ObliviousInvestor

If you take the 8,500 out of the 401k, it’s not just going to be penalized. It’s going to be subject to regular income taxes as well. Depending upon your tax bracket, it could be easy to see a third of it disappear before you even got to use it to pay off the debt.

I’d say leave the 401k alone, and work on throwing every other dollar you have toward that debt.

Bryan

Don’t touch your rollover IRA unless you are transferring it to another firm to get better asset allocation.

Call you credit card companies and negotiate a better interest rate. Cut other expenses and throw every thing you can at your debt.

DON’T CASH IN YOUR ROLLOVER IRA/401K!!!

beatgrl

I felt bad for you at first, until I read that you make $80K a year. Yourself. My husband I and together bring home half of that income and we are fine for a family of 3. Unless you live in NYC or San Francisco I can’t see how one person would need that much. What are you doing with that extra 40K? Couldn’t you just use the it to pay off your debt? Please don’t think I am being insulting, I’m just flabbergasted.
Okay, now I will read what others have written

Matt

As long as you are able to keep up with the monthly payments on your debts, you should not touch your retirement funds.

Establish an emergency fund, scale down your lifestyle if needed, and keep working hard and making the payments. Any extra money should go toward your highest-interest debt. But you should not tap into your retirement funds unless you have exhausted every other option.

Also, unless you’re getting some kind of employer match, you may want to consider redirecting your Simple IRA contributions toward your debts.

John B

I’m not in the US, so I’m not familiar with the 401(k), (I know what it is, but I don’t know the rules), but here’s my two bits:

Since you make $80k/yr, and are single, you should be able to pay off that debt pretty quickly. Your options are:
1) Get a consolidation loan from a bank. Interest rates are pretty much nothing right now, and if you have a decent job, (it seems you do), that seems stable I would expect that the bank would lend you $30k at a much lower interest rate than any of your cards, then pay off the bank loan however you set it up with the bank.

2) Get some new credit cards with a 6-8 month “introductory rate” of 0-3%. You have to be disciplined and not use them for anything except paying the other cards. Then pay these cards off as fast as possible.

3) Don’t bother with any of the above and just pay off the debt. If you make $80k/yr, (before tax? after tax? – let’s assume we have $80k to work with here), and you can cut your costs to, say, $3k a month, then you’ll have $3600/month you can use to pay the debt. You’ll pay off your debts in the 9th month from when you start, (I didn’t take interest into account, but you’ll have a bunch left over in the 9th month, and I’m guessing it can cover the difference).

Basically, if you only have yourself to look after, you should be able to devote most of your $80k to your debt and pay it off quite quickly.

John

DO NOT pull the money out of the 401k, NOT because you’re not earning as much interest as you are paying on the rotating debt, but BECAUSE of the penalties involved. You can lose as much as 40% doing this. Your 401k is a LONG TERM investment. I know it’s hard to think about the future right now, but try. The market will come up again. And by the time you retire it will go down and up again, maybe a few times. And with the market down, you’re actually losing a lot more than 40%.

Matt

1. Keep contributing to the IRA at least enough to get the maximum company match. If there’s no match at least continue contributing a small amount so it’ll be easier to ratchet back up later.
2. I am really really really against tapping retirement savings that are in retirement plan accounts (401k/IRA) with withdrawl penalties. Don’t touch this money..
3. If you have “retirement” money in a normal savings account or brokerage I *would* use them in this situation to pay off anything with interest of 10% or higher
4. Make sure that you specify on any payments made when a bill is not currently due, that the money goes first to reduce principal and not to reduce currently accrued interest.
4. In terms of downsizing your lifestyle… you probably have a great opportunity to downsize your living space which is probably your largest expense. Move to a very small, very cheap apartment for 1-2 years. Maybe this requires moving farther from where you WANT to live in order to get something that is half the price of what you currently pay. Anyway… entertainment nearby = $$ = bad thing right now. In your new studio apartment you won’t have space to buy new stuff and you’ll need to sell other stuff!
5. When selling things focus first on stuff that will actively cost money if you keep them (eg. video game system = buying new games, hobbies that require ongoing purchases)
6. Get rid of anything but basic cable. I’d say get rid of that too but it’s not realistic for most people.
7. Absolutely freelance if you can! Not only is it current money but it’s resume building as well

A.S.

You didn’t provide a full picture of your situation.

