I got a doozy - Paying off credit?

[Jason55]

I am overwhelmed with a choice and need help.

I have several credit cards and loans I'd like to pay off in lump using a 401k loan.

Available Loan - 401k loan is 48 months 4.25%

I currently pay approx. $330/month to credit cards, plus another $220/month car payment.

CC1 $2320 22%
CC2 $5310 0% until Sep. then up to 20% and payments will increase
CC3 $2020 0% until next Feb. up to 20% and payments will increase
CC4 $6980 10.24%
CC5 $1760 12%
Car $8630 9.49%

Total debt - $27020

I look at it as I can either pay all this interest to someone else or 4.25% back to my self right? Maybe I'm missing something.

In addition I get bonuses each March and large tax return each year (big family) so I would probably pay the 4yr loan off in about half the time.

[disneysteve]

Absolutely never, under any circumstances, should you EVER, EVER, EVER take out a 401k loan.

I hope I made that clear enough.

List your income numbers and all of your monthly expenses for us and we can give some guidance as to how to go about paying down your debts.

[Fishindude77]

If you get big bonuses and large tax refunds, why haven't you used this money in the past to pay off this debt? I'd leave the 401K alone, adjust lifestyle and use your regular income and those bonuses and returns to aggressively pay down that debt.

You already have (6) debts that you've not taken care of. A change in discipline is in order, not another loan.

[disneysteve]

One thing jumps out right away and that is the large tax refund. If that is an annual occurrence, go into work today and adjust your withholding so that less is taken out of your paycheck. Rather than giving the government an interest-free loan every year, get that money in your check every month and use it to pay down the highest interest debt.

[disneysteve]

A change in discipline is in order, not another loan.

A saying I'm fond of is: You can't borrow your way out of debt. That certainly applies here.

[Jason55]

Besides the car purchase last year I was actually debt free. These recent credit card balances were due specifically to a couple major repairs this past year. Usually if I accrue any debt through the year I pay it off during tax time or bonus time. I just feel with all these high apr's that I'm giving all my money away to credit card companies until February/March of next year.

The big issue was several major repairs and a new car payment in the same year and I'm struggling. This was in no way a slow creap back into debt through wants and bad spending.

[disneysteve]

These recent credit card balances were due specifically to a couple major repairs this past year.

Wow. What kind of repairs set you back almost $19,000? Ouch.

How you got the debt doesn't change the advice, though. Do not touch your 401k. Pay the debt by tightening your belt, eliminating the tax refund, and aggressively throwing every penny you can at the credit cards to pay them off as quickly as possible.

[Jason55]

Transmission, Roof, and uncovered basement flooding within 6 months. Yeah Ouch!

Got it, So I currently have 7 federal acceptions and 1 State. How much can changing this really help me monthly?

Really appreciate all the advice, I'll tuck that 401k idea away and focus on the pay down!!!

[disneysteve]

So I currently have 7 federal acceptions and 1 State. How much can changing this really help me monthly?

How much was your tax refund this year?

[Jason55]

Federal 7k
State 2K

[disneysteve]

Federal 7k
State 2K

So in a perfect world, you could have an extra $9,000 in your paycheck, or $750/month.

Of course, you don't want to overshoot the mark and owe money, so a small refund (under $1,000) is a safer bet. That would still get you an extra $660/month or so. Much better for that money to be used to pay off high interest debt rather than letting Uncle Sam hold it for free.

[Jason55]

So would I just adjust my deductible down?

[disneysteve]

So would I just adjust my deductible down?

Yep. Have them withhold less. Use the IRS withholding calculator to determine what you should be claiming:

http://www.irs.gov/Individuals/IRS-Withholding-Calculator

[Jason55]

I was wrong its set at Federal - 8, State - 4

[Petunia 100]

Do you have a good credit rating? Have you explored the possibility of reducing interest by using balance transfers? Right now, both Discover It and Chase Slate have 0% balance transfer offers with no balance transfer fees.