Jump to content

Planning before going into debt: How to Take On Debt


VBCB
 Share

Recommended Posts


That being said about the 401k loan option... what's the point of having quasi decent credit scores if I can't make use of them when I'm in need of a little borrowing over the next few years of my life. I could yank the money from the 401k while my scores are in the dumps.

 

Equifax is all clean now for me now, got a good score bump there. NO NEGATIVE INFORMATION ACROSS THE BOARD!

From CCT trial

Ex 08 771 (5inq), EQ08 760 (5inq), TU08 719 (1inq)

TU does not show some older closed accounts that I suspect at some point will fall off, maybe not too far away. AAOA is the primary cause for the score gap there, not much I can do about that other than thumb twiddle and not app.

 

Noticed Citi has some 0% for 21 month cards (diamond, simplicity). I wonder what kind of limit I would get, if they give me 5k and I'm not trying to go above 10-20% utilization, that's not a huge help or solution. It could kick the bucket down the road a little. I think having more available credit in general though is probably needed. Again here's what I have

 

Account Limit OpenDate

DCU 7500 7/2015 maybe HP CLI now that EQ all clean, account hits 1 year mark in 10 days

Discover 6800 9/2015 Love button push before end of month

Barclay 4500 9/2015 I've never tried the reduce APR SP CLI with them, got an auto CLI once. Supposed to be HP

AmExBCE 30000 2/2016 Have to wait till October

Comenity 3000 3/2016 This card is worthless sock drawer

 

While I'm worried about carrying too much of a revolver balance the idea of being able to push 5-10k down the road for 21months sounds pretty appealing. I would just want to make sure I didn't kill my possibilities at a good rate on a loan by doing so.

 

Should I app Citi? Should I app both Citi cards? Should I HP DCU CLI request? What order? Should I app some other card?

 

Edit: Fix AmEx Open Year

Edited by VBCB
Link to comment
Share on other sites

 

so If you are to assume I woulda made 7% on that chunk

 

If you think you can actually make 7% / year on your 401(k) in this investment environment,

 

I wish you the best of luck . . .

 

For Realz. I try not to look. Stay the course.

Link to comment
Share on other sites

 

 

so If you are to assume I woulda made 7% on that chunk

 

If you think you can actually make 7% / year on your 401(k) in this investment environment,

 

I wish you the best of luck . . .

 

For Realz. I try not to look. Stay the course.

 

 

Now is a time to consider return of capital

 

rather than return on capital.

Link to comment
Share on other sites

 

 

 

so If you are to assume I woulda made 7% on that chunk

 

If you think you can actually make 7% / year on your 401(k) in this investment environment,

 

I wish you the best of luck . . .

 

For Realz. I try not to look. Stay the course.

 

 

Now is a time to consider return of capital

 

rather than return on capital.

 

Or we can celebrate the bargain buying :-)

Link to comment
Share on other sites

 

Or we can celebrate the bargain buying :-)

 

Bargains? At these valuations?

 

http://www.multpl.com/

http://www.multpl.com/shiller-pe/

http://www.wsj.com/mdc/public/page/2_3021-peyield.html

 

Perhaps you are right and I am wrong.

But it really isn't prudent to bet on stock returns to carry you when you are planning to go into debt.

 

 

I apologize I misunderstood what you were saying and I was speaking more in terms of general stay the course, don't worry too much when stocks go down because you'll get more shares with your auto periodic investments and such. For me the 401k isn't like investing in a taxable for example, it's way down the road money and I try to look the other way at short term flux.

Link to comment
Share on other sites

I apologize I misunderstood what you were saying and I was speaking more in terms of general stay the course, don't worry too much when stocks go down because you'll get more shares with your auto periodic investments and such. For me the 401k isn't like investing in a taxable for example, it's way down the road money and I try to look the other way at short term flux.

 

Fair enough.

 

But that's why I wouldn't consider the long-term average return of 7%/year if you borrow against your 401(k).

You'll probably see that return over the next 20+ years.

But not over the next 5-10 years - where there will more likely be some bumps in the road and short-term paper losses.

Link to comment
Share on other sites

 

I apologize I misunderstood what you were saying and I was speaking more in terms of general stay the course, don't worry too much when stocks go down because you'll get more shares with your auto periodic investments and such. For me the 401k isn't like investing in a taxable for example, it's way down the road money and I try to look the other way at short term flux.

 

Fair enough.

 

But that's why I wouldn't consider the long-term average return of 7%/year if you borrow against your 401(k).

You'll probably see that return over the next 20+ years.

But not over the next 5-10 years - where there will more likely be some bumps in the road and short-term paper losses.

 

 

So Like...

Yeah it's 20+ years down the road when I'll be drawing from my 401k... but that's not what I need to think about here... I need to think about the life of the loan which is 5 years or less most likely huh?

