Case Study: Trying to figure it out

[brandon1827]

I have debt.

There...I said it. Not the good kind of debt either (except my mortgage). The bad, high interest kind of debt. The kind of debt that hangs around your neck like an anchor and makes life a series of paychecks and payments to creditors. We get to go to the beach every now and then; which is great. I've been at my company for 21 years and the benefits are amazing. I live less than 5 miles from the office I work in. We have family all around us. We're happy and healthy. All in all, it's a nice life.

I managed to get through a stint in the Navy, 5 years of college, marriage, fatherhood, career, and now into my mid-40s asleep at the wheel when it came to my financial situation. I make a decent 6-figure income in a low cost of living area, and since we were always able to pay the bills, build our dream house, and put our kid into private school, my wife and I figured we were doing okay.

In 2019 our eyes were opened. Despite having a nice 401k and a company funded pension...and despite bringing in plenty of money to cover our costs each month, we realized we had nothing put away when my wife had some serious health issues and had to leave her job as a teacher at said private school. It was a serious case of endometriosis accompanied by runaway scar tissue in her abdomen from the c-section she had to bring our son into the world in 2009. Luckily I have fantastic insurance, so when she had to have a series of surgeries for a hysterectomy and a condition called "frozen pelvis" which was slowly killing her, we didn't have to come out of pocket very much for medical expenses, but did have to figure out how to get by on one income. Ultimately, my wife was okay and is perfectly healthy again...but that experience was a huge wake-up call to how fragile our financial position was. We decided that it was time to "take charge" of our finances and start planning to become debt-free and even put money away for a change. That led to various internet searches...leading to Dave Ramsey...leading to MMM. When taking stock of our position, we had a large debt load listed below:

Student Loans (Me): $70,000
Student Loans (Her): $40,000
Vehicle (Me): $19,500
Vehicle (Her): $23,000
Combined Credit Card/Revolving Debt: $28,000
Mortgage: $295,000

Total Debt Load: $180,500 + $295,000 = $475,500

Eye popping right? I almost threw up when I started putting numbers to paper (spreadsheet) and figured out how bad it was. We've spent the past several months discussing different options to alleviate the debt burden. The mortgage is at 3.75% and we built on 18 acres of land that her mother deeded to us for free. Our land adjoins the MIL and is also connected to other family members, so selling is not an option. We plan to eventually pay off the mortgage and will live in the house until we die and the house and land go to our son. However, we have to get working on the other debt as quickly as possible. After my wife healed from surgery, she was able to land a job at the City Parks & Rec office making more than she was earning as a teacher for 14 years. They also have a pension plan, so she'll be vested in that in another 6 months. I have been at my job for 21 years, have a small 401K and a pension as well. Our income situation looks like this:

Her take home pay: $2500/month
My take home pay: $6400/month
Total income: $8,900/month
Current liabilities (recurring bills, utilities, mortgage, debt payments, etc.): $6,150/month
Income - Liabilities = $2,750/month, out of which also comes gas, groceries, entertainment, etc.

While the extra money we have left over after bills is a decent amount, it doesn't provide enough to make serious dents in the debt burden any time soon. We've been attempting to manage the debt as we can in a sort of "snowball" method; paying off one bill at a time while making minimum payments on others. While I understand I didn't get into this much debt overnight and most likely can't pay it off overnight...we're having a hard time fathoming how we could spend the next several years paying off this debt so that we can do things we want to do in life before we're too old to enjoy any of it. We are considering a drastic step to get out of debt in one fell swoop...which I think many of you would most likely advise against. The idea we're mulling is:

I would leave my job and take a lump sum pension distribution (current cash payout would be $435,000 before penalties)
Use this money to payoff all of the debt except the mortgage
Use the remaining funds to invest in an index fund with Vanguard
Roll my 401K over to a new job with the City (which also offers a pension)

This would leave us the house, land, 401K, investments, her pension, and my potential new pension as assets to put toward retirement. I'm 45 now and she is 42. Assuming we both work until 62, that leaves 17 years of work for me and 20 for her to accumulate more in the 401K, pension, and investments. This also doesn't factor in another 40 acres of land she will receive when her adoptive mother passes away, social security (which may or may not be there), and other potential inheritances from her birth mother and birth father (separately). This quite obviously isn't a FIRE situation for us at this point, but our thought process is that if we immediately alleviate the debt burden, we have plenty of time and more income to make up the loss of my current pension funds and build a nice enough nest egg to perhaps retire before 62. The income at my new job would almost certainly be less than what I make now, but with no debt, we could still easily pay the bills, save a little, invest a little, and still be comfortable. Being under the weight of this much debt, the plan we've been discussing seems very appealing, but I understand it's a huge risk at this point in my life. We're essentially trying to make the best of a shitty situation and put ourselves on track to be debt-free and comfortable in retirement.

