Author Topic: DON'T pay off your credit cards club  (Read 7425 times)

boarder42

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Re: DON'T pay off your credit cards club
« Reply #150 on: July 10, 2018, 05:26:35 PM »
The entire thread blows bc you're not sharing numbers.
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Telecaster

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Re: DON'T pay off your credit cards club
« Reply #151 on: July 10, 2018, 06:29:05 PM »
It nets out to 0% or better.  Works in my book.

The problem is when you say "cost" everyone thinks you mean "cost" but in your mind "cost means "net."  I can see why there might be confusion.

Based on what you've posted here, you are on the fast track to bankruptcy.   You have placed a large amount of consumer debt on credit cards (BTW, you put consumer spending on credit cards! WTLF?!?) and never explained how you intend to pay it back. You have also taken 401(k) loans.  You never said what happened to that money.  Those 401(k) loans are costing you one whole helluva lot more than 3%.   You permanently screwed yourself on taxes with that one. 

You've crowed about the tax savings this year, but you've never mentioned how this plays out in the future.  You claim the tax savings issue has been ignored, but in reality quite a number have posters have asked you specifically how you think you will save on taxes overall, and you've responded to none of them.     Retirement accounts defer taxes, they don't eliminate them.  You need to look at the end point as well as the beginning point.  You've never responded to a number valid questions on this tax issue.  The tax issue has been ignored, but only by you.
 
You've created enormous unsecured, callable debt and robbed your retirement savings.   If you can't transfer that CC debt--which will happen eventually--then it all becomes high interest with no way to pay it back.   If you lose or change jobs, those 401(k) loans will need to be paid back in fairly short order--using post-tax dollars.   You are one small step away from disaster.

People come here and post case studies after they've gotten themselves into financial jams.   This is a real time case study how people get themselves into financial jams. 

I sincerely, honestly wish you the best of luck and financial success.  But I also sincerely and honestly wish you would tone down the hubris long enough to look at the mess you've made of your financial future.   The thing about finances is that while mistakes are forever (Odin knows I've made my share) it is never too late to change your trajectory.  You are heading straight into the volcano.   You might not get to FIRE, but if you pull out now, you might not be eating Alpo in retirement.  Best wishes, and again I mean that sincerely. 

nick663

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Re: DON'T pay off your credit cards club
« Reply #152 on: July 10, 2018, 08:58:57 PM »
Who is going to ruin Pizzabrewer's day and tell him that savings account signup bonuses are taxable income and he'll be getting a 1099 at the end of the year for them?

Also, y'all keep ignoring the big payoff:  tax savingsTAX SAVINGS. The whole fucking point.  Boarder keeps harping that I'm trading 10 or 12% tax rate for 22% tax rate in the future.  Sorry, but I'm not in your tax bracket/earning power and likely won't be in the future.  We are lower income than most of you high-fliers. I'm trading 10 or 12% tax rate for 0% in current years. 22% ain't in our cards.  The saver's credit is a big inflection point that is relevant to someone at my earning level.  Hitting that alone is worth about $1600 in tax savings.  So no, nick663, one cc bonus is not a better deal.
2 problems with this claim:
1.  Saver's tax credit is a max of $1,000. (Edit: 1,000 for single.  2,000 for married filing jointly.  Missed that)
2.  It's a nonrefundable tax credit so it only offsets taxes owed.  Based on your "I owed $0 in income tax line" you're either line on line perfect or getting less than $1,000 in benefit out of this.

You know, I rarely say this but I think you should talk to a financial adviser about your investment/tax strategy.  You don't seem to understand the nuances of the tax code and if your claim of paying $0 in taxes is true I have a strong suspicion that you're putting money in a pre-tax account at an income tax rate of 0%.  I would gladly pay a little bit of 10% income tax in your situation to avoid doing that.
« Last Edit: July 10, 2018, 09:20:32 PM by nick663 »

Pizzabrewer

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Re: DON'T pay off your credit cards club
« Reply #153 on: July 10, 2018, 09:08:55 PM »
Who is going to ruin Pizzabrewer's day and tell him that savings account signup bonuses are taxable income and he'll be getting a 1099 at the end of the year for them?

