Author Topic: CASE STUDY: 51 yrs old and scared!!!  (Read 21480 times)

tomsang

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Re: CASE STUDY: 51 yrs old and scared!!!
« Reply #50 on: August 16, 2014, 11:40:37 AM »
I am glad that you are seeing the light. I am confident that you will dig yourself out of this mess if you and your husband make the hard decisions.

Do not refinance until husband gets it. The fact that he does not consider selling the motor home or mustang tells me he doesn't get it.  I think the other elephant is what can he do to contribute. Donate plasma, work, take care of the house so you can work, cut out spending, list things for sale, etc.  If I was not able to work and my spouse was on the verge of a meltdown, I would be willing to give up all my toys and probably sell some organs to get us out of the trouble that we are in. Selling the motorhome and mustang would be a great indicator that he buys in. That he can't stand you to be in this situation. That he fully supports you.

Everything will look great with a refinance. You will be pushing off the financial problems for 30 more years. I love 30 year fixed rate mortgages for people who use the money wisely. Based on your comments and newness to all of this, it could be too easy to go back to your old ways.

I would also get one joint account and pay all bills. Having separate accounts seems like it muddies the waters.

I would also go reinstate the life insurance. He is seriously screwed if you did before him at this stage.

aeliz

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Re: CASE STUDY: 51 yrs old and scared!!!
« Reply #51 on: August 16, 2014, 12:33:12 PM »
You have gotten lots of great advice but I will give you one tip if you're not quite ready to combine accounts but do want more transparency between each other: you can add all of your accounts to Mint, and that will give you a better view of your complete financial picture between both of your incomes & expenses.

former player

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Re: CASE STUDY: 51 yrs old and scared!!!
« Reply #52 on: August 16, 2014, 02:07:35 PM »
Congratulations on the great start you have made on sorting out your finances, and on starting the conversation with your husband.

Once you have got a handle on all your outgoings, you will start to have a rough idea of your timetable for paying the debts off.  That will give you a rough idea of when you might retire and start to make regular use of a motorhome.  I suspect that when you have all that worked out, it will become obvious to both you and your husband that you should sell the motorhome you have and get another one nearer your retirement date, rather than mothballing the one you have for however many years.   So the answer on the motorhome is just to have a little patience....

Dicey

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Re: CASE STUDY: 51 yrs old and scared!!!
« Reply #53 on: August 16, 2014, 02:33:28 PM »
[W]ith a 401k loan you can borrow half your balance.  TRUE
The interest gets paid back into your account, so effectively it's 0 interest. FALSE
...Downside is that the balance of the loan is often held in cash, so you're gambling that the growth in the market wouldn't be greater than the interest you're paying off but at least with the ~12 and 10 percent debt seems like that would be a safe bet.
SHE DOESN"T HAVE ENOUGH AT 10-12% TO MAKE IT WORTH THE COST
And you can still make contributions while paying back the loan.  NOT ALWAYS

Sorry for the caps, I'm trying to make this readable, not shouting.

This topic has been covered at length elsewhere, so I'll just hit the highlights.
1. You borrow untaxed money, you pay it back with taxed money, you pay taxes when you withdraw it in retirement.
2. Your money is out of the market, you lose out on potential growth.
3. Should you lose your job, payback usually required in 30-60 days.

I did it once, borrowed 6k to get into a property which then doubled in value in four years. Not a bad outcome, but I still consider it my worst financial mistake because I felt trapped in my job every single minute I had that damn loan.


Dicey

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Re: CASE STUDY: 51 yrs old and scared!!!
« Reply #54 on: August 16, 2014, 02:46:56 PM »
Taking money out of a house and so paying 4% on it to have it sit in an emergency fund at 1% or less seems silly.
I completely agree, if that was the only reason for taking money out, but clearly an EF is only a tiny fraction of what needs to be done here. The EF is insurance against future emergencies. Not silly at all.

And... the rest of my post where I suggest the HELOC etc? Again, no point having money costing 4% getting 1%. Better to have a HELOC at 5% but unused.

