Author Topic: Reader Case Study - Five Finger Death FacePunch time...  (Read 7948 times)

FuturePrimitive

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Reader Case Study - Five Finger Death FacePunch time...
« on: July 29, 2014, 04:09:37 PM »
Ok, here goes...

A little background, I'm 42yo, married with 2 kids ages 8 & 10. I have a fairly good job (which I don't particularly enjoy) and my wife is self-employed but doesn't generate significant income after expenses as of yet. Twenty years ago (before we were married but living together) my wife and I both struggled with poor spending habits racking up significant debt with an all time high of more than 40k in car loans and CC debt. I took over the day to day finances and attacked the debt like crazy and after a few (or four) years we managed to pay it all off and buy our first house. I have also struggled with car addiction. I have owned a Honda S2000 (bought new!), Subaru STi, Nissan S14 240SX, and many other lesser, yet fun cars. (Almost every single one of them with a loan attached.) However, astoundingly, financially things were not that bad. Car loans and mortgage yes, but no CC debt. Fast forward 15 years, 2 kids and 1 house later and I've found us back in the same hole. She quit her job in 2010 to follow her dream and started her own business (with my full support). She also took over the day to day finances and left "all that retirement stuff" to me. I thought all was well but I wasn't paying any attention to what either of us were spending (I'm not trying to put the blame on her in any way, I like my toys and gadgets and was definitely spending way too much on them. I fully admit to sticking my head in the sand here.)

Some of these are approximations due to only recently tracking our spending in detail. The numbers are taken from the previous 90 days through June 30, they do not reflect any spending changes made in July and some stuff may not be accurately categorized in Quicken.

Income: ~$50,000 take home pay per year (after health/dental/vision/life insurance and 401k@18%, 84,000 gross) This can vary with overtime but there's not much of that these days so I don't count on it. I have been withholding too much Fed tax as we typically get a sizable refund every year, last year was more than 7,000 I think. I just changed that but it hasn't taken effect yet.

Monthly expenses:
Mortgage P&I: $1045 $1277 now with the refi 8.14.14
Property Taxes (includes school taxes): $8200/year  so ~$683/month (Yay NY!) corrected this 8.14.14
Cell phone: $150 - smart phone with data required for both my job and wifes, my company reimburses $75.
ISP: $75 - required for my job and my company reimburses in full
Recurring subscriptions: ~$80 - NFLX/AmazonPrime/HULU/VPN/SWTOR/TESO/PSN $8 for NFLX 8.14.14
Recurring car wash thingy: $30 Cancelled 8.14.14
Gas (car): $200
Utilities: $250 - Highly variable, can be as high as $450 in the dead of winter and low as $150 in summer
Food+dining: $1000
Total: $3,385 after reimbursements Holy crap, this looks ridiculous now that I tally it all up.


Assets:
House $240,000 - Tax appraised value
401k: $235,000 - currently contribute 18% Dropped to 4% + max match + 4% company contribution. 8.14.14
IRAs: $305,000 - Includes Roths and rollover IRAs from previous jobs. Currently contribute $2000 into my Roth and $2400 into wifes Roth per year. Dropped to 0 until CCs are paid off 8.14.14
Total assets: $780,000 *I really don't like counting the house as part of my net worth as I don't see it as very liquid but I see that's a pretty common thing to do.

Liabilities:
Mortgage: 177,000 30yr@5.13% Just locked in a 15 yr refi @ 3.375, 0 points. Same lender to keep closing costs down (~2500) 8.14.14
CC #1: 12,856 @ 15% $8,400 @15% 8.14.14
CC #2: 9,680 @ 11%
CC #3: $3500 @ 0% <-- new card, balance transfer from the 15% card above. 8.14.14

Total debt: 199,536

Total net worth: $580,000


Well now that I have it all laid out this looks pretty dismal. The net worth number looks good until you look at the income vs. spending ratio, much worse than I thought it was when I started typing this. Looking at that ratio it doesn't actually look like I can make progress on the CC debt. My savings rate (~35%) is better than I thought but I'm essentially financing it at this point. (Diverting money into Roths and 401k vs. paying down the CC debt.) I also have no significant emergency fund.