That's it...the whole, ugly, debt-ridden truth. What would you do if you were in our shoes? Should we stay the course with our current debt-payment plan or cash it in and pay off the debt asap?

[remizidae]

Strongly suggest you edit your post to include interest rates on the debt. That's as important as the raw amounts.

Definitely do not cash out your pension to pay 3.75% debt! I understand the fantasy appeal of having all your debt magically vanish, but it's not going to be good for you in the long term. You need to buckle down and do the hard work of paying for the stuff you've bought.

Good news is your situation isn't as desperate as you seem to think. Yes, you have a lot of debt, but most of it is low-interest mortgage debt, which you're essentially fine paying the minimum on. The student loans are also likely low-interest (and if they're not low-interest, consider refinancing).

In your shoes, I would focus on paying off the $28k credit card debt. You said you've got $2750 after paying bills and minimum debt payments. Set aside $750 for gas, groceries, and entertainment and that's $2000/month to accelerate the debt repayment. You could be out of credit card debt in less than 18 months.

For the car loans, do you need two cars? You said you live less than 5 miles from work, so can you bike, use transit, or have your wife drive you? Consider selling one or both of the fancy cars and buying a used car for $5-10k.

[zolotiyeruki]

Dangit, remizidae beat me to it--you should add the interest rates to each debt, as well as your monthly payments.  Also, if you're willing, share the amounts of your assets.  Your current assets will heavily influence what steps you take next.

You really are in a hair-on-fire debt emergency.  However, I would advise against leaving your job and taking the lump sum in order to pay off the debt.  You've got a job that provides pretty well, including a pension, which most people don't get nowadays.  If you were to leave and take the lump sum (probably taxable, and at a high marginal rate!), you'd have to spend the next however-many-years building back up your retirement savings.

To group up your debt, here's what I see:
$295k - mortgage
$42.5k - cars (facepunch definitely due here!)
$29k - credit cards (double facepunch here)
$110k - student loans

If you're committed to digging yourself out of this massive pit, I'd suggest you start by looking at your cars.  If you're underwater on them, pay down the debt until you're not underwater.  Then sell them, and buy a pair of cars that cost $10k total.  Then snowball that extra cashflow against your credit cards.

You should be able to refinance your mortgage as well.  You're currently paying nearly $15k/year just in interest.  If you snag a 2.75% rate, that alone save you almost $4k/year, or over $300/mo.

[ctuser1]

I decided to jump in here since I sense you are in a bit of self-flagellation mode over your debt.

If you managed to go through the navy, got a degree, got good paying jobs and even decided to take your financial freedom in your own hands means you are doing better than the vast majority of the population, and that you have a lot to be proud of.

You need to recognize all the things you have achieved, and start learning how to improve further from that basis. If I wanted to beat myself up over stupid money decisions I have made - I would not be able to function. So my personal opinion is that such stupid mistakes are just par for the course - as long as you don't repeat them. :-D.

Some random suggestions:
1. Your vehicles are clear problems. Please get rid of them and get $10k old Prius'es (even better - < $5k each if you can).
2. Student loans are next - pay extra by highest interest to the next highest.
3. Try to see if you can consolidate the student loans using a mortgage refi (with lower APR). This assumes you have equity in the house.

DO NOT touch your 401k!! Try to max it + Roth every year for both you + your wife. It is likely not possible given your debt load - but see how far you can get to.

Dave Ramsey may be useful for you - just look up YouTube videos, no need to pay for FPU. But please don't listen to his investment advise - go to Bogleheads (or here, if you prefer a more rowdy crowd).

[Freedomin5]

Agree with everything that has been already said about selling both cars and going down to one cheaper car, biking to work for you, not cashing out 401k, posting interest rates associated with the debts, etc.

One more new suggestion from me...if you list out your monthly expenses, we may be able to find ways to help you lower your expenses, leaving more money to go towards debt.