Do you have assets other than the 401(k)?
Do you have other debts (mortgage, student loans, car loan, etc)?
Do you owe alimony / child support now that you are divorced?

Just based on what you have said, My advice is to (1) cut back on $tupid crap, (2) sell stuff, and (3) freelance to make more money BEFORE resorting to (4) withdrawing your 401(k).

That 401(k) money is sheltered from creditors if, heaven forbid, you have to declare bankruptcy. That money is your nest egg, and you should fight to preserve it.

Christine

I, too, have a hard time deciding what to do about my money, and it seems like in your situation, I’d be torn as well. Here’s my advice: most of the comments above say don’t touch your money in the 401k. They made the decision for you.

Now how does that make you feel?

If it makes you feel like crap because you really think you should let the money sit in the 401k, then let it sit. If you felt like that was the right decision all along, then go with it, take out the money and pay off your credit card.

I find that when someone else takes control of the decision for me, I’ve already had my mind made up and couldn’t sift through all my doubts. Having someone else tell me what to do usually forces my hand and makes me commit one way or the other.

Good luck! I hope this comment thread helps.

Thisson

For someone making 80k/yr, the income taxes (and of course the penalties) on withdrawing the 401k money will be significant. I don’t think that’s an efficient way to accelerate your climb out of debt.

In very simple terms, you need to cut expenses and boost revenue. As long as your revenues are higher than your expenses + debt repayments, you will dig yourself out.

There are plenty of people that earned less than you and owed more than you that have dug themselves out of much deeper holes. So just plug away and you’ll get through it.

Make a budget and track it to see if you’re making progress. Fine tune it by checking through Ramit’s archives. There are some great suggestions, including cutting subscriptions, etc that will help you be more frugal. He has other ideas on how to boost your income. Follow them.

Also consider his advice on spending a bit more in the short term to save yourself some money down the line.

Good luck and let us know how you’re progressing.

hardworking_single_mom

Jason,
Count your blessings – 2 years ago I was a 28 y.o. divorcee with 8K debt, NO retirement savings AND a 3 y.o. child. So, “side gigs” were absolutely out of question and daycare was not an optional, but a “must have” expense
You can get roommates or become a roommate to cut your housing expenses, maybe do without car if your location has public transportation or if you have buddies to carpool with… You can definitely work nights or weekends at another job or doing those “side gigs” and not worry about babysitter expenses offsetting what you earned.
Yes, 30K is a lot, I’d be going crazy, too, but at least you haven’t brought any children into this misery! Climbing out without them will be so much easier, even if it takes a few years.
Good luck and hang in there – as long as you keep your job, you’ll get out of it!

PS – Leave that 401K alone, it won’t cover the debt amount anyway and the penalty is pretty bad…

The Personal Finance Playbook

It’s been said, but I would look to consolidate all of your debt by taking out a loan from a bank. Interest rates are low, and you have a decent amount of income so this shouldn’t be a problem. Go to bankrate.com to compare rates. Then just pay down as much of the debt as you can each month. You’ll be doing much better than 13%. Good luck. Keep your head up. It’s going to be all right.

Tomek

Do not cash in your retirement accounts. Continue to maximize your contribution while you are making extra payments on your credit card. 13% is a manageable interest rate on a credit card especially in today’s environment. You may even consider calling you credit card company and try to negotiate a better rate. If they think that you may have to file for bankruptcy they will be more then willing to work with you to get it paid off.

Trendy Indy

1. Make a plan; Set aside your expenses and pay everything towards your debt.
2. Move in with a roomate and try to cut your exp. Rent supposes to be the big exp for many
3. 30k is not bad.. you can get out of it. I paid off 15k debt in 6 months.. with a 68k salary.
4. Try to work part time and you should be out in less than a year.

Oh yeah.. stick to the plan.. AND remember

YOU CANNOT GO BACK AND HAVE A NEW BEGINIGN BUT YOU CAN ALWAYS START now AND HAVE A NEW ENDING-ALL THE BEST

Stephen Waits

* * * L E A V E Y O U R 4 0 1 k A L O N E ! ! ! * * *

Man up and pay your debt. It’s not hard.

Tyler

I 2nd what snowballer, hardworking_single_mom, and Jennifer @ Becoming The Marshmallow said. Your debt might feel huge, but dude, thank your gods that you make a truck-load of money. I know, because I’m a bit younger than you and make a similar salary + side gig. It’s a metric ton of money if you’re careful with it. With a good side gig going, you can hit 6 figures without losing sleep. No joke, 2008 was my first full year with a side gig, and I made your debt in _side_ income alone. Pure gravy on the salary.