Also, y'all keep ignoring the big payoff:  tax savingsTAX SAVINGS. The whole fucking point.  Boarder keeps harping that I'm trading 10 or 12% tax rate for 22% tax rate in the future.  Sorry, but I'm not in your tax bracket/earning power and likely won't be in the future.  We are lower income than most of you high-fliers. I'm trading 10 or 12% tax rate for 0% in current years. 22% ain't in our cards.  The saver's credit is a big inflection point that is relevant to someone at my earning level.  Hitting that alone is worth about $1600 in tax savings.  So no, nick663, one cc bonus is not a better deal.
2 problems with this claim:
1.  Saver's tax credit is a max of $1,000.
2.  It's a nonrefundable tax credit so it only offsets taxes owed.  Based on your "I owed $0 in income tax line" you're either line on line perfect or getting less than $1,000 in benefit out of this.

You know, I rarely say this but I think you should talk to a financial adviser about your investment/tax strategy.  You don't seem to understand the nuances of the tax code and if your claim of paying $0 in taxes is true I have a strong suspicion that you're putting money in a pre-tax account at an income tax rate of 0%.  I would gladly pay a little bit of 10% income tax in your situation to avoid doing that.

Man y'all are making it hard to refrain from answering. Yes, I'm fully aware bank bonuses are taxable. I'm not an idiot. 1.  Married filing jointly. Look it up. 2.  I'm USING the savers credit to get to $0.

Seriously, this level of stupidity willful misunderstanding is getting aggravating.
« Last Edit: July 10, 2018, 09:18:24 PM by Pizzabrewer »

nick663

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Re: DON'T pay off your credit cards club
« Reply #154 on: July 10, 2018, 09:23:59 PM »
Who is going to ruin Pizzabrewer's day and tell him that savings account signup bonuses are taxable income and he'll be getting a 1099 at the end of the year for them?

Also, y'all keep ignoring the big payoff:  tax savingsTAX SAVINGS. The whole fucking point.  Boarder keeps harping that I'm trading 10 or 12% tax rate for 22% tax rate in the future.  Sorry, but I'm not in your tax bracket/earning power and likely won't be in the future.  We are lower income than most of you high-fliers. I'm trading 10 or 12% tax rate for 0% in current years. 22% ain't in our cards.  The saver's credit is a big inflection point that is relevant to someone at my earning level.  Hitting that alone is worth about $1600 in tax savings.  So no, nick663, one cc bonus is not a better deal.
2 problems with this claim:
1.  Saver's tax credit is a max of $1,000.
2.  It's a nonrefundable tax credit so it only offsets taxes owed.  Based on your "I owed $0 in income tax line" you're either line on line perfect or getting less than $1,000 in benefit out of this.

You know, I rarely say this but I think you should talk to a financial adviser about your investment/tax strategy.  You don't seem to understand the nuances of the tax code and if your claim of paying $0 in taxes is true I have a strong suspicion that you're putting money in a pre-tax account at an income tax rate of 0%.  I would gladly pay a little bit of 10% income tax in your situation to avoid doing that.

Man y'all are making it hard to refrain from answering. Yes, I'm fully aware bank bonuses are taxable. I'm not an idiot. 1.  Married filing jointly. Look it up. 2.  I'm USING the savers credit to get to $0.

Seriously, this level of stupidity willful misunderstanding is getting aggravating.
I was looking in the wrong spot, my bad.

My point about the pre tax investing still stands though.

Pizzabrewer

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Re: DON'T pay off your credit cards club
« Reply #155 on: July 10, 2018, 09:39:12 PM »

My point about the pre tax investing still stands though.