I do get to tally a few points in the Pro column however. I started 401k and Roth IRAs early and never stopped contributing to them. We have/had no student loans. I paid my own way through college (the 11 year program I like to call it) and my wife went to a state school her parents generously paid for. My wifes current car is paid off but does cost us some maintenance, it's 12 years old and we live in the salt belt. My job provides a company car so we have the benefit of a second car without the expense. (I'm not cured of my car addiction but its been under control for a number of years now.) My job also reimburses my half of the cell phone bill and all the ISP charges. And psychologically, I know that this can be done. We've been in this situation before and dug ourselves out (neveryoumind the fact we dug ourselves right back in again lol!) But, it will be harder this time, our expenses are greater raising 2 kids. Unfortunately, a lot of those expenses are not reflected above, kids need clothing, music lessons, sports, etc. And they eat. My god, do they eat.

I have made some significant changes already so some of the expenses listed above are already gone. Massive cuts to dining out, we used to eat out probably 4-6 times per week. Mostly as a convenience/laziness thing and more often in the summer due to kids being home from school. For July I think we went out 5 times total. And that includes being on vacation last week (camping). Going out to eat so much also has the unintended consequence of "letting" a lot of the unprepared foods we buy go unused and spoil. We also need to stop buying so much organic stuff. My wife buys a lot of it and I'm all for natural and whole foods but the organic foods market is mostly a marketing ploy. Anyway, we can and do cook, we'll just need to do more of it. My wife also maintains a sizable garden (6 4'x10' beds!) but not sure if that's truly saving us any money. Fertilizer and material costs offset much of the savings of growing your own. But hey, at least its all organic! I have cancelled Hulu, Amazon Prime, the VPN service, PSN, and the online games TESO and SWTOR. I cut NFLX down to streaming only from streaming +1 disk. (Incidentally, when canceling Hulu they will automatically give you 2 months free, completely automated.) Also cancelled the car wash thing my wife signed up for.

Ok, so according to the Reader Case Study template this is the part where I'm supposed to ask my specific question so here goes...... Am I screwed?

No seriously, I know this is quite the word salad post but one question i do have is should I consider a 401k loan to pay off the CCs? 401k loans are not subject to taxes and penalties, correct? I understand we have to be disciplined enough to not use the credit cards EVER AGAIN and I'm confident we can do that. Now that I have my head out of my..... the sand.

Updated 8.14.14 with progress
« Last Edit: August 14, 2014, 10:26:07 AM by FuturePrimitive »

soccerluvof4

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Re: Reader Case Study - Five Finger Death FacePunch time...
« Reply #1 on: July 29, 2014, 04:22:52 PM »
Im not a big fan of people taking money out of there 401k to pay off debt .  The problem is you need to quite repeating the same mistakes.  Having said that your food and Dining is insane for 4 people. I have a family of 6 and a very active family at that. We are around 750$ a month and thats with 2 in HS.  I would definately cut that down to 5-600 a month and use some of that towards your credit card debt.

dandarc

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Re: Reader Case Study - Five Finger Death FacePunch time...
« Reply #2 on: July 29, 2014, 04:28:58 PM »
If you've got enough contributions in the Roth IRAs, and you would rather pay this off in one fell swoop rather than cash-flowing it, you could withdraw contributions from the Roth IRAs instead of taking a 401K loan.  You can withdraw the contributions at any time.  You can't really pay this back per se, but in your case you could increase your future contributions to be closer to the limit, which would be similar to what you'd be doing with the 401K loan, just not forced on you the way that loan would be.

The big downside of the 401k loan is if you separate from the employer, you've got to pay it back pretty much immediately.  Other than that, you're unplugging the dollars from hopefully good investments for however long the loan is outstanding, so forgoing some returns.

I'd personally rather cash-flow the credit card's - it would force you to find some places to cut in your budget, and hopefully break you of the over-spending that leads to CC balances.  If you temporarily stopped the Roth contribution, and found another 500-600 per month in the budget, you could knock these out in about 2 years.  The deeper you cut, the faster it will happen.

You also might want to look at refinancing the house - rates are lower than 5.13 right now - might be able to come up with a better payment, or at least be paying less interest.

Threshkin

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Re: Reader Case Study - Five Finger Death FacePunch time...
« Reply #3 on: July 29, 2014, 04:30:41 PM »
You are unlikely to be making 11-15% on your IRAs so you should use both of your IRA contributions to pay down the credit card debt.  soccerluvof4 also makes a good point on your food bill.  Everyone is different but for me going out 5 times in one month would be excessive.  We go out maybe once a month at best.

$3,385 a month in expenses for a family of 3 is not all that high but, as you mentioned, it looks like there are a bunch of other expenses that you are not accounting for yet.  Get a handle on your true spending rate as soon as you can.

solon

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Re: Reader Case Study - Five Finger Death FacePunch time...
« Reply #4 on: July 29, 2014, 04:35:12 PM »
I think the best solution here is to temporarily divert all you retirement contributions to the credit cards. 18% x $50k = $9000, plus the $2000 and the $2400 to the IRAs - you'll knock out the CCs in just over a year. Then just start contributing to the retirement accounts again.

