Planning before going into debt: How to Take On Debt

[VBCB]

Seems like there's a lot of good info out there for digging out of debt, not finding to many good resources for taking on debt strategies. #1 don't take on debt :-)

 

I've had some unforeseen and unfortunate circumstances arise and will be taking on debt (grrrrrr I just dug out, credit scores are almost reasonable again for the first time in many years). Already into the emergency fund pretty good, down to about 8k liquid and over the last 3 months have been bleeding off about 2k per month. I've begun reducing expenses that I can to a minimum, but the debt is coming.

 

Really hard to tell how much I'm going to need at this stage, maybe 30k +/- 15k. Really is my best guess right now.

 

A: I can borrow it from my 401k, interest rate is 3.5% but that goes back into my account so If you are to assume I woulda made 7% on that chunk and now Im only making 3.5% on that chunk then it's costing me 3.5%. Not too too bad, but that 3.5% woulda been in a long term growth position and the setup fee is $75. Another drawback here is if I change employers then it becomes due.

 

B: https://www.nerdwallet.com/blog/loans/debt-consolidation-loans/

Earnest, Discover, and Sofi maybe?

 

C: 0% Intro rate CC offers, not going to be long term enough and will have some overhead in moving the debt around and really paying attention to avoid taking a big interest rate hit somewhere. Have to watch transfer fees and such too. Scared this just leads me into option B eventually and also worried my scores are borderline so with debt and new accounts and such I could start getting denials pretty quick and more Inqs and such. Could be the cheapest option if done well, could be most expensive with a little misstep.

 

D: PLOC? I've never had one, flexibility would be good, how are the rates compared with A? Could I even get one?

 

E: Like option B, just go loan shopping at DCU, PenFed, etc..

 

F: What else?

 

My cars paid off but not worth a whole lot, maybe 4-5k. She got a lot of life left in her though (crossing fingers). No Real estate or other assets to really borrow against.

 

EX08 from Amex = 763, TU08 from Discover and Barclaycard = 735, EQ04 from DCU = 704

Last baddy falls off EQ next month, expect a jump to mid 700s, also accounts and inqs are aging so scores nudging up from there. Should also have $2 trick right next month. Inqs match accounts and dates below.

 

Account Limit OpenDate

DCU 7500 7/2015 (also have checking and savings and direct deposit with them)

Discover 6800 9/2015

Barclay 4500 9/2015

AmExBCE 30000 2/2015

Comenity 3000 3/2016

 

The DCU visa is at 11.5% APR, all the rest are nose bleed numbers. Maybe after EQ cleans up and score jumps they'll come down on the APR if I ask and gimmie a good CLI, think it's a HP though????

I'm not 40 but close.

 

Any advice and recommendations on how to take on debt in the less dumb way then I did the last time I had to take on some debt is appreciated.

Edited June 11, 2016 by VBCB

[hegemony]

why?

[VBCB]

why?

 

Because I've had some unforeseen and unfortunate circumstances arise and will be taking on debt.

[hegemony]

 

why?

 

Because I've had some unforeseen and unfortunate circumstances arise and will be taking on debt.

 

I hear that, but before I can give specific advice I'd need to know what circumstances.

[VBCB]

 

 

why?

 

Because I've had some unforeseen and unfortunate circumstances arise and will be taking on debt.

 

I hear that, but before I can give specific advice I'd need to know what circumstances.

 

 

 

:-) I try to wash my dirty laundry at home :-)

[ukaserex]

I get it. Some things are better left unsaid.

 

But - here's the thing. We have no idea if you're out of work, undergoing chemo that your insurance won't cover or what.

 

In order to give advice, there have to be some details.

 

For example: how much debt do you have now?

 

Are you working?

 

There are a lot of ways to trim the fat off the budget that you may not have thought about.

 

A part time job - even though it only brings in 100-200 a week could help quite a bit.

 

Borrowing from a 401k is, for me, like a last resort, second only to a reverse mortgage for someone under 65. I have no idea what the penalties are for not repaying a 401k. Credit cards are unsecured loans; the worst that happens is your credit tanks and you get a lot of mean calls.

 

You indicate you're still working; so that means legal or medical, most likely. If it's legal, and it's Federal - go with the public defender. On the Federal level, they're better than the paid lawyers, most of the time. - unlike on the state level. If it's medical - you have insurance, so it can't be that bad.