Well then you clearly don't understand the tax implications of going over the $38000 AGI savers credit cliff.
« Last Edit: July 10, 2018, 09:41:09 PM by Pizzabrewer »

Hargrove

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Re: DON'T pay off your credit cards club
« Reply #156 on: July 10, 2018, 11:56:23 PM »
It's like if I asked you to show me a rock and you're like here's a cucumber I don't get what you don't understand. It's a fucking CUCUMBER.

I laughed, you got me.

Pizza, I've been tempted by this sort of thing, but the window is too small (effectively it has a call on it), the availability of future loans is not guaranteed, and the gains can be duplicated without the risk for the same effort. Using a loan for a signup bonus only puts you ahead in net worth for the year by the return/time difference between the instant loan opening an account with bonus and the time it would take you to save the money instead (which you only need to do once and can keep recycling thereafter), further capped by how many bank account bonuses you engage in and how many are available to you in said year. In other words, 300 bucks today invested for 10% APR over 4 months? 6 months? You're up $10-15 on it IF you get close to the 30-year US-market-average, when you get it by loan instead of saving whatever balance you need.

As for a double-gain from taxes, the savers credit is capped at 50% of 4k in contributions for married couples filing jointly. Working back from your posts, your gross is in the ballpark of 109k annually (the average of your and your wife's contribution amounts being 65%, 100-65=35%*109k= about 38k, the cutoff for savers credit. If you WERE ahead by the amount of the saver's credit to start with on the 401k jiggering, that lead is reduced by any taxes you pay on 401k amounts deposited now from a 0% liability and withdrawn at any liability in retirement. So, if you have no tax liability for 401k dollars today for the full amount of those loans, and had to pay some taxes on your 401k withdrawals when you retire, deduct it from what you should calculate as a lead from the 2k savers credit you pocket, in addition to any fees.

You could be up hundreds. You could be down more. If you had no tax liability, and we assume it's possible you have a 0% bracket in retirement (no one has a crystal ball), you won a bit, but any other scenario where it's not 0% taxes in retirement means your potential gain is less than alternative activities (and may be a loss), where none of the alternatives (tradelines, churning, signup bonuses without loans) have a loss downside. None are instantly a massive liability in the event of, say, a medical problem or sudden job loss leaving you to get called by the end of a promo offer.

If you only did CC loans for a year and then paid off the cards in, say, 6 months, assuming you got an 18-month transfer, you're probably at peak benefit. You can't realize the benefit for longer than that because your outstanding CC debt can't just keep ballooning - the process caps out at a low balance (respective to the size of a large retirement account) in a short time horizon (9-18 months, the rough range of transfer offers and a VERY short time in the stock market) with no guarantee you can keep kiting the loans because lenders will stop giving you the loans if your balance just keeps going up. Even if they did give you the loans, and you grow it for years, you're building a sizeable call against your finances to do it for only a few hundred bucks IF your future tax liability is 0% (otherwise you're probably losing money). It's worth knowing the real benefit for that risk.

The reward is capped in many ways. The risk is way more than similar activities with better rewards, unless there's something here many of us simply don't understand.
« Last Edit: July 10, 2018, 11:58:34 PM by Hargrove »
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Radagast

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Re: DON'T pay off your credit cards club
« Reply #157 on: July 11, 2018, 12:42:55 AM »
https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-savings-contributions-savers-credit There is no $38,000 savers credit cliff, at least not as far as it applies to your situation. If you max out one 401k and one IRA you get the full $2,000 credit up to $63,000 AGI. If you are currently maxing two IRAs and two 401ks, you can cut those contributions in half and still get the full credit (10% of $23,000 is more than $2,000). So the saver's credit does not impact your decision either way. I don't know your state tax situation, but if you remain within that state it is quite possible that state tax savings also do not impact your decision either way.

Let's check farther. We'll generously assume that the $18K you saved at 0% interest went entirely to a 401k and that it precisely lowered your marginal tax rate by 10% (ie. 25% to 15% or 22% to 12%). Let's compare cash-back credit card bonuses from DOC on $18k. Analysis period of one year. https://www.doctorofcredit.com/best-cash-credit-card-sign-up-bonuses/ and https://www.doctorofcredit.com/best-bank-account-bonuses/. Includes standard % cash back on spend. Bank bonuses after 12% tax loss.