Unless your company provides a 401k match. Always take the max match.

rmendpara

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Re: Reader Case Study - Five Finger Death FacePunch time...
« Reply #5 on: July 29, 2014, 08:14:46 PM »
You didn't get into this mess overnight, so don't look for a solution to get out overnight.

- Reduce 401k contribution to minimum (only get the full match)
- Stop Roth contributions for this year
- (if possible) refinance the mortgage. Ideally a 15 yr as rates are only ~3.5% and this would save you a lot over time.

After those basics are done, you've probably freed up around 1/3 of your $22k in debt. Food can be reduce a bit, but even cutting it in half will only solve another $6k in the next year. That leaves around $9k left to come up with.

I would withdraw from you Roth contributions to pay off the $9k, and then with all the interest and payments you are saving ~1 year from now you can start contributing to a Roth again.

Your budget isn't completely crazy. It looks like ~$40k/yr (not sure what city you live in, but that doesn't scream absurd). It could be a bit less, but I think over the medium term, your  income is a problem. $50k to support a family of 4 is tough when you don't have a lot of assets and substantial fixed costs (it could be a game changer once your mortgage is paid off).

FuturePrimitive

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Re: Reader Case Study - Five Finger Death FacePunch time...
« Reply #6 on: July 30, 2014, 10:44:33 AM »
No, definitely didn't get into this overnight and don't expect to get out overnight.

I agree The budget I outlaid above doesn't look that out of whack for a family of 4 however whats obviously not reflected above is the un-budgeted, impulse buying that got us here. And I'm not talking about just big purchases either. When we grocery shopped we'd make a quick list, go to the store and buy everything on that list and then whatever else looked good, whether it was needed or not. This habit was a big factor in how we spend so much on food. Now I make a list based on what we need before going to the store and only buy whats on that list, nothing gets added to the list at the store. This does two things, 1) eliminates the impulse buying and 2) reduces waste because I'm only buying what we actually need versus what I think we might need but can't remember so might as well buy it just in case.

Anyway, thanks for the facepunching. I have so far adjusted my federal withholdings, dropped 401k to 4% (max match), and eliminated the Roth contributions. It'll take a few weeks for all that to settle out and see a difference in my paychecks though. I did look at a refi a few weeks ago with our current lender but it appears that closing costs would be close to 3k. With our old house we refinanced a 30yr ARM to 15yr fixed, the payment went up $40/mo but the effect on equity and reduced interest charges was huge. That's definitely something I'm interested in doing.

Also, not sure if some of you misread my income, base gross is 84k, the ~50k above is post tax. And my 401k was actually set at 20% not 18%, forgot about the auto-increase last month.

frugaliknowit

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Re: Reader Case Study - Five Finger Death FacePunch time...
« Reply #7 on: July 30, 2014, 11:18:20 AM »
Ok, here goes...

A little background, I'm 42yo, married with 2 kids ages 8 & 10. I have a fairly good job (which I don't particularly enjoy) and my wife is self-employed but doesn't generate significant income after expenses as of yet. Twenty years ago (before we were married but living together) my wife and I both struggled with poor spending habits racking up significant debt with an all time high of more than 40k in car loans and CC debt. I took over the day to day finances and attacked the debt like crazy and after a few (or four) years we managed to pay it all off and buy our first house. I have also struggled with car addiction. I have owned a Honda S2000 (bought new!), Subaru STi, Nissan S14 240SX, and many other lesser, yet fun cars. (Almost every single one of them with a loan attached.) However, astoundingly, financially things were not that bad. Car loans and mortgage yes, but no CC debt. Fast forward 15 years, 2 kids and 1 house later and I've found us back in the same hole. She quit her job in 2010 to follow her dream and started her own business (with my full support). She also took over the day to day finances and left "all that retirement stuff" to me. I thought all was well but I wasn't paying any attention to what either of us were spending (I'm not trying to put the blame on her in any way, I like my toys and gadgets and was definitely spending way too much on them. I fully admit to sticking my head in the sand here.)

Some of these are approximations due to only recently tracking our spending in detail. The numbers are taken from the previous 90 days through June 30, they do not reflect any spending changes made in July and some stuff may not be accurately categorized in Quicken.

Income: ~$50,000 take home pay per year (after health/dental/vision/life insurance and 401k@18%) This can vary with overtime but there's not much of that these days so I don't count on it. I have been withholding too much Fed tax as we typically get a sizable refund every year, last year was more than 7,000 I think. I just changed that but it hasn't taken effect yet.