 

See how I'm just typing to read my own words? There's just not enough information to really assist you. I'd go ahead and spill it - it's not like we know who you are or anything. You can always get a second email and get a second account if you're worried about being embarrassed.

Edited June 12, 2016 by ukaserex

[VBCB]

I work, Im not sick, Im not in trouble, and Ive starting budget trimming. If you have some taking on debt advice I would appreciate it.

[md2005]

I had a 401K when I lost my job due to end of life for the project that I was working for the company. My balance was small at around 2K. Instead of me paying it back, they just removed the balance from my 401K and so when I had to transfer or withdraw it, the amount was less that plus some penalty fees. I'm not suggesting you do the 401K loan, but that is how it ended up working for me.

 

Do you have a Whole Life Insurance policy that you can loan against? Some people don't realize that you can borrow or just withdraw off of the cash value. While not idea, if you are only digging into the cash value, it's another option.

[VBCB]

I've got some life insurance through work. I don't think its that kind of policy though. Will dig a little deeper. Appreciate the suggestion, hadn't thought of that.

[plumbingwife]

Well, I've seen people here do it before. Particularly remember a pet surgery that put someone in the hole about 15k. As much as we all love to stay out of debt and I thoroughly enjoy the self-satisfaction of paying to zero every month and watching the limits climb, credit cards are for unexpected life events.

 

If it was me, I would put it on my favorite rewards card IF it would keep my debt percentage below 20% of all available credit, which for me would be about 30k. And I'd pay it off in chunks, or transfer it to a zero percent offer on a different card and pay the 3% transfer fee. I figure if you're going to have to do it, better get some plane tickets out of it.

 

If it was more than 30k, I would probably borrow half from the 401k and put the rest on a card.

[hegemony]

without more info I'm not into giving advice if there is a bust-out potential.

 

FWIW, however, I would never borrow against a 401k. Ever.

 

OP, you have a high limit with amex. AR eyou saying you need more?

[tiggerlgh]

Well, I've seen people here do it before. Particularly remember a pet surgery that put someone in the hole about 15k. As much as we all love to stay out of debt and I thoroughly enjoy the self-satisfaction of paying to zero every month and watching the limits climb, credit cards are for unexpected life events.

 

If it was me, I would put it on my favorite rewards card IF it would keep my debt percentage below 20% of all available credit, which for me would be about 30k. And I'd pay it off in chunks, or transfer it to a zero percent offer on a different card and pay the 3% transfer fee. I figure if you're going to have to do it, better get some plane tickets out of it.

 

If it was more than 30k, I would probably borrow half from the 401k and put the rest on a card.

Credit Cards aren't for unforeseen expenses,that is what savings are for. Edited June 12, 2016 by tiggerlgh

[Konrad2012]

I work, Im not sick, Im not in trouble, and Ive starting budget trimming. If you have some taking on debt advice I would appreciate it.

Get a 2nd job

[plumbingwife]

In a perfect world, yes. If we've been well trained, we have some. But OP said he's getting to the point in using his savings that it's making him uncomfortable.

[Cactus Flower]

401k Loan beats taking on more debt. Most of the time you can't cash them out unless you lose your job or there is a medical hardship..

 

Life insurance offered through an employer, you cannot take out loans against.

 

in a perfect world we would all have a whopping amount of money in savings, however.. that is just not possible everyone.

[plumbingwife]

Probably should have asked if you're anywhere near retirement age. I wouldn't touch the 401k past 30 unless I had no other options.

 

I also remember that the pet surgery member actually put the 15k on her AMEX, and surprisingly, the Earth still turned the next day.

[VBCB]

I'm a lil shy of 40. Dug into the Life Insurance plan and Cactus is right, no loan against that possible.

 

Reduced 401k contributions to the minimum possible to get the max match from employer. Reduced my other savings auto contribution. Internet has to stay but TV is either going to that minimum local channel only setup or out the door all together. Watch more netflix then cable anyway. There's a couple other things I can do budget wise. Reality has set in, time to cut cut cut. Lots of oatmeal breakfasts in my near term future lol.

 

I'd like to see my scores peak next month with my sole baddy falling off since it's been such a long climb back before starting to carry balance or borrow.

