# [ 2011 ] Taking a loan from 401K to pay down credit cards



## Ridewithme38 (Jun 3, 2011)

I see alot of conflicting information about this online...my line of thought is....I'm pretty damn young(i'm 30), so being able to pay it back before retirement shouldn't be a problem...and its the lowest interest loan i could find

Ideally i'd prefer to just consolidate my 6 credit card balances onto one card with a high enough balance(over 10k) because the problems not really being able to make the payments..i've NEVER been late or short...its keeping track of the extra bills as they come due...but because i have 6 credit cards all basicly maxed out, my credits not good enough to get a card with a high enough balance or a loan to consolidate everything to

Whats your thoughts?  Yes or No to taking a Loan from the 401k to pay off some of the credit cards?


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## BocaBum99 (Jun 3, 2011)

I would only do it if you can prove to yourself over the next 6 months that you will not rack up more credit card debt.   If you don't get your spending under control, you will be in exactly the same financial position you are in now, but you will also have no retirement funds either.

Credit cards should only be used for convenience and collecting reward points.  They should be paid off every month.


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## heathpack (Jun 3, 2011)

My guess is that this is not a genuine question.  Ride is trying to bait TUGgers into a discussion that evolves into:

1.  The wisdom of owning a TS if you are carrying credit card debt
2.  The irresponsible spending habits of kids today
3.  The maturity it takes to have enough self-discipline to save for retirement vs maxing out ones credit cards.

I'm sure walking away from TS obligations will get thrown in there at some point as well.

Don't fall for it, or waste your time with a sincere reply.  Remember this is a guy who elsewhere on the internet prides himself on being a troll.

H


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## Passepartout (Jun 3, 2011)

My thoughts are that if you have 6 maxed out CCs, you are living beyond your means. A good test of this is to ask yourself, "Am I using CCs to pay for consumables, like gas and groceries?" 

I don't feel that withdrawing or borrowing against your retirement is EVER a good idea. OTOH, if you feel that you get better bang for the buck by avoiding 20something% interest on CCs than you can get with the investment in your 401(k), it might make some sense. As long as you keep participating in the 401(k) at least enough to get the employer match *AND* you cut up all but one (the lowest interest/or annual nut) card.

You just dig a deeper hole by using retirement funds (and potentially paying taxes and penalty) to pay off credit cards only to start building up the CC debt again.

Oh, btw- I have been there. AND my DW is a bankruptcy attorney. We see the results of poor choices every day.

Jim


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## teepeeca (Jun 3, 2011)

If you have six credit cards "max'd out" (even if they are low limit cards), I think you have a spending problem.  Using a loan from your 401k "IS" a good plan --- "IF" you do the following:
1) Borrow ONLY enough to pay off all of your credit cards.
2) Pay the amount back  into the 401k the amount that you would be
    required to pay (or more) to the credit card companies, each month.
3) Get rid of three of the credit cards.
4) "IF" you charge on one of the remaining credit cards, "PAY IT OFF", IN
    FULL, each month.

You "need" to get your "financial house" in order.

Tony


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## Tia (Jun 3, 2011)

Sounds like a nephew of mine. Go to cash and cut up those credit cards. There is no money tree out there.


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## Ridewithme38 (Jun 3, 2011)

Passepartout said:


> My thoughts are that if you have 6 maxed out CCs, you are living beyond your means. A good test of this is to ask yourself, "Am I using CCs to pay for consumables, like gas and groceries?"
> Jim



When i racked up all these debts...was a bit of a different time, i was between jobs, but dating a girl who loved to go out every night(One of the cards i'm paying off is in her name...she decided to buy new furniture for the place I(not us) was living in and then we broke up)...Its not something i would do again, she's not the type i would date now...i've been paying them down for a couple years now but since i was young when i got all these cards...the interest rates are all maxed out...so even paying double the minimum like i do...i end up not paying much more then the monthly interest....




> if you feel that you get better bang for the buck by avoiding 20something% interest on CCs than you can get with the investment in your 401(k), it might make some sense. As long as you keep participating in the 401(k) at least enough to get the employer match AND you cut up all but one (the lowest interest/or annual nut) card.



Yup thats one of my thoughts...the other is every time i look at my darn credit score and see how carrying this debt is affecting it....i wanna  and  

My Current Plan...Since i've just be adding to my 401K for a very short time and only vested up a little...i can take out a loan for $2500 and set the term to 16 months....This will allow me to pay off two mid level cards or three low balance cards...then completely LOSE those cards(Do people cut them up or just put them away?)....the monthly fee i'll pay for the loan will still be less then i was paying for those cards, and my credit report will begin to look a little better


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## vacationhopeful (Jun 3, 2011)

So inquirying minds want to know is "who brought the plane tickets for your child and the baby's momma to fly to Williamsburg while you drove down?"

Vacations should NOT be charged - ever. You go on vacations using your savings after you pay off your bills.  Otherwise, STAY-CATIONS is what you can afford to due.

And by the way, I starting hosting nephews at my house without their parents who lived 140+ miles away when they were 4 years old for week long adventures. How old is your daughter?

Maybe, you should get your custody agreement out and figure out what holidays, weekends and summer vacations you have your daughter for. :ignore:


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## lll1929 (Jun 3, 2011)

Another option is to not pay the credit cards and let your account go to collection agencies...  You can settle for lower amounts and create a reasonable payment plan with them.

Sure your credit takes a ding, but if you are really trying to change your spending habits then you will be able to re-build your credit over a period of time, the correct way.

I wouldn't suggest this method if you are looking to buy a car/house anytime soon.  

I used this method and within a year, my credit score is back in the mid 700's.   

Good Luck!!!


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## Ridewithme38 (Jun 3, 2011)

lll1929 said:


> Another option is to not pay the credit cards and let your account go to collection agencies...  You can settle for lower amounts and create a reasonable payment plan with them.
> 
> Sure your credit takes a ding, but if you are really trying to change your spending habits then you will be able to re-build your credit over a period of time, the correct way.
> 
> ...