Monthly expenses:
Mortgage P&I: $1045
Property Taxes (includes school taxes): $8500/year  so ~$715/month (Yay NY!)
Cell phone: $150 - smart phone with data required for both my job and wifes, my company reimburses $75.
ISP: $75 - required for my job and my company reimburses in full
Recurring subscriptions: ~$80 - NFLX/AmazonPrime/HULU/VPN/SWTOR/TESO/PSN
Recurring car wash thingy: $30
Gas (car): $200
Utilities: $250 - Highly variable, can be as high as $450 in the dead of winter and low as $150 in summer
Food+dining: $1000
Total: $3,385 after reimbursements Holy crap, this looks ridiculous now that I tally it all up.


Assets:
House $240,000 - Tax appraised value
401k: $235,000 - currently contribute 18%
IRAs: $305,000 - Includes Roths and rollover IRAs from previous jobs. Currently contribute $2000 into my Roth and $2400 into wifes Roth per year.
Total assets: $780,000 *I really don't like counting the house as part of my net worth as I don't see it as very liquid but I see that's a pretty common thing to do.

Liabilities:
Mortgage: 177,000 @5.13%
CC #1: 12,856 @ 15%
CC #2: 9,680 @ 11%
Total debt: 199,536

Total net worth: $580,000


Well now that I have it all laid out this looks pretty dismal. The net worth number looks good until you look at the income vs. spending ratio, much worse than I thought it was when I started typing this. Looking at that ratio it doesn't actually look like I can make progress on the CC debt. My savings rate (~35%) is better than I thought but I'm essentially financing it at this point. (Diverting money into Roths and 401k vs. paying down the CC debt.) I also have no significant emergency fund.

I do get to tally a few points in the Pro column however. I started 401k and Roth IRAs early and never stopped contributing to them. We have/had no student loans. I paid my own way through college (the 11 year program I like to call it) and my wife went to a state school her parents generously paid for. My wifes current car is paid off but does cost us some maintenance, it's 12 years old and we live in the salt belt. My job provides a company car so we have the benefit of a second car without the expense. (I'm not cured of my car addiction but its been under control for a number of years now.) My job also reimburses my half of the cell phone bill and all the ISP charges. And psychologically, I know that this can be done. We've been in this situation before and dug ourselves out (neveryoumind the fact we dug ourselves right back in again lol!) But, it will be harder this time, our expenses are greater raising 2 kids. Unfortunately, a lot of those expenses are not reflected above, kids need clothing, music lessons, sports, etc. And they eat. My god, do they eat.

I have made some significant changes already so some of the expenses listed above are already gone. Massive cuts to dining out, we used to eat out probably 4-6 times per week. Mostly as a convenience/laziness thing and more often in the summer due to kids being home from school. For July I think we went out 5 times total. And that includes being on vacation last week (camping). Going out to eat so much also has the unintended consequence of "letting" a lot of the unprepared foods we buy go unused and spoil. We also need to stop buying so much organic stuff. My wife buys a lot of it and I'm all for natural and whole foods but the organic foods market is mostly a marketing ploy. Anyway, we can and do cook, we'll just need to do more of it. My wife also maintains a sizable garden (6 4'x10' beds!) but not sure if that's truly saving us any money. Fertilizer and material costs offset much of the savings of growing your own. But hey, at least its all organic! I have cancelled Hulu, Amazon Prime, the VPN service, PSN, and the online games TESO and SWTOR. I cut NFLX down to streaming only from streaming +1 disk. (Incidentally, when canceling Hulu they will automatically give you 2 months free, completely automated.) Also cancelled the car wash thing my wife signed up for.

Ok, so according to the Reader Case Study template this is the part where I'm supposed to ask my specific question so here goes...... Am I screwed?

No seriously, I know this is quite the word salad post but one question i do have is should I consider a 401k loan to pay off the CCs? 401k loans are not subject to taxes and penalties, correct? I understand we have to be disciplined enough to not use the credit cards EVER AGAIN and I'm confident we can do that. Now that I have my head out of my..... the sand.

You need to answer two questions first:

1.  How did I get to where I am?
2.  What will I do to not end up back here.

No, you should not consider a 401k loan to pay off balances. 

You need to:

1.  Go on a money diet.  401 contributions only to the match.  Do a family budget for every dollar, including building an emergency fund and attacking the debt, preferably over 5 years or less.

2.  Have a family meeting.  Explain the situation so there are no surprises/drama when you tell everyone you're not going to celebrate X at a restaurant.