 

I was at 15-16k of savings at start, down to 8 so yeah debt is coming. Gunna review what my current APRs are tomorrow and post, I think some are still in intro period but wasn't planning to ever carry a balance so wasn't paying attention. Maybe a phased approach... budget to minimum, cards till 0 apr done, maybe some new 0% APR cards in there but worried about balance transfer fees. Borrow against the car when its time. 401k PLOC Unsecured Loan down the road a bit...

[VBCB]

Card Limit OpenDate APR IntroAPRExpiresOn Then APR is

AmExBCE 30000 2/2015 0 5/2017 17.24

DCU 7500 7/2015 11.75

Discover 6800 9/2015 0 9or10/2016 22.99

Barclay 4500 9/2015 24.24

 

While I'm not in love with the idea of carrying a balance looks like the AmEx can get me down the road a bit. I feel like next month I'll have a decent score across the board and wonder when I should open up more options. Maybe a good time to get in with PenFed? I though I broke Chase's 5/24 rule but they sent me a targeted CSP offer (annual fee after first year not my style). I'm also concerned carrying a balance could negatively impact loan/card shopping down the road.... but if it does I could 401k loan -> wait for score to come back -> Other loan if that's what I want.

 

Back to running around the house and pulling out wallwarts.

 

Any strategy suggestions?

[generallissimo]

I'm in the same situation as you are. Have been for the last 18 months or so. In my case, I'm paying off medical expenses for someone who is not immediate family (and hence was not on my health insurance and cannot get health insurance for this condition).

 

I took the route of keeping the debt on 0% interest balance transfer cards, but had to let utilization go upto 65%. If I was doing this again, I would have started off with Personal Line of Credit or Installment Loan from a CU, but I cannot qualify for one right now due to high utilization and new accounts/too egyptian.

 

Debt itself is not a problem for me as it is something I can pay off in couple of years. It can be paid off immediately if I take money out of some investments or postpone some other plans (which is a back up plan if something happens that causes me to lose my job or something). But I'd rather pay a little bit of interest (a few grand) than change my plans.

 

My goal now is to get utilization down without affecting my other plans, I have to research/look in to a loan from somebody like Sofi or Earnest. I already know the Lending Club is horrible as you're unlikely to get the full amount or the teaser APR they say you qualify for when you first apply.

 

For you, I'd recommend the CU Line of Credit / Installment Loan route if your credit profile qualifies for it (read up on each CU you're considering and what it has been approving lately). And use the Amex balance transfer as a backup if that does not work. I would not do the 401K loan unless you have another source (that is not your emergency fund) to pull the funds from in case you lose your job. If I were you, I would also not deplete your emergency fund any further. Obviously like others said, it's hard to make recommendations without knowing whether there's an end in sight to the debt accumulation or what your debt-to-income ratio is for current amount of debt.

Edited June 12, 2016 by generallissimo

[DollarDog]

I'm in the same situation as you are. Have been for the last 18 months or so. In my case, I'm paying off medical expenses for someone who is not immediate family (and hence was not on my health insurance and cannot get health insurance for this condition).

 

I took the route of keeping the debt on 0% interest balance transfer cards, but had to let utilization go upto 65%. If I was doing this again, I would have started off with Personal Line of Credit or Installment Loan from a CU, but I cannot qualify for one right now due to high utilization and new accounts/too egyptian.

 

Debt itself is not a problem for me as it is something I can pay off in couple of years. It can be paid off immediately if I take money out of some investments or postpone some other plans (which is a back up plan if something happens that causes me to lose my job or something). But I'd rather pay a little bit of interest (a few grand) than change my plans.

 

My goal now is to get utilization down without affecting my other plans, I have to research/look in to a loan from somebody like Sofi or Earnest. I already know the Lending Club is horrible as you're unlikely to get the full amount or the teaser APR they say you qualify for when you first apply.

The Affordable Care Act did away with pre-existing conditions.

 

http://www.hhs.gov/healthcare/about-the-law/pre-existing-conditions/index.html

[VBCB]

generallissimo

Thank you for your input. Yeah I'm concerned if I run up the CC debt then my borderline scores will take a hit and limit my options down the road or at least make the interest rate worse.

[ProcessServer]

 

I'm in the same situation as you are. Have been for the last 18 months or so. In my case, I'm paying off medical expenses for someone who is not immediate family (and hence was not on my health insurance and cannot get health insurance for this condition).