Get or become a roommate. Scale your housing to $500-600 a month. Live like a college student again, except without the constant boozing and take-out. Emergency fund of $5k. Leave the 401k alone. Slam the debt. If you scale your housing back, you should be able to comfortably hit that debt with $1k a month, minimum, by spring. With a side-gig and frugality, that amount goes up.

It can be done.

Be patient and careful, nothing rash. That’s the hardest thing for me when it comes to personal and financial things. Careful, well-thought decisions. Nothing happens overnight. Patience. My main ING savings account is actually called “Patience”, so every time I look at it I remember to not be quick with it.

Good for you for reaching out for advice, I hope you find some helpful. Best of luck to you. Enjoy your new life and freedom. Invest in your best friends.

aoiphe

Strongly agree with others that the retirement amount should be left alone. If the money in your 401K is in mutual funds/equities/anything sold by the stock market, you do not want to realize the losses from the last six months of These Worrrying Economic Times.

evie

The temptation is psychological and emotional.

You want to pull out the 401k because it seems like an easy fix, but remember you have 30k in debt. The only way to dig out of that is to change your behavior, to change your spending/saving/earning habits. After you stick to an aggressive payment plan for a couple of months where you actually see yourself making progress, cashing out your 401k wont be so tempting. You need to prove to yourself you can dig out of this.

Having a plan and making tangible progress will make you feel better mentally and emotionally.

Anne

I agree with all of the advice to NOT touch your 401K — it is your future, not to mention all the other repercussions mentioned above. It’s understandable that you want to pay off your credit card debt; however, unless you start a savings plan, you will continue a debt cycle. Look at your expenses and what you can cut back on, start a systematic savings plan as a cushion for expected and unexpected expenses, and then, and only then, start paying down your cc debt (of course, you make minimum payments during this time). That way, the next time a “life happens” expense comes down the pike, you’ll have the money for it, and won’t have to put it on your credit card. It’s important to stabilize your finances above all else.

Jade

1) Don’t touch that 401K money.
2) Take a good hard look at where your money is going and decide what you can cut. Granted I don’t know all the details of your situation, but I’m sure you can live off of $50K out of the $80K/year you earn which will leave you $30 to pay off that debt. And you will have done it in one year! Remember, only the necessities! $50K is still a lot of money for one person to live on! This is only a matter of dedicating yourself to putting $2500/month towards your debt for a year – then you’re done! That’s a better situation than a lot of people (including myself) are in.

Brian

My advice from a 31 year old single guy:

1. Don’t touch the 401K. Period.

2. $1,000 a month against the debt. That gets in done in about 36 months. It sucks, but that’s what it’s gonna take.

3. Get back into the game! Don’t spend more than $40 per date!

Green Eggs and Ham

1. Leave your 401k alone, full stop. I’m sure you’ve read enough explainations above, no need to reiterate.

2. Cut costs, being single is easy for that. Sorry to hear about the divorce but the good part is it’ll be easier now for personal expense management. Cook at home so it’s cheaper, and the saved money can allow you to buy excellent quality groceries that will make you healthier while saving money. It can be fun too, personally it’s my hobby. Write a journal or blog about each time you cook too to make it progressive and interesting. You’ll be surprised how much you’ll learn from each failed attempt.

3. Get a consolidation loan from a bank. Your income should not cause a problem, and the only thing holding you back is if you happen to have bad credit. In which case take advantage of the promotional interest rates on certain credit card companies. If you make 80k/year, 30k of debt will not take a long time to get rid of if you can lower the interest rate.

4. Increase your payout to your debts. Do not just pay minimums, pay hundreds more…you know you can with that income. Just put it in first, think of what to do with the money afterwards rather than think of what you’re sacrificing before you make the extra payment.

5. Downgrade…housing costs, cable costs, vehicle usage (check how much you use ev. month on gas).

6. Smile =) It’s good you’re trying to fix it, if you want to live a simple cash lifestyle. Start doing it now, where excess “investments” are debt payments now. Lowering interest is essentially the same as increasing your investment return. It’s less negative.

Good luck!