3.  Refinance your mortgage, assuming you are not planning on moving for 5 years.  There's no reason to be paying 5.13%.  Once the refinance is complete, you can increase the "debt attack" by the amount you are saving.


Gone Fishing

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Re: Reader Case Study - Five Finger Death FacePunch time...
« Reply #8 on: July 30, 2014, 12:34:00 PM »
You say you are not in love with your job, any interest in moving somewhere warmer with lower taxes? That could easily save you $500/month in taxes.  Chop the credit cards.  Instruct the bank to decline your debit card when the funds are not available (if you can).  Keep $100 cash in a safe place so you can at least put gas in the car to get to work and buy some oatmeal when the other money runs out. Almost anybody can live off the pantry for a week if need be. Put away all your car magazines, they are nothing but advertisments that cause you to lust for more.  Your saving habits are good, they have gotten you this far.  Not many 42 year olds can put up a $.58 million net worth.  Looks like you just need some fine tuning to get thing in balance and you'll be better than average but it will take a Five Finger Death Face Punch to get you inline for some early retirement which would require a portfolio of over $1.25 million at your current spending rate, but could be much lower. The beauty of your stuation is that you have put together a $540k workhorse that is snowballing on its own despite your families spending habits.  By my quick figuring, if you can address your CC debt, get your spending down to $40k a year or so, and the big one-the stock market can continue to perform at near average levels- you could be planning your ER in 5-10 years.

Chranstronaut

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Re: Reader Case Study - Five Finger Death FacePunch time...
« Reply #9 on: July 30, 2014, 01:49:00 PM »
2.  Have a family meeting.  Explain the situation so there are no surprises/drama when you tell everyone you're not going to celebrate X at a restaurant.

I agree this is a good idea, especially to be on the same page as your wife.  Make sure she agrees with it and understands the changes since she's been handling a lot of the finances day to day.  I suggest more caution when telling your kids.  Make sure it's a united front from you both, so it doesn't make you seem like a bad guy.  But kids also pick up on financial stresses, so be careful what you say and how you say it.  Saying things like "no special dinners because we need money" REALLY stresses kids out and can make them feel bad about necessary purchases you plan for them.  Kids that young don't have a great grasp on how finances affect them and if you're worried,  they get worried.  One suggestion is to keep it age appropriate and lead by example.  Start to plan free family activities and focus on making memories instead of paying for outings.  If they want something extra, help them find a way to earn their own money for it. 
Ultimately, you know your kids best.  I was very stressed out by my parents' finances since before I could remember and had a lot of guilt asking for important things like school clothes and supplies because I knew money was always tight.

FuturePrimitive, take a deep breath.  There's excellent advice here about how to use your assets effectively to get this done.  You should come back and post again when you know where every single dollar is going every single month.  This will really help give you targeted facepunches.  It will also naturally help you -- it's amazing how much you can save when you simply track what "clothing, music lessons, sports, etc." actually is.
« Last Edit: July 30, 2014, 01:56:09 PM by ChransStache »

NinetyFour

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Re: Reader Case Study - Five Finger Death FacePunch time...
« Reply #10 on: July 30, 2014, 03:13:16 PM »
You need to track your spending.  Every dollar of it.  You hair is on fire, so you should also get rid of all of those subscriptions and take a bike ride to your local library instead.  With the hefty property taxes you are paying, you ought to have fantastic library sources (for DVDs, etc.).

And no going out to eat.  You can "celebrate" special occasions at home by lighting some candles during dinner.

Good luck!

FuturePrimitive

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Re: Reader Case Study - Five Finger Death FacePunch time...
« Reply #11 on: July 31, 2014, 08:58:46 AM »
Thanks for the input everyone, I do appreciate it! It feels very awkward and humbling putting my financial situation online for others to see but sometimes another (1000) set of eyes are needed to get a proper perspective.

Lots of changes made have been made already, wife and I are on the same page, we've been discussing this together. Car magazines are long gone and my car lust is mostly satiated by watching Top Gear UK. I am now well aware of the realities of expensive cars and haven't owned anything "fun" in over 5 years. Well, my wife's car is fun actually but its been paid off for ~7 years and we have no plans to replace it.   

Unfortunately, moving is not really an option just right now. The taxes are high where we are due primarily to the school system, which is rated top 25 in the nation (public), that is a major consideration for us right now. Plus we have family and good friends here, love the area and all it has to offer for year round outdoorsy stuff. Fortunately, that means a refinance IS an option since we have no plans to move!

