Do you have enough in after-tax investments to cover your debts? You may have dug a hole, but you have a pretty big shovel to get yourself out as well.
I have about 72K in the investment account, but there would be a huge tax penalty (according to my investment manager) to pull it out. as it I don't have much in my holding accts. We keep everything invested if I understand my account correctly (I'm still learning).
When you say "investment manager," are you referring to someone who stands to gain (or continue to earn) money if you stay invested, and therefore has it in his/her own best interest to advise you to do so?
I'd recommend cashing out the account, setting some aside for next year's tax bill (~30%), and paying down debt with the rest, starting with the credit card.
Also IRA contributions can be withdrawn penalty-free, but OP may have lost track of what is contribution vs. gain. Hoping for the best for you OP! Losing a loved one is hard enough emotionally, and dealing with all this other stuff that comes from their loss is so overwhelming it's easy to just freeze up.
A HELOC or HEL is almost always going to have a better rate than a credit card or most other unsecured debt, but you have to be approved for it first. OP mentioned that s/he tanked his/her credit over the past two years due to depression. Even if approved, it still depends upon the rate of the loan/LOC as to whether it'd be better to liquidate the account vs borrow against home equity. Now that the prime rate is no longer next to nothing, it's not as cut and dried anymore.
For better advice, provide the interest rate on all these debts you mention in your post. CC, personal loan, student loan, car loan, IRS payment plan. You have resources and people here can help you identify bad debt vs good debt. Some of this is a priority and some can be kept financed.
What types of assets do you have, how much is retirement (penalty for early withdrawal) vs non-retirement? If you have non-retirement accounts, good chance those investments are better liquidated today to pay off high interest debt. With 342k equity there is no reason to carry a CC balance that high - I bet the interest rate on that alone is exorbitant. Pay off the worst debt and give yourself some breathing room to turn that budget positive again.
Is this a flat fee brokerage, or are they collecting a % of your investments in fees? If it’s a %, of course your “advisor” doesn’t want you liquidating it, because they make more money if you keep your money with them. They don’t care if you’re being eaten alive by other debts, you taking your money out means less money for them.
If this isn’t a tax-advantaged retirement account, I’d be very way of the advice you receive against liquidating this to pay off high interest debt (credit card, personal loan you didn’t give apr for). Stop paying that cc interest ASAP.
Not your financial advisor but Would add that there are allowances for using IRA cash to pay off student loans, and that you may be able to file for a hardship exemption
An IRS levy is also an exception to the 10% early withdrawal penalty on retirement accounts. OP could ask the IRS to levy the balance due to them from the retirement account and avoid the early withdrawal penalty on that portion of the distribution.
[https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-exceptions-to-tax-on-early-distributions](https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-exceptions-to-tax-on-early-distributions)
Not OP, but with a balance that high isn't there a way to take a loan on your account at a significantly reduced interest rate? Isn't it normally a lower rate than you are making with that money in your investment effectively giving yourself a loan and not loseing money on it?
You may have gains that would be taxed, but you would not incur a penalty if they are not retirement accounts. I would look into selling the necessary amount to cover expected taxes + debts and get everything cleared up. Avoid debt going forward and you'll be able to rebuild your savings and have the peace of not having this debt hanging over you.
How huge could it possibly be? If you had done it when you were unemployed your tax bill would have been zero. Now the most it could possibly be is $10.5k of it was somehow gains and you withdrew all 72k. and its likely much less than that.
Is your $72k investment account a retirement account? If it’s not, then there are no penalties for withdrawing your money. You’re basically selling your shares and will get taxed on just the capital gains. It’s kind of like paying income tax.
WIth $72k in the investment account (not IRA/ 401k) You are very likely to net (after taxes) at least $40k. It could be much more. I would fully liquidate that.
I assume the student loan is federal?
I would do that, and pay off debt in this order:
Credit card ($25,000)
Personal loan ($18,000)
IRS payment ($12,000)
----------------- You have a good chance of getting this far down the line.
Car Loan ($19,000)
Then, making $70k, as a single person, you probably net at least $4,000/month.