I cringed when i read this....this scares the bajeezus out of me! I'm able to pay the cards now...i even pay twice the minimum and still have a good amount of playing around money for the weekends....i just don't have enough to be able to spread around to pay Large amounts to the cards....i know i'm risking everything now by carrying these balance, god forbid i lost my job, got sick, something else happened and i couldn't pay them...But i don't know what happens in a default situation like that...could they garnish my wages? My Investments? Put a black mark that'll never come out?  I just don't trust the credit companies enough to give them the go ahead to 'do what they may' to my credit


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## Ridewithme38 (Jun 3, 2011)

vacationhopeful said:


> So inquirying minds want to know is "who brought the plane tickets for your child and the baby's momma to fly to Williamsburg while you drove down?":



Babies Mama bought her ticket...I'm either in charge of my daughters...or i'm going to check in late and drive down with my daughter...not 100% sure on that



vacationhopeful said:


> Vacations should NOT be charged - ever. You go on vacations using your savings after you pay off your bills.  Otherwise, STAY-CATIONS is what you can afford to due.:



Oh i agree! I'm not cash poor, i'm just short the thousands it would take to completely pay off the cards and get them out of my hair...i could easily continue to pay double the minimums or more for the rest of my life...but it would take Years to get them paid off that way...and just as long for my credit to recover



vacationhopeful said:


> And by the way, I starting hosting nephews at my house without their parents who lived 140+ miles away when they were 4 years old for week long adventures. How old is your daughter?.:


She's Five....Can we come over and stay :whoopie: 



vacationhopeful said:


> Maybe, you should get your custody agreement out and figure out what holidays, weekends and summer vacations you have your daughter for. :ignore.:



We have it pretty much worked out...I have her every Tuesday for dinner(6-bedtime) and every other weekend and three weeks over the summer...the holidays i'd *prefer* to be most specific(its generally agreed that we share holidays) but dealing with the courts or the ex over things like this isn't easy


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## Passepartout (Jun 3, 2011)

lll1929 said:


> Another option is to not pay the credit cards and let your account go to collection agencies...  You can settle for lower amounts and create a reasonable payment plan with them.
> 
> Good Luck!!!



I would never recommend this approach. There may be a non-profit credit counciling service in your area that may negotiate with the CC lenders and dole out payments to them in exchange for a guarantee from you that you won't BK on them. It's worth a few phone calls.

It's for sure that you need to do something. As you have discovered, paying minimum payments on maxed out CCs will only result in 30+ years of payments and reduced possibilities that you can take advantage of opportunities that arise. 

Make credit your servant, not your master by paying it down, then off, and treating those cards as 'charge' cards, to be paid off to zero balance every month, not 'credit' cards to make minimum payments on.

It won't be easy, and if as you say, you have plenty of 'playing around' money every weekend, you aren't trying hard enough. Make paying those things off painful. You'll appreciate it more.

Jim


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## slip (Jun 3, 2011)

*Attack One at a Time*

Take either the highest interest rate card or the card with the lowest balance and pay as much 
as you can per month on those. Pay the minimum on the other 
cards and put any extra toward the one card you decide to attack.  

When that one gets paid off put all that money you were paying and attack the
next one. When you get one paid off you will see progress and that will help you continue.


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## brigechols (Jun 3, 2011)

Ridewithme38 said:


> When i racked up all these debts...was a bit of a different time, i was between jobs, but dating a girl who loved to go out every night(One of the cards i'm paying off is in her name...she decided to buy new furniture for the place I(not us) was living in and then we broke up)...Its not something i would do again, she's not the type i would date now...i've been paying them down for a couple years now but since i was young when i got all these cards...the interest rates are all maxed out...so even paying double the minimum like i do...i end up not paying much more then the monthly interest....
> 
> 
> 
> ...



If you don't have enough in your 401(k) to pay off the balance of all six credit cards, don't bother taking out a loan. If you're paying on time and paying above the minimum due, call each credit card company and request a lower interest rate. Doesn't hurt to ask and it is possible one or more of the companies will lower the interest rate thereby saving a few dollars in the long run. Make and stick with a plan to pay off two credit cards each year. Extra money like an income tax refund should be used to pay down your debt. After paying off the card, call the credit card company and close the account As you pay off the cards, you may receive offers from the remaining credit card companies to increase your maximum spending limits. Resist the urge to accept those offers. Stick with your plan, pay all cards within three years, retain one card, and do not carry a balance on that card.


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## Ridewithme38 (Jun 3, 2011)

Passepartout said:


> Make credit your servant, not your master by paying it down, then off, and treating those cards as 'charge' cards, to be paid off to zero balance every month, not 'credit' cards to make minimum payments on.
> 
> It won't be easy, and if as you say, you have plenty of 'playing around' money every weekend, you aren't trying hard enough. Make paying those things off painful. You'll appreciate it more.
> 
> Jim



This is great advice! Well, alot of the advice in this thread was great...but this hit home!


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## sstug (Jun 3, 2011)

Ridewithme38 said:


> ...i even pay twice the minimum and still have a good amount of playing around money for the weekends....



My opinion is you should have almost *no* playing around money - 100% of it should go towards paying off this debt.  I don't say this lightly...I experienced almost a year and a half of unemployment and the only way I survived financially was considering myself poor (not buying any coffees, eating out, or even driving places so I could save on gas) and only paying the essential bills.

you already admitted that paying double the minimum was pretty much just paying the interest for the month.  You really need to ensure you are paying a significant portion of the principal balance as well or you will never get out from under this debt.

If taking a loan from your 401K means you will be paying it back to yourself, and paying the interest to your own 401K account, then I think it is a reasonable option.  But you need to listen to all the good advice that has been provided.  

-Pay of the highest rate card first, followed by the next highest rate, etc.  This will minimize the interest that is being accrued.
-Pay as much as you can towards the balance on the card you are trying to pay off, and the minimum on the others. 
-Call each company and try to negotiate a lower rate

You should give yourself a very small allowance for entertainment and put the rest towards the balance.  Maybe even treat yourself to something special as a reward for paying off each card.

In any case good luck!!


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## timeos2 (Jun 3, 2011)

sstug said:


> My opinion is you should have almost *no* playing around money - 100% of it should go towards paying off this debt.  I don't say this lightly...I experienced almost a year and a half of unemployment and the only way I survived financially was considering myself poor (not buying any coffees, eating out, or even driving places so I could save on gas) and only paying the essential bills.
> 
> you already admitted that paying double the minimum was pretty much just paying the interest for the month.  You really need to ensure you are paying a significant portion of the principal balance as well or you will never get out from under this debt.
> 
> ...