[Life in Balance]

"I would leave my job and take a lump sum pension distribution (current cash payout would be $435,000 before penalties)."


Have you looked at how much of that amount you would lose to penalties and taxes?  I think once you do that that option will become way less appealing. 

[rmorris50]

How much can you sell your 18 acres for and net after paying off the mortgage? I challenge the notion that moving isn't an option. It is an option, you just aren't willing to consider it. DON'T surrender the pension, one of the biggest gift you can give your kids is them not having to worry about your financial retirement.

If I were in your shoes, I'd first consider selling the land and house, and seeing how much I could "downsize" in house, even rent a house if need be. Or plan to sell the additional 18 acres your family expects to inherit and pay off the outstanding debt then.

Also, ANY job can let you go at any time, no matter how safe it feels. I've experienced this first hand. If that happens, you'll be happy you kept the pension, which you could start and provide some basic, guaranteed level of income. It's definitely riskier to surrender the pension than to sell your house/land.

I would bet if you were to call Dave Ramsey, he'd give similar advice. Not that I like Dave Ramsey though!

[rmorris50]

Just remembered you have to leave your job to get the pension. That's even worse!! Give up a good job and cash out the pension?? That's your livelihood! OMG, look at selling the property, or tackle the debt the hard way, paying it off over time.

[Morning Glory]

I vote case study. Lay out all your monthly bills and let us pick them apart. I'm sure there is a giant cellphone data plan or cable bill in there somewhere that you can cut.

Keep the job and the house.

Put all spare money towards the credit card. Also look at zero percent balance transfer offers so that more of your balance goes to principal.

Consider selling the cars and getting older, cheaper ones. You will save on insurance and licensing as well as the car payment.

[firestarter2018]

"I would leave my job and take a lump sum pension distribution (current cash payout would be $435,000 before penalties)."


Have you looked at how much of that amount you would lose to penalties and taxes?  I think once you do that that option will become way less appealing.

I went ahead and used an online calculator to estimate this. I'm guesstimating from your take-home income that you're in the 22% bracket; I also guessed a 4% state income tax. Results: you will lose at least 40% of your 401K to taxes and penalties:

Balance: $435,000
Penalty: $43,500
Required fed. withholding: $87,000
Additional fed. taxes due: $21,750
State taxes due: $17,400 (remember this is assuming a 4% state rate -- if you're in a high-tax state go ahead and double this) 

EDIT: I just noticed OP is in Tennessee which has no state income tax, so ignore this part - but the larger point still stands!

Total lost to penalties/taxes: $169,650
Total you walk away with: $265,350

I know it's tempting, but please do NOT do this.  I echo what others have said: Find a way to downsize the cars, buy beaters in cash and get rid of those loans.  Post your expenses to get feedback on how to cut probably another few thousand out of your expenses, and throw all the extra at the credit cards. Then give yourself a small reward like a vacation and start tackling the student loans (but also look into refinancing the student loans right away, rates are pretty low from what I hear).

You mentioned not being able to tackle the debt while still doing the things you want for your family, ie travel and fun stuff.  You have to reframe this as a challenge you and your wife tackle together, and figure out frugal ways to enjoy life and time with your family as the reward, instead of more spending. No face punches, just please take a good long look at how you got here, and don't take the easy way out.

[marty998]

The land is a problem for me. It basically ties your family to your in-laws... till death does you all part.

It’s a serious weight to be dragging around, which limits the options and flexibility of choice for your family and how you may wish to live your life.

I know nothing about this land... it could be spectacular country, or it could be unproductive gravel. But I reckon the best thing to do would be to sell back to the in-laws & family.

Set yourselves free.

+1 on all the car recommendations. If you’d read the blog you would have already downsized or sold them and started biking to work - 5 miles at a leisure pace should take you no more than half an hour on flat ground... probably takes you longer in traffic and getting in and out of parking spots.

[Cb1234567]

Dear OP: DH and I are similar age to you, and had a series of wake up calls., not health-related, but definitely of the Come-to-Jesus moment variety. I’m really glad your wife is Ok.