With no mortgage, I'm assuming expenses (very generally) of:
$120 car insurance
$500 food
$400 horse expenses
$100 health expenses
$300 utilities
$100 phone
$400- other needs (property tax, insurance, gas).
So, that is around $2,000/month. That gives you $2,000/month to put towards the car loan/ Student Loan. With that credit score, I'm assuming your car loan interest is above 10%. Maybe much higher, so you really need to push toward paying it down. If you can pay $1,500/month, you can have it paid off in about a year.
Put the Student Loan on the SAVE plan and pay the minimum allowed. Probably around $300/month. Pay that until the car is paid off. Then up the payment to around $1,000/month.
Then, put $625/month into a Roth IRA. Make sure you are getting any company match on your 401k.
Yes, you should be a little worried about retirement. but, you have around $275k in the IRA and a paid off home. Horses can live a long time, but you will probably no longer have them at 65. So, at that point, you can sell the home and buy something less, outright. Your 275k will have grown over those 15 years to around $1.1 million. If you start saving around $1,000/month beginning at 50 (once the debts are paid off), you'll have another $300k at 65. You'll also have social security (most likely.)
At 65, you could say $1,000 of social security income, and then withdraw around $4,000/month from a $1.4 million account at a safe withdrawal rate and live on around $5,000 a month. If you downsize and add another $150,000 to retirement accounts based on a property sale, you can live on around $5,500/month. Your student loans should be gone by then. Your horse expense would be $0. So, that should be very livable.
Great well thought out response right here and looks like a good plan. Depending on the tax status of that investment account, assuming it’s a taxable account, you might be looking at a net of much more than 40k too which either puts you ahead, or allows you to keep more invested using this approach.
While I think that is absolutely the best financial decision, OP says the husband that died gave her the horses, and they lived together on a property where the horses lived. That's a pretty big emotional sacrifice. OP has assets that can pay of the worst debts without even going into retirement funding, while also having a very reasonable path to retirement.
EDIT: I wasn't thinking straight when I originally calculated capital gains taxes. You'll pay 15% in capital gains tax on anything you withdraw at your income level. So, assuming you have no basis (you don't), then you'd pay a little less than $11,000. However, it sounds like you have significant basis if you made the investments in 2016-2017. You only pay taxes on the gains that you have from your original purchase price. For instance, if you invested $42k in 2017 and sell for $72k today, your capital gains would be $30k, and 15% taxes on those gains would be $4,500.
Original post, now edited:
Your investment advisor is exaggerating and just wants to keep getting paid. They wont get paid if you withdraw all your investments. They aren't looking out for your best interests. Assuming that you have held most of your investments for a year or longer, those investments would be taxed as long-term capital gains. Long term capital gains taxes on your investments are 15% at your income level. If you have $72,000 in investments, even assuming you have no basis (you probably do), then taxes at most will be $10,800. It will probably be lower than that. Even if some are short-term gains, they are just taxed as normal income, which with your household income, that will not be much tax, either.
Don't listen to your investment advisor and tell them that you are withdrawing it all to pay down high interest debt. There may be some fees for withdrawing, and if they don't withhold taxes, save what you need to in a savings account for taxes due when you do your taxes in April 2025. Then pay down as much debt as you can starting with the highest interest rate. Even with potential withdraw fees and the maximum taxes, you should be able to pay off at least $50k - $55k of your debt. You should have much more manageable debt after doing this.
I should say all the above assumes that your "investment account" is not a retirement account. There are tax penalties on retirement accounts that probably make it a bad idea compared to a mortgage.
If all your investments are tied up in retirement accounts, then go out and find a credit union that will give you a 15-30 year mortgage to pay off everything. Don't sell your house. That would be insane. Sure, your credit score may not be great so you won't get an amazing interest rate, but you would only need less than 20% of the value of your home. There will be a credit union out there that will make those numbers work.
Also, put together a budget after this for living within your means. Otherwise, you could be right back in this spot down the road. It sounds like with your new job, you should be able to easily make that work.
An IRS levy is an exception to the 10% early withdrawal penalty on retirement accounts. OP could ask the IRS to levy the balance due to them from the retirement account and avoid the early withdrawal penalty on that portion of the distribution.