Best summary of a workable and reasonable plan posted.  Like Boca said you need to look at your spending seriously & stop using credit - period. Pay off what you can with the loan then "park" those cards untouched (assuming they have no annual fee - if one does close it).  


Good luck & follow the pay of plan. You'll feel much better & more secure once it's done.


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## am1 (Jun 3, 2011)

Like others have said if you do not pay your card off every month you are late.

You may want to consider paying off the smallest amount first. Logic says differently but logic did not get you here.  Pay $1 more than the minimum on the others.  This works as long as the interest rate differences are not that great.  The sooner you are freed of a card the sooner you will see some kind of reward.  You can also start using that card if you have to and you will have a grace period.  

Do not close the cards as soon as you pay them off.  Also do not go to strictly cash.  Use a card once in awhile and pay it off right away.  There also could be a time like you said where you need to put stuff on credit.  Emergencies only.  It would be very hard to get a new credit card at that time.  

Any extra dollar that you can put towards any of the cards is giving you a good tax free return on your money.  Try for a lower interest loan and pay off all the cards.  

Not sure on the 401k stuff.


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## vacationhopeful (Jun 3, 2011)

Ride,
Put the credit cards in order of highest "interest rate charged" gets the most money. Always pay $20 over the minimum on the other cards.

Cut back on all extras - cheese pizza only, no toppings. Plain hamgurger verses Big Mac. Water from the tap verses soda or beer. Pack your lunch. Take your dates out for a cheap breakfast verses no dinners. Get DVDs at the public library. Buy NO CLOTHES. 

Actually, buy nothing as you haven't actually haven't paid for all your prior stuff.


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## vckempson (Jun 3, 2011)

teepeeca said:


> If you have six credit cards "max'd out" (even if they are low limit cards), I think you have a spending problem.  Using a loan from your 401k "IS" a good plan --- "IF" you do the following:
> 1) Borrow ONLY enough to pay off all of your credit cards.
> 2) Pay the amount back  into the 401k the amount that you would be
> required to pay (or more) to the credit card companies, each month.
> ...



As a Certified Financial Planner, I get this type of question occassionally.  Tony offers good advice, but I have one correction.  Instead of getting rid of the three cards, just cut them up.  Length of credit history plays into your FICO scores.  

Also, even with the lower interest rates, you'll likely have to pay considerably more than you were paying on the credit cards.  Most 401k loans require paybacks over 5 years, whereas the credit cards are over 15 to 25 years.  

One other risk to consider.  If you lose your job, you'll be in a pickle.  At separation of service, you'll either need to repay the loan in full or the loan will be considered in default.  As such, the loan amount becomes both taxable and subject to the 10% penalty if you're not 59 1/2.  The reason for this result is that you can't continue loan repayments after you have a separation of service.  I've seen people get hammered by taxes and penalties in those situations.  

Parting words... don't do this if you're not willing to cut up all but one or two cards and pay them off in full each month religiously.  You need to do some soul searching to know if you can stick to that.  Otherwise, you could end up twice as worse off.


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## MelBay (Jun 3, 2011)

Buy one of Dave Ramsey's books, (Total Money Makeover):
http://www.amazon.com/Dave-Ramsey/e/B000APQ02W

take it to heart, live and breath it, and start taking baby steps ASAP.  Leave the 401(k) alone.  You'll never make that back up.  I think Dave would tell you the same thing.  JMHO, of course.


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## dioxide45 (Jun 3, 2011)

Another thing to consider is that if for some reason you lose your job, have serious illness or something and have to file bankruptcy. You now have taken funds out of accounts that are protected in bankruptcy. If you end up owning uncle same a large amount due to the penalty and interest, you are tied to that until it is gone as it can't be discharged in a bankruptcy.

In the end, one should never ever raid their 401k, either through withdrawal or loan.

I also don't know what kind of credit cards where paying twice the minimum payment barely covers the interest. Usually if you pay the minimum payment and continue to pay that same dollar amount going forward, you should be able to pay off those cards in four to five years. For example; if today the total minimum payments are $500, and you continue to pay $500 every month until the cards are paid off, you will be out of debt in four to five years. Don't lower how much you send just because the minimum payment continues to drop.


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## ronparise (Jun 3, 2011)

get a second job on the weekends and to fill the time you now spend on TUG. You wont have time to spend any money, and you will be making some more. I might also consider cutting the amount you contribute to your 401k for a year

Take what you used to play around with and the money from the new job and what you have been paying to this debt and the money that you have been contributing to the 401k to pay down the cards. Id do the minimum payment to 5 and really load up on the 6th, Id pay off  one with the lowest balance first so you can show some progress quickly (5 bills instead of 6, then 4 instead of 5) When you pay off one increase the payment to the next.

You can probably get a minimum wage weekend job 20 hours a week...$600 a month plus that playing around money ($100 a week??)  and the 401k contribution Start after your 4th of July vacation and at $1000 a month, you'll be done by this time next year.

Dont like the idea of a second job...get used to it...you will probably have to do it to pay for your daughters college education one day


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## dioxide45 (Jun 3, 2011)

ronparise said:


> Id do the minimum payment to 5 and really load up on the 6th, Id pay off  one with the lowest balance first so you can show some progress quickly (5 bills instead of 6, then 4 instead of 5) When you pay off one increase the payment to the next.



I saw this mentioned earlier also. It makes no sense to pay off the card with the lowest balance first unless it also has the highest interest rate. Doing this is more expensive than paying the minimum on it and putting the extra money to the highest rate card.

If you have one card that has a $1000 balance and a 12.9% interest rate and another one with a $10,000 balance and a 24.9% rate. It makes no sense to pay off that $1000 card first.


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## dioxide45 (Jun 3, 2011)

Another tip may be to open a new separate bank account and automatically have enough funds transfered in to it each month to cover the minimum payments plus any extra one can afford. It may also be possible to have your employer direct deposit the amount in to that account and the rest of your check in to your main checking account.

Pay the minimums on the credit card bills from the new account while also not using those cards for any purchases. At the end of the month, take the extra money that is left over in that account ans send it on the highest rate card. That extra amount will continue to go up as the minimums on all the cards creeps down.


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## Ridewithme38 (Jun 3, 2011)

Ok, so i wasn't completely honest in my first post...I had already requested the 401K loan...and was waiting for it to hit my account...i was mostly worried that i had made a horrible horrible mistake...

