Tag: debt free

Jun 30

How To Cash Out 401(k) – To Pay Off Dept

Nest Egg

Nest Egg

How To Cash Out 401K – To Pay Off Dept, Need money to pay off Credit Cards?

Here are few things you need to know about your 401K

First of all you hear a lot of people telling you not to touch your nest egg. If you do you will have nothing for your retirement.  Well I am here to tell you otherwise and explain why and how to do it. The people that tell you not to touch your 401K plan do not have debt so they are not in your situation. In normal case you don’t want to touch your 401k Plan so that you can have nice retirement plan. If you are in situation that you have credit card dept or any other dept that is subject to interest rate than that should be  #1 Priority!!!  You will pay a lot more in interest than your retirement nest egg will ever grow.

The Truth is that it’s hard to cash out you 401K plan or in most cases impossible. There are however other options that are available that may or may not work for you. Before I get to your alternative options, below you will find a list of exceptions that government has created. If your 401k balance is less than $1000 you can  check with your 401k administrator if you can just cash it out. otherwise keep on reading.

You should also be aware that Uncle Sam will take large chunk because your contributions were Pre-Taxed. Remember that your 401K is not Tax Free; it is simply tax-deferred. That means that if you have currently contributed with pre-tax funds you will have to pay taxes once you start taking distribution.  To Give you idea on how much it will cost you to get your money back a created a example. Those numbers are only estimate to give is sense of what you are looking at, If you take a $20,000 hardship withdrawal to pay for your child’s college tuition, you will owe $6,000 in federal income taxes,$1,500 in State Taxes and an additional $2,000 to cover the early withdrawal penalty. You’ll be left with around $10,500 after Taxes. It might be little less or maybe little more depending on your state tax % rate.

Congress made provisions in the 401k rules to allow plan withdrawals in a limited number of hardship situations. These include:

  • Un-reimbursed medical expenses for you, your spouse, or      dependents.
  • Purchase of an employee’s principal residence.
  • Payment of college tuition and related educational costs      such as room and board for the next 12 months for you, your spouse,      dependents, or children who are no longer dependents.
  • Payments necessary to prevent eviction of you from your      home, or foreclosure on the mortgage of your principal residence.
  • For funeral expenses.
  • Certain expenses for the repair of damage to the      employee’s principal residence.

You may qualify to take a penalty-free withdrawal if you meet one of the following exceptions:

  • You become totally disabled.
  • You are in debt for medical expenses that exceed 7.5      percent of your adjusted gross income.
  • You are required by court order to give the money to      your divorced spouse, a child, or a dependent.
  • You are separated from service (through permanent      layoff, termination, quitting or taking early retirement) in the year you      turn 55, or later.
  • You are separated from service and you have set-up a      payment schedule to withdraw money in substantially equal amounts over the      course of your life expectancy. (Once you begin taking this kind of      distribution you are required to continue for five years or until you      reach age 59 1/2, whichever is longer.)

IF you don’t meet any requirements above here are options you may have in getting money from your 401K plan:

  1. 1.     The first and best option is to take a loan against you 401k Plan

This should best option and also your last resort as well. Most 401k plans set up by your employer will allow you to take a loan from you 401k account with low interest and best off all you will be paying yourself off. The only catch it that only 50% of your total accounts balance can be used for a loan. Your employer or your 401k plan administrator will set up payment plan usually directly subtracting from your pay check. To get this process started contact your employer or human resources so that they can get your paper work started. In most cases you will have a paycheck within 2 weeks.

  1. 2.     If you are close to your employer you can ask them to fire you and then rehire you.

This options only works if you are in good terms with your employer. You don’t want to be stuck unemployed if your employer decides not to re-hire you. When you are no longer employed you are allowed to transfer your founds to a new 401k plan or IRA. Just contact company like fidelity and they will help you transfer the funds to IRA and you be able to take cash out.

  1. 3.     Quit – Quitting your job to cash out your 401k is the worst option and I would strongly advise not to do it.

Quitting is the worst option but it’s a option. This process will let you transfer you Nest egg to IRA account but then you will be unemployed, with no income. So please don’t do it.