 

Well I go back to Boggleheads philosophy and say I can't predict the future of the market and nor can the vast majority of professional market predictors so why spin brain cycles on it? I predict over the next year the market will either go up, down, or stay the same. That's as close as I can get. I'm going to dollar cost average into low expense index's. Since I'm going into debt before too long I'm reducing my periodic contribution to the minimum amount that gets the maximum match from my employer since that's free guaranteed money. I took this step shortly after making the thread (and made several more budget adjustments like cable and car insurance, and such)

Link to comment
Share on other sites

Over what time frame do you expect to carry debt?

 

The more options you have, the better. I would call all your credit card companies and request interest rate reductions now and maybe every 6 months going forward. Also, at least request CLIs that are soft pulls. For longer timeframes, a personal loan or loans might be the best option even though the rate will be higher than credit card promos. SOFI has some of the best rates around.

 

For credit cards, there are some longer term options that pop up. I BT'd 4.99% for life to PenFed, but I don't know that they have done anything like that recently. I think I saw something similar from Navy earlier this year. NASA has had 7.9% for life for a long time, but you can do better with a personal loan (and no utilization hit).

 

Trying to move from promo offer to promo offer can be difficult if the increase in utilization causes your score to drop. BTs most often have fees these days, so using purchase promos can be less costly to start with. Another handy tool for collecting debt is business credit cards that don't report to personal credit reports. The better your credit profile (think low utilization and low debt to income ratio), the more options you will have to keep interest rates down.

 

If I were you, I would definitely be applying for some new cards in the near future for utilization padding and just simply more options.

Link to comment
Share on other sites

 

 

so If you are to assume I woulda made 7% on that chunk

 

If you think you can actually make 7% / year on your 401(k) in this investment environment,

 

I wish you the best of luck . . .

 

 

I'm up 11.2% for the year. :)

 

 

Good for you. :wave:

I hope you keep those gains.

 

I'm up 10.75% YTD on my long Treasurys ($TLT).

I should probably sell some.

Link to comment
Share on other sites

 

 

 

so If you are to assume I woulda made 7% on that chunk

 

If you think you can actually make 7% / year on your 401(k) in this investment environment,

 

I wish you the best of luck . . .

 

 

I'm up 11.2% for the year. :)

 

 

Good for you. :wave:

I hope you keep those gains.

 

I'm up 10.75% YTD on my long Treasurys ($TLT).

I should probably sell some.

 

 

That's largely where my gains are as well, in long Treasury. Parked a lot of my assets there mid last year right before a bunch of my other ETFs went in the toilet.

Link to comment
Share on other sites

If you want to see which credit cards have the highest initial credit lines, see Bob Wang's graphics derived from Credit Pull database data harvesting.

https://www.flickr.com/photos/80421735@N00/

 

If you still have $8K in savings which you are burning through, you could get some high limit cards now, then, in 6 or 12 months when you need credit, apply for the 0% promo cards from the same lenders, and transfer some of your existing credit lines over to the new cards. Like, get a Citi AA card now, and in six months get a Diamond and transfer most of the credit line over from the AA.

Also, if Chase preapproved you for a CSP, go ahead and get it, and after 12 months you can Product Change it to a Freedom or Freedom Unlimited.

Regardless of how you plan to borrow $, you might as well get some good credit cards now, with good signup bonuses, now that your reports are clean. CSP is worth $400 in cash or more in travel, Barclays Arrival Plus and Cap One Venture are both $400 for travel. If some of your current expenses fit in the "travel" category on your bills, that's $1200+ in signup bonuses you can get now that you have excellent credit.

Do that 2 or 3 times and it will make a bit of a dent in that $30,000 you're figure you need for expenses over the next couple years, and improve your credit file for any personal loans you might take out.

FWIW,
MP

Edited by moneypyts
Link to comment
Share on other sites

Just want to add one note on the 401(k) loan as it relates to job loss/change. With some plans, you can still keep your loan and make payments on the same schedule (obviously you have to make payments rather than having it come straight from paycheck) provided you keep your money in that 401(k) plan. If you fail to make your payments, they will treat the outstanding balance as a disbursement (subject to tax plus penalty if applicable).

 

As far as your budget, have you modeled out how each scenario will affect your monthly cash flow. You don't want to set yourself up where your monthly expenses plus these new obligations are at or above your income level.

 

Since you stated you can't pay it off in a year, if you go the CC route what is your plan once the 0% period is up? You should have a well laid out strategy that has a high probability of success before making any move, identify any potential risks and what the mitigation will be.

 

The worst thing you can do is pull the trigger and be in a worse place 12 months from now than you are in today.

Link to comment
Share on other sites

  • 4 weeks later...

Missed some of those helpful posts somehow, appreciate the inputs.

