Whats the best way to get rid of my debt?

Question

I am $12,000 in credit card debt. $8000 of that is at 4% interest and the rest is at 0% for the next 3 months. I have around $30,000 equity in my rental property, and another $30,000 in my 401k. My minimum payments each month are $210. Do I continue to make payments of $500 per month, take out a home equity loan from my rental property, take a loan from my 401k, or refinance my rental property (presently 5.5% fixed 30yrs). Or any other advice would be greatly appreciated.

Answer 1

Do not touch your 401k, the amount of money and tax benefits that 30k can create far exceeds your 12k in debt, in fact it will grow quicker than even outrageous interest rates on cc's. I would attempt to buckle down and NOT refi, 5.5 is a great rate, and although you would like to not have that debt, if you continue to pay substantial amounts of $500 plus, you will be able to pay that off without touching retirement or your low fixed int rate loan. Bottom line, do not pull the 401k money out.

Answer 2

http://debtcash.blogspot.com/

Answer 3

Keep paying the 500 a month. Don't take out a loan or touch your 401K. Just keep paying the 500, and add any extra money that you can if possible. Slowly it will go away. Do you have any savings?

Answer 4

Keep things as they are.  If you can afford more than the $500, do so.  Do not touch your 401k till you get to retirement.

Put the card in a block of ice and don't touch it.

That is the best way to handle it.  Once your CC is paid off, apply that to either your home mortgage or the rental property.

Answer 5

hello -

the credit card debt is unsecured so i would not put your home against it.  it will take you a very long time to pay back the 401K, and thats more or less a loan of your tax rate (as the money went in before taxes, but you will pay it back with after tax dollars).

do what the person above suggests - see if you can find a second job to pay more down, and i would try to pay off the 0% before it goes up.  then you have the rest at 4%, which all things considered is not too bad.  Or else track what you spend, and stop buying the "extras" for a while, that will add up very fast as well.  put that all towards the debt.  

good luck

Answer 6

Basically, you want to cover the highest interest stuff first.  I find it a little strange that your credit card debt only has an interest rate of 4%, but if that´s the case then your primary concern should fall towards the home loan.  Basically, you want to tackle the things that are going to cost you the most in the long term first.  If you´re taking out a loan to repay back other debt, as long as the interest rate is lower and you´re not incurring any additional costs, I would do it.  Otherwise, you´re sitting with some pretty low interest stuff, so unless you have some cheaper options i´d just maintain the position.

Answer 7

I would not touch the 401(k).

I would NEVER pay credit cards with real estate equity lines of credit, refi mortgages, etc. You will always pay more long therm, often double the debt on a 30 year loan.

I don't know what the debt (mortgage balance) is on the rental property? Is it fully paid for?

Does the rental property pay the mortgage? Use that money to pay the CC's.

Cut up the cards. Start paying cash.

Answer 8

Refinance whatever you can to reduce or eliminate that credit card debt. With due respect, you should also put those credit cards through the shredder and reassess some of your values (i.e cut on the spending, make a budget and live within your means).

Answer 9

I would just continue to pay the $500 a month. A home equity loan is still a loan and all you'd be doing would be combining the debt... Taking the money out of your 401K is an easy out, but if you leave it invested, it will grow and if you take the money out, you'll be taxed on it, so in order to get enough to pay off your debt you'll have to take a large chunk of what you have invested. Your property sounds like it's a good mortgage at 5.5% fixed, so I wouldn't mess with that. You could  get a second job to pay even a couple more hundred bucks a month towards your debt. It would really help you pay it down faster and it would only be temporary until the debt is gone.

Answer 10

Get gazelle intense and do a strict budget, picking up the second job if need be. OR sell the rental property pay off the debt and establish a nice emergency fund. Re-invest in rental property only when you can purchase them in cash. Sacrifice and telling yourself no is not a common thing in our society. Live like no one else now so you can LIVE like no one else later.

Answer 11

Can you afford to continue to make payments? DO NOT TAP INTO YOUR 401K. Make the double payments should be paid off in about 2 years and DO NOT USE YOUR CREDIT CARDS AGAIN, at least until they are paid off. Then use them only when you have to.