Here's TOO MUCH information:

$4545.78 - 27.99%
$2015.95 - 27.99%
$1554.17 - 14.74%
$ 873.28 -   9.99% (Not in my name)
$ 871.05 -  26.99%
$ 472.41 -  20.24%

Yah i know...Too much information for a public BBS, but i like you guys(i'll most likely change all the dollar amounts to X's in a day or so)...so i wanted to show how screwed i was interest rate wise...Since i could only borrow $2500 from my 401k i decided to pay off the $871.05 and the $1554.17(didn't realize at the time those were some of my lowest interest rates), thats why they're struck out and i'm going to use the money that Would have went for those cards(minus loan payments) to get the $472.41 paid off in two - three months(that $4545.78 scares the heck out of me)...i don't really care about rushing the $873.28, the cards not in my name...and i've been paying it off a lot longer then i agreed to...so i could most likely call the ex and make a stink and stop paying it

I *think* i'm going to use the now paid off $1554.17 card as my emergency card and pay it off in FULL every month(i know i can do that)...and cut up(or just put away, hide) the others so they get NO more use..


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## slip (Jun 3, 2011)

Paying off that lowest balance card helps show progress. If it takes 3 months to pay off the $1000 card you have one less bill. Yes, the $1000 off the higher interest card would save some money over 3 months but sometimes it helps to see some progress. One less bill a month shows better progress to some people more that a card going from $10,000 to $9,000 and you still have 5 other cards.
Some people just give up when they look at it like that and giving up won't help.

Just another way to keep motivated. It could be a long haul.


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## dioxide45 (Jun 4, 2011)

You really should have erased that card at $2015.95 first. You had enough to cover it with the loan and it would have given you the biggest interest rate bang for the buck.


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## Ridewithme38 (Jun 4, 2011)

dioxide45 said:


> You really should have erased that card at $2015.95 first. You had enough to cover it with the loan and it would have given you the biggest interest rate bang for the buck.



i know i wasn't thinking when i did it...i agree with you...i had only looked at the balances and not the interest rates at first


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## dioxide45 (Jun 4, 2011)

As of March 2010, the average American household that has at least one credit card was carrying on average $15,000 in credit card debt. So while many hear preach and teach about the best practices, chances are some have more, potentially far more credit card debt than you are carrying.

I do commend you on talking openly about credit card debt. For some reason it is taboo. Suze Orman says to tell everyone, family, friends. You are truly free when you are honest with yourself and those around you, no matter how much credit card debt you have.


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## heathpack (Jun 4, 2011)

dioxide45 said:


> As of March 2010, the average American household that has at least one credit card was carrying on average $15,000 in credit card debt. So while many hear preach and teach about the best practices, chances are some have more, potentially far more credit card debt than you are carrying.
> 
> I do commend you on talking openly about credit card debt. For some reason it is taboo. Suze Orman says to tell everyone, family, friends. You are truly free when you are honest with yourself and those around you, no matter how much credit card debt you have.



We met with a loan officer when applying for our current home mortgage 2 years ago.  Going through all the assets and liabilities, the loan officer asked us what our current credit card balances were.  When we answered "zero," loan officer was shocked.  "Really?  Zero?!!"  We in turn were shocked by her shock.  And a little confused. Well not zero right this second, we charge everything, it will be zero at the end of the month.  But on an on-going basis, yes zero.  "Wow," was her response.  And wow was exactly what we were thinking right back at her.  WTF, its more normal now to carry credit card debt than to not?  Yes, apparently it is.


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## MuranoJo (Jun 4, 2011)

Ride,

I'm not even sure, after reading this, why you're dabbling in timeshare. 
As other posters have said, forget the spending $ for weekends and visualize yourself as someone without a job.  That is what will scare the 'bajeebas' out of you.

And do everything you can to avoid dipping into that 401K.  Retirement may seem a long time away for you, but you need to view that savings as sacred and only to be nutured.


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## NWL (Jun 4, 2011)

I've been following this thread throughout the day and one thought keeps running through my mind:  Thank you Mom and Dad for teaching me how to properly use my credit cards.

To the OP: I hope you find a solution that satisfies your debt in a timely fashion.  Do not rob your 401K to pay your current debt.


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## Ridewithme38 (Jun 4, 2011)

muranojo said:


> Ride,
> 
> I'm not even sure, after reading this, why you're dabbling in timeshare. .



This is why i'm working so hard currently to clear out my debt...i want to be able to enjoy vacations and just life in general without the weight of credit card debt hanging over me....$10,332.64 i plan to have that ATLEAST cut in half by the time i get my first MF bill!  Its not going to be easy...but it'll make the TS expenses alot easier, really it'll make everything else easier


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## ronparise (Jun 4, 2011)

dioxide45 said:


> I saw this mentioned earlier also. It makes no sense to pay off the card with the lowest balance first unless it also has the highest interest rate. Doing this is more expensive than paying the minimum on it and putting the extra money to the highest rate card.
> 
> If you have one card that has a $1000 balance and a 12.9% interest rate and another one with a $10,000 balance and a 24.9% rate. It makes no sense to pay off that $1000 card first.



It makes perfect sense  given the ops goals. I didnt say it made  sense financially. The op said his problem wasn't so much making the payments, It was dealing with the many bills. Progress for him is reducing the number of bills, not the total interest being paid.  If in a month or two the number of cards with zero balance is up by two or three; thats progress. 

The fact is  that the loan from his 401k, was probably the best way to go from a dollars and cents standpoint...he will be paying interest to himself, whats better than that? Only two bills to deal with (plus the girl friends)

Ride

Now calculate the interest due each month (about $8000 at 30% or about $200 a month) and make sure you pay at least that every month. Now  think about principal reduction. If you want to pay it off in a year thats another about $650 a month. in 18 months $450 in 24 months $333. So always pay at least the interest plus a percentage of principal depending on your income and goal

Im not interested in a month to month accounting (You've given us too much info already, but let us know in 6 months or so what your progress is. have you stayed on a cash basis for your day to day needs and entertainment? Have you paid of one of the big cards, and not used the ones paid off?

making yourself accountable to us ought to help you meet your goal

Just to complicate things a bit..Heres another idea. get a cash advance on one of the low interest cards to pay down the high interest ones. Pay it off and do it again and again. Just be careful that the cash advance is at a much lower rate than the high interest stuff.


