[USER]

Hello, woukd appreciate your thoughts. I’m in $80,000 credit card debt, 7 cards all between 24-29% interest rates. Im starting to struggle with the minimums ecstasyn. Question relates to …

My financial adviser still wants me to put $8000 in traditional Ira for deduction it saves me almost 2500 in tax bill.

She suggests I either refinance mortgage and add 80,000 in it or take loan from 401k which I can borrow up to 50m at 8.4% term of 5 years.

I’m 15 years from retirement. I know no one in this group has large balances in credit cards but woukd aporeciate any guidance /thoughts.

Thank you!

[Matt]

You need a new financial adviser, telling you to put $8,000 into an IRA for the tax deduction while telling you to do a 401k loan at 8.4% interest.

The first thing you should do is put that $8,000 toward your credit cards.

Then, you should start selling items you no longer need or can no longer afford, including probably your car.

And then cut your budget down to the bare bones until you get out of this mess.

Borrowing from your 401k or refinancing your mortgage in this environment will put you in a deeper mess.

If you don’t treat this as the emergency it is, then it’s unlikely you’ll be retiring in 15 years.

[Mia]

Yikes. Adding to you mortgage right before retirement to roll zero value consumer debt against your most valuable appreciating asset seems like a horrible idea.

Borrowing from retirement right before you retire when borrowing clearly hasn’t been working well for a while, probably years…also seems like a horrible idea.

Has the root of overspending changed?

Second, how much is your home worth and how much do you still owe and how many bedrooms?

I’m asking because I’m trying to think of a sustainable long term solution rather than just moving debt around when things seem out of balance.

[Renita]

Why would you ever trade unsecured debt for a secure loan against your primary property? That’s pretty awful advice.

But missing from this equation is how the $80k of debt was accumulated because without solving for that part, it will not matter where you pull the money from.

You will be in the same situation again in a few years.

[Carrie]

I think their is a lot missing from this story – like how did you get to the debt and how do you plan to stay out?

Where would you be getting the 8k If you can’t pay off your cc’s?

A home equity loan would probably be the cheapest way to pay off the cc but you really need to do some soul searching on how you are going to retire as it sounds like you are robbing Peter to pay Paul right now.

[Brad]

Credit card debt is why we have emergency funds. I would not invest a dime beyond the company match until it is GONE.

[Laurie]

First, you need to solve the spending. So often when people take out loans to pay off credit cards, they just max out the cards again AND then have the loan too.

To keep this from happening to you, you need to take serious steps.

There are two approaches to paying off debt: avalanche and snowball. Avalanche is paying highest interest rate first, no matter the balance.

Snowball is listing debts in order of size, paying off smallest first, and then adding its payment to the next smallest, and so on.

Snowball gives the most emotional satisfaction, so people are more likely to stick with it and get excited as debts and minimum payments disappear.

I’ve helped people sort out their debt, just as a friend, and had really good luck with calling the credit card companies and asking for lower interest rates.

Never got turned down! Also, are you tracking your spending at all? I really like the app, YNAB.

It lets you assign your money as it arrives (kind of like putting it into envelopes) and is much more proactive than other apps that just keep track of the damage.

But even if you just start keeping track, I promise you will find countless ways to save money – and everything you save can be added to your snowball.

The advice to move to a less expensive car and sell all the things just sitting around the house collecting dust (we all have them!) is also good. Send all that money to your snowball as well.

Doing all of these steps will train you to not get back into the same situation again.

Just looking at interest rates, the refi sounds good. But this “easy” solution just puts you in so much danger of doubling your debt by running up the cards again.

[Rachael]

Fire your financial advisor. ASAP. Horrible advice. Put that 8K towards your credit card debt. Pick up a side hustle or 2 and pay down that cc debt.

Then, figure out why you’re spending so much and going into debt because of it.

[Lynet]

Please call Freedom Debt Relief. A friend used it and she’s now making one monthly payment and on her way out of debt.

She was drowning in debt

[Leemay]

If I were you and I can’t increase my earnings, I need to know how much I make and what my credit score is. If they are still good, I’ll get a few 0% APR cards to transfer the $80K to those cards.

BOA and Capital One both give pretty high credit limits, but you get them only if they offer 0% APR deals.

Even if you have to pay a 3% transfer fee, it beats any other options you mentioned here. Cards like these will buy you easily 12 -21 months of time to save save save.

Saved money goes to HYSA, when the cards come due you pay them off! 100%! on time!!

And you swear you don’t ever put yourself in this position again, unless it’s a 0% for a period of time and you have a clear plan to pay them off!

You don’t spend a dime from the HYSA during this time, you setup auto pay for the cards’ minimum payments, you setup a budget to track your cash flows and you also vigorously cut down whatever expenses that are unnecessary in life in order to increase your savings to take care of this beast.

Best of luck!

[Delora]

You’d be paying waaaaay more than $2,500 in 26% interest on that 80k than you’d save in taxes by putting it in an IRA. You need to get that debt down ASAP.

A HELOC would be easier than refinancing, but absolutely don’t risk your house if you haven’t found a way to stop the balances on the cards from continuing to go up.

You don’t mention if this is overspending or due to medical debt or something else, but if it’s spending, you’ll be back in this same position in a few years unless there’s a major reform.

[Amanda]

Depends on the rate of the refi, needed for the comparison. Also, what do you still owe on the mortgage and your income and monthly expenses.

It sounds like you are living way above your means. Choose the option with the lowest interest rate.

[Angela]

This seems like a spending problem. I would not do any of those things.

I’d work on my budget cutting waste (if you have a car pymt, need to sell a buy a used car, cut any extras like eating out, entertainment, etc.), maybe rent out a room for extra income or a 2nd job, throw every extra dollar at the debt & figure a way to stay out of debt before & after retirement.

[Blair]

I would trust the financial advisor more than a comment here. We don’t know your whole picture.
There are two things to consider here. 1. Your behavior 2. The numbers

From the numbers you’ve shared it sounds like your FA is on the right track, what none of us know here is your behavior.

What is normal for you? What led to you getting into this place? What motivates you? What fears do you have? How stable is your job? How large is your savings rate?

I will say that paying off that credit card debt ASAP is definitely what needs to happen, it’s just a matter of how. What will work for you in your unique situation.

You really need to work with someone one on one to get any helpful advice on that, which is why your FA is probably a better bet than any commenter here.

That said, not all FAs are the same. Some are commission based, some only focus on numbers, not behavior, and honestly, some people are just jerks. So, take that into account.

There are many paths to paying off debt, you need to find the one that works for you, and you probably need someone to support you through that.

Maybe you need a new financial advisor?

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