 As this is the MMM world of face punches...
1. Are you two In or Out??
Your post started off great - in the lines of OMG we’ve made a mess and this has GOT to change. It gave me hope that you might be ready to change, for real. Then I read a reply, above, that’s more of the ...well, we really like our lifestyle, so I maybe we could do this shortcut of stealing our own retirement money, so that your lifestyle can stay just the same and we’ll just kick the retirement can further down the road...

- Did you not just learn that one person’s income can go “poof”?
- Do you think the retirement fairy is coming?
- And wasn’t it living at this level of lifestyle that got you where you are today? With nasty revolving credit, credit cards you can’t pay off, two car payments, and a decent size mortgage...?

2. Go listen to a bunch of Dave Ramsey shows. People pay off ALL their non-mortgage debt within 2 years All The Time on that show. The average on paying off the house after no debt  is 7 years. How freeing would that feel?? No payments. Take a moment and taste that : each paycheck is yours to to do with as you please...talk about lifestyle! :)

3. Do not salve your feelings by telling yourself how much worse off most others are doing. Personally, I do not consider it a win if everyone else is in debt up to their eyeballs, and mine only comes up to my nose. Driving to work, just assume that nearly everyone driving around you has a payment and doesn’t actually own their shiny car or SUV. Don’t follow the herd.

4. If you’re still on the fence, you and your spouse might consider looking around at everything you have at home and in the garage. Ask yourselves, of all this wonderful stuff, what do we actually OWN for all those years of working? Do you actually OWN your education even? No. Not until you’ve paid for it.
So get to it!! Until you’ve paid for what you already have, why should you get to buy something new? or have a vacation? or take out dinners? You can get out of this if you continue the p.o.v change that has started already for you.

**And, most importantly, is ANY of this stuff as important as our health and happiness and security as a family??** of course not!! What’s important is T-I-M-E together. Btw - That’s free.
—————————-
Your non-mortgage debt is the problem. So, about 180K. Pay off the house later.

If you are actually going to do something about this (besides move the pea around under the shells), here is what we would do:
Spoiler: This is going to sound strikingly similar to Dave Ramsey’s plan.

1. Get a small amount of cash and stuff it in an envelope - that’s your emergency fund. Suggest $1K. Do you have it already? If so, great, that’s all the money you get to keep. If not, then save it out of the month’s income.

2. Make a real budget and commit to it. Start with house payment and utilities. Add a minimal amount for essentials like food, and the rest of your payments. Look at previous months and get the spend number DOWN. Work together on this for your future.
- CUT Your Lifestyle. Then cut some more. It is empowering to discover how little we really need for contentment. It will be good for the kids.
- You can use www.everydollar.com (free), YNAB or a piece of paper.
- Throw ALL extra money at the revolving debt, then credit cards ( you don’t have control of your spending, so get rid of them) one by one. Get some traction and momentum going, don’t worry about the interest rate.
- oh, and zero dollars go into retirement- unless your wife has a mandatory amount for a teachers’ pension. This shouldn’t be a problem, since you were just mentioning the possibility of cashing in your 401(k) so the balance would have been zero. In this case leave the balance alone and stop adding. Compound interest will continue to work for you!

3. Sell one or both cars. You have *over* $40K in vehicle DEBT. Are you upside-down or can you get some money out of them? Get 2 cheap cars ( cheap is going to be a shift down to less than $5K each). Yes, they’re going to have OPD (other peoples’ dirt), but it’s good for the immune system ;-) and will clear 40K of debt, potentially.  I realize it’s not that simple, but do it. Vehicles are depreciating assets.

Certainly, this is daunting, but the biggest thing you have going for you is that you are freaked out enough to realize that there is a problem. And really, what’s the alternative? Just let this sit here forever? No. That’s not a real option. Cashing out your existing retirement isn’t really an option either, and I would not touch that. Did I mention don’t touch your retirement money? So, you have to get out on your own! Start with getting organized with the rest of the details in your finances including Making a detailed budget. Cut everything you can. You’ll find more savings as you go along.

 The math is simple: income minus outgo. The difference goes to the debt. If you find it’s really not doable, you can go more radical and look at selling the house and using any equity to throw at the debt as well. However you didn’t mention that as a suggestion, so I’m assuming that you don’t have that much equity. Cheers and good luck!

[Laura33]

In a word:  no.  In many words:  nonononononononononono. 

My response is driven by one thing you said:

we're having a hard time fathoming how we could spend the next several years paying off this debt so that we can do things we want to do in life before we're too old to enjoy any of it.