0% 12 month loan and bank account bonuses
$1,800 tax savings (10% on $18,000) (optimistic)
Chase Ink Cash $680 on $18,000 spend, 0% for 12 months
Discover bank bonus $132 on $15,00 for 1 mo
Discover bank bonus $132 on $15,00 for 1 mo (again)
Citi bank bonus $352 on $5,000 for 2 mo
Citi bank bonus $264 on $5,000 for 2 mo
$528 in other bonuses assumed
(Chase has not minimum and thus works wither either strategy and not counted here)
Total Bonus $3,888

Credit Card Cash Signup Bonus
Chase Sapphire Preferred: $590 on $4,000 spend
Chase INK Preferred: $955 on $5,000 spend
Chase Ink Cash: $530 on $3,000 spend
Barclaycard CashForward: $220 on $1,000 spend
Chase AARP: $210 on $500 Spend
U.S. Bank Altitude Reserve: $460 on $4,500 spend
Total Bonus: $2,965

So you are coming out ahead by $1,000 because of the tax savings, which I assumed worked greatly in your favor with the full amount changing exactly from one bracket to the next. Also many of the credit cards have travel options, gift card options, and other perks which might be far more valuable than cash but I neglected them completely, again in your favor. Also I neglected a 3% fee you mentioned because I assumed the entire amount went to the Chase card. I don't understand 401k loans and ignored costs and risks with those. Finally
You've created enormous unsecured, callable debt
which is a huge risk and not at all comparable to a mortgage.

So you are getting similar or slightly higher returns to the cash-back credit card signup bonus only strategy, but taking more risk in the process. I'm not and expert and these are not the actual numbers, feel free to correct me.
« Last Edit: July 11, 2018, 12:45:41 AM by Radagast »

boarder42

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Re: DON'T pay off your credit cards club
« Reply #158 on: July 11, 2018, 04:37:54 AM »
Thanks @Hargrove and @Radagast  this was in my mind as a next step here glad you guys went back thru this to show the lack of value in what the op is doing. I'm sure we won't here back.
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Pizzabrewer

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Re: DON'T pay off your credit cards club
« Reply #159 on: July 11, 2018, 05:25:52 AM »
Thanks @Hargrove and @Radagast  this was in my mind as a next step here glad you guys went back thru this to show the lack of value in what the op is doing. I'm sure we won't here back.

Yup great work except their numbers and assumptions are wrong. Radagast posted an IRS link then immediately proved he doesn't understand how the savers credit works (here's a hint: $4000).

I am truly done. You won't "here" more from me here. Please stop trolling my other thread.

v8rx7guy

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Re: DON'T pay off your credit cards club
« Reply #160 on: July 11, 2018, 08:13:39 AM »
https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-savings-contributions-savers-credit There is no $38,000 savers credit cliff, at least not as far as it applies to your situation. If you max out one 401k and one IRA you get the full $2,000 credit up to $63,000 AGI. If you are currently maxing two IRAs and two 401ks, you can cut those contributions in half and still get the full credit (10% of $23,000 is more than $2,000). So the saver's credit does not impact your decision either way. I don't know your state tax situation, but if you remain within that state it is quite possible that state tax savings also do not impact your decision either way.

