Credit Card Pay Down Question

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Keepcalm
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Credit Card Pay Down Question

Post by Keepcalm » Mon Jul 30, 2018 12:58 am

How much would you be willing to sacrifice/eat in interest while paying down a CC (24.74% APR) before pulling from something like a Roth IRA?

I'm advising someone to bite the bullet and eat some interest versus pulling from their Roth IRA which they are intending on doing,

They have about 11k in CC debt that they can cashflow it to 0 over the next 3-6 months. I explained that you can't put back into a Roth once it is out and that eating 500 or so in total interest would be a better route over the next few months while they pay it off.

They have a week to decide which is when their float period ends...if they pay the entire 11k before the due date (week out) they have satisfied the statement balance.

Am I wrong here recommending they bite this bullet?

Also I did not ask if they have an EF, and if they do would you wipe out an EF for this or still would you hold tight on your EF and again just eat the interest if it was for 2-3 months?

rgs92
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Re: Credit Card Pay Down Question

Post by rgs92 » Mon Jul 30, 2018 1:08 am

That's such a usurious rate I would take it out of any account (taxable, tax deferred, or Roth) to pay it all off. Of course, a tax-deferred one (especially with any penalty) would be the last resort.
But a Roth or taxable? Sure, take it right out.
(And don't run up the credit card again, but that's pretty obvious.)

Jablean
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Re: Credit Card Pay Down Question

Post by Jablean » Mon Jul 30, 2018 2:14 am

They need to be working on their credit score. Something else is happening for them to get that high of rate - of course maybe they were late on a few payments, that could do it. We moved ours over to 0% transfer offers but they probably don't have that choice.

Keepcalm
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Re: Credit Card Pay Down Question

Post by Keepcalm » Mon Jul 30, 2018 3:40 am

If he puts it back into his Roth IRA within 60 days he could do it that way?

Keepcalm
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Re: Credit Card Pay Down Question

Post by Keepcalm » Mon Jul 30, 2018 7:33 am

Seems to be mixed opinions here.

soccerrules
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Re: Credit Card Pay Down Question

Post by soccerrules » Mon Jul 30, 2018 8:46 am

for sure use the EF, if they have it. I would borrow, beg to get the $$ to pay it off.

They should stop spending ANY money unless absolutely necessary and pay this off. No eating out, brown bag to lunch, turn up AC, no starbucks.
Don't let your outflow exceed your income or your upkeep will be your downfall.

Flyer24
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Re: Credit Card Pay Down Question

Post by Flyer24 » Mon Jul 30, 2018 8:55 am

No. I would not withdraw from a Roth to pay CC. They need to utilize the debt snowball method that is endorsed by Dave Ramsey. Live on a frugal budget and look for extra side income to get the debt paid off.
Last edited by Flyer24 on Mon Jul 30, 2018 9:26 am, edited 1 time in total.

Keepcalm
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Re: Credit Card Pay Down Question

Post by Keepcalm » Mon Jul 30, 2018 9:05 am

Flyer24 wrote:
Mon Jul 30, 2018 8:55 am
No. I would not withdraw from a Roth to pay CC. There is a 10% penalty if before 59 1/2. They need to utilize the debt snowball method that is endorsed by Dave Ramsey. Live on a frugal budget and look for extra side income to get the debt paid off.
Even if they end up eating hundreds of dollars in interest? Or even 1k+ in interest?

Flyer24
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Re: Credit Card Pay Down Question

Post by Flyer24 » Mon Jul 30, 2018 9:11 am

Keepcalm wrote:
Mon Jul 30, 2018 9:05 am
Flyer24 wrote:
Mon Jul 30, 2018 8:55 am
No. I would not withdraw from a Roth to pay CC. There is a 10% penalty if before 59 1/2. They need to utilize the debt snowball method that is endorsed by Dave Ramsey. Live on a frugal budget and look for extra side income to get the debt paid off.
Even if they end up eating hundreds of dollars in interest? Or even 1k+ in interest?
Yes. You will lose more by withdrawing money from your Roth (long term compounding of growth in your Roth). If you took out 10K now and you still had 30 years to retirement, you just cost yourself $76K assuming an average 7% return.
Last edited by Flyer24 on Mon Jul 30, 2018 9:21 am, edited 1 time in total.

patrick
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Re: Credit Card Pay Down Question

Post by patrick » Mon Jul 30, 2018 9:14 am

You can withdraw the basis in the Roth IRA whenever you feel like it without tax or penalty. There is still the issue of losing tax advantaged space though, so I'd think it's better to find a 0 APR balance transfer card.