While I do have plans to retire early its relative. When compared to my peers I'd be retiring about 10 years early, compared to you folks about 10+ years late!

I'll be updating the OP periodically to track my progress in a little more public setting, I use Quicken '12 right now to track the day to day minutia. BTW, spending is down $800 in May vs. July and $1200 in June vs. July so that's progress already! (July 1 is when I started reigning in spending, I'll need a few more months data to show a more accurate trend of course.
« Last Edit: July 31, 2014, 09:00:27 AM by FuturePrimitive »

Neva More

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Re: Reader Case Study - Five Finger Death FacePunch time...
« Reply #12 on: August 02, 2014, 03:52:08 AM »
Your budget that you gave us has two omissions that are biggies- How much were you able to pay on the credit cards and is the debt greater then 30% of your total credit available or are they maxed out so your credit score is being impacted. And secondly, how much are you paying in insurance cost? Which could be large and you could try to reduce too.
If you have a good credit score the least costly way to address this problem is to get a balance transfer to a zero percent, no annual fee credit card and there are ones out there with a 3% fee which amounts to $676 on your balances and has an eighteen month offer for transfers and purchases. I just read an article at about.com. My Money Blog entitled "Best No fee 0% APR Balance Transfer Offers of 2014 (Up to 18months)".  To Pay off your balances in the eighteen months you would have to pay $1290 a month. You mention you got to a difference between May and July of $1200 so you are close to getting to this figure without changing your 401k contribution. Going from a 20% pretax contribution to 4% will cause a tax increase on the $13,440 by $3, 867 of federal and NewYork income tax. I got this figure from NY state tax calculator. This is 28.77% taxation of this money using a standard deduction, you may qualify for itemizing which would bring it down. If you can do some frugal things I wouldn't change your contribution to your 401k. You told us you have been contributing $4400 per year to Roth IRA's but not how much of your retirement money is in them. Eliminating adding to theses for this eighteen months and if there is any balance left after  the eighteen months pay off the balance from here.
If you do not have a good credit score then taking from the Roth IRA  your contributions to reduce  the total amount of credit card debt to less then 30% of your total credit available will increase your credit score and make you look better  when applying for a new mortgage. Then I would transfer the  remaining credit card debt to a 0 % card.
All of these suggestions will not add a larger tax bill to your bottom line like changing your 401k contribution will and will  get you out of credit card hell. These suggestions have you finish with it in eighteen months or less depending on how much you can economize and how much you take out of your Roth IRA. And you will still be increasing your 401k by over $18'000 a year before investment gains. So your net worth will increase dramatically the contribution and the decrease in debt almost $50,000 in eighteen months. Your assets will increase by $27,000 and your taxes will stay as they are now, so much lower then changing your 401k contributions.

bdc

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Re: Reader Case Study - Five Finger Death FacePunch time...
« Reply #13 on: August 02, 2014, 09:51:12 PM »
Consider a home equity line of credit (or a cash out refinance).  If there's any chance you'll be declaring bankruptcy (if your wife's business is high risk or your monthly expenses are actually much higher than you estimate, for example) it's a terrible idea.  But if you're really going to go in the other direction, that would get you a lower, tax deductable interest rate while you dig out of consumer debt.
« Last Edit: August 24, 2014, 07:23:12 PM by bdc »

FuturePrimitive

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Re: Reader Case Study - Five Finger Death FacePunch time...
« Reply #14 on: August 04, 2014, 09:13:47 AM »
Your budget that you gave us has two omissions that are biggies- How much were you able to pay on the credit cards and is the debt greater then 30% of your total credit available or are they maxed out so your credit score is being impacted. And secondly, how much are you paying in insurance cost? Which could be large and you could try to reduce too.
Ok, good questions. I made a $1200 payment on the CCs in July. (1000 and 200 between the 2 cards) My goal is to maintain that payment schedule. I am also going to be selling off a lot of my unused "toys" and junk. Won't amount to much but this will accomplish two of my goals, pay down debt that much faster and get rid of clutter. (We have a lot of clutter and its driving me nuts!)

Insurance is a good question, we pay ~800 year for car insurance (1 car) and ~700 for homeowners. 

To your other point about credit score, that's another good question and I don't actually know what my credit score is, last I checked was when we closed on the house almost 5 years ago, it was in the upper 700s somewhere then. It's always been good and we've never had any credit issues, missed payments, etc.  Neither card is maxed out, one is about 50% and the other maybe 60%. Unfortunately the credit limits are pretty ridiculous, 20k and 15k I think. I did however already transfer $3500 to a 0% 18 month card, no transfer fee and no annual fee (Chase Slate Visa). Best I could find but they limited the amount I could transfer obviously. We also have a Visa through our credit union with no balance, and I have a Paypal MC with no balance as well. So we are nowhere near the sub 30% credit available threshold.