That, right there, says everything.  It says you haven't really got religion about changing your lifestyle; rather, you really, really enjoy that old lifestyle, and so your recent "come to Jesus" moment was really more about "let me hold my nose and white-knuckle it through getting this debt paid off so I can go back to enjoying my life."  And that has precisely the same long-term success rate as dieting by starving yourself, all the while dreaming of the chocolate cake you get to have once you finally see the right number on the scale.

You need to pay that debt off the old-fashioned way:  by adapting your lifestyle to live below your means.  You need those efforts to take a couple of years.  Think about it:  you have spent 25 years training yourself into a lifestyle that is based on buying and doing nice, fancy, expensive things -- you make six figures! You're rich!  You work hard!  You deserve those nice things!  But you have recently realized that that lifestyle isn't sustainable in the real world, where bad things happen to good people who don't deserve them.  So you now need to retrain your brain and habits around a lifestyle that does not depend on spending a lot of money on stuff to be happy.  Again, the diet analogy:  you know what happens when you stop eating sugar for a period of time?  Fruit starts to tast ridiculously sweet and decadent. 

So, yeah, it's going to feel like deprivation for a while.  That's what happens with hedonistic adaptation:  you get used to a certain level of fancy as normal, as the baseline expectation that you need to meet to be happy.  What you're doing now is a reset, and that is hugely uncomfortable.  It has to be, because you're changing 25 years of habits and self-definition, and that is really fucking hard.  But that's a sign that you're doing something right.  So now is not the time to cave and take a shortcut to get to the end result; that feels far more comfortable, of course, because it promises a quick return to what your brain feels is "normal."  But that just guarantees that you will revert right back to your old ways.

Your job right now is the opposite:  you need to take the time to really live in your new lifestyle.  That doesn't mean sulking and feeling deprived.  That means adapting and finding things to do that are fun and fulfilling that don't require spending lots of money.  You live in a beautiful part of the world; get out in it and enjoy it.  Or go volunteer where someone needs your skills.  Make a delicious dinner at home for your wife rather than going out, and get out candles and crack a bottle of wine.  The opportunities are limited only by your own imagination.

Oh:  that $2700 that's left after bills and mortgage and debt payment?  There are a lot of people here who live on $2700/mo. including bills and mortgage.  And IDK, but they seem to be pretty happy.  If you'd like more advice about how you can get there, give us more detail on what you spend all that income on.

Final note:  "do[ing] things we want to do in life before we're too old to enjoy any of it"?  Dude.  I'm almost a decade older than you, and I don't exactly have one foot in the grave.  And I enjoy all that stuff that I did ten years ago just as much as I did then.*  55-year-old you is not going to be some alternate reality you, who is happy to just sit in a recliner and complain about his health and how his kids never visit until he dies.  He's currrent you, with a few more grey hairs, slightly creakier knees, and probably a couple more pounds.  And he is going to be seriously pissed at current you if he has to work another 15-20 years because you decided to cash out his future so you could get back to your happy spendy ways sooner. 

*Yeah, there's some stuff I can't do as well physically, because I didn't take care of myself well enough when I was younger.  But all that stuff is free or cheap, like hiking and rock-climbing and mountain biking.  My hobbies that require money I enjoy just as much now as I did then. 

[zolotiyeruki]

Oh:  that $2700 that's left after bills and mortgage and debt payment?  There are a lot of people here who live on $2700/mo. including bills and mortgage.  And IDK, but they seem to be pretty happy.  If you'd like more advice about how you can get there, give us more detail on what you spend all that income on.

Yeah, that's something that became more clear to me after my first response.  That $2700 is after mortgage, other debt, and all utilities.  That means it's food, clothing, entertainment, and misc.  That's a pretty luxurious budget for two people, and I'd be willing to bet there's a LOT of inefficiency there.

[charis]

Why can't you sell the house/land?

[Bettersafe]

Oh:  that $2700 that's left after bills and mortgage and debt payment?  There are a lot of people here who live on $2700/mo. including bills and mortgage.  And IDK, but they seem to be pretty happy.  If you'd like more advice about how you can get there, give us more detail on what you spend all that income on.

Yeah, that's something that became more clear to me after my first response.  That $2700 is after mortgage, other debt, and all utilities.  That means it's food, clothing, entertainment, and misc.  That's a pretty luxurious budget for two people, and I'd be willing to bet there's a LOT of inefficiency there.