JoeRetire
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Re: Credit Card Pay Down Question

Post by JoeRetire » Mon Jul 30, 2018 9:15 am

Keepcalm wrote:
Mon Jul 30, 2018 12:58 am
Also I did not ask if they have an EF, and if they do would you wipe out an EF for this or still would you hold tight on your EF and again just eat the interest if it was for 2-3 months?
Yes, I would wipe out my emergency fund temporarily.

More importantly, I'd want to find out why they got themselves into this situation in the first place and coach them on how to avoid it in the future.

Nate79
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Re: Credit Card Pay Down Question

Post by Nate79 » Mon Jul 30, 2018 9:29 am

Is their budget cut to beans and rice? No eating out, vacations, nothing? No investing?

My guess is that they are not likely to be the type to be maxing retirement accounts anyways so losing the Roth space isn't exactly a big deal for them. And at those interest rates NO investment trumps paying the credit cards. I would use the emergency fund down to $1k min and if the debt can be paid in a few months I would leave the Roth alone. And then I would keep the extremely tight budget until they have a very healthy EF.

And cut up the stupid credit cards. Broke people who can't run a budget don't need credit cards.

patrick
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Re: Credit Card Pay Down Question

Post by patrick » Mon Jul 30, 2018 10:17 am

Jablean wrote:
Mon Jul 30, 2018 2:14 am
They need to be working on their credit score. Something else is happening for them to get that high of rate - of course maybe they were late on a few payments, that could do it. We moved ours over to 0% transfer offers but they probably don't have that choice.
Not necessarily ... I have a good credit score (778 FICO 8 TransUnion) and at least one of my credit cards is at 26.49%.

02nz
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Re: Credit Card Pay Down Question

Post by 02nz » Mon Jul 30, 2018 10:30 am

Whatever behavior got this person into 11K in high-interest rate CC debt needs to change. And IMHO the path of scrimping for several months is more likely to change that behavior than the withdrawal from the IRA.

veindoc
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Re: Credit Card Pay Down Question

Post by veindoc » Mon Jul 30, 2018 10:59 am

02nz wrote:
Mon Jul 30, 2018 10:30 am
Whatever behavior got this person into 11K in high-interest rate CC debt needs to change. And IMHO the path of scrimping for several months is more likely to change that behavior than the withdrawal from the IRA.
+1. Roth is easy way out.What’s the plan when they find themselves in cc debt again? Keep withdrawing from
The ROTH.

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whodidntante
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Re: Credit Card Pay Down Question

Post by whodidntante » Mon Jul 30, 2018 12:30 pm

OP, you already gave your friend good advice and I hereby validate it. Some of the reactions here were well overreaching what you asked and are ridiculous. Please don't tell your friend that they should eat rice and beans because they owe 11k on a credit card, LOL!

Keepcalm
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Re: Credit Card Pay Down Question

Post by Keepcalm » Mon Jul 30, 2018 12:36 pm

Its a mental thing with him thats why he was talking about using his Roth. He likes having 0 debt and has trouble concentrating and focusing on what matters in life when he has debt....so it sounded like anyway.

He does not normally carry it. I told him he sounds like me psychologically....it messes with me!
Last edited by Keepcalm on Mon Jul 30, 2018 12:37 pm, edited 1 time in total.

Jags4186
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Re: Credit Card Pay Down Question

Post by Jags4186 » Mon Jul 30, 2018 12:37 pm

You should advise your friend to open a 0% balance transfer card and move the balance over to give him time to figure everything out.

Keepcalm
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Re: Credit Card Pay Down Question

Post by Keepcalm » Mon Jul 30, 2018 12:47 pm

Jags4186 wrote:
Mon Jul 30, 2018 12:37 pm
You should advise your friend to open a 0% balance transfer card and move the balance over to give him time to figure everything out.
I mentioned it and he did not say much. It can be a tough topic to talk about. He may not have that option unfortunatley.