Yeah, I'm actually with Pizzabrewer on this one... that's not how the Saver's Credit works.  The percentage listed (e.g. 10%, 20%, 50%) is the percentage of your contribution amount, the most contribution you can apply the percentage to is $2,000 per individual.  So if you are contributing $2,000 for you and $2,000 for your spouse ($4,000 total) and your AGI is under $38,000, then you get a credit of 50% of $4,000 or $2,000.  If you both contributed $5,000 to ($10,000 total) and your AGI was $62,000 you would get a credit of 10% of $4,000, or $400.
« Last Edit: July 11, 2018, 08:17:40 AM by v8rx7guy »

boarder42

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Re: DON'T pay off your credit cards club
« Reply #161 on: July 11, 2018, 08:44:36 AM »
https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-savings-contributions-savers-credit There is no $38,000 savers credit cliff, at least not as far as it applies to your situation. If you max out one 401k and one IRA you get the full $2,000 credit up to $63,000 AGI. If you are currently maxing two IRAs and two 401ks, you can cut those contributions in half and still get the full credit (10% of $23,000 is more than $2,000). So the saver's credit does not impact your decision either way. I don't know your state tax situation, but if you remain within that state it is quite possible that state tax savings also do not impact your decision either way.

Yeah, I'm actually with Pizzabrewer on this one... that's not how the Saver's Credit works.  The percentage listed (e.g. 10%, 20%, 50%) is the percentage of your contribution amount, the most contribution you can apply the percentage to is $2,000 per individual.  So if you are contributing $2,000 for you and $2,000 for your spouse ($4,000 total) and your AGI is under $38,000, then you get a credit of 50% of $4,000 or $2,000.  If you both contributed $5,000 to ($10,000 total) and your AGI was $62,000 you would get a credit of 10% of $4,000, or $400.

man i love numbers its amazing how collaborative a conversation about money can be when we apply numbers.
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Re: DON'T pay off your credit cards club
« Reply #162 on: July 11, 2018, 09:30:02 AM »
unless there's something here many of us simply don't understand.

It's a cucumber.
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FIRE@50

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Re: DON'T pay off your credit cards club
« Reply #163 on: July 11, 2018, 09:32:11 AM »
unless there's something here many of us simply don't understand.

It's a cucumber.
Now we have gotten ourselves into quite a pickle

boarder42

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Re: DON'T pay off your credit cards club
« Reply #164 on: July 11, 2018, 10:07:33 AM »
unless there's something here many of us simply don't understand.

It's a cucumber.
Now we have gotten ourselves into quite a pickle

yummy i just made a batch of homegrown pickles last night - i hate cucumbers but when you turn them into pickles they're amazing!
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v8rx7guy

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Re: DON'T pay off your credit cards club
« Reply #165 on: July 11, 2018, 10:46:28 AM »
unless there's something here many of us simply don't understand.

It's a cucumber.
Now we have gotten ourselves into quite a pickle

yummy i just made a batch of homegrown pickles last night - i hate cucumbers but when you turn them into pickles they're amazing!

I'm the same way... hate cucumbers, but enjoy pickles.

Slee_stack

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Re: DON'T pay off your credit cards club
« Reply #166 on: July 11, 2018, 02:09:13 PM »
So, is there any kind of summary to this?

From what I gleaned, perhaps there's a narrow range of household AGI where the Saver's tax credit might cover all future costs (ie 401k loan, etc.) and provide some return?


What are those numbers and what are the assumptions?  Where is/are the break points (ie what future tax bracket would/could kill any gains?)


Yes, I guess I'm alos asking for the math...

boarder42

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Re: DON'T pay off your credit cards club
« Reply #167 on: July 11, 2018, 02:56:42 PM »
math ... you wont find no math here.  just good ole rocks and pickles.  unless you like cucumbers then you can just see yourself out.
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v8rx7guy

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Re: DON'T pay off your credit cards club
« Reply #168 on: July 11, 2018, 03:24:02 PM »
So, is there any kind of summary to this?

From what I gleaned, perhaps there's a narrow range of household AGI where the Saver's tax credit might cover all future costs (ie 401k loan, etc.) and provide some return?


What are those numbers and what are the assumptions?  Where is/are the break points (ie what future tax bracket would/could kill any gains?)


Yes, I guess I'm alos asking for the math...

This plus sprinkle in some 401K loans.