Elizabeth

1. Don’t tap the 401(k)/IRA.
2. Go ahead and embrace the simple cash lifestyle. It’s great that you’ve cut up the credit cards and want to avoid taking on more debt. That is a huge step in the right direction.
3. Start cutting expenses. What you need is food and shelter. Everything else can probably be cut back in some way.
4. Get other income. You mentioned possibly getting some freelance gigs and selling stuff. Use that income to pay off debt.

The key here is to get your income above expenses and then using the difference to pay off debt and save. You’ve taken the first step by recognizing you have a problem. Good luck!

JaM

You’ve gone through a bad patch and you need to get some calm and collect your thoughts. Emotional hurt and financial worries do not provide a mind to make clear decisions. Some easy steps that I can think of:
1. Track your spending on a spreadsheet or something and come up with a budget you’re comfortable with.
2. Re-evaluate your budget and cut down on expenses across the board – points other readers have suggested include boarding costs, entertainment costs, downsize on car, etc.
3. Your 401K is not going to pay off your debt – get real!
4. You say you earn 80K and if you can keep your job through this tumultous economy 30K of debt is nothing buddy – it is in your control to pay it off in 1 year, 2 years or 3 years. Break it down and stop frivolous expenses.
5. Do not be tempted to spend on yourself because of the tough circumstances you have going on now.

Keep on keeping on.

Carlin

Taxes get paid regardless of when you take it out, so including taxes is kind of misleading. The penalty would be 10%, the interest rate is 13%, go for it and you’re ahead 3%. Plus, you’ve if it helps with your stress levels, then do it. I’m sure the divorce was stressful enough, and if doing this helps you get on track with your money saving plans, then go for it. If you pay off one credit card right away, maybe it’ll motivate you to take down the rest of the debt quickly. If you can pay it off without taking this money, then do that, but if you need a catalyst to get started, and you think this is it, then do it.

The only other thing I suggest is to set an amount and pay that on your debt every month AND don’t incur any new debt. I’d pick something substantial enough that you won’t be paying it down for 20 years, but not so high that you’re going to have to eat spam and live in someone’s closet to get by.

Run through the “Save money in 30 days tips” and see if any apply to you. Maybe you can save a good chunk and put that toward your debt.

Go do something fun – something for yourself that you’ve been putting off. You won’t do any of this crap if you’re stressed out all the time. Plus, any gifts you would have bought for your ex – spend that money on yourself whenever those gift giving occasions roll around.

P Kannan

There is a lot of advice in previous posts. It takes more time to read them than the article and just write my 2cents worth.
1. You are young.
2. Transfer to a broker, where you can borrow against your own 401k, pay your 13% interest to your own account. (Pay yourself instead of others, albeit you can only use it in retirement).
3. Put everything on table and start cutting. You would be surprised. I managed my family of 5 on $60000/yr in Wash DC! You can do it. Very skillful.
4. If you do similar to what said above, you would pay off your debt in 1year. Goal is 1yr _+ 15%.
5. Just do it.

Sunday Links | Centsability to Wealth

[...] To Be Rich, Ramit got a good discussion going by posting a readers question on how to handle his $30,000 worth of debt after his recent divorce.  The main discussion hinged on whether he should tap the $8,500 in his [...]

Kristen

The great news is that you make more than enough money to pay off the debt without using the 401k. The penalties wouldn’t scare me off – it’s the hassle of going about it that would feel like a massive waste of time for such a minor pay-off.

[1] Organize your finances with mint.com – it sounds like you have credit card debt and some minor investments, nothing too complicated. Mint.com will likely be able to organize and track it for you. You’ll get an easy picture of your total net worth very quickly and it won’t be the constant chore of using Quicken. You log in and it’s all done for you.

[2] Log all your debt information into Debt Payment Pro: http://www.debtpaymentpro.com/ – it will calculate what exactly you need to pay to achieve your debt-free goal. You can use it to easily crunch the numbers in different ways to find the plan that fits your lifestyle. Download it or print it out and stick to it.

[3] Make everything you can automatic. If your bank has a bill pay system (Bank of America might have this), look into doing that as well. Set it up so you never, ever have to think about it. Re-visiting your debt month after month will not help your self-esteem.

[4] Use the old mortgage trick: Pay half the “mortgage” every two weeks. This will sneak an extra monthly payment and further drive down what you’ll owe in interest. Some cards allow up to 4 automatic payments a month.