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## bjones9942 (Jun 4, 2011)

I would suggest that you calculate what you spend on non-essential incidentals (going out to eat, movies, etc).  Cut it back to 10-25% of what it is and use the difference to add to your credit card payments.  Hit the ones with the highest interest rates first, then attack the rest.  If you make the payments hurt a little, you won't slide back into the situation as easily.

Find a financial calculator on the internet and take a gander at how long it will take you to pay off the cards with a minimum payment.  You'll get sick.

I use one card for purchases over $100 (I get points/coupons @ Best Buy).  I pay it off a day or two later.  I have another card for emergencies (with a 0 balance).  I have peace of mind.  I also figure out what my fixed annual expenses are (property taxes, maintenance fees, ...), divide that by 12 and transfer that amount from checking into savings every month.  I have a cushion if I REALLY need to borrow from it, and my major expenses are all taken care of when the bills come due.  And I put a little bit of $ into my stock portfolio every two weeks.  The money I save by baking my own bread and grinding my own hamburger and sausage helps fund the portfolio


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## am1 (Jun 4, 2011)

Get a weekend job at a bar for the summer.  Chance to make some big cash quickly.  Or extra hours at your first job if possible.  Also you could save some of that weekend play money.  

Call the credit card companies and ask for lower rates.  Try now and in a few months when it shows you paid off 2 cards.  

I would get rid of the $472 as soon as possible to get rid of that distraction.  The difference in interest you will pay is not that much.  Then attack the two high balance high interest rate cards.  

Make the monthly payments as soon as you have the money.  Do not wait for the due date.  

Stop paying for someone elses card.  You cannot afford to do that.  It is also at a very low rate.  

Try to go to a bank/credit union and get a personal loan for less money.  Try to get a loan from friends or family for a lower interest rate than 28%.

Another option is that you charge everything to cards but rotate which one each month.  That way you are given a grace period on what you spend each month.  You would be able to throw more money at the 27.99% cards.  But still pay off one of the other cards in full each month.  You can even charge other peoples stuff to your card and take the cash.  The big risk is that you do not spend more than you would other wise.  


Or transfer balances to a 0% for 6 months to a year.

DO NOT attend a timeshare tour with the promise of a free gift.


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## vckempson (Jun 4, 2011)

MelBay said:


> Buy one of Dave Ramsey's books, (Total Money Makeover):
> http://www.amazon.com/Dave-Ramsey/e/B000APQ02W
> 
> take it to heart, live and breath it, and start taking baby steps ASAP.  Leave the 401(k) alone.  You'll never make that back up.  I think Dave would tell you the same thing.  JMHO, of course.



I second this recommendation.  Better yet, take one of the Dave Ramsey courses and live by it.  The other suggestion I'll second was Ron asking you to be accountable to us and give us an update every quarter or so.  That will help you stick to it.


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## dioxide45 (Jun 4, 2011)

ronparise said:


> Just to complicate things a bit..Heres another idea. get a cash advance on one of the low interest cards to pay down the high interest ones. Pay it off and do it again and again. Just be careful that the cash advance is at a much lower rate than the high interest stuff.



The problem is that very few cash advances are at a low interest rate. Also realize there is probably a 3 to 5% fee to take out a cash advance. So financially a cash advance is probably a very bad idea.

One option is to apply for new credit where they offer balance transfers at a very low interest rate. There will likely still be a balance transfer fee, but it could save some money in the end and help the OP get out of debt faster.


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## dioxide45 (Jun 4, 2011)

heathpack said:


> We met with a loan officer when applying for our current home mortgage 2 years ago.  Going through all the assets and liabilities, the loan officer asked us what our current credit card balances were.  When we answered "zero," loan officer was shocked.  "Really?  Zero?!!"  We in turn were shocked by her shock.  And a little confused. Well not zero right this second, we charge everything, it will be zero at the end of the month.  But on an on-going basis, yes zero.  "Wow," was her response.  And wow was exactly what we were thinking right back at her.  WTF, its more normal now to carry credit card debt than to not?  Yes, apparently it is.



One thing that people don't realize is that even if they charge $10,000 a month on credit cards and then pay it all off at the end of the month. You still show as having a $10,000 balance on your credit cards when they pull credit reports. The is one reason why people should use no credit for a few months before applying for a large loan.


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## dioxide45 (Jun 4, 2011)

NWL said:


> I've been following this thread throughout the day and one thought keeps running through my mind:  Thank you Mom and Dad for teaching me how to properly use my credit cards.
> 
> To the OP: I hope you find a solution that satisfies your debt in a timely fashion.  Do not rob your 401K to pay your current debt.



I am sorry, but this has to be one of the most judgmental posts in this thread that is already full of many.


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## Fern Modena (Jun 4, 2011)

It isn't likely that the OP will get any offers/be able to qualify for a card which has very low interest rates at this time, I'd think.  I say that from looking at his current interest rates.  They say that he had a credit problem in the past...perhaps skipping payments when he was unemployed, I don't know.

If that is the case, and he's been making regular (minimum payments or better) payments for a year or more, he might try calling the credit companies and seeing if they will reduce the interest rates somewhat for him.

Fern



dioxide45 said:


> ---some stuff deleted---
> One option is to apply for new credit where they offer balance transfers at a very low interest rate. There will likely still be a balance transfer fee, but it could save some money in the end and help the OP get out of debt faster.


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## NWL (Jun 4, 2011)

dioxide45 said:


> I am sorry, but this has to be one of the most judgmental posts in this thread that is already full of many.



You do not need to apologize for having a negative opinion of my post, but I respectfully disagree with your interpretation of my post.

Cheers!


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## heathpack (Jun 4, 2011)

dioxide45 said:


> One thing that people don't realize is that even if they charge $10,000 a month on credit cards and then pay it all off at the end of the month. You still show as having a $10,000 balance on your credit cards when they pull credit reports. The is one reason why people should use no credit for a few months before applying for a large loan.



Yes, but if you have a $3000 current balance and $50,000 in available credit, that loan officer loves you to pieces.   


H


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## rickandcindy23 (Jun 4, 2011)

Ride, I know of several young couples who are following Dave Ramsey's pay off your debt in 7 years, and that includes paying off the house.  It's a good book, but we are already prettty much done with the mortgage, so I don't think it would do much for us.  We pay cash for cars, and believe it or not, we charge and spend about $7K per month, and we pay it off each month.  Building up some pretty big FF miles.  

