Okay heres my problem: I am 25 years old and I work full time making about $1900 take home a month. I just had a baby and my husband makes about $1500 take home a month. We oen a house and pay $900 month, we have a car and pay $300 per month. I am about $13000 in credit card debt and another $12000 in student loan debt- I am paying about $600 a month on cc debt alone. We both have very bad credit so we do not qualify for a equity loan or a consolidation loan. I have about $11000 in my 401 k and I am thinking of either cashing out or taking a loan. I dont know what the best one to do is or what else we could do to get out of debt! We are living pay check to pay check and have just enough money every month to get everything we need. What is the best solution to get us out of debt? I am more concerned with the credit card debt then anything else.

First of all you will not be able to cash out your 401k unless you quit your job. Borrowing against it to clear debt is just transfering debt. I would recommend that (I am doing this alot today) that you review a debt reduction program such as that presented by Dave Ramsey or Suze Oreman. Dave Ramsey has a great book called The Total Money Makeover. I would highly recommend that you check it out of the library and read it with your husband.

So you have total income of $3,400 and currently pay (excluding student loan) $1,800 in debt/mortgage payments.

I won't recommend to take out one loan to repay the others as you just transfer debt from one place to another. The only sceanrio were that would make sense if you can get a drastically lower interest rate then the once you currently have but since you mentioned that you ad your husband have bad credit that possibility is very very low.

Interest payments are probably your biggest concern. Is there any way that you can free up cash from your monthly expenses by lowering them?

You need to increase your monthly payments towards your CC (since you mentioned that is your biggest concern).

Make a list of all your income and expenses and see what you can do to decrease your expenses.

I favor the 'invest-your-way-out-of-it' approach but that would require you to get some assistance and you will have to pay for that. I don't know if you want to do that so I won't go further into that.

Is it possible for you and/or husband to get a second job? Part-time will help you to repay your debt faster.

It may not be easy but it can be done. Good luck!

__________________
It is not smart to play it safe but it is safe to play it smart.

I agree with the rest.....and also thinks that your expenses would be the first thin to review.....what do you spend on an monthly...and is it really a need.....

once u did this, its time to see where you are....do you have enough for savings...if there is, even if its $100 a month, please do save it....if possible place it in an investment account and do not withdraw it...........although the "recommended" amount is 10%, I myself dun adhere to that.....I place about 50% of my $$ into investment.....I stay in Singapore btw, so that translates to roughly $700 a month.......

I agree, investments are the best way especially if you have a great ROI.

I always have and will favor global equity investments.

In the end, it's all a personal choice.

__________________
It is not smart to play it safe but it is safe to play it smart.

I'll take a different point of view...

First off, I agree that you need to attack the budget and see if there is additional cashflow.

Are you still contributing to your 401k? If so, you may want to consider stopping contributions for now. Funnel the additional cash into paying off your debt. It doesn't make sense to be earning maybe 10% in your 401k if you are losing 20+% out in CC debt interest.

Also, I would explore the 401k a little further. Actually you may be able to take money out, depending on how your company has their plan structured. This is an option you have to consider. There are taxes to consider, plus the 10% penalty, but it still may be worth it. Keep in mind they'll withhold the 20% tax, but probably not the 10% penalty. That will show up at tax time.

Do NOT do a 401k loan. In fact, don't EVER do this. While you are taking a loan out at what seems to be a low interest rate, one which you typically pay back to yourself, what most people don't realize is that the payments are after-tax. So you are effectively going to be taxed twice on this money. Not to mention, your tax bracket may put your tax rate comparable to most credit cards. Ugh.

Paying a cc is with "after tax" dollars...so I don't understand how it would be worse to pay a 401k load with "after tax" dollars.

I wouldn't put any more into the 401k -- UNLESS -- it was matched 100%. Then if you borrowed against it...you get your money back and your employers money stays in. That's a good deal.

It's also a good deal to reduce the cost of your debt. If you are paying 20% on credit cards, and a 401k loan is 10%...then you'd be saving money. Not to mention that the 10% you pay, you pay to yourself.

Where people go wrong with this strategy...is that they often don't change their spending habits. They transfer cc debt to their 401k or home equity...then run the cc charges back up. Stupid stupid....and I been there, done that too many times.

You seem to make decent money....I bet there's a lot of fat in your spending habits. Eating out. Stuff like that.

I second the notion of reading Dave Ramsey. I don't agree with all of his ideas...but he's a great read and will help motivate you to get rid of the debt. He's also got a great radio program and you can listen via the web too.

Lee

The credit card bills are your biggest drain by far. Try to make efforts to reduce the credit cards first in order to lower and eliminate the high payment requirements on these unsecured debts.

Well, Your problem is a bit Difficult to solve, as you have to pay a lot more than you and your husband get in a single month. i wont advice you to cash your 401 K as yoiu have to lose your job for that which is much more important for you as you just have a baby. You can try to have a loan at lower rate for settling the other amounts.

__________________
My Blog
Debt Elimination

I agree with pleasenodebt your credit cards are a huge drain, so try reducing them first and you should free up some more funds to pay off the rest.

__________________
I found some great information on franchises and becoming an entrepreneur at these sites.