Take as much out of the house as is needed to kill the 6-20% debts, but no more; set up a method of getting more money if needed.Once monthly cashflow is significantly better then it's all good.

daverobev, I only quoted the part of your post that I felt needed elaboration. This does not mean that I am criticizing your post. Please don't think I am criticizing you personally, I simply don't think a HELOC is what's best for the OP's situation. HELOC's definitely have their place, but they require a higher level of financial skill than OP currently possesses. She'll get there, I'm sure, but not just yet.

FWIW - I'm not a fan of HELOCs because they are generally not fixed rates. Also, for some folks it becomes money burning a hole in their pocket. Since the OP is just beginning to dig her way out, I think there are safer ways to accomplish it until she is steadier on her financial feet. Also, if she pulls a HELOC, DH could spend it and I'm even less sure of his spending habits at this point.


tomsang

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Re: CASE STUDY: 51 yrs old and scared!!!
« Reply #55 on: August 16, 2014, 03:01:01 PM »
FWIW - I'm not a fan of HELOCs because they are generally not fixed rates. Also, for some folks it becomes money burning a hole in their pocket. Since the OP is just beginning to dig her way out, I think there are safer ways to accomplish it until she is steadier on her financial feet. Also, if she pulls a HELOC, DH could spend it and I'm even less sure of his spending habits at this point.

So you are saying having the money sitting in the checking account is less tempting?  So when DH checks the account and sees $10k sitting there, he doesn't say we have the cash lets by an ATV/Mustang/motor home or other toy?  I would not have the money laying around earning $0. Have a HELOC ready for an emergency. Preferably an emergency is defined by both parties. So a bargain powerboat doesn't become the next bargain RV emergency.

Dicey

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Re: CASE STUDY: 51 yrs old and scared!!!
« Reply #56 on: August 16, 2014, 03:11:42 PM »
tomsang - Where do you see that OP has 10k in her checking account? Perhaps I missed something obvious, but I am replying to her specific situation, not disparaging HELOCs in general.

backyardfeast

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Re: CASE STUDY: 51 yrs old and scared!!!
« Reply #57 on: August 16, 2014, 03:36:45 PM »
Hi Silverfox,

Lots of great advice here, and I'll add my voice to those who say Don't Panic, you have time to work this out with some work and attention.

Just wanted to add, given that no one else has mentioned it, that your highest interest debt right now, the credit cards, don't have to stay at the rates you have.  Obviously, you want to pay them off quickly, but you can't lose by either calling your card companies and asking them to reduce your rates, telling them that you have received a 0% financing offer and asking them to match it, or doing a balance transfer to a card offer that has a low rate.  There is lots of info out there on doing the transfer game if you do a little googling.

I think you are doing exactly the right thing by researching your options for the big decisions, taking time to get DH on board, and going after the low hanging fruit now while you gain some data about your spending habits.  In the meantime, getting those rates down could be as simple as a phone call, and provide some short term relief, even if it's just psychological.  If you were set to pay these off in a month or two, it wouldn't be worth the hassle, but it could give you some of the breathing room you need.

We've paid off a lot of debt at 0-1% interest, and it also makes things like the re-fi seem less urgent, because the HELOC or mortgage rate stops being lower than the cc rate.

Just a small step to consider in the bigger picture.  Good luck!

daverobev

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Re: CASE STUDY: 51 yrs old and scared!!!
« Reply #58 on: August 16, 2014, 04:27:02 PM »
tomsang - Where do you see that OP has 10k in her checking account? Perhaps I missed something obvious, but I am replying to her specific situation, not disparaging HELOCs in general.

That is the theoretical emergency fund, pulled from the house's equity.

In reply to your comment to me - fair enough, as long as OP gets their debt under control so they are helping themselves rather than the banks... I'm somewhat of an optimiser, but I totally agree that 'better and workable for the OP' is better than 'perfect but incomprehensible to them'!

tomsang

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Re: CASE STUDY: 51 yrs old and scared!!!
« Reply #59 on: August 16, 2014, 04:34:33 PM »
tomsang - Where do you see that OP has 10k in her checking account? Perhaps I missed something obvious, but I am replying to her specific situation, not disparaging HELOCs in general.