Besides those limited few options you have no other choices. The government created 401K so that you would not have to survive on social security once you reach your retirement age. What the government forgot to mention that you will be probably paying higher taxes in the future on your 401k distribution. That is why stop investing in your 401k and start investing in your self so that you would be Debt Free. Trust me nothing will feel better than being debt free person.

If you have any comments or questions please feel free to let me know and I will try my best to get your questions or concerns answered

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Oct 30

Pay off Credit Card Debt Saving Tips & Tricks – Be Debt Free Today

IMG_5273Paying Off Debt – Credit Card Debt Saving Tips & Tricks

Learn how you can save thousands on your credit card debt and how you can get credit card companies to actually pay you. In the last 5 years I saved over $20,000 on credit cards intrest and had them pay me around $1,000 of free money in a way. First of I will start writing about the credit card industry, than I will provide lots of ways and trick on saving money if you have Credit Card Debt. Lastly I will explain how you can get extra cash from the credit card companies
Credit Card industry made over 18 Billion dollars

SAVING THOUSAND IN INTEREST

In 2010 and most likely it will top 20 Billion for the year 2012. Majority of the profit comes from every transaction fee that online, gas station, and retail stores transaction.  The other share comes from you, the end user. This is why Credit card companies love you. You make them money when you swipe your card and when you decide to buy something that you don’t have the money to buy right now, but with a credit card you can. Every time you swipe your card there are fees associated  that the merchant pays, it’s usually $0.15-$2.00, most of the fee depends on the transaction value.  Most merchant use formula to calculate their fees, something like $0.19 for transaction and 1% of the amount. Bicycle $69.95 $0.19+$0.70 (1% of 69.95) = $0.89   That is not that bad right ? LCD TV $1,799 $0.19+$17.99 (1% of 1,799) = $18.18   Now we have almost $20 bucks on a single transaction. THIS IS NICE PROFIT!!! The rest of their income comes from you! Not to mention that credit card companies get there fees from merchants thanks to you too, because you were the one that decided to swipe the plastic card. This is how they make the Billions, and you are stuck  paying off credit card debt.

This is the fun part as we all would like to minimize are debt and pay off are credit cards as soon as possible. I will mention few tricks you might have heard over and over, I will list them here again, but what I am going to tell you may contradict some of those tips.
Here are few most common things you should try doing first.

1.      Call you credit card company and ask them if they can lower your interest rate, any percentage is a big plus. Try multiple time if you have too.
2.      Check all your credit cards for balance amounts and interest being charged to it.
3.      Try to pay off higher interest cards first.

And now for advance tips and tricks. Please read them all as there can be used together and there are some that may require that you do them separately.
One think to keep a eye out for is the letters from you credit card companies. Often they will send you blank check, whatever you do don’t throw them away. Blank checks from a credit card company are for balance transfers which usually have a lower interest. Another thing that is nice about it and that most credit cards will not tell you is that you can deposit them directly to your checking account and use them as you like. The checks can be used to lower your interest and can be used as cash advance but without the high cash advance interest rate and fees. Those checks will come in handy for to maximizing your savings when it comes to helping you pay off credit card debt.


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Things you need to do:

1.      Save the blank checks from credit cards companies.
2.      Check all your credit cards for outstanding balances and interest rates associated with them, write them down
3.      Call your credit card and try to lower your credit interest.
4.      Login to your credit card account and check if you have balance transfer option, and what are the terms and on which card. Compare the offers from all credit cards.

There are a lot of things you can do, there is also a lot of things you can’t do and things you need to watch out for. It all depends on how many credit cards you have and the balance that you carry.
Unlike the method above where I say to pay off credit card with the highest interest first, in this method we want to pay off credit card with the highest credit line and/or least debt on it. The reason for this is that we want to have a credit card that has 0 balance so that we can use that card to do balance transfer to lower interest rate. What you want to do is clear one credit card, do a balance transfer and then wait a month and do another balance transfer if you have more than 2 cards and so on and on. The trick here is to maintain lowest interest balance possible. $5000 balance with 19% interest equals $950 a year, for about 5 years it will take you to pay it off. That’s a total of around $4000 on a $5000 balance. Compare this if you do a balance transfers.
($200+1%) balance transfer fee + 5% (interest) = $$$ ($200+$50) + $250 = $500 a year (interest+fees) Verdict is $950-$500= $450 of savings a year. I had $50,000 of debt balance which given me savings of almost $5000 a year. You may need to do this process more than once so try to keep one credit card always empty if possible. Also try to find balance transfer offers that remain low interest till the balance is paid off.