 

I took the route of keeping the debt on 0% interest balance transfer cards, but had to let utilization go upto 65%. If I was doing this again, I would have started off with Personal Line of Credit or Installment Loan from a CU, but I cannot qualify for one right now due to high utilization and new accounts/too egyptian.

 

Debt itself is not a problem for me as it is something I can pay off in couple of years. It can be paid off immediately if I take money out of some investments or postpone some other plans (which is a back up plan if something happens that causes me to lose my job or something). But I'd rather pay a little bit of interest (a few grand) than change my plans.

 

My goal now is to get utilization down without affecting my other plans, I have to research/look in to a loan from somebody like Sofi or Earnest. I already know the Lending Club is horrible as you're unlikely to get the full amount or the teaser APR they say you qualify for when you first apply.

The Affordable Care Act did away with pre-existing conditions.

 

http://www.hhs.gov/healthcare/about-the-law/pre-existing-conditions/index.html

Yeah, if you can afford the outrageous deductibles and monthly premium payments.

[spacemule]

 

 

A: I can borrow it from my 401k, interest rate is 3.5% but that goes back into my account so If you are to assume I woulda made 7% on that chunk and now Im only making 3.5% on that chunk then it's costing me 3.5%. Not too too bad, but that 3.5% woulda been in a long term growth position and the setup fee is $75. Another drawback here is if I change employers then it becomes due.

You're thinking about this incorrectly. The loss of 7% return is not offset by your paying 3.5% extra. The 3.5% you're paying is not a return, it's a penalty. You are losing the 7% plus you are paying an additional 3.5% on what you pay back to return your account to a position that will be less than where you started.

[generallissimo]

 

I'm in the same situation as you are. Have been for the last 18 months or so. In my case, I'm paying off medical expenses for someone who is not immediate family (and hence was not on my health insurance and cannot get health insurance for this condition).

 

I took the route of keeping the debt on 0% interest balance transfer cards, but had to let utilization go upto 65%. If I was doing this again, I would have started off with Personal Line of Credit or Installment Loan from a CU, but I cannot qualify for one right now due to high utilization and new accounts/too egyptian.

 

Debt itself is not a problem for me as it is something I can pay off in couple of years. It can be paid off immediately if I take money out of some investments or postpone some other plans (which is a back up plan if something happens that causes me to lose my job or something). But I'd rather pay a little bit of interest (a few grand) than change my plans.

 

My goal now is to get utilization down without affecting my other plans, I have to research/look in to a loan from somebody like Sofi or Earnest. I already know the Lending Club is horrible as you're unlikely to get the full amount or the teaser APR they say you qualify for when you first apply.

The Affordable Care Act did away with pre-existing conditions.

 

http://www.hhs.gov/healthcare/about-the-law/pre-existing-conditions/index.html

 

 

I'm aware, I was talking about at the time when the medical debt was incurred due to not having insurance. It's no longer growing due to Affordable Care Act, though like ProcessServer said there's an outrageously high deductible.

[VBCB]

 

 

 

A: I can borrow it from my 401k, interest rate is 3.5% but that goes back into my account so If you are to assume I woulda made 7% on that chunk and now Im only making 3.5% on that chunk then it's costing me 3.5%. Not too too bad, but that 3.5% woulda been in a long term growth position and the setup fee is $75. Another drawback here is if I change employers then it becomes due.

You're thinking about this incorrectly. The loss of 7% return is not offset by your paying 3.5% extra. The 3.5% you're paying is not a return, it's a penalty. You are losing the 7% plus you are paying an additional 3.5% on what you pay back to return your account to a position that will be less than where you started.

 

I see your point but I don't agree with how you are thinking about it either. Paying interest to a lender is different then paying it back to myself, sorta like a forced savings. Pretending I pay it off in a year, which I won't, and using some round numbers here which are fake, and completely lying about how interest is calculated... I take 10k from me, I pay back 10350. I'm not out the 350 bucks, it's still mine. I lost some potential investment earnings while the money is "missing" from my 401k. There are novels written on the debate, I'm just saying I put myself in the 401k loans aren't the devil camp. The double tax myth is proven to be a myth. I lie to myself even worse then this though, I pretend the money I've borrowed is in a bond like investment making 3.5%. I know that's hogwash but that money isn't subject to shorterm market flux either. If I borrow the money elsewhere I'll be paying interest which is like burning money up in smoke, with 401k loan I keep it.