It appeared as if you were recommending that the OP pull money from the house to pay off debt and set up an EF from your posts. $10k was made up based on the OP spending $3k per month on bills. Sorry to detract.

mariarose

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Re: CASE STUDY: 51 yrs old and scared!!!
« Reply #60 on: August 18, 2014, 03:29:29 PM »

No biking on 55 dark roads!  You would save like 50 cents a day and probably be one of your own patients.


Just puzzled a bit.  Biking on 55 dark roads leads to dialysis?

Primm

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Re: CASE STUDY: 51 yrs old and scared!!!
« Reply #61 on: August 18, 2014, 08:04:13 PM »

No biking on 55 dark roads!  You would save like 50 cents a day and probably be be in one of your own patients.


Just puzzled a bit.  Biking on 55 dark roads leads to dialysis?

I think Bob meant as a donor. Edited to fix his post.

mariarose

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Re: CASE STUDY: 51 yrs old and scared!!!
« Reply #62 on: August 18, 2014, 09:38:21 PM »

No biking on 55 dark roads!  You would save like 50 cents a day and probably be be in one of your own patients.


Just puzzled a bit.  Biking on 55 dark roads leads to dialysis?

I think Bob meant as a donor. Edited to fix his post.

Ahh.  Yes, I can see that POV.

Goldielocks

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Re: CASE STUDY: 51 yrs old and scared!!!
« Reply #63 on: August 18, 2014, 11:13:01 PM »
I just want to share that I would not sell the Mustang. I am as frugal as frugal comes, but that can never be replaced and he will miss it for the rest of his life. Please keep it. I know that is going against Mustachianism, but it was his father's and that can never be replaced. Maybe consider taking the tags and insurance off of it for the time being, so that it is not costing you money. My dad has a 1968 Chevelle, and I could not imagine him selling it, and I would never let him, no matter what financial trouble my parents are in.
Can you sell it to one of your children?

Goldielocks

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Re: CASE STUDY: 51 yrs old and scared!!!
« Reply #64 on: August 18, 2014, 11:23:14 PM »
Amazing job so far. Acknowledging it, figuring out what to do and discussng with DH is very hard.

First, I understand about the quad.  Grandpa is 91, with a broken back for the last 35 yrs but can still do a lot of useful things with the small yard tractor, like mowing, hauling, checking fences, etc.  I think that alone is what gives him a sense of usefulness and life.

But... Do you really need a quad with dump?  What cheaper alternatives, maybe without cover costs are possible?

Second..  Only $200?  He surely must eat more than that.  It is time to set up a joint and fair budget.   Surely he must net $650 after medical costs? If not, why?  Is he electing something fancy, like more expensive walking assists, fancy pants homeopathic massage, hearing aids upgrades or??

Think of it this way,  Do you spend 30% of your income on your wants and student debt?  Nope, more like 10%, so I think the two of you should match efforts, even if on a percent basis.

Last, the RN choice was a good one.  You have over 10 yrs left, more if you like it, and the $2k per year is minimal.  A mistake would be if you hated where you live and did not have $ to move elsewhere.
« Last Edit: August 19, 2014, 12:15:50 AM by goldielocks »

Goldielocks

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Re: CASE STUDY: 51 yrs old and scared!!!
« Reply #65 on: August 18, 2014, 11:45:23 PM »
OK, I reread your post.  Based on my extended family, living in similar location, ( well, wood hauling for heat, 40 miles to grocery, etc.)

1. Grocery trips are monthly now, or tied with medical apts.  Surely you can grow veggies or learn to like root cellars and have  frozen veg / pickles? Milk can be frozen, after all.

2.  Ask co worker to bring you groceries for a small fee, or free eggs to work. There must be a small convenience near work?  If you buy only a couple things, paying an extra dollar for milk or broccoli can't be bad.   Some co worker may commute the other way.. From the store.. Or carpool for grocery trips when possible.

3 heat with wood?  Wood stove? ( long term investment) instead of electric heat...  Save money for this.  I assume you heat in the winter

4 one running car only.  Trade fancy side by side for little yard tractor and trailer.