OP has a kid in private school, but it's unclear to me how much that costs.

[FI45RE]

As usual, @Laura33's advice is spot on.

Also, lowering your expenses is always an option. Your current $6,150 of monthly expenses is not set in stone. I second (third?) the idea of laying out your monthly expenses so you can further investigate where your money is going.

[Laura33]

Oh:  that $2700 that's left after bills and mortgage and debt payment?  There are a lot of people here who live on $2700/mo. including bills and mortgage.  And IDK, but they seem to be pretty happy.  If you'd like more advice about how you can get there, give us more detail on what you spend all that income on.

Yeah, that's something that became more clear to me after my first response.  That $2700 is after mortgage, other debt, and all utilities.  That means it's food, clothing, entertainment, and misc.  That's a pretty luxurious budget for two people, and I'd be willing to bet there's a LOT of inefficiency there.

OP has a kid in private school, but it's unclear to me how much that costs.

Or whether that is included in "liabilities" or the $2700 leftover. 

That's also why we need more detail if we are to be helpful in any real way.  Because that's exactly the kind of thing people do that gets them in this kind of situation.  They buy a nice car.  Then they buy another nice car.  Then they send the kids to private school.  Then they build a dream house.  And then one day they wake up a realize they have build a dream life, but it's based on debt, and they're chained to the work treadmill forever just to keep their head above water.  And then they try to cut back, but they have defined their life by all of these things, which are now non-negotiables -- we can't sell the house, we're too entertwined with the inlaws; we can't take the kids out of private school; oh, but we really like our vacations and fun things that we do and don't really want to change that either (I mean, maybe for 6 months or a year, right? But certainly not forever!).  And then they feel stuck and completely powerless, because by the time they pay for all of the non-negotiables they have defined into their lives, there's nothing left.

I think what people are good at here is focusing on the "or."  You have X money coming in, and you have A, B, and C going out for luxuries.  Your income will cover A or B or C, and maybe even A and B, or B and C, but certainly not A + B + C.  But we can't really do that with $6K toward "bills" and $2700 toward "everything else."

[brandon1827]

Thanks so much for the feedback. It's much appreciated.

Many mentioned selling the house/land. The land was deeded via quit claim, so it didn't cost us a penny. The house was built 4 years ago and is 200 yards from my wife's mother. The way the land was divided was that out of a 20-acre tract, MIL kept a 2-acres where her house sits and gave us the rest. Our land now surrounds her house on 3 sides. Across the road is a cousin's farm. Down the hill is her sister and family, next door to her aunt and family, next door to another uncle and family. It is truly a family compound. My wife will not consider selling the land and house until her mother passes. If we sold it before then, it would cause major family drama since the land has been in their family for generations. She's also adopted, and there are some in the family that believe she shouldn't have been given land in the first place, so selling it would be devastating to the family.

The house is worth $425,000 and we owe $295,000 on it. Land is harder to value, as much depends on whether you sell it to one person or sell it in parcels for building. A neighbor recently sold a farm after the family patriarch passed away. They kept half for cows, and sold the other half in 1.25 acre tracts for $95,000 each. We realize the land is a huge asset, but selling it really isn't an option for now. Down the road, it would be more feasible and could result in a large sum to put toward retirement.

I would love to bike to work. It's just not possible based on the hilly roads and because my house sits on a rural 2-lane road that's barely wide enough for two vehicles to pass. Biking on that road would be very dangerous. Having my truck has been nice as we don't have trash service where we live and managing the land often requires hauling wood, hay, trash, etc. I plan to pay off my truck and drive it until the wheels fall off. My wife works downtown and is around 20 minutes to work from home. She could drop me off on the way to work, but that would mean her getting up more than an hour earlier than normal because my work hours are much different than hers. Inconvenient, but definitely doable.