When we were young, we also had debt.  I will definitely not judge you.  We bought our house in 1979, and while it was in the process of construction, we had interest rates climb to 10.5% by the time the house was finished.  Bless the builder for letting us move in before the rates went even higher.  Our neighbors mostly paid 14.5%, because that was how it was back then.  

We could have used Dave Ramsey's book.  I would have liked to skip the timeshare presentation, along with the tour of the land we bought.  Both items were financed at high rates, too, because it was just high interest during the Carter years.  

When we did a streamline FHA to 8.5%, we were celebrating, and then we got a similar rate for a second mortgage and paid off the land and the timeshare, too.  But I wish we didn't buy either one.  I can now get that timeshare free, and we paid $7.2K for the darned thing in 1981.  

don't plan to use the land to build a cabin, as we always dreamed (timeshare is too fun), so it's just land that sits vacant, and we occasionally go to the mountains and picnic on it.  Expensive picnic, with the property taxes over $320 this year.  

The timeshare we still enjoy and get vacations, but it's worth $0.  The land we paid $6K to own is now worth $30K, and we rarely get use from it.  What's wrong with this picture? :rofl:


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## Talent312 (Jun 4, 2011)

When I remarried, I married into a $30K credit card debt, which resulted mostly from my wife's efforts to keep her then teenage sons in a lifestyle that her child support did not cover.

We put the kids on notice that the candy-store was closed and paid the debt in full over the next five years with a series of 0% balance transfers. Now, we track each CC charge with both a spreadsheet and Quicken, so we can easily see the balance approaching our monthly "allowance."

As for the OP's issue:
-- Even if you cannot get a CC Balance Transfer offer that transfers all your balances, try to get one can covers at least one high-interest card. Make payments to zero that balance within the introductory period from current income. 
-- Use your 401K loan only for those you cannot transfer and return the amount left-over. That way, you'd have less 401K debt and only one CC balance to worry about.
-- Looking forward, set a limit on your CC spending that allows some fun-time, but cut out the trips and consider renting out your TS until you're clear of all debts.
-- Close half cards, but only the newest ones, since the average age of your accounts is a factor in your FICO score.


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## twinglez (Jun 4, 2011)

Try taking out a home loan.  That way you don't risk not paying back the 401K or getting early withdrawl fees.


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## stevedmatt (Jun 4, 2011)

NWL said:


> Do not rob your 401K to pay your current debt.



I respectfully disagree. You have no reason to save for retirement before you understand how to handle your debt. I guarantee that you are not making 27.99% on your 401K money, so you should save 27.99% by using that money to pay down your debt. 

If you retire with as much debt as is in your retirement funds, you still have zero net worth.....get your debt paid off then work on everything else. You probably have a lot to get accomplished before working on retirement.....house, etc.

Also, cut your weekend 'extra' spending by 50%....maybe 'hangout' every other weekend. You're currently paying for all your previous fun, so every time you use money that isn't going toward your debt, you're now paying extra (interest) for the fun you're currently having. Pay it off ASAP and free yourself from the burden.


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## Talent312 (Jun 4, 2011)

stevedmatt said:


> I guarantee that you are not making 27.99% on your 401K money, so you should save 27.99% by using that money to pay down your debt.



I concur.
I simply suggest that he borrow less from his 401K by using a 0% B/T for some of the debt. 

As for a home-loan... Transferring unsecured debt to a lien on one's home strikes me as a particularly dangerous idea for someone who has trouble managing debt in the first place.  That way, instead of suffering judgments that could be discharged in Bankruptcy, he could lose his house thru foreclosure.


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## glypnirsgirl (Jun 4, 2011)

stevedmatt said:


> I respectfully disagree. You have no reason to save for retirement before you understand how to handle your debt. I guarantee that you are not making 27.99% on your 401K money, so you should save 27.99% by using that money to pay down your debt.
> 
> If you retire with as much debt as is in your retirement funds, you still have zero net worth.....get your debt paid off then work on everything else. You probably have a lot to get accomplished before working on retirement.....house, etc.
> 
> Also, cut your weekend 'extra' spending by 50%....maybe 'hangout' every other weekend. You're currently paying for all your previous fun, so every time you use money that isn't going toward your debt, you're now paying extra (interest) for the fun you're currently having. Pay it off ASAP and free yourself from the burden.



If Ride were guaranteed to keep his employment, a 401(k) is not too bad. If his employment is uncertain, a 401(k) loan can have disastrous tax consequences as outlined above. 

I have the same problem with a home equity loan. If you lose your employment, you are now putting your home at risk for the benefit of your creditors. 

elaine


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## NWL (Jun 4, 2011)

stevedmatt said:


> I respectfully disagree. You have no reason to save for retirement before you understand how to handle your debt. I guarantee that you are not making 27.99% on your 401K money, so you should save 27.99% by using that money to pay down your debt.
> 
> If you retire with as much debt as is in your retirement funds, you still have zero net worth.....get your debt paid off then work on everything else. You probably have a lot to get accomplished before working on retirement.....house, etc.
> 
> Also, cut your weekend 'extra' spending by 50%....maybe 'hangout' every other weekend. You're currently paying for all your previous fun, so every time you use money that isn't going toward your debt, you're now paying extra (interest) for the fun you're currently having. Pay it off ASAP and free yourself from the burden.



I agree the OP should concentrate on reducing his current debt, but I believe he should not take money out of his 401K to pay for it.  He certainly has the option of discontinuing his contributions to his 401K for the foreseeable future and putting that money towards his debt.  Once he has the debt paid off, then he can continue contributing to his retirement.  

To the OP: please know that it was never my intention to criticize your situation.  I sincerely hope you find a solution that works for you.

Cheers!


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## MuranoJo (Jun 5, 2011)

Ride,

I also wanted to add that I probably sounded preachy now that I look back, and I apologize.

I think you're doing the right thing by acknowledging your situation and taking steps to tackle it.

I was pretty negative about the 401k borrowing, but it's just that I did the same thing when I was about your age, and now--as I approach early retirement--I wish I would not have.  But you're in a different situation, as you are trying to deal with high-interest debt, and it may make sense in your case.