Flyer24
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Re: Credit Card Pay Down Question

Post by Flyer24 » Mon Jul 30, 2018 1:06 pm

If they can cash flow it to be paid off in 3-6 months, then that is the best option. They definitely don’t need another CC. You just open up the option for more cc debt that way. Don’t make it complicated for them. A simple buckle down paydown is the best way to get out of debt.

Nate79
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Re: Credit Card Pay Down Question

Post by Nate79 » Mon Jul 30, 2018 1:21 pm

Flyer24 wrote:
Mon Jul 30, 2018 1:06 pm
If they can cash flow it to be paid off in 3-6 months, then that is the best option. They definitely don’t need another CC. You just open up the option for more cc debt that way. Don’t make it complicated for them. A simple buckle down paydown is the best way to get out of debt.
Agreed. Opening a 0% credit card would be just about the worst financial advice someone could get.

deltaneutral83
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Re: Credit Card Pay Down Question

Post by deltaneutral83 » Mon Jul 30, 2018 1:38 pm

The $500-$1000 in interest charges over the next 3-6 months on the insane interest rate is nowhere close to being as big a priority as fixing the behavior that led to $11k credit card debt with no means to pay off. You have to be mindful that BH's are mostly math oriented and the idea of carrying credit card debt is nearly non existent so the solutions offered incorporate that mindset. I've seen a few of these situations up close and cashing out a Roth and playing musical chairs to move money around like this rarely even addresses the real issue, let alone fixes it.

bberris
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Re: Credit Card Pay Down Question

Post by bberris » Mon Jul 30, 2018 1:41 pm

Do a 60 day rollover from an IRA; if they can pay it off in 60 to 90 days that gets them most of the way there.
You can even put the money back in the same IRA.

delamer
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Re: Credit Card Pay Down Question

Post by delamer » Mon Jul 30, 2018 1:53 pm

I did the math — well, an online calculator did. :happy

If he pays $2,000/month for six months, he’ll pay off the debt and pay $800 in interest.

If he pays $3,800/month for three months, he’ll pay off the debt and pay $460 in interest.

I would not raid my Roth IRA to save $800 and certainly not to save $460.

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GoldStar
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Re: Credit Card Pay Down Question

Post by GoldStar » Mon Jul 30, 2018 2:12 pm

Why not use the EF if he has one? I'm guessing the person doesn't have one though - otherwise why run up credit card debt.
I'd make ALL NECESSARY SACRIFICES without drawing from retirement until paid.
Eat minimal, NO entertainment, NO non-necessities, NO shopping (other than bare-essential food), etc. until I paid it off.
If he hasn't screwed up his credit, using a 0% balance transfer would be ideal.

For those that suggest taking from the IRA and then putting it back - I'm guessing the kind of person who puts money on his credit card without being able to pay it back won't be paying back the IRA (either through hardship or through disposition)

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BL
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Re: Credit Card Pay Down Question

Post by BL » Mon Jul 30, 2018 2:31 pm

Absolutely don't use the credit card while it has debt. Anything you buy would have that interest rate! Maybe freeze it in an ice cube tray in water.

BeneIRA
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Re: Credit Card Pay Down Question

Post by BeneIRA » Mon Jul 30, 2018 4:41 pm

OP, you are spot on that he should just pay it off and not take it from the Roth. I will take the contrarian view and agree with Jags that a 0% interest credit card wouldn't be bad at all. If it can save the OP's friend $600-$800, well, that is more than most churners get with opening one credit card. Way better option than dipping into the Roth as long as the friend pays it off in the six months.

tesuzuki2002
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Re: Credit Card Pay Down Question

Post by tesuzuki2002 » Mon Jul 30, 2018 5:38 pm

Keepcalm wrote:
Mon Jul 30, 2018 12:58 am
How much would you be willing to sacrifice/eat in interest while paying down a CC (24.74% APR) before pulling from something like a Roth IRA?

I'm advising someone to bite the bullet and eat some interest versus pulling from their Roth IRA which they are intending on doing,

They have about 11k in CC debt that they can cashflow it to 0 over the next 3-6 months. I explained that you can't put back into a Roth once it is out and that eating 500 or so in total interest would be a better route over the next few months while they pay it off.