If I left my job, we aren't cashing in the 401K. I have around $200,000 there that would stay invested. My "take home" from leaving my job would be about $340,000 between a lump-sum pension payout plus a check for unused leave. The penalty is staggering and would be difficult swallow. We've been rationalizing that with the knowledge that we'd be instantly debt free (except the mortgage), have $200,000 in the 401k, and approximately $175,000 to invest. With a modest rate of return and additional investments over time, that should be significant. In addition, we'll have my wife's pension, and if I get on there, my new pension as well. At conservative estimates, the pensions will provide around $67,000/year in retirement. If SS is still solvent, that would provide another $30,700/year (based on the federal SS website). So our retirement picture would look like this:

Investments: $175,000 (+ interest and future investment)
401K: $200,000 (+ interest and future investment)
Pension: $67,000/year
SS: $30,700/year
Home/Land: approximate value (current) $650,000
Future Land Inheritance: 40 additional acres...value ?

My first inclination is to stay put and pay off debt the hard way over the next several years. My wife is "hair on fire" to get rid of the debt and use the next 17 years re-accumulating wealth via investments and 401K. She's coming around to the idea of selling the land/house after her mother passes. She and her sister recently had a discussion about if developers continue inching our way, they would consider selling and downsizing. The allure of being debt-free, having $200K earning in the 401K, and $175K invested is evident. The interest saved on debt would be nice. My wife has a harder time envisioning paying debt slowly versus paying it off now. There are certainly places in our budget we could cut to free up more funds for debt payment. Cell phone plans, TV, internet service, discretionary spending, etc. could be trimmed. It's just harder to convince my wife to go that route to arrive at a debt-free place after several years, versus doing it now. I see and recognize the pros and cons of both approaches and before recently, would never have considered touching the pension funds to pay debt.

Son is no longer in private school. He went to the school my wife taught at, and when she was ill, we sent him to public school to help offset the loss of her income.

I'll work on putting together more detailed info regarding expenses and post it here.

[martyconlonontherun]

Land: Missing some information here. If its low value/low taxed land, there's no real benefit to selling it. If taxes are not immaterial, do you really want to be paying taxes on 60 acres year after year once you inherit more?

Equity/interest rates: How much equity do you have in the house.

The first step /easiest mental step could be refinancing. If you can refinance and pull out equity to pay off student/credit card debt (assuming higher %) and have the same monthly payment/same number of years due to the better rate you are in such a better position. You only have your house as a debt and can then focus on controlling spend since your house at a 3% rate is not something that needs to be paid off early.

The hardest part is taking a good look at your budget. $2.7k is $30k a year. take out $5k for groceries, you are spending $25k a year on things not needed to live (House, ultilities and food are taken care of already). $25k for 2 people is a lot of fat.

[martyconlonontherun]

Seems like every planned action is tied to emotions. You situation does not seem that bad since you basically have millions of dollars worth of land now/being inherited in the next few decades if I'm reading it, right. The hair on fire is your spending not your long-term situation.

I would definitely sit down and do the math, look into refinancing. You could probably pull out $50k of equity to pay off the highest debt (assuming one of the student loans?). Then aggressively do the reverse snowball over the next 2-5 years. Don't screw yourself over because you are afraid of debt and panicked. You can literally be out of this mess in five years if you control your spending. Come up with a reasonable budget and talk about what expenses are worth it for you and which ones need to be cut. At that point, you will be 50 and still able to enjoy things.

You've made good choices and have some luck in there as well. At this point the only reason you have the debt is because you want to live that lifestyle. That's fine since you are in good-shape, but you can't get rid of it instantly without cutting things.

[ericrugiero]

In the long term you are clearly WAY better off to pay off the debt the hard way and not cash out your retirement. 

As others have mentioned, the credit card and vehicle debt is the real hair on fire emergency.  The other stuff doesn't have to be such a big rush.  If it was me, I would sell the vehicles and buy some cheap alternatives.  You don't need a fancy truck.  A small car pulling an $800 trailer will work find.  $10,000 is plenty for both replacements.  I would focus intently on the credit cards.  Pay those off ASAP.  Vehicles and credit cards should be done in less than two years and then you can evaluate if you want to ease up and pay off the student loans and mortgage more slowly. 

The real adjustment is your spending.  Take a hard look and see what is really adding value and joy to your life.  You got into a mess by spending more than you made.  Cut up the credit cards and don't take out any more loans.  Streamline your spending on what really matters to you both. 

[ericrugiero]

I would definitely sit down and do the math, look into refinancing. You could probably pull out $50k of equity to pay off the highest debt (assuming one of the student loans?). Then aggressively do the reverse snowball over the next 2-5 years. Don't screw yourself over because you are afraid of debt and panicked. You can literally be out of this mess in five years if you control your spending. Come up with a reasonable budget and talk about what expenses are worth it for you and which ones need to be cut. At that point, you will be 50 and still able to enjoy things.