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## jlf58 (Jun 5, 2011)

deleted ~~~~~~~~~~~~~~


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## chickenfoot (Jun 5, 2011)

vckempson said:


> As a Certified Financial Planner, I get this type of question occassionally.  Tony offers good advice, but I have one correction.  Instead of getting rid of the three cards, just cut them up.  Length of credit history plays into your FICO scores.
> 
> Also, even with the lower interest rates, you'll likely have to pay considerably more than you were paying on the credit cards.  Most 401k loans require paybacks over 5 years, whereas the credit cards are over 15 to 25 years.
> 
> ...



Excellent advice.  Also, the maximum loan period is 5 years and maximum loan amount is the lesser of 50% of your vested account balance up to $50,000.  

Please note not all employers have a loan provision on their 401k plan.  Its a feature the employer can adopt or decline and applies to all participants.  As noted above if you leave the company the loan becomes due.  So you are locked to this job till the loan is paid off.


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## Ridewithme38 (Jun 5, 2011)

chickenfoot said:


> Excellent advice.  Also, the maximum loan period is 5 years and maximum loan amount is the lesser of 50% of your vested account balance up to $50,000.
> 
> Please note not all employers have a loan provision on their 401k plan.  Its a feature the employer can adopt or decline and applies to all participants.  As noted above if you leave the company the loan becomes due.  So you are locked to this job till the loan is paid off.



Those were the provisions of my loan...i only took $2500 though...and set it to a 16 month payoff period...the monthly payments are slightly less then what i was paying month for the two Credit cards i paid off with it...and i'm not really sure that with interest i would have been able to pay them off in 16 months


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## Mel (Jun 5, 2011)

stevedmatt said:


> I respectfully disagree. You have no reason to save for retirement before you understand how to handle your debt. I guarantee that you are not making 27.99% on your 401K money, so you should save 27.99% by using that money to pay down your debt.
> 
> If you retire with as much debt as is in your retirement funds, you still have zero net worth.....get your debt paid off then work on everything else. You probably have a lot to get accomplished before working on retirement.....house, etc.
> 
> Also, cut your weekend 'extra' spending by 50%....maybe 'hangout' every other weekend. You're currently paying for all your previous fun, so every time you use money that isn't going toward your debt, you're now paying extra (interest) for the fun you're currently having. Pay it off ASAP and free yourself from the burden.


He will not save 27.99% by using the money to pay down the debt.  A few things to factor in:

 - That 401k contribution isn't taxable.  He will pay income tax on any money he diverts to paying off the debt.
 - Does his company match any portion of his 401k contributions?  If they do, then he might in fact be earning more than 27.99% on that money short term.
 - any money he is not contribution to his retirement now cannot be "made up" later.

While it is advisable to get his financial house in order, and to pay down the debt as quickly as possible, it should not necessarily be done at the expense of his retirement.  He needs to consider the "cost" of such an approach under his specific circumstances.

My own advice:

Reduce your expenses any way you can.  Spend a month and track where ALL of your money goes, and consider what is necessary, and what is a luxury.  Give up some of those luxuries until the debt is paid down, but not all of them.  And remember that what you consider a necessity is not the same as everyone else here.  I agree with others that this might not appear to be the best time to buy a timeshare, it is not the end of the world (and long term it might turn out to be the best time, if you get a handle on everything else). 

Some easy ways to save:

Cut your cell phone bill (stop using it to chat, and get a cheap prepaid plan).
Make your own coffee in the morning, rather than stopping at the coffee shop.
Cut back on your cable service - borrow movies from the library rather than pay for a movie channel.
Make a brown-bag lunch rather than buying lunch every day.
Plan your weekly meals based on the sales at your grocery store (and use coupons).

As you prepare for your first maintenance fee (which will be due in another 6 months or so), pay the credit cards first, but once they're paid off, make sure you set aside enough each month so you can pay that bill off when it arrives.


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## Ridewithme38 (Jun 5, 2011)

Mel said:


> Some easy ways to save:
> 
> Make your own coffee in the morning, rather than stopping at the coffee shop*.( SODA)*
> Cut back on your cable service - borrow movies from the library rather than pay for a movie channel. *(Netflix)*
> ...



Lunch and dinner...beyond the weekends are my biggest debts that i can easily change...while i don't drink coffee, i buy about 3 cans of soda a day at work at .90cents each...i go out to lunch every day for between $6-$10 and dinner is usually delivery...easily spend between $75-$150 a week just on food and drinks, just for one person

I'm going to start either bringing in soda from home, or buy some of those individual mix things and just get free water from work...Bringing in lunch has been something i've been considering for awhile...i'm going to start doing that fairly soon as for dinner....i have to learn how to cook, i guess i can do a lot of mac & Cheese and microwave pizza till i figure it out!

OH! I figured out a goal!! 28 days without ordering food(i'm going on vacation in 28 days)! I'm starting tomorrow!!!


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## scrapngen (Jun 6, 2011)

Just changing to bringing in your own soda will save $1.80/day. (figuring you can buy 12 packs of soda (and that's the name brand stuff) for about .30 per can - especially if you watch for sales. That's $9/week!!! Put that straight to your credit cards. You haven't changed what you are consuming so you won't feel like you've lost anything, yet you've saved a great deal of money. 

Now for lunch. If there's a microwave at work you have all kinds of cheap options! There's cup soups, noodle bowls, and lots of frozen meals. Even if you go for the bigger more organic varieties, you'll find they run $3-4 dollars vs. the $6-$10 you've been spending. You can add salads, fruit, crackers/cheese, etc. based on how much you're used to consuming. This requires no cooking knowledge.  

OK - on to dinner for non-cooks. Take a box of hamburger helper and follow the directions. No brainer. add frozen vegetables - spaghetti sauce, etc. to make more tasty and healthy. Personally, I'd suggest something like Annie's hamburger meals as they don't have trans fats and are organic with better ingredients, but I'm still starting minimal and easy for you. Put whatever is left in the fridge for the next day's lunch or dinner. Reheating is just a matter of adding a little water and throwing in the microwave or oven. Oh, also, everything tastes better with parmesan cheese on top. Buy those little tubs at Safeway/QFC that have that are shredded, not the Kraft powder our Mom's used to put on the table with spaghetti. This works on veggies, potatoes, you name it!! Another type of easy dinner is frozen foods that go in the oven for 20 minutes and are done. No real cooking. Trader Joe's is great for this. Put their halibut pieces and some french fries on a cookie sheet covered in aluminum foil or parchment paper for easy cleanup and throw some veggies on the stove to steam. Tada!!  Again, dinner will be much cheaper and more filling than constant take-home. There are plenty of tasty Indian, Thai, and Chinese foods frozen available to simply reheat as well. Some of them are high quality - at least as good as what you may already be doing. Again, put the money saved straight to those credit cards. You don't have to take time to cut up fresh vegetables, plan sauces, and have lots of ingredients on hand to eat at home cheaper than out. While doing that ultimately is the best and cheapest way to feed yourself and your daughter when she's with you, and girlfriend, - still going the route above is baby steps to weaning yourself into the home and away from the high price of fast foods and restaurants. There are also plenty of pizzas you can buy and cook at home that will still be cheaper than out. Many grocery stores make fresh pizzas ready to throw in the oven and bake yourself, but they've done the work of the sauce and ingredients. Still cheaper than delivery. You don't have to do this every day....at first, try bringing lunch 2 or 3 times a week. Try fixing home meals a couple nights a week as well. See what happens. Just remember to put the money saved towards your debt. Eating out all the time is one of the biggest drains on an income you can have.