They have a week to decide which is when their float period ends...if they pay the entire 11k before the due date (week out) they have satisfied the statement balance.

Am I wrong here recommending they bite this bullet?

Also I did not ask if they have an EF, and if they do would you wipe out an EF for this or still would you hold tight on your EF and again just eat the interest if it was for 2-3 months?
Why not get a 0% interest credit card that allows a transfer or payoff check and push the balance to that card. It should allow 6 to 12 months interest free to pay off the balance.

It's still borrowing... but at the end of the day it will get rid of the interest payments.

tesuzuki2002
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Re: Credit Card Pay Down Question

Post by tesuzuki2002 » Mon Jul 30, 2018 5:39 pm

patrick wrote:
Mon Jul 30, 2018 10:17 am
Jablean wrote:
Mon Jul 30, 2018 2:14 am
They need to be working on their credit score. Something else is happening for them to get that high of rate - of course maybe they were late on a few payments, that could do it. We moved ours over to 0% transfer offers but they probably don't have that choice.
Not necessarily ... I have a good credit score (778 FICO 8 TransUnion) and at least one of my credit cards is at 26.49%.
I have several cards that are north of 25%... I never carry a balance...

Keepcalm
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Re: Credit Card Pay Down Question

Post by Keepcalm » Thu Aug 02, 2018 11:54 pm

So an update. He ended up using EF to almost half the total debt and he is going to eat the interest until he pays it down.

He did not touch his Roth.

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jharkin
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Re: Credit Card Pay Down Question

Post by jharkin » Fri Aug 03, 2018 7:13 am

veindoc wrote:
Mon Jul 30, 2018 10:59 am
02nz wrote:
Mon Jul 30, 2018 10:30 am
Whatever behavior got this person into 11K in high-interest rate CC debt needs to change. And IMHO the path of scrimping for several months is more likely to change that behavior than the withdrawal from the IRA.
+1. Roth is easy way out.What’s the plan when they find themselves in cc debt again? Keep withdrawing from
The ROTH.
+2. They need to take action that's going to instill a long term behavioral change.

I know it was pointed out above that they are probably not maxing retirement so whats the big deal... Id argue that a suspicion their retirement is behind as well is all the more reason not to touch that IRA.

EDIT: I should read to the end first......
Last edited by jharkin on Fri Aug 03, 2018 7:37 am, edited 1 time in total.

cherijoh
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Re: Credit Card Pay Down Question

Post by cherijoh » Fri Aug 03, 2018 7:31 am

patrick wrote:
Mon Jul 30, 2018 10:17 am
Jablean wrote:
Mon Jul 30, 2018 2:14 am
They need to be working on their credit score. Something else is happening for them to get that high of rate - of course maybe they were late on a few payments, that could do it. We moved ours over to 0% transfer offers but they probably don't have that choice.
Not necessarily ... I have a good credit score (778 FICO 8 TransUnion) and at least one of my credit cards is at 26.49%.
I think some of the rewards cards with good benefits have pretty high interest rates. But if you pay in full each month who cares?

cherijoh
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Re: Credit Card Pay Down Question

Post by cherijoh » Fri Aug 03, 2018 7:38 am

jharkin wrote:
Fri Aug 03, 2018 7:13 am
veindoc wrote:
Mon Jul 30, 2018 10:59 am
02nz wrote:
Mon Jul 30, 2018 10:30 am
Whatever behavior got this person into 11K in high-interest rate CC debt needs to change. And IMHO the path of scrimping for several months is more likely to change that behavior than the withdrawal from the IRA.
+1. Roth is easy way out.What’s the plan when they find themselves in cc debt again? Keep withdrawing from
The ROTH.
+2. They need to take action that's going to instill a long term behavioral change.

