Use 529 to pay off CC debt?

[smileybear]

Use the 529...

First off, many state 529 plans stink. They limit your investments to crappy mutual funds, time-managed for the year your child goes to college - acknowledged to be the WORST investments out there. you are probably paying huge $$ in fees anyway. Your returns are terrible! 4% after 5 years? You are paying over 20% EVERY YEAR in credit card fees! How does this help your daughter?

To pay for college, there are future loans from your 401K or Roth IRA; there is WORK - your daughter can WORK and SAVE, she can get grants. Last of all, educational loans. All of which are CHEAPER than paying this credit card debt for the next 10 years which is probbaly how long it will take you to pay it off.

Get rid of 20K of it, make a snowball plan to get rid of the other 40K a la Dave Ramsey, get a 2nd job or start selling as much as you can on Craisglist and Ebay. You are totally screwing yourself financially to carry all this debt simply because you for some reason think the 529 is a good thing. Note: if your retirement account were huge, and you had 6 months emergency money, and you had no debt, THEN a 529 makes sense!

Last of all - the days of parking money in a so-called "shelter" and waiting for 15 years ARE GONE. They left in 2008! This concept is a ripoff to the average person. These time-adjusted mutual funds are the worst deal going in the investing world. The tax savings are not worth it IMHO. You cannot just be passive with your money. Once you pay down debt, you can put savings into a Roth IRA which is self managed where you can get 8% and better than any 529. Don't be fooled by "traditional" buy-and-hold financial advice, that's why you lost so much in the first place. What do you think will happen to that 529 when there is another major economic downturn like there was in 2009? Think that can't happen in the next 12 years???

Just my $.02

[Gailete]

Hiding $45K is nuts. There has got to be something from that money unless she was gambling with it. Didn't you notice that everyone had too many new clothes and you were eating out too much, etc.? Your income is huge so it seems like you have had enough for what you need, so where was the money spent? You seem to be glossing over it, but it sounds like unless it did go to something intangible like gambling, you are still missing something that has been invisible but still part of your budget. You need to figure out what it was to have your 'new' budget work. Was the money spent on something that will still be having money spent on in the future. I don't even understand a couple of line items in your budget. What is Chubb,what is U-verse? are these things needful? But I think you do need to look at and acknowledge what was spent on those cards over the years (why were those cards in particular hidden?) so you can accomodate part of where your money was going.

I just realized that many of the budgets that we see here never include hair cuts and I know even I fork out $24 every 6 weeks to get my hair chopped, so I imagine any housefold with your sort of money is spending on hair cuts for you (unless you do it yourself buzz cut), trims for the kids, and hairdos for her plus perms and highlights or whatever which depending on where you live can be a good $100/month. These are budget items that no one budgets for, but always gets spent. It is these smaller items that add up and can wrek a budget that looks right. Same as Christmas--everyone forgets that it lands on Dec. 25 every year!

[disneysteve]

First off, many state 529 plans stink. They limit your investments to crappy mutual funds, time-managed for the year your child goes to college - acknowledged to be the WORST investments out there. you are probably paying huge $$ in fees anyway.

Whoa! That is some broad generalization there. You don't know which plan OP is invested in or what investments he holds. There may be some not-so-good 529s out there but there are plenty of great ones. Utah typically tops the list for the best plan. I'm with NY which is administered by Vanguard. Good investments, good returns, very low fees.

To pay for college, there are future loans from your 401K or Roth IRA

So you think 401k loans and raiding the retirement accounts is the preferred way to pay for college vs. investing steadily over time in a dedicated college savings plan? I'm not even sure where to begin to shoot down that idea.

Once you pay down debt, you can put savings into a Roth IRA which is self managed where you can get 8% and better than any 529. Don't be fooled by "traditional" buy-and-hold financial advice, that's why you lost so much in the first place. What do you think will happen to that 529 when there is another major economic downturn like there was in 2009? Think that can't happen in the next 12 years???

And isn't it just as likely that the investments in your Roth will be affected by an economic downturn? And 8% is certainly no guarantee in any investment. Actually, you need to be taking a fair amount of risk to see that return, if you see it at all. Since we're talking about college funding, you wouldn't want to be fully invested in the market once your kid is 5 or so years away from college anyway. You'd want to be converting over to safer investments to preserve principal.