Things you don’t want to do:

Credit card companies have few tricks under there sleeves as well, so avoid doing the following.
Lets say you have three credit cards with a credit line of ten thousand each.
Card 1: $6000 balance Card 2: $7000 balance Card 3: $8000 balance
Now lets say you won $5000 in lottery and you would want to use this money to pay off your cards. What most people or credit scoring agency will tell you to do the following to increase your credit score.
Card 1: $6000 -$1000 Card 2: $7000 -$2000 Card 3: $8000 -$2000
This is a process will increase your credit score because of the percentage that you owe vs. percentage that you can borrow. WATCH OUT!!!, here is what creditors do to stop you from helping your credit score. As soon as you make those payments, creditors will most likely evaluate your credit and drop your credit line from $30000 to $20000 which will bring your credit to balance ratio back up to the same thing. They say that this is to protect them self because your credit score dropt because you had a large percentage balance when what they are trying to do is make sure you don’t qualify for a reduced rate.
Here is what you want to do: Card 1: $6000 -$5000 Card 2: $7000 -$0 Card 3: $8000 -$0
This will bring one of your cards to $1000 balance and you can pay the rest off a lot sooner and use that empty card to do a balance transfer to lower the rates on the other 2 cards. This will also increase your credit score, maybe just not as much as the other way.
Another trick is to borrow money from a credit Union to pay off you balance or even one card so that you can lower your interest. You need to be a member or you may need to open a account with them, but they will most likely have the lowest rate available.
You can also borrow money from your 401K, since the interest is lower and you will be paying your self back.
If you don’t get offers for balance transfers from your credit cards and you don’t have more than 50%  of debt ratio, than try applying for a credit card that has that option, a lot of times they will try to attract you by saying 0% interest on balance transfers for one year.
I know 0% for a year sounds good, but try to use the ones that say 1%-5% for couple of years or till the balance is paid off,  The reason for that is that it takes more than a year to pay off a credit card debt, if you can do it sooner Great.
One Trick that you may have never heard off on a balance transfer. Lets assume that you have $30,000 credit line total on 3 cards and you have a balance of $29,000 on them. There is not much room to play with and chances are that the credit card companies will not offer you any deals on balance transfers. Here is what you can do. Find someone that you trust and they trust you, close friend, family member perhaps. Ask them if they would be willing to do a balance transfer for you. This means they will take the balance from your card and placed on there’s. This amount will most likely will have to stay on there account for 2-3 month but after that you should be able to do your own balance transfer and take ownership of the debt back, however at a lower interest rate now.
All balance transfers have fees associated with them but they are a lot cheaper then the interest credit cards charge.
So you ask, how can I have credit card companies to pay me? Today there are quite few credit card companies that offer Rewards points or cash back on purchases. Don’t do this if you already have a large balance on your credit cards. Look at your credit cards statement and see if there are any points rewords or cash back. Most credit cards like capital one or discover offer cash back on purchases from 1%-5% on a transaction. When normally you would buy something with cash, and credit card is accepted, then you should pay with credit card and put that cash on the side so that you can pay the balance off at the end of the month. If you go shopping for a new laptop with your friend and he wants to pay with cash. Offer to pay for it with your credit card and tell him to give you the cash. So try to use credit card whenever you can instead of cash, but be carful not to spend more than you can afford. Credit card interest is a lot greater than what you will be greater. There is no point of doing this if you have a balance sitting on your credit card and it is getting hit with interest, this is just bad idea.Those are few tricks you should consider. I will post more as times goes on. So subscribe, follow me. If you have any questions , please ask. If something is unclear, I will attempt to clarify it.
Happy savings.

 

 

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