I know it was pointed out above that they are probably not maxing retirement so whats the big deal... Id argue that a suspicion their retirement is behind as well is all the more reason not to touch that IRA.
That was my original thought, too. But I think I see what that poster meant - if you currently aren't maxing your accounts then you could potentially make up for the Roth withdrawal by maxing out an account you wouldn't have otherwise.

cherijoh
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Re: Credit Card Pay Down Question

Post by cherijoh » Fri Aug 03, 2018 7:42 am

tesuzuki2002 wrote:
Mon Jul 30, 2018 5:38 pm
Keepcalm wrote:
Mon Jul 30, 2018 12:58 am
How much would you be willing to sacrifice/eat in interest while paying down a CC (24.74% APR) before pulling from something like a Roth IRA?

I'm advising someone to bite the bullet and eat some interest versus pulling from their Roth IRA which they are intending on doing,

They have about 11k in CC debt that they can cashflow it to 0 over the next 3-6 months. I explained that you can't put back into a Roth once it is out and that eating 500 or so in total interest would be a better route over the next few months while they pay it off.

They have a week to decide which is when their float period ends...if they pay the entire 11k before the due date (week out) they have satisfied the statement balance.

Am I wrong here recommending they bite this bullet?

Also I did not ask if they have an EF, and if they do would you wipe out an EF for this or still would you hold tight on your EF and again just eat the interest if it was for 2-3 months?
Why not get a 0% interest credit card that allows a transfer or payoff check and push the balance to that card. It should allow 6 to 12 months interest free to pay off the balance.

It's still borrowing... but at the end of the day it will get rid of the interest payments.
Not everyone gets 0% offers.

sjt
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Re: Credit Card Pay Down Question

Post by sjt » Fri Aug 03, 2018 7:54 am

Is 401k loan an option?

More concerning is lack of ability to cover this with an emergency fund. I assume an emergency caused them to run up this CC debt, so an emergency fund draw down would be appropriate to pay off the high interest, then rebuild the emergency fund over the next 3-6 months. If a bigger emergency happened during the rebuild - then you might look to drawing down the Roth.

If the CC balance is not the work of an emergency, advise your friend to work on spending habits and budgeting.
"The one who covets is the poorer man, | For he would have that which he never can; | But he who doesn't have and doesn't crave | Is rich, though you may hold him but a knave." - Wife of Bath tale

tesuzuki2002
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Re: Credit Card Pay Down Question

Post by tesuzuki2002 » Fri Aug 03, 2018 2:45 pm

cherijoh wrote:
Fri Aug 03, 2018 7:42 am
tesuzuki2002 wrote:
Mon Jul 30, 2018 5:38 pm
Keepcalm wrote:
Mon Jul 30, 2018 12:58 am
How much would you be willing to sacrifice/eat in interest while paying down a CC (24.74% APR) before pulling from something like a Roth IRA?

I'm advising someone to bite the bullet and eat some interest versus pulling from their Roth IRA which they are intending on doing,

They have about 11k in CC debt that they can cashflow it to 0 over the next 3-6 months. I explained that you can't put back into a Roth once it is out and that eating 500 or so in total interest would be a better route over the next few months while they pay it off.

They have a week to decide which is when their float period ends...if they pay the entire 11k before the due date (week out) they have satisfied the statement balance.

Am I wrong here recommending they bite this bullet?

Also I did not ask if they have an EF, and if they do would you wipe out an EF for this or still would you hold tight on your EF and again just eat the interest if it was for 2-3 months?
Why not get a 0% interest credit card that allows a transfer or payoff check and push the balance to that card. It should allow 6 to 12 months interest free to pay off the balance.

It's still borrowing... but at the end of the day it will get rid of the interest payments.
Not everyone gets 0% offers.
You're right.. I made an assumption as I got those constantly... well a lower rate that is currently being paid...

Bogle_Bro
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Re: Credit Card Pay Down Question

Post by Bogle_Bro » Fri Aug 03, 2018 8:45 pm

patrick wrote:
Mon Jul 30, 2018 9:14 am
You can withdraw the basis in the Roth IRA whenever you feel like it without tax or penalty. There is still the issue of losing tax advantaged space though, so I'd think it's better to find a 0 APR balance transfer card.
This. Balance transfer for a one time cost of a few cents on the dollar

Bogle_Bro
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Re: Credit Card Pay Down Question

Post by Bogle_Bro » Fri Aug 03, 2018 8:48 pm

Lots of 0 apr 6-12mo CCs out there your friend has a shot at as long as their credit isn't horrible (<640 tbh)

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