There's about 100k in the Roths, ~230 in 401k and the rest in rollover IRAs from previous 401ks.

bdc, I don't think there's any chance I'm going to declare bankruptcy, even if I lost my job right now I have options. But, I could be wrong. My wife's business is not really high risk (I'm assuming you mean highly leveraged?), it just doesn't bring in much income. She's a photographer working out of the house so no studio or store front to pay for and no business loan.

Neva More

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Re: Reader Case Study - Five Finger Death FacePunch time...
« Reply #15 on: August 04, 2014, 03:16:57 PM »
First let me say that you are probably in the top 5% of your age group in the amount you have saved for retirement so give yourself a pat on your back and your wife a big hug because it takes both of you to accumulate this much at your ages.  I still think I would maintain the 20% into the 401k. Stay away from eating out and make double batches or more of the food you cook and put some meals away in the freezer to pull out when the urge to go out strikes.
And with your additional info my action plan would be: Check your credit score if it is still so high you are in the driver seat to make this $22,000 go away with as little pain as possible just think you need to do some shifting of funds from your Roth to get your credit ratio ( amount used divided by the total amount available on ALL your credit cards/times 100 is the formula) to below 30% and then transfer as much as possible to the 0% cards and then get the lowest mortgage available. We are not going to continue to be in this low mortgage environment forever so now is the time to get it done. I would probably transfer $3,000 from your Roth to a savings account or a little more to cover the cost of getting a new mortgage and a backup emergency fund for school needs and other incidentals that you probably were putting on the credit cards. (Oh did you check the credit card statements to see what you were charging on those credit cards that got you overextended?) Attack the credit card debt with as much as you can free up the highest interest one first if you can't get everything transferred. Remember if you can free up that much money every month you have the opportunity to replace the Roth money very quickly in the next year or two (your limited to $5,000 for you and what the profits of your wife's photography business or $5,000 which ever is less. If her business becomes more profitable much more could be socked away, too with a SEP or self 401k if she has no employees. I think the figure is around $51,000. You and your wife just need to agree to not put anything on a credit card when you get this debt gone without being able to pay it in full when the bill comes in the next month. Perhaps agree on a procedure to make sure you both are on the same page.
I remember  being in my forties and with  young children and having discussions with my husband on "What are our goals right Now" and it was Family, family time, family fun, and our toys we're postpone  and life was the kids activities and family vacations for ten years and paying off the mortgage, then getting them through college and law school with as little debt as possible. We would not trade those FUN  years of raising our children for any thing. It goes by too quickly.
 Three other things I would suggest that we  did was: make sure you get a mortgage with no prepayment Penalties, 2. get an amortization table for the interest you are paying and consider adding the next one or two principle payments on to the payment each month and note on check the extra to be applied to principle and this shortens the mortgage and you will never pay the interest listed next to the payment. in the beginning of a mortgage the interest is where most of the payment is going. The third thing we did when we had a lot of equity build up in our home we switch to a low interest home equity line which charges simple interest not amortized interest and we aggressively paid it down saving oodles of interest.
I don't think your situation is that bad you have excellent schools for your kids without having to pay private tuition, by the way your property taxes aren't even 75% of what one child would be in a private school in the Northeast. Hopefully you all have good health and you have friends, family and outdoor activities close by. Enjoy all of your blessings. Sincerely,Neva More

FuturePrimitive

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Re: Reader Case Study - Five Finger Death FacePunch time...
« Reply #16 on: August 14, 2014, 10:42:32 AM »
Ok, updated my OP with some progress. most notably a refi of my mortgage to a 15 yr @3.375. Haven't closed yet of course but looking forward to it, that's nearly 2 points lower than where I am now. Transferred some of the high interest CC to a 0% card and made another 1,200 in payments. Cut food bill for July nearly in half by cooking and shopping smarter, also going out MUCH less. The best part is the kids haven't even really noticed not going out.

Also discovered in my 401k that in addition to the company match (which is only 3%) my company makes an additional 4% contribution, regardless of how much I contribute. So even if I dropped contributions to 0 I'd still be getting 4%. Not sure how I missed this but that's a nice benefit.

I've decided not to take out anything from the Roths for the moment, may change my mind on that of course but want a few more things to shake out first.