Raenia

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Re: DON'T pay off your credit cards club
« Reply #169 on: July 11, 2018, 04:52:16 PM »
Every time I get antsy and feel like I'm not doing enough to get ahead as fast as possible, I need to remember this thread.  This feels a lot like what happens when the desire to be doing something gets ahead of the math.  As evinced by the complete lack of math in this thread.

So, thanks for that!

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Re: DON'T pay off your credit cards club
« Reply #170 on: July 11, 2018, 07:26:20 PM »
https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-savings-contributions-savers-credit There is no $38,000 savers credit cliff, at least not as far as it applies to your situation. If you max out one 401k and one IRA you get the full $2,000 credit up to $63,000 AGI. If you are currently maxing two IRAs and two 401ks, you can cut those contributions in half and still get the full credit (10% of $23,000 is more than $2,000). So the saver's credit does not impact your decision either way. I don't know your state tax situation, but if you remain within that state it is quite possible that state tax savings also do not impact your decision either way.

Yeah, I'm actually with Pizzabrewer on this one... that's not how the Saver's Credit works.  The percentage listed (e.g. 10%, 20%, 50%) is the percentage of your contribution amount, the most contribution you can apply the percentage to is $2,000 per individual.  So if you are contributing $2,000 for you and $2,000 for your spouse ($4,000 total) and your AGI is under $38,000, then you get a credit of 50% of $4,000 or $2,000.  If you both contributed $5,000 to ($10,000 total) and your AGI was $62,000 you would get a credit of 10% of $4,000, or $400.
Ok, I won't argue. In fact I just got this stupid credit thee months ago and as I recall it was actually $400. Just before I clicked post I thought "something isn't right here" but it was late and I was too tired change it. So I could either save the text and figure out today, or just post anyway. I decided repudiated bad math was better than no math at all. So, this will add $3,600 to the "0% credit card" column.

Radagast

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Re: DON'T pay off your credit cards club
« Reply #171 on: July 11, 2018, 07:33:35 PM »
unless there's something here many of us simply don't understand.

It's a cucumber.
Now we have gotten ourselves into quite a pickle

yummy i just made a batch of homegrown pickles last night - i hate cucumbers but when you turn them into pickles they're amazing!

I'm the same way... hate cucumbers, but enjoy pickles.
I was recently in China. I've spent around 2 years there, but apparently until now never in the summer. People in China only ever drink boiling hot water, but there are an inexplicable number (by Western standards) of cucumber vendors. Like people actually walk around with boxes and baskets and carts of cucumbers for sale. I never figured out why. So it was 90 degrees Fahrenheit, 90% humidity, I was pulling my very spicy meal directly from a boiling pot of water, and the only drink was shots of water at 90 degrees centigrade. After a few days I was getting pretty dehydrated how can people live like this?. Then I realized.... a cucumber is basically a glass of water. If the water is only safe after boiling, suddenly cucumbers look pretty attractive. I munched 4 cucumbers within 10 minutes of that realization. If you won't eat cucumbers, it's cause you've never been thirsty enough.

For the record, watermelon is better though.

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Re: DON'T pay off your credit cards club
« Reply #172 on: July 11, 2018, 07:37:15 PM »
So, is there any kind of summary to this?

From what I gleaned, perhaps there's a narrow range of household AGI where the Saver's tax credit might cover all future costs (ie 401k loan, etc.) and provide some return?


What are those numbers and what are the assumptions?  Where is/are the break points (ie what future tax bracket would/could kill any gains?)


Yes, I guess I'm alos asking for the math...
Not yet, but we're getting there ;). So far what we know is it depends entirely on tax returns for success (versus credit card sign up bonuses and no carried balance), and it will be optimized if you lower your AGI to as close as possible to $38k in 2018. We still haven't figured out how to repay the credit card debt.

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Re: DON'T pay off your credit cards club
« Reply #173 on: July 11, 2018, 08:06:15 PM »
math ... you wont find no math here.  just good ole rocks and pickles.  unless you like cucumbers then you can just see yourself out.
ROFL. Glad I wasn't drinking anything when I read this.
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