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## scrapngen (Jun 6, 2011)

More on frozen foods:  

frozen vegetables are almost as good as fresh as they are frozen straight from the fields. Again, buy organic. Just get some kind of steamer or strainer that can fit over a pan of boiling water so that you steam them for about 5-9 minutes, depending on the vegetable. Put some butter and cheese on and voila! 

You can buy frozen shrimp and cook in a pan for just a couple minutes. Put with pasta and you're done. Chicken comes pre-breaded frozen and cooks in an oven like the fish mentioned above. Tuna fish also goes with some boxed meals well, and is easy to keep on hand. You don't always have to go the mayo route, but can if that kind of sandwich works for you. There are all kinds of grains now that come in boxes with simple instructions (rice meals, cous-cous, other mixed grains) that can be filling/nutritious/tasty and fixed easily. If you can make mac and cheese, just up the ante a little!! 

The reason I mention  frozen and boxed foods so much, is that when you are single and not used to cooking, it's hard to know how to shop and eat things before they go bad. When they are frozen, you have a longer life-span to figure it out.  Again, it's hard to keep lots of ingredients on hand when you don't use them very fast as a single person. 

These are quick, easy ways to get started. Ultimately, you can then decide if you want to take a class or get a cookbook to learn more from. Nowadays, many cooks are writing books for those who are time challenged, ingredient challenged, cooking for one or two, etc. But first, you just need to change your mindset, as it seems you are prepared to do.  

Good luck to you! Seriously, I'm not the greatest cook and don't particularly like it much, but manage to feed my girls well enough that they are rarely sick and are height/weight proportionate. I typically opt for easy and frozen during the week, and fresh on weekends. I'm careful to only buy enough fruit for a few days and change up the types so it doesn't sit around and go bad.


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## LAX Mom (Jun 6, 2011)

My DS got a Foreman-type grill and uses it for chicken, burgers, fish, etc. It's also great for panini sandwiches. 

Good luck!


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## Mel (Jun 6, 2011)

Not only will you save money if you follow all these tips, you will find you are living a healthier lufestyle, and providing more nutritious meals with your daughter.  Do learn to cook - and then when you visit your timeshare you can enjoy one of the biggest economic benefits of vacationing in a timeshare - the kitchen.  Eat a few meals out, and take the leftovers home to reheat for lunch the next day - maybe swap with another family member so you each get 2 different meals.  On other evenings, spend time with your daughter learning to cook together.  Some of our best family meals have been enjoyed at timeshares, when we had time to prepare and eat the meal together.


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## b2bailey (Oct 6, 2014)

I started reading this thread today before noticing the original date. Found myself curious as to your current situation -- and hoping for the best for you.


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## DeniseM (Oct 6, 2014)

This 2011 thread was brought out of mothballs by a spammer, and the post has been deleted.


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## easyrider (Oct 6, 2014)

So whats up with this thread ?


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## ondeadlin (Oct 6, 2014)

heathpack said:


> We met with a loan officer when applying for our current home mortgage 2 years ago.  Going through all the assets and liabilities, the loan officer asked us what our current credit card balances were.  When we answered "zero," loan officer was shocked.  "Really?  Zero?!!"  We in turn were shocked by her shock.  And a little confused. Well not zero right this second, we charge everything, it will be zero at the end of the month.  But on an on-going basis, yes zero.  "Wow," was her response.  And wow was exactly what we were thinking right back at her.  WTF, its more normal now to carry credit card debt than to not?  Yes, apparently it is.



I've had the same reaction here, and yes, apparently we're the outliers now.

We pay every month.  Period.  If we can't pay for it, we don't charge it.  No car loans, either.


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## DavidnRobin (Oct 6, 2014)

I realize that it is a pure bait question, but for others reading… This is a bad idea on many levels (especially the potential gain missed on the 401k investment).  Get rid of the credit debt by budgeting - you should not carry credit card debt that cannot be paid off in full every month.  That goes to almost every debt except mortgage - stay out of debt.  No way to get ahead with such poor money management.


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## dioxide45 (Oct 6, 2014)

easyrider said:


> So whats up with this thread ?



It was brought out of the mothballs by a spammer, whose post is now deleted.



DavidnRobin said:


> I realize that it is a pure bait question,



It is also a very old question.


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## WinniWoman (Oct 7, 2014)

Ridewithme38 said:


> I see alot of conflicting information about this online...my line of thought is....I'm pretty damn young(i'm 30), so being able to pay it back before retirement shouldn't be a problem...and its the lowest interest loan i could find
> 
> Ideally i'd prefer to just consolidate my 6 credit card balances onto one card with a high enough balance(over 10k) because the problems not really being able to make the payments..i've NEVER been late or short...its keeping track of the extra bills as they come due...but because i have 6 credit cards all basicly maxed out, my credits not good enough to get a card with a high enough balance or a loan to consolidate everything to
> 
> Whats your thoughts?  Yes or No to taking a Loan from the 401k to pay off some of the credit cards?



Don't do it! Your money is protected in the 401k. It cannot be touched in bankruptcy, but you can get rid of that credit card debt through bankruptcy. Plus, if you borrow money from your 401k account, it's like you are paying taxes on it twice. Also, if you leave your job you have to pay it back immediately. Are you kidding me? Don't do it!


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## SMHarman (Oct 7, 2014)

Oh no not again the taxes on it twice n
No you are not. 
There is a whole thread on that here.


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