop the newspaper, cut out the bottled water, make your own lunches, stuff like that. If possible, I would also get a part-time job to help get the credit card paid down. I would also quit paying into the 401(k) and use that money to pay down my debt but I'd leave what's in my 401(k) alone. I might be sorry I did this in the future, but as things stand now, and with the information I have now, I don't think I'd be putting my money into retirement when the way things look now, the government is just going to steal it from me anyway. This is what I'd do. Only you know your situation. If you've got $25,000 in credit card debt (heaven forbid) and you're paying $750/mo in interest, that's another story and yes, I'd empty the 401(k) to wipe that out. However, if you have that much credit card debt, you've got a spending problem and it doesn't much matter what you do.
And that's what worries me.
My credit card debt plus my auto loan add up, in roughly equal amounts, to about 25k. If I weren't making those payments, it would free up ~$650 per month that I could put in a regular ol' savings account. At least it's not losing money.
If the government takes everyone's 401k and IRA money, they'll do it without warning.
The IRA will be gone and I'll still have the debt.
Even if they don't take it, there is no end in sight to the stock market nose-dive that gets worse and worse as the country realizes that Obama actually is a socialist (like he said he was during the campaign) and that this will soon be a completely socialist country.
Stopping contributions to my 401k probably makes sense right now until it's clear that it will remain private and the market actually starts to recover.
“What if he takes a loan against his 401k, to pay down debt? “
You are right, that is certainly an option, and it could be a good one. It depends on the financial situation, because if you default on the loan to pay back what you borrowed from your 401k, then the loan converts to an early withdrawal, and you owe taxes and penalty, when you already disposed of the money and how is he going to pay that — now the IRS will be after him too.
The “goodness” of a lot of the potential options depends a lot on indivicual circumstances.
Tough to answer without the missing salient fact: your age.
I just turned 43.
Look into an indexed annuity. At your age it would be appropriate to consider. The principal is tax deferred and you can take out as much as ten percent per annum without penalty. A 15 0r 20 year term sounds about right for you.
Also if you mail me your town and state info I might be able to recommend someone in your area who specializes in them.
I personally don’t think you should change a thing. You are looking at a 20-year time horizon to retirement, and have already suffered the bulk of the losses (IMO). I foresee a bottom around Dow 5000 as an absolute worst case.
Realize, though, if you are tired of riding the market, you CAN, as others have said, take the money out of the market without taking it out of the 401k; or further, you can take it out of the 401k without paying it therefore onto your debts.
I think rushing to pay your debts is a bad idea, even if—especially if—you are leaning toward the apocalyptic side of the outlook. If you truly foresee the worst possible scenario ahead, take it out into cash on hand and HOLD it.
Ultimately, if you’re losing sleep and/or developing an ulcer about the market, you should take the money out of the market and put it in something safer.
Stress is poison, and that kind of stress is especially toxic.
I'll probably also stop contributing to my 401k and put that money toward my credit card debt. I hate being in debt, especially when the future is so uncertain.
I can start the contributions back up, and put my funds back into higher yield (risk) investments when and if there are clear indications that the economy's fundamentals are good and the market begins growning again.
I'll also invest in precious metals (lead) in case the market does not recover. :)
Thanks for all of your advice, everyone.
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