[wantoutfromunder]

Boy do I feel your pain. I came to this board in the same boat a couple months ago. My husband came to me with the confession that we owed $42k on credit cards. Since then we've paid down about $5k (haven't factored in this month yet) and have adopted a whole new lifestyle. For starters, one person does not to the money alone anymore. We are a team and it's working great.

We gave up a lot of things that we used to think of as "needs" and once faced with the reality of our situation quickly got relabeled as luxuries. Housekeeping was the first thing to go as was eating out. Right now we are locked into our cellphone plan, but as soon as that's up, we are switching to pay as you go. We decreased the cable to basic channels only. My husband was very against leftovers and now he takes them every day for lunch. I was not a meal planner or regular grocery shopper and now, I sit down every week with the flyer in hand to plan next week's dinners. This change has actually had a bonus feature...more family dinners means we are all feeling more connected as a family. It's been great. I also go 5 minutes further away and shop at the cheapest store in the area..it's much more crowded, dirty, etc but the prices are rock bottom so I love it. You mentioned apple-picking, etc. We did that this year...I saved up my spending money for a couple weeks to pay for it. Our budget allows $25 a week for spending cash to both my husband and I. I have gotten into the habit of saving it up for extra fun things so my kids don't feel like they are missing out. At the same time, they don't get everything they ask for by any stretch (not that they ever did!!)

I guess my long winded point is that it can be done!!!! But, you BOTH have to be on board and willing to make some pretty big changes in your life. At first it seemed like a lot of the ways to save money fell on me...housekeeping, meal planning, shopping regularly, etc. So hubby and I sat down and split up the chores. Again, we are a team. I dare say our marriage is stronger for it!!!! I never used to wish time away, but I can't wait to send in that last credit card payment. I estimate it will take us about 18 months to be done. I think 18 months of living bare bones will be totally worth it!!!! When we are done, the only luxury I will add back in to the budget will be the housekeeping. Boy do I miss that!!!!

I wish you the best of luck in your journey to become debt free!!!!!

[snafu]

What has your wife's reaction been to your sudden participation in household finance and all these suggestions from the SA community? Is she on board with short term, temporary change to clear $ 67K of debt? There will be short term pain for long term gaining control of debt. Will you both be willing to ratchet down Christmas 2013?

The cost avoidance of all those interest charges will be significant. How much in interest & fees were paid cumulatively January - Oct. 2012 from mortgage, CC1 @ 13%, CC2 @ 21%, CC3 @ 10%, loan @ 13.2%, auto @ 13.2%, auto#2 @ 6%,student loan @ 6.5% ?

What amount was your 2012 tax rebate? If it was more than a couple of hundred, I suggest you have your deductible re-set. 0% loans are terrific except they revert to high interest loans if they are not paid in full by the reset date. It's critical to focus pay-out to those debts to ensure they are paid in full before they revert to high interest loans.

What are you willing to temporarily reduce/cut? U-verse @ $220. is expensive internet service. If Chubb is something other than house insurance is it critical? What is your KWH rate? $ 260. seems expensive when compared to this region where KWH is 11 cents. I suggest cutting gym @ $60. and gymnastic @ $70. Unless your police service endorses it, ADT @ $33. can't protect your home unless their cars are on site in under 15 minutes before B&E perpetrators are done. If you and DW split chores, housekeeping fees $ 130. all in all can temporarily free up about $ 515. to reduce debt.

This is the point to give every dollar a 'job' For the short term your variable 'bonus' sums an be targeted to the debt you choose. I agree that you need to sell all that stuff acquired but no longer used and stored or stashed in cupboards and corners. The money is already spent...gone, if you can recover 20 cents on the dollar that's success.

I hope you take lunch to work as restaurant meals are twice as expensive and often full of sodium, fat and fructose. Eating meals together offers so many benefits, like lower costs, healthier food with less unpronounceable chemicals and bonds the family together.

Finally, you really need to know what products are held in that 529 fund, the fees, charges and options to seek the very best mutual funds for your adughter.