Thanks again for indulging me.

swick

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Re: Reader Case Study - Five Finger Death FacePunch time...
« Reply #17 on: August 14, 2014, 01:19:38 PM »
I'm not sure if it has been mentioned, and I'm not sure if it applies (I'm in Canada)

But is your wife carefully tracking business expenses that she is incurring from her home based business? In Canada, you can write off a portion of mostly any bill/utility if it is also being used for a business. Cell phone, internet, gas  and vehicle costs, utilities, mortgage and taxes.

Chranstronaut

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Re: Reader Case Study - Five Finger Death FacePunch time...
« Reply #18 on: August 19, 2014, 09:05:38 AM »
Transferred some of the high interest CC to a 0% card and made another 1,200 in payments. Cut food bill for July nearly in half by cooking and shopping smarter, also going out MUCH less. The best part is the kids haven't even really noticed not going out.

It's crazy how some expenses can drop like that even in the first month of making changes.  Keep it up!

Also discovered in my 401k that in addition to the company match (which is only 3%) my company makes an additional 4% contribution, regardless of how much I contribute. So even if I dropped contributions to 0 I'd still be getting 4%. Not sure how I missed this but that's a nice benefit.

Wow, so you can get up to 10% if you put in only 3%?  That's a great deal.  If I were in your shoes, I probably wouldn't drop my contribution to zero, but just keep it at 3% while I worked the debt situation.

I really hope you'll keep us updated and show us how you're doing when you track all your expenses.

FuturePrimitive

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Re: Reader Case Study - Five Finger Death FacePunch time...
« Reply #19 on: June 03, 2015, 12:13:37 PM »
So it's been almost a year and I haven't been around much but here's a quick update:

-Credit Cards: $0 Obliterated!
-Mortgage: $174,082 Not making any extras payments but going to a 15 year note vs. the 30 is good enough for now.

-Opened two 529 accounts for the kids but not much going in there yet.
-Have not been able to amass much of an emergency fund but now that CCs are gone maybe I can make some headway there.

According to Mint, net worth has climbed to $688,XXX since my OP, 100k+ increase, that surprised me a bit but I guess the combination of debt reduction and a hell of a bull market makes a difference.

So far so good.

And now the negative, my job is even less secure, my wife's car is now 13 years old and costing us more and more to keep up. If I lose my job I also lose my car. And spending has been creeping up because a lot of the pressure is off so I need to exert some more control there. So, that's all looming over me.

Chranstronaut

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Re: Reader Case Study - Five Finger Death FacePunch time...
« Reply #20 on: June 03, 2015, 02:24:54 PM »
Quote from: FuturePrimitive link=topic=21369.msg683736#msg683736
-Credit Cards: $0 Obliterated!

WOO!

Quote from: FuturePrimitive link=topic=21369.msg683736#msg683736
And now the negative, my job is even less secure, my wife's car is now 13 years old and costing us more and more to keep up. If I lose my job I also lose my car. And spending has been creeping up because a lot of the pressure is off so I need to exert some more control there. So, that's all looming over me.

But look how much better of a position you guys are in!  Get going on the emergency fund with the same vigor you paid off your CC, and you'll be there soon.  Maybe this e-fund goal can put a little pressure back on and keep spending down?

After you get yourself more of an emergency fund, would you consider selling your wife's car and replacing it with something less expensive to maintain?  It seems like these maintenance costs have been a source of stress this whole time.  You say you like cars; are you able to work on her car yourself?  If you're constantly dropping German level money on parts and service, it might be worth ditching it and getting a slightly newer Japanese or domestic sedan and sourcing your own parts online.

FuturePrimitive

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Re: Reader Case Study - Five Finger Death FacePunch time...
« Reply #21 on: June 03, 2015, 02:45:42 PM »

After you get yourself more of an emergency fund, would you consider selling your wife's car and replacing it with something less expensive to maintain?  It seems like these maintenance costs have been a source of stress this whole time.  You say you like cars; are you able to work on her car yourself?  If you're constantly dropping German level money on parts and service, it might be worth ditching it and getting a slightly newer Japanese or domestic sedan and sourcing your own parts online.
Heh. It's a 2002 Subarau WRX wagon and I do most of the work on it already. It has actually been reliable, mechanically speaking. The real problem I alluded to in my OP, we live in a state that is.... generous in its use of road salt. She does a good job keeping it clean in the winter but there's only so much you can do, fighting rust is ultimately a losing battle. Replaced the entire exhaust system and front sub frame assembly last year. This year we will need to do the rear sub frame to pass inspection and that is a much harder job. The rust on the body and floor pan is starting to get bad in spots too. Otherwise, we love the car and don't want to get rid of it. Good thought though.