[5] Reduce your lifestyle. You’d be probably feel better on a 2-3 year plan while being able to live with comforts than going extremely frugal. Drop HBO. Cook more. You make a lot of money, you just experienced one of the most stressful events possible and there is no sense punishing yourself further.

[6] Don’t apply for all the pie in the sky no interest APR cards without checking up on your FICO score and credit report. These amazing cards are HARD to get. If you don’t have above a 750, you will not get them. Your age is also a disadvantage.

Consider what your debt to credit ratio is… If it’s over 35% on ANY of your current cards – abort abort. You’re not credit worthy. Worse, your inquiries could lower your FICO which gives your current cards licenses to hike up your interest rates or lower your credit limits (which magnifies your debt to credit ratio and then lowers your FICO again).

[7] Don’t bother to call to negotiate interest rates, especially with American Express. Everyone who says this, clearly hasn’t had debt in the last two years. You will be bounced from one overseas call center manager to another, all of whom are reading from a script, have no actual power and will tell you that a computer decides your interest rate. It is actually an extremely humiliating and frustrating process to make these calls.

You’ll see actual results in reducing your interest rates the more you pay down (meaning the more you please the fancy computer algorithm that decides your interest rates). Many of my cards have automatically skipped down 3% with just a few months of paying more than the minimum.

This is also a two way street: ALL your cards have reserved the right to increase your interest rate and lower your credit limit based on information in your credit report. This means if you’re late to Capital One, then Chase might raise your interest rate – even though the delinquency is not related to the Chase account.

[8] You have to commit to perfectly executing your plan. Make one mistake and you will get punished exponentially by lenders who weren’t even effected.

Good luck!

Alison

Unfortunately, what you have is an IRA, not a 401(k) account. If it were a 401(k) with an active employer, your employer may allow you to take a loan from your 401(k) that would not count as an early withdrawal. Since it’s an IRA, that is not an option.

Don’t cash out the IRA. You will pay a 10% penalty, that is $850. After taxes and the penalty, you’ll have $4845 to pay down debt (assuming a 28% marginal tax bracket + 5% state income tax). In addition to the penalties, you will lose out on interest you’d earn on the account. But let’s assume that you are getting 0% interest (though you should be able to get at least a few percent). Let’s further assume that you can’t renegotiate your interest rate or transfer the balance to a lower interest card, which would be an even better choice.

By paying down 4845 early, you save a lot on interest, but how much? It depends on how long it would otherwise take you to pay down the account.

Can you contribute an extra $500 a month to pay down the account? If so, you’d pay off the account in under 11 months and pay only $300 in interest. Much better than $850 in penalties.

Maybe you can’t do that. Can you contribute an extra $250 a month to pay down the account? You’d pay it off in about 22 months and pay $625 in interest. $200/month? That’s 29 months and $800 in interest. All better than $850 in penalties and foregoing any investment gains you might get from the full $8500.

Don’t freak out about your finances, but consider your options calmly and rationally and make the most prudent decision. That’s what’s going to help you feel better and get back on the right track.

Battra92

HANDS ON YOUR HEAD. STEP AWAY FROM THE 410K.

First thing I would do is find a cash paying job. That way you don’t have to report it as alimony or child support.

$30K of debt is nothing. Snowball it, cut expenses, talk to the CC companies, get a second job and be on your merry way.

Making $80K a year means you should be able to live on your own quite comfortably, even with the debt. By my rough guestimate you probably bring home over $5K a month. Live like a college student with either a roommate or in a small apartment. Basically live like a college student taking advantage of all that is cheap and good (I don’t mean go out drinking or to wild sex orgies.)

Start an emergency savings fund. Danielle beat me to the punch but it hasn’t been stressed above and it should. Pay yourself first! After that and figuring your needs put every available cent towards repaying debt. Repay the smallest balance first and get that done and then move to the next one.

virescent

Good for you that you are making the decision to go cash only. There are no easy answers here! Don’t touch your 401K. I did and regret it (yes I did feel better getting some of my debt paid, but medical bills were the big thing here) Review your household bills in details and slash and consolidate as much as possilbe. Get the that second PT job and focus two years (or 1 yr) to place that salary to paying debt. Find lots of free entertainment , no eating out. If you are serious about this you will do whatever it takes to get out of debt. I read alot of blogs, books about personal finance. Research what fits for you. There alot of people hurting yet willing to share their experiences learn from it. AS for myself after 4 yrs I’m almost done ($1200 left) paying off credit cards and will not go back. I have a student loan left to pay(9000). But I can sleep at night and I am at peace. It’s only cash and lots of planning for now on. Good luck!