A refinance could get rid of the worst debt and lower your monthly payments.  It's much better than quitting a job to access retirement money you must pay a huge penalty on.  You still need to fix your spending so you don't end up back in the same boat.   

The best solution is still to fix your mess the hard way because it will force you to develop better habits. 

[charis]

Do NOT cash out your pension.  I can't believe your wife wants you to quit your job and cash out your pension, losing a chunk of it the process, because she wants to be done with this faster.  I would never ask my spouse to forgo his pension to get us out of joint debt faster.  Plus you are tethered to her family's land in an expensive house until her mother dies? What is happening here?  I agree with others, refinance to include the credit card debt and sell your vehicles for decent used ones.  Then buckle down and rein in your lifestyle.

[martyconlonontherun]

In the long term you are clearly WAY better off to pay off the debt the hard way and not cash out your retirement. 

As others have mentioned, the credit card and vehicle debt is the real hair on fire emergency.  The other stuff doesn't have to be such a big rush.  If it was me, I would sell the vehicles and buy some cheap alternatives.  You don't need a fancy truck.  A small car pulling an $800 trailer will work find.  $10,000 is plenty for both replacements.  I would focus intently on the credit cards.  Pay those off ASAP.  Vehicles and credit cards should be done in less than two years and then you can evaluate if you want to ease up and pay off the student loans and mortgage more slowly. 

The real adjustment is your spending.  Take a hard look and see what is really adding value and joy to your life.  You got into a mess by spending more than you made.  Cut up the credit cards and don't take out any more loans.  Streamline your spending on what really matters to you both.

I guess it really depends on the vehicles cost/resale/replacement value/interest rate/ability to diy. I'm not a big fan of Dave Ramnsey "Sell your vehicle now/buy the cheapest thing you can" approach to free cash flow. My 2018 Malibu I bought for $16k 1yr old/15k miles, I find that a way better value over the next 10 years over buying a $5k car that I would need to fix every couple years for $2k. Sometimes it is better just to eat the mistake of an expensive truck and keep it for ever over taking a hit reselling and buying a new car. (Sure there could be arbitrage but overall people lose money selling cars due to the transaction costs)

ETA: Not saying it is not a reasonable suggestion, but it comes down to value. You could cut eating out at restaurants and save as much as the car payment. Or being more aware to use more fuel efficient vehicle for normal trips to town/stop making unnecessary trips. It's about trade-offs and I don't think you should immediately facepunch someone for trucks with limited detail.

[MrThatsDifferent]

I’m with virtually everyone else that doesn’t think your plan is the best option. My concern also is whether you and you’re wife have learned enough to not find yourself in this situation again? Looking at your situation in Mustachian terms, you have:
1. Credit card debt—very very bad, tackle and get rid of immediately (Once you get rid of, don’t use until you can pay the full amount monthly)
2. Car debt—bad (either sell or payoff, but check out the investment order)
3. School debt—neutral (can you get lower rates on these? Have you investigated all your options here?)
4. House debt—“good” debt (can you refinance to a lower interest rate?)

If I were in your shoes, I’d never think about changing the work situation if there were no real issues at work. I’d probably tap into the $130k equity you have in the house to pay off the credit card debt for sure. Maybe pay off the cars and if not sell them and get cheaper used versions, then vow to keep those cars for 10 years minimum without financing any other cars ever again. That will free up cash flow. Then I would do a detailed examination of your cash low and monthly expenses and see where more money can be saved. I’d used zero sum budgeting to keep myself on track. You and your family have to live and practice financial discipline. I wouldn’t ever even think about selling the house, that doesn’t make sense to me. Don’t look for the easy way out. If you and your wife put in the work, learn more about debt, financing, expenses and Financial discipline then you’ll come out of this stronger for the next years of your lives. Read all of MMM’s articles.

[remizidae]

The allure of being debt-free, having $200K earning in the 401K, and $175K invested is evident. The interest saved on debt would be nice.

You need to offset the opportunity cost of spending your pension against the interest saved on debt.

Also: https://forum.mrmoneymustache.com/ask-a-mustachian/how-to-convert-your-so-to-mmm-in-50-awesome-steps/