5 garage it or sell mustang to kids.  Sell rv. Sell other cars.

6. One car so hubby drives you to from work, or you get car.  Therefore only need home phone and ONE shared cell phone.  The other is nearly always by a land line at home or work if you are not together.  Heck, think how lucky you are to even get internet and cell service to your home!

7 keep 401k investing.

8 mortgage refi plan was not a bad idea by other poster.  Once debt is gone, your job should free up money to pay it down in say, 15 years, or less.

sheepstache

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Re: CASE STUDY: 51 yrs old and scared!!!
« Reply #66 on: August 19, 2014, 06:00:33 AM »
The interest gets paid back into your account, so effectively it's 0 interest. FALSE
The 'paying the interest back to yourself' was what I was told by my provider and what I see in generic articles about 401k loans so I'm assuming it's widespread practice, though as I said she'll have to find out the details of her particular plan.
Or perhaps you're disagreeing with my characterization of its being like 0 interest, which, yes, is not technically the same thing, but figured it was easy to understand.
Quote
...Downside is that the balance of the loan is often held in cash, so you're gambling that the growth in the market wouldn't be greater than the interest you're paying off but at least with the ~12 and 10 percent debt seems like that would be a safe bet.
SHE DOESN"T HAVE ENOUGH AT 10-12% TO MAKE IT WORTH THE COST
At my company there's no minimum loan amount and the origination fee is literally $10 plus $10 for each year a balance is outstanding.  So even for small amounts it could be a savings, though she'd have to ask herself if it's worth the time based on how aggressive she decides to make her new timeline to pay them off.  The smaller-interest debts may also make sense to include depending what her 401k is invested in.
I guess my take is conservative.  Gains in the market are potential while money lost to interest is definite.
Quote
And you can still make contributions while paying back the loan.  NOT ALWAYS
Again, that's something my company policy allows.  HMMV.  I specifically mentioned it so it would be on the list of details she should ask about if she decides to look into it.
Quote from: Diane C
1. You borrow untaxed money, you pay it back with taxed money, you pay taxes when you withdraw it in retirement.
Not sure if you're just making a general point about 401ks here.  It's a common misconception that you pay double taxes because your repayments aren't tax-deferred but it's not true.  http://www.mymoneyblog.com/double-taxation-and-the-real-reasons-401k-loans-are-bad.html
Quote
3. Should you lose your job, payback usually required in 30-60 days.
That's an excellent point that I should have mentioned.
Also in my experience the payment plan is not flexible, whereas right now the OP has the option to pay more or less each month.

I note that you're also against HELOCs to pay down the debt and as I said I'm just putting this out there as possibly a better option than a HELOC in case that appealed to the OP.

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Re: CASE STUDY: 51 yrs old and scared!!!
« Reply #67 on: August 19, 2014, 07:27:48 AM »
Silverfox you're doing great, keep up the good work!  This is a hard road and nurses can't exactly hang out on the computer at work, looking up how a heloc works or tweaking Craigslist ads.  You have to do all this when at home and that's tough.

Just a note about talking to your husband about selling the RV and mustang...recommend keeping it simple and pushing just the RV.  No (or way less) emotional attachment there and a good starting point.  Also less overwhelming for him, perhaps.

Dicey

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Re: CASE STUDY: 51 yrs old and scared!!!
« Reply #68 on: August 19, 2014, 11:53:45 AM »
1. The 'paying the interest back to yourself' was what I was told by my provider and what I see in generic articles about 401k loans so I'm assuming it's widespread practice, though as I said she'll have to find out the details of her particular plan...

2. Not sure if you're just making a general point about 401ks here.  It's a common misconception that you pay double taxes because your repayments aren't tax-deferred but it's not true.  http://www.mymoneyblog.com/double-taxation-and-the-real-reasons-401k-loans-are-bad.html...

3. I note that you're also against HELOCs...

Hi Sheepstache, I'm not very good with quotes, so I've highlighted the key points.