David

Here’s my take.

I’d keep the money in your 401K. Chances are any taxes/penalties you’d pay would be much greater than the 13% interest you’d save on. If that’s the case, you’re actually losing money.

Erin

Look at it this way. You pay 10% penalty plus your tax rate. Say your tax rate is 20%. If you take out the money it’s like taking out a 30% loan to pay off a 13% debt. And as others mentioned, that is not even counting what you would be losing by withdrawing the money when the market is down. If you are like most people your 401k has probably gone down 30% in the past year, if you take out the money before the market goes back up (yes that could take a long time, but based on historical trends it will go back up) then you are also losing that 30% on top of the 30% in taxes and penalties.

mike

Q: Why does it cost so much to get divorced?
A: Because it’s worth it.

Probably bad timing, but I thought a little light humor could help. Don’t touch the 401k, especially in this market when Wall St is on sale.

Get a roomie or two. Make a budget / plan. Stick to it. It may take a year or two, but with $80k coming in, you can pay it off easily without touching the 401k.

I make less than you and have a stay at home wife with two young kids. I’m debt free and am planning to save 20k this year (while putting 10% away into my 401k and contributing regularly to my kids’ 529s) because that’s the way our budget is set.

Just write down what you want and then go get it.

ekrabs

I’m a little late to the party, but I fully agree not to cash out your 401(k). Early withdraw penalty would be 10% and income taxes would be another 28% (marginal tax bracket). So, you could lose as much as 38% just by pulling it out! Is that really worth it, even with a debt with 13%? I certainly don’t think so.

However, some places will allow you to take out a low interest loan against your 401(k). I don’t know if Sharebuilder has such a thing, but it’s worth looking into. That way, you won’t get hit with the usual 38%, and the loan’s interest rate will almost certainly be lower than 13%. It’s not something I normally recommend either, but in cases like this, it would be the lesser of two evils.

I hope that things will turn around quickly for the better for you. Please take care.

Moneymonk

You make $80K a year, no need to withraw from your retirement, pay off the friggen debt yourself, no handouts

Burke

I’ve been there.
I was 87K in debt the day I got divorced. I didn’t touch the 401 K and have whittled it down year by year, and I make way less than 80K a year – some years as low as 30K others as much as 65k. I’ve been debt free for about a year.

Make getting out of debt a priority!

1. Pay the debt first with money that you are investing other places (not the 401).
2. Reduce your needless spending. I even went as far as to live in a tent trailer for a summer and a 5th wheel in the winter one year (it got as low as -15 degrees F). That’s pretty extreme, but I had a whatever it takes attitude.
3. If you can make more – DO IT! It’s hard to spend money while you are at work!.

Good Luck, Hard Work.

Debra

If you make 890K, 30K in debt is not that big of a deal. Pay it off.

curtis

leave your retirement fund alone, cashing it in doesn’t solve your problem, if you did you would then have no retirement fund and 24,000 in debt. Still a problem. sure it might make you feel better short term, but based on 30k debt, you’ve been doing a bit too much of “feeling good short term”
If your like most people earning 80k , you likely get a sizeable income tax refund. stop lending that money to the govt for free. increase your withholding at work by 1 or 2. for example, if you normally get $4800 tax refund that means your lending the govt $400 a month more than you should. increase your exemptions, keep that 400 in you paycheck and pay toward your debt.
Do you own a pricey vehicle ? if your like most people you probably have car payment of 300-500 a month. sell it and get rid of the payment ,get a cheap car that gets the job done and use the savings to pay debt.

write out a budget on paper and start as if you only make 50k a year. pay your essentials first cut expenses everywhere. If you lived on only 50k a year ( Yes it is possible) you could pay off your debt in 12-18 months.

Remember… you didn’t accumulate 30k in debt overnight,, and you won’t eliminate it overnight…

best of luck to ya

Ahuva

Something’s wrong with a some people’s math. My salary (minus my 401K contributions) is 76K. After taxes, health insurance etc., my take home is $3900/month. So Jason is probably bringing home a bit over 4,000.

