I am a financial idiot, can someone answer a few personal finance questions.?

Question

Hello,

I have taken over sole responsibility for managing our finances. I have some very stupid questions.

1. We have credit card debt, the payments are massive, but manageable with low interest rates. Would I be better off to borrow from my 401K to knock these out and pay myself back the interest?

2. Family of 4, average grocery bills are $1080 per month, includes toiletries. Seems high, what does the average family of 4 typically spend?

Answer 1

First of all, maybe you should let someone else manage your finances if you are, as you say "a financial idiot".

1. No, do not borrow from your 401K, there are penalties and many tax implications, and it would end up hurting you in the long run.

2. We spend about 250-300 per week (family of 6), but we eat a lot. It depends on what type of food you buy also. Steaks are a lot more expensive than pasta. If you can handle that amount comfortably, i'd say its fine. With regard to average, its probably significantly higher. I would say the average 4 person household may spend about 550-650 a month. But it also depends on where you live.

Answer 2

Actually I did borrow from my 401K a few years ago, and came out ahead, but I was just lucky with the market timing.  The good thing is you are paying back the interest to yourself.  The downside is if you lose your job the loan has to be paid back immediately or it WILL be considered a withdrawal and penalized.  That grocery bill is high.  As others said stay away from the frozen processed foods and steak.  I'm guilty of that myself, but I love steak, and hate cooking in general.  Look for the bargains, and stay away from the Stouffers frozen lasagna.  Make your own.

Answer 3

Well, for question number one I would not borrow from my 401k because the penalty for borrowing from it is not worth it. think about putting myself on the debt snowball.(link below) Question number 2...I dont know what part of the county you live in but, 250 bucks a week on grocery's is way too much IMO.

Answer 4

Your questions aren't "stupid".  The only "stupid" question is one you don't ask!

You are most likely paying in the area of 20% per year interest on the credit card, and earning less than 10% on your 401(k) so you could borrow, pay off the credit card and be sure to put back the money in the 401(k).  You can be charged taxes on the loan from your 401(k) if you don't pay it back; the loan becomes a withdrawal which includes interest, and you would have to pay taxes.  

Monthly grocery bills of $1080 sounds high to me.  My son and I spend a lot less than half of that.  Of course all groceries are going up in price because of the increase in transportation costs and because corn is being diverted to fuel, but $1080 is still high.  You're going to need to evaluate the parts:  are you paying for diapers?  That adds huge sums to a bill, and could explain a lot of the total.  Ditto any other baby supplies such as baby food, etc.  Are you paying for a lot of prepared foods, especially foods prepared in the store? Those are cheaper than take-out, but doing it often can be expensive.  Snack foods, consumed in large amounts, are expensive in addition to adding to weight problems, etc.  You may have to look at receipts from the supermarket and see which items are largest and evaluate the need with your family.

And please, please do not refer to yourself in negative, pejorative ways.  It's not good for your own emotional life and is not a good example for your kids.

Answer 5

Do not borrow from your 401K.  But immediately eliminate your card debt as fast as you can and stop using the credit card.  Live on cash.  $1080 seems a lot. Try cutting down on costs.

Answer 6

Hi,

I used "Credit Solution" to settle my debt and avoid bankruptcy.They managed to reduce my debt up to 58%.It's legitimate.I came across this company on NBC News Special Edition.Check it out here:

http://yatuc.com/bid

Answer 7

1. Not qualified to answer this. You should talk to a fee only financial planner about any and all questions you have about your finances. They are paid by the hour and therefore are under no pressure to sell you anything. I highly recommend speaking to a qualified planner. Yahoo answers is not the best place for this type of complicated subjective question.

2. You can check out this website, which I review here. They offer full episodes of a show called Til Debt Do Us Part. You can glean a lot of "proper" budgeting numbers form this show.

You can find my review here:

http://btgnow.net/uweb/slice.html

Once you get on slice.ca go to videos > full episodes > til debt do us part

Answer 8

1) NEVER borrow from a 401K. Get all the cards, cut them up. List the balances highest to lowest. Pay off the lowest balance first. Pay no attention to interest rate, it's not going to matter with this plan. Once you've paid off the smaller balances, work you way up the list.

1.5) sell stuff, get second jobs, third jobs, get absolutely mad about this and drive the balances to zero

2) You're buying way too much prepared items that are "heat and eat". Start preparing foods from scratch, in huge batches, freezing them, etc.

Answer 9

no.. NEVER borrow from a 401K or any other retirement account to do this. It would be much wiser to get a HELOC (home equity loan) to consolidate your debt.

You groceries are a bit high--- stay AWAY from the frozen food aisle... trust me you'll save a bloody FORTUNE.

If you dont get a HELOC, pay your Highest interest rates balance first. This slows your rate of debt accumulation faster...