Tough spots and a 401K

[Moses Yoder]

I had not thought about borrowing against the 401K. I will look into that tomorrow. This sounds like a good option; instead of having 3 payments we would only have one, and possibly no interest instead of 9% I think we are paying currently.

Sending my daughter to public school is not an option. She has never been to public school, is an extreme introvert, very gifted in some areas, would simply not function in public school. Plus, this is her last year. She will graduate Keystone National High school. I have never felt the responsibility to finance my children's college education; it seems to me if they have to work for it then it will mean something to them. I am at least encouraging them to get higher education; my dad told me I would burn in hell for eternity if I went to college.

I don't think I will do anything drastic right now, things will probably be better in a year. I could make money out of my shop but this summer I have been working on a very labor intensive mother-in-law project.

Thank you for all the advice.

[Brian Elfert]

There is typically interest on a 401K loan, but the interest goes right back into your 401K so you are paying the interest to yourself.

[David Weaver]

The trouble with loans in 401ks is some have minimum loan sizes, and you're paying interest to yourself with after tax money only to pay regular income tax on the money again at distribution. But on a small amount, it may not matter much.

[Edward Clarke]

Take a look at this article and specifically at "Mint". It's free and seems to have a good reputation. You shouldn't just guess; run the numbers and get a real handle on your situation.

http://lifehacker.com/5828438/five-b...-finance-tools

[Andrew Joiner]

When we used to have a lot of credit card debt, we rolled it from one card to another with 0% APR offers. I would not pull from the 401k if a penalty was involved.

Moses, You are smart to address this now before the $1200 card debt gets bigger. Learn all you can about creative ways to manage this. This is a great learning opportunity for you. How much interest are you paying on the card and the $700?

I agree with Raymond. Using 0% APR offers is a good idea for this. Goggle "0% APR offers" to find how you can benefit from these.
Fatwallet finance and Bogleheads are sites that I follow for creative finance ideas. You could ask your questions there and get some great ideas.

[Bill Orbine]

I'd try to deal with the low funds by staying away from the 401. You don't know what other major emergency dipping in the retirement cookie jar may lurk ahead in the future. So try to deal with it without sacrificing the 401K. Do a little moonlighting for a while. And there a buck spent you could make a little bit of money on..... that little juggy thingy you bought last week or two might be worth something. You wife sounds like a good sales person....but the shaper....oh, Nooooo! Not if you can help it!

[Jim Becker]

It's not a great idea to raid a 401K unless it is the most dire situation and there is absolutely no other option. An actual withdrawal carries tax penalties that one has to pay by April 15th. A loan, while easy, not only has to be repaid, but it also can significantly reduce the future value of the account because of the effects of compounding. That can mean a major income hit at retirement time, "compounding" today's financial angst well into the future.

If at all possible, it's best to find other ways to make up for shortfalls, including careful living, secondary employment, liquidation of assets that are discretionary, etc.

[Moses Yoder]

I looked at "Mint" and find it utterly astounding that people will actually give access to all of their accounts to a third party. Astounding. I would love to have a free program similar to the "Quicken" I used to use, where you simply enter your expenditures and designate a category and it will do all sorts of reports for you.

[Justin Ludwig]

For a $1.50 in late charges at your local library, you can read Dave Ramsey's Total Money Makeover and download all the free spreadsheets from his site/forum. No need to pay someone to tell you what can simply be read and learned in less than a week's time.

It's a good system for low income families. I used the system and made my own adaptations to it. I'm 37 and debt free. I don't make a lot of money; I just "want less."

[Wade Lippman]

You can live without Netflix or premade pizza. Unless you have realistic prospects of earning more money in the near future, you better live within your means.
Giving up the planner would be lousy, but not as bad as falling deeper into debt.
I know it can be a lot easier to say that than to do it, but it is pretty important.

I am not competent to judge, nor do I have enough information, but if it is all that serious you have to get ahead of the spiral.

[John Sanford]

First, don't touch the 401k. Second, think outside the box. You may be able to "hock" the shaper to another Creeker or other upright soul who needs the use for a while, with a guaranteed buy-back for the same amount. There may be other assets that you have that don't really have as much value to you that you can part with.

[Moses Yoder]

The problem with Dave Ramsey is that he is hugely popular and has an immense amount of charisma. Bill Gothard and former president Bill Clinton also are the same type. This type of person is an instant turn off for my wife. She will not listen to a word they say and refuses to have anything to do with them.

[Charles McKinley]

Then get the spread sheets and remove his name and the programs name from them and just work the plan.. Dave says himself it is nothing magical. "It is the advice your grandmother would give you but I keep my teeth in."

There is X amount of income so out go needs to be less than X.

You don't even have to give him anything if you get it from the library or borrow a copy from one of us.

[Val Kosmider]

Moses,

It sounds like you have a good handle on your situation.

Skip the financial planner. That is a fee to provide you with the obvious. There are no miracle cures for being broke.

Spend cash. Only. Or use a CC that gives you cash incentives and which you pay off every month. One point (or more with the right card) for every dollar you spend; 100 points equals one dollar in cash back to you. $500 a month in groceries and gas (plus some utility companies will take a CC) is $5.00 in cash! Two months and you have a free pizza. Most today will scoff at $5.00, but not those of us who have been there, or who are serious about saving money.

Using 401K is not the best solution, but the facts are 10% penalty, and 10% Federal Withholding. So, if you need $1200 net, you redeem $1440. With low income, you will get the 10% back when you file your income taxes. Net is therefore 10% penalty. How does that compare with your CC interest? 9% versus 10%. Piece of mind and a fresh start might be worth it.

Keep looking for a new job, a second job, and any other way to raise money. Just like not liquidating the 401K unless you absolutely have to, don't sell assets.

Budget. Conserve. Use social programs like food stamps, utility assistance, and any other public programs. You have paid for them in previous taxes, and you will pay back when you land on your feet and are paying higher taxes once again.

Chin up. You are not alone.

[George Bokros]

Using 401K is not the best solution, but the facts are 10% penalty, and 10% Federal Withholding.

Federal withholding on random payments is not 10% it is 20% plus the 10% penalty. Yes it will all even out when you file your federal return but it is still a 20% hit at time of withdrawal. No one has mentioned any state income taxes that could be withheld. IF the state taxes are not withheld at time of distribution they will need to be paid when you file your state return.

I am a retired accountant and have dealt with withholding taxes and was the administrator of the 401k plan.