He should be able to put $1,000-1,500/month towards paying down debt on that salary. I put $1,200/month towards mine while still making my car payment and going to the theater once in a while. Even if liquidating his IRA would take care of everything (which it won’t), you don’t *want* a quick fix for this. A lot of that debt can be attributed to the divorce, but not all of it. He’s going to need to change his spending habits to keep from sliding back into debt.

Calling your credit card company to lower the interest rate will work, but only if you are in serious financial trouble to the point where they think you might declare bankruptcy. A friend of mine got his rate lowered from 23% to 4% last month, but only because his rent + utilities + minimum payment on the card + food nearly equaled his take-home pay.

The first thing I would do would be to start creating an amortization chart. You can download one for Excel or use one of the million that are available on the web. If you can put $1,000/month towards your credit card, then it can be paid off in just 3 years (37 payments) with fairly little pain. If you can come up with $1,500/month, then you’ll be paid off in less than two years (23 payments) without touching your IRA. Remember, if you liquidate your IRA now, you are locking in all of those losses, plus paying a 10% penalty. You have a good long time to recover from this downturn in the market; why cash out now when you don’t have to? Cutting back/eliminating your IRA contribution probably makes if you’re not getting an employer match, but I’d look for other ways to cut back first– reducing your cell phone/cable packages, getting a roommate, increasing the deductible on your car insurance and cooking instead of eating out are all good ways to reduce your expenses. Even little things like skipping your morning Starbucks and not getting soda/candy from the office vending machines will add up over time (and be relatively painless).

There are also some good credit card deals out there if you have a really good credit score (in the high 700s). Chase had a balance transfer deal where your interest is 3.9% until you pay off the loan as long as you keep making your payments on time.

Good luck!

Chris

From the IRS withholding Calculator:
Based on the information you previously entered, your anticipated income tax for 2009 is $11,856. If necessary, you should adjust your withholding on a new Form W-4 as follows:

* For the only job you entered (which has a projected salary of $80,000): 1 allowance.
* Check the “Single” box on your Form W-4.

Assuming these recommended allowance(s) are in effect for all of 2009.your expected refund should be about $900 Following this recommendation will ensure that the amount withheld from your wages will cover all of your projected tax liability while minimizing your refund.

Alternatively, you can claim 2 allowances, which will result in an underpayment of about $25, which you can pay with your tax return or throughout the year as an additional dollar amount to be withheld by your employer (to do so, divide $25 by the number of paydays remaining in 2009 by the number of paydays remaining.

@Verdant Green
If he claims more than two allowances he is probably on his way to an audit or his employer may receive a ‘lock in’ letter from the IRS forcing him to lower the number of allowances.

http://www.irs.gov/individuals/article/0,,id=139412,00.html

Boomer

Danielle – Get two jobs.

Comment of the week: “Get two jobs” | I Will Teach You To Be Rich

[...] comments had a great back-and-forth on this post (”What would you tell the 30-year-old divorcee with 30k of debt?”): Danielle: [...]

Casey

A real estate investor and an economist find themselves together on the subway. The real estate investor is on his Blackberry and noticeably weeping and agitated. It’s a little awkward, but the concerned economist turns to him, and this ensues:

Economist: hey pal, what seems to be the matter?
Investor: I own nine properties, and my mortgages are strangling me, I’m financially screwed.
Economist: I see. Certainly, you have options, no?
Investor: well, I could take money from my son’s college fund and pay off the worst one, the messy one that’s causing me three-quarters of my stress. As far as allocations go, that’s the easiest fix. But obviously I can’t do THAT.
E: you can’t?
I: of course not. Everyone knows that your kid’s college fund is sacred. I could never touch it. It’s common knowledge.
E: could you take out a personal loan with the college fund as collateral?
I: I suppose, but that means talking to the bank. That’s too scary of a thought right now for me. I’m a little rattled, as you can obviously see. Thinking about this is tough, which is why I want to act on something now.
E: yes, indeed, I see that. And your son is how old?
I: He turns four tomorrow!
E: astounding. So instead of utilizing something that you can easily start to rebuild in the next few years, you are going to let one debt that represents 75% of your stress eat you alive?
I: well, wait just a second. Obviously, it can be rebuilt. And yes, I have lots of time before I need it. And yes, I’ll have more financial versatility and power once I satisfy this strangling debt. But I’ve had at least ten friends tell me I can’t touch the fund, and they all tell me it so passionately! Surely, they can’t all be wrong? Can they?