1. Most people in HR who promote this option as a "benefit" are not trained financial planners and probably not even mustachian. They generally only know the general party line, which ain't how M's operate.

I shared some personal viewpoints gleaned by way of hard experience. I didn't know how excruciatingly trapped I was going to feel until it happened. Should your dream job come along while your loan is outstanding, you will have to pay it back immediately or pass on your dream job. HR doesn't tell you that either, which is why I replied as I did.

2. I read the link and the second link. Here's what I can't wrap my tiny little brain around: unless someone gives you the money to repay the loan, you must earn it. How does one earn the money to repay the loan without paying taxes on the income one earns to repay the loan? (My confusing phrasing is deliberate. I'm confused.)

3. I am 100% *NOT* against HELOC's! I just don't think it's the best option in her situation. With fixed mortgage rates at/near historical lows and most HELOC's adjustable, it is my opinion that a re-fi makes more sense for the OP. Once you play the HELOC card, it complicates any future re-fi. It is potentially more expensive money. It is also somewhat more dangerous, in my experience, for someone who's had difficulties with credit in the past.

sheepstache

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Re: CASE STUDY: 51 yrs old and scared!!!
« Reply #69 on: August 19, 2014, 01:14:50 PM »
Hi Sheepstache, I'm not very good with quotes, so I've highlighted the key points.

1. Most people in HR who promote this option as a "benefit" are not trained financial planners and probably not even mustachian. They generally only know the general party line, which ain't how M's operate.

I shared some personal viewpoints gleaned by way of hard experience. I didn't know how excruciatingly trapped I was going to feel until it happened. Should your dream job come along while your loan is outstanding, you will have to pay it back immediately or pass on your dream job. HR doesn't tell you that either, which is why I replied as I did.

2. I read the link and the second link. Here's what I can't wrap my tiny little brain around: unless someone gives you the money to repay the loan, you must earn it. How does one earn the money to repay the loan without paying taxes on the income one earns to repay the loan? (My confusing phrasing is deliberate. I'm confused.)

3. I am 100% *NOT* against HELOC's! I just don't think it's the best option in her situation. With fixed mortgage rates at/near historical lows and most HELOC's adjustable, it is my opinion that a re-fi makes more sense for the OP. Once you play the HELOC card, it complicates any future re-fi. It is potentially more expensive money. It is also somewhat more dangerous, in my experience, for someone who's had difficulties with credit in the past.

1. Yeah, agreed, she can't  just take the HR spiel as gospel that's why I think it's good for her to have specific points to ask about.  The company that holds the investments (e.g., Principal, Vanguard, etc.) might be an even better resource.

2. Of course you pay taxes on the money you use to re-pay the loan.  But you already got your tax break.  Over the years you've deposited, say, 10K tax-deferred.  Then you take out a loan for 10k.  You don't pay any taxes on it.  You never pay any taxes on that money (I mean, until you retire).  You pay taxes on the ordinary salary you use to pay it back but you'd have been paying taxes on that anyway.  Just as you would if you were using money from your paycheck to pay off a credit card debt.  You never pay taxes on that 10k you took out as a loan to pay the credit card debt before you retire.  Then at retirement, you pay taxes on 10k, the same as whether you ever took a loan or not.

Those tax breaks you got in previous years?  Nobody ever asks for that money back.  You still have those savings.  This year, yes, you pay taxes on all your earnings, which you would do anyway even if you didn't take out the loan.  So where do you think you ever pay back your original tax savings?

(To the extent that all the wording isn't technically accurate I hope it helps it makes sense.)

(Sorry for the derail.  if this isn't clear I can always start another thread.)

3.  That's why I didn't say you were against HELOCs.  I said you were 'against HELOCs to pay down the debt', as in, this particular OP's case.

Anyway, I'm just throwing this out there as a potential tool in her arsenal.  Most case studies pick and choose what works for them.

Dicey

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Re: CASE STUDY: 51 yrs old and scared!!!
« Reply #70 on: August 31, 2014, 12:23:26 PM »
Silver fox, it's been two weeks of radio silence. How are you doing? Please check in, even if you feel you don't have much to report.