Random Office Conversation - Servicing vs. Paying Off $150k non-housing debt

quote:

---

Have the party being RIFed to find another job.

---

They found one. It’s just for less. Part of why I suggested not panicking because they could bring that income up sooner than they think.

Sell and downgrade vehicles to start.
Maybe a 401k loan but almost never early withdrawal during accumulation phase.

Point out 401k and IRAs have protections against bankruptcy and creditors. So even in a worst case situation where they default they're probably better off having held onto their retirement funds just walk away with wrecked credit.

quote:

---

Seems like you gathered a lot of information, but shared nothing relevant.

---

Yeah. I walked in on it late and also didn't care enough to have them answer all the details again.

I was more shocked at the responses I got when I suggested against IRA withdrawal.

quote:

---

Is the current income $175 or the previous income? Either way, you follow up they have new jobs…but want to withdraw $130 for peace of mind? It sounds like they had their hearts set on a new side by side before a RIF got in the way.

---

Based on what I gathered. The $175k is the new income. They were around $225 HHI and that $50k drop is what was servicing the non-housing debt.

Honestly, I think they're still in panic mode and not thinking it through fully. Unless there's something drastic that wasn't shared. $175k should be around $10k take home unless there's some additional outflows we weren't made aware of. Didn't gather they were looking to keep spending money. Just trying to figure out how to continue saving and covering bills.

My ultimate suggestion was to look at downgrading one vehicle, pausing any retirement, and tightening expenses. If that didn't get them to break-even or they didn't want to downgrade cars...then find some freelance work and grow income.

Sell the expensive cars and drive beaters til they can pay off their student loans and signature loan

quote:

---

$130k non-housing debt ($60k vehicles, $80k student loans, $10k signature loan)

---

is my math bad? Shouldn't that be $150K

I agree they shouldn't take the $ out of retirement. But if they do, could they consider doing it for only part of the debt?

Maybe someone said that, but I've been adding those numbers repeatedly

quote:

---

Many at the table were suggesting taking $130k from IRA during rollover from old job.

---

quote:

---

80k in student loans left in your late 30s

---

Had wayyy more than this at that point, law school loans. Paid off finally in early 40s. However, it is a reality for many.

A middle ground option, instead of taking an immediate disbursement during rollover: rollover 401k to IRA (not new employer's 401k plan) but leave it untouched for now.

That way, it is there just in case for "peace of mind" just in case all else fails and they still want to tap it and pay taxes plus penalty. This gives them time to calm down, weather the storm and hopefully adjust budget to new income reality.

An astonishingly large # of people erroneously believe splitting assets into multiple accounts reduces compounding. So be prepared to get push back and explain the commutative property of multiplication.

You shouldn't take from retirement unless its an emergency, and this certainly is not an emergency. They need to wake up and pay this shite off. If they are making $225k with $80k in student loans and $10k consumer debt or whatever it is, they are idiots.

They need to stop trying to keep up with the Jones', sell a car, buy a beater, and pay off their debt. One of them can get a new car when they are debt free as a reward. Put it on loan, I don't care.

But until people hit the bottom of the barrel they will never learn financially. They will blow through their retirement, and be financially in bad shape for the rest of their lives including needing to work until they are 70+.