This is another chapter of the continuing saga of my debt, bankruptcy, getting into debt, and trying (this time without bankruptcy) to get out of debt entirely. I’m far too lazy to go look up all the other entries and link them here so if you’re interested, you can do your own darn work. Ya whippersnapper!
I started my last job in September of 2007. It was the first time in my life where I worked for a company that actually provided me with a 401k, let alone a 401k match. I would contribute 5% of each paycheck, and they would contribute 4%. It was cool. (Less cool: when they cut the 401k match to 2%…but that wasn’t entirely the company’s fault.) Plus, the money was locked away and I couldn’t do anything with it, so that was good too.
Well, when I left that job a month ago (!) and started my new job, I had a decision to make. As I saw it, I had one of two options. I could
- Keep the money where it was and hope that something good happened to it,
- Roll the money over into an IRA where I could have a little more control, or
- Withdraw the money, pay the penalties and taxes, and then use what I had saved to pay off credit cards.
I thought a lot about it, asked my parents, did the math, and eventually decided that the best use of that money was option #3–I was going to empty out the 401k, then pay off my credit cards. My credit cards have interest rates between 23% and 30%, while my 401k/IRA would only be likely to average 12% a year. Plus, I’m currently paying about $500 a month in credit card bills that, once these are paid off, I will be able to funnel into my retirement. So, I figured that, overall, this would be a much better move.
Let’s talk about those credit cards, shall we?
Merrick Bank
Merrick Bank focuses on finding people who are in the thralls of bankruptcy hearings, and then offers them credit cards under the guise of helping them rebuild their credit. They start with miniscule limits of $500 and 29.9% interest rates, gradually increasing the credit limit as you prove you can handle the payments. The also try to upsell you on everything under the sun. You can’t log into your account without being assaulted by another offer to get credit protection or insurance or some such thing. This account is still open, but I no longer have the card. I cut it up.
Credit Limit: $1850. Utilized Limit: $1387
Chase / Best Buy
This card was originally a Circuit City card which I used to buy my television back in the fall of 2007. I used the card because I got a minor discount, plus a 24-month same as cash payment plan. When Circuit City closed, Chase EVER so kindly just switched my card from Circuit City to Best Buy. We all know me and electronics, though. I’ve actually paid this card off in full THREE times in the last three years. I finally got so tired of paying the card off over and over again, so I cut this card up as well. The account is still open, but since I have no card, it’s a little tricky to use.
Credit Limit: $1,500. Utilized Limit: $1154
Kohl’s
I actually just got this card back in February, and I only got it so I could get all the deals. I pay this card off in full every month. I’ve never paid any interest on this card, and I have no intention of doing so. (It also helps that a) the card has a very small limit and b) that there’s nothing at Kohl’s all that expensive.)
Credit Limit: $400. Utilized Limit: $68.
Dell
Ah, Dell. I have no idea why they keep giving me credit…but they do. I originally had a Dell account back before the bankruptcy. Back then (making my $12,000 a year) I had a limit of $3,800. Of course, the fact that Dell sells computers is a trouble spot for me, but where I really get into trouble is in their digital camera section. All of my digital cameras from 2001 onward have come from Dell. After the bankruptcy, I got the line of credit again because I had a studio computer that died and painful and ignominious death, and needed to be replaced quickly. That wasn’t so bad. Then I started buying camera gear, and quickly maxed out the line. This line of credit doesn’t come with a card–all I need is my social security # and my mother’s maiden name, and I can make purchases. So I will actually be closing this account out once it’s paid off.
Credit Limit: $5,500. Utilized Limit: $5,438.
Capital One
Capital One another company that had given me a credit card before the "Big B" and a few years afterwards, gave me a Platinum card. (I guess the fact that three years after bankruptcy I had a credit score in the low-mid 700s looked pretty good to them.) This is also the only actual credit card that I carry around in my wallet. I originally got it for "emergencies" and, for the most part, that’s how I’ve used it. It’s nearly maxed out as well, but that’s from dentist visits (5 cavities and a crown), glasses, new tires for the car, doctor’s visits, etc. I’ve also nickeled and dimed myself a bit with this card…picking up a video game here or there, or maybe a pair of shoes. But mostly big ticket expenses. They keep upping my credit limit which is flattering in a way, but also dangerous. My plan with this card, once paid off, is to ask them to lower the credit limit down to about $3000-$4000, and then keep it just for emergencies. And discipline myself to use it ONLY for emergencies.
Credit Limit: $5550. Utilized Limit: $5397.
It’s pretty obvious that I just don’t have control when it comes to my credit. So, despite all the advice to the contrary, I will be closing out the credit accounts as I pay them off. I’ll take a small hit to my credit score, but since I am not going to be buying either a car OR a house in the next long while, and I still have a Bankruptcy on my record for another year and a half, I’m sure I’ll be fine. Plus, I’m still paying on my car payment and on my student loans, so it’s not like I’m going to be out of the credit score game any time soon.
So, a couple of days ago, I initiated the process of emptying out the 401k. I will get charged 20% taxes on the contributions (which is actually less than I pay in taxes on my regular income) plus a 10% penalty for withdrawing the funds early. In about two weeks, I should get a check for the remainder, which should help me pay off Best Buy, Dell, Merrick, and about a third of the Capital One. Then, with those other monthly payments freed up, I should be able to get that paid off by the end of the year. I am planning on keeping that account open for emergencies (and because it’s got the lowest interest rates of all of my accounts.)
So, assuming all goes well, I could finally be credit card debt free by the end of the year. Now if I can just keep from talking myself into buying a new mattress (which I actually do kindof need) or a new car (which I don’t) or any new computers (other than the laptop I just bought myself for my birthday), I’ll be in good shape.
Oh yeah! And I actually paid off my first student loan last week! (Only $67,000 more to go…)
I can’t even begin to tell you what kind of party I’m going to have on the day I finally pay off all of my debt. It’s going to be AWESOME. I’m taking all my (2) friends out dinner. My treat. I’ll just charge it.
(KIDDING!)
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