 

Getting to the point where some difficult decisions need to be made. Have about 12k liquid BUT about 6k in bills really due and I need to put out a 28k payment shortly. I did an app spree to open up options so my score is down a bit... Is there good utilization guidance around? 0 balances on the cards right now. Not sure how to spread the 28k around on the following

 

APR

Amex $ 30000 0 until 5/2017 then 17.24 (not AmEx friendly payment bills)

*Citi $ 30000 0 until 3/2018

*PenFedPLOC $ 20000 10.5

PenFedCC $ 10000 10.24

*BofA $ 10000 0 until 7/2017

Discover $ 9800 0 until 9/2016 then 22.99

DCU $ 7500 11.75 (think I'm going to APR reduce call them tomorrow and CLI before spend)

*Marvel $ 7000

*BarclayCash $ 5000 0 until 7/2017

BarclayArrival $ 4800

Commenity $ 3000

 

I think I'm going to basically put it on card's while I can keep at 0%, let the credit score take the hit and pray for no AA and when I near end of 0%, pull from 401k to pay down to 0 balance across the board again. When the scores bounce back I'll have some options if I dont want to carry the debt on 401k. I assume carrying the 28k (and likely more over the next 6 months or so) is going to hurt my scores enough to make going straight to a refi loan less likely.

 

28k across citi BofA and BarclayCash is really high utilization. Maybe 401k sooner rather then later.... or go ahead and pay some interest on the PLOC or ?????

Edited by VBCB
Link to comment
Share on other sites

I suppose another approach is 401k loan soonish, keep scores good. Then sofi type 7-10% ish personal loan down the road if needed and if I end up into the cards after that then Im in bk territory. over 90k in income, should be able to manage some not insignificant debt.

 

Seems a waste not to use the 0% APR stuff.

Edited by VBCB
Link to comment
Share on other sites

Do you expect to take on more debt after this? Have you calculated your minimum payments to ensure you will be able to keep up? Loans are likely to have lower payments if they are for a long enough term.

 

The PLOC is revolving and will count against your utilization also. I would probably just put all $28k on the Citi card. Or maybe put $1500 on BOA and the rest on Citi to keep its utilization below 90%. I wouldn't be too worried about AA. It could happen, but most creditors won't care about a high balance or two if there are no other signs of distress such as continuing to add more debt. And they don't like to see only the minimum payment made.

Link to comment
Share on other sites

  • 3 years later...

UseeWutHadHappenedWuz

Went to enjoy Christmas with young daughter and my then wife to visit her family overseas. Great vacation until on the planned return date my, then wife, told me as we woke up side by side her intention to stay overseas and keep young daughter there. X had hired an attorney over there 6 months prior to the trip which filed for custody there on our 1st day of multi week stay. Been quite the ride.

 

-A bit over 15k to international Hague case, SUCCESSFUL order to return daughter home!

-Kicking off bigD and custody and one reallyReallyREALLY pissed off babyMoma.

-X has been very profitable for the attorneys, which happen to have already been rich, 3.5+ years after filing for divorce we settled on what I offered her the day after she filed.

-Another 65k ish to Attorneys and case stuff, my side only

-Upon order to return, she arrived jobless and remained that way until temp orders, wuz making 50k before trip, started making 50k the day after temp orders, those remained for the 3.5+ years. ouch. Another 80k to X in spousal and cs, not counting 401k split on top of that.

-I've lived on much less than I did in college.

-I apologize for fibbing that I wasn't in trouble, wasn't in a place to share in this kind of forum and didn't think it wise

-Haven't asked for a dime from the fam

 

-At the worst, debt was at ~55k, thought bk was going down, but I've pulled it off and am gunna clean this mess up.

-Sitting at ~36k debt right now, just bt'd ~15k 0% fee 0% for 15 months! Rest sitting at 0% until early summer.

-Just kept pushing up limits, Apping as needed, and working the 0% offers, got 21 months from citi TWICE, Americard deal TWICE, Amex has been an angel, Few other lesser deals in the mix at 0%. Serious juggling act tip toeing through mine field. Always had the 401k loan option in the back pocket, haven't had to pull the trigger.

-Aggressively paying down

- A bit more than 260k in limits across a bit less than 17 cards

-Future so bright, I have to wear shades

 

Went back through  credit journey

About half way between present and getting back to a good credit score

 

Me getting started as badddies were falling off and 10k available credit

 

Link to comment
Share on other sites

To me, the decision to take on debt requires trading off the increased risk against the benefits. If the benefits outweigh the risk sufficiently, taking on debt can be a smart decision. This is especially true for things like an auto loan. An auto provides a lot more flexibility in job hunting if necessary and is often a clear positive even against the risks and requirements of paying off the loan.

 

I've rarely taken on personal debt but the major exceptions were a mortgage and auto loans when I was younger.

 

On the  other hand I have taken on business debt, but carefully. My business was a manufacturing tech business and there were periods of rapid growth potential. But tech rapidly changes and is highly competitive. Future risks are not predictable hence we were pretty conservative.

 

When faced with the opportunity for growth one can just raise prices to moderate the growth and use the retained earnings for what growth is required. But alternately, taking on debt can increase ability to grow w/o raising prices. And there is also the potential of taking on additional investment. The latter, unlike debt, doesn't have to be repaid so no additional risk but dilution of existing owners has to be balanced against the increased value expected from the growth it funds. Which of these three options makes the most sense is just a question of crunching numbers against a range of expectations.

 

Anyway, that's my perspective on taking on debt. It isn't always a bad decision but it needs to be considered realistically against available alternatives.

Link to comment
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.
Note: Your post will require moderator approval before it will be visible.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

 Share

×
×
  • Create New...

Important Information

Guidelines