Reader Advice
Reader Advice: Pia 401K or Debt?
Free Money Finance has a fabulous help a reader section where he posts questions that his readers has asked him and allows his reading audience to weight in. When Pia left a detailed comment on a post and wanted some advice on what to do with her financial situation, I thought, why not open it up to everyone since lots of people have money problems? Pia agreed, and below is her story. Be nice and civil everyone. Remember, this is a real person with a real problem in real life.
I’m 28 yrs old, and have been with the same employer for the last 7 years. I donate 5% per paycheck to my 401k the last 4 years or so and 2% before that. My company’s maximum match up I believe is 4%. And unfortunately, that’s as far as my knowledge about 401k goes. [According to the 401K site] I have $4,357 for Cons. Ret. Benefit Plan (which I have no idea what it is) and $13,638.21 for 401k RSA Plan. This gives me a total market value of $17,995.22.
I have 4 credit cards, and 3 of them I have stopped paying since the last year or so. I also have a car loan. Last month I received a letter from Chase’s Legal Dept, informing me that they filed a lawsuit against me for the money I owe, which was around $4,200. This scared me and made me really think about the consequence of not paying my debts. I didn’t worry too much about the collection calls and letters I’ve been getting in the past. But a lawsuit is a whole different story. I called them to make payment arrangements. They said along with the $4,200 balance, I also owe them $800 for late fees. They offered me $2,800 to settle which I agreed to. In fact, I just cut the check yesterday, which will now leave me in a very, very tight budget.
These are rough estimates of balances for the remaining credit cards that I have stopped paying (which I am hoping to settle once I get funds):
Discover – $2,800, Another Chase CC – $4,000, Chase/Wamu – $500 (This was a bank account). And I am paying these currently, since they are from the same establishment: Credit card – $2,700 (I am making the min. payment of $54 and $33 goes to the interest, WTF?); Car loan – $3,900 (6% interest) ($333 a month). My net income for two weeks is around $825. As far as monthly expenses go, aside from the two above, I have [expenses totalling $650 including utilities, car and motorcycle insurance, gas, phone & internet,] plus food and necessities.I really, really want to take care of my debts, and build my credit back up again. I definitely learned my lesson and would love to have a fresh start. Do you think taking a 401k loan is a good idea for me? How much is it really going to cost me? What other options do I have? Any advice from you and your readers will be greatly appreciated!!
What advice do YOU have for Pia?