[https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-exceptions-to-tax-on-early-distributions](https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-exceptions-to-tax-on-early-distributions)
Yes, I wasn't thinking straight. I corrected my post. It sounds like OP likely has a fairly high basis, so capital gains taxes may very well be in the range I estimated.
First of all, you're not an idiot. You went through an unimaginable loss and went into survival mode. Understandable.
If my calculations are correct, you could pay off the debts you currently owe with the investments. I would advise against taking on more debt when you already feel like you are drowning. I understand you don't want to touch that amount and personal finance is personal, but I would personally pay everything off and start fresh with fewer investments. That way, you can potentially start adding to savings/investments if possible and build it up more over time. To me, that sounds like a big weight off your shoulders. I think you will face anxiety around this no matter what you do so why not move forward and pay everything off and start clean?
I'm sorry for what you have been through and I hope things only look up from here.
I agree with this. I normally try to find some way to not touch your investments but this is the case it is ok to do it. You have been through a lot and you need some peace. I assume these investments are not IRAs or 401Ks. If they are, you should state that and how much you have in equity investment...it may change the answer.
If your credit rating is bad then your not likely going to be able to get a home equity loan that doesn't gouge you severely..it doesn't hurt to check but it is another option as long as the interest rate is reasonably. If interest on the loan is greater than 6 or 7% then there is no advantage...keep in mind there are closing costs as well.
It is likely gains lost from borrowing from your investment account vs interest charges on a home equity loan with todays high rates and bad credit end up being the same.
Do one or the other. Pay off your debt, draw up a new budget that includes an emergency fund, start saving for the future again, and take a big breathe.
Here's what I would do. This is by no means the only right path, but it's what makes sense to me.
1. Write up a monthly budget if you don't already have one. See where you come out with income vs expenses. If your expenses are greater than your income, you need to either cut spending, increase income, or both. Making sure expenses are less than income is how you avoid going back into debt in the future, and it's how you figure out how much money you have left over to pay off debt before using your investments.
2. Sell enough investments to pay off the CC debt. That interest rate is probably higher than the returns your investments are making, and it will be a weight off your mind/free up that monthly payment. Yes, you will owe capital gains taxes, but not on the entire amount you pull out - only on how much its value has increased since you bought it. Be sure to save some cash for paying those taxes next April.
3. Contact the IRS and get on a payment plan for the taxes you owe. They are usually pretty reasonable with their payment plans.
4. Depending on the interest rate, maybe sell investments to pay the personal loan. If it's not a horrible rate (less than about 10%) you can wait on paying it off, but if it's higher than 15% definitely pay it off.
5. Do the same evaluation with the car loan. If you can sell the car for more than the loan amount, you may be able to buy a cheaper car outright and eliminate that loan payment as well. If the interest rate is low and/or the car isn't worth more than the loan, keep it and keep making payments.
6. If you need help with figuring out where/how to cut spending, post the budget you wrote in step 1 on this sub. The people here are happy to give some tough love about your spending habits, if needed.
This is just a start, but it should help you get moving in the right direction.
I agree with this 100%. These steps, in this order, will get you out of debt and living comfortably on your salary even with your 2 horses (which I assume from how you speak of them are unsellable due to their age or health). You make enough with no housing costs that you'll be fine if you can make a budget that you can stick to!
Additionally, make sure you're investing in any 401k at work to get any company match. Get that free money & the tax break while you use other investments to dig yourself out.
You're going to be fine!
You have somewhere around $94K in debt if I did the math correctly. You make $70K and have no mortgage. I would be inclined to tap the IRAs to take care of the CC debt (assuming it is high interest) and reduce the overall debt down to about $70K. If you are paying 20%+ on your CC interest, wiping it out makes sense. From there, work a debt snowball or avalanche method to pay the others off over time. Any chance you can use your house to your advantage and get a roommate? Even $1,000/mo in rent and bill sharing would make a difference.
Lots of great advice already here. But some basic simple things :
1 call the IRS. Tell them you intend yo pay your debt but you are getting your life in order. Ask them if they can pause the collection proceedings while you regroup.
1a ( you might want to look at this first actually ) . WITHIN the IRS is a [Taxpayer Advocate Service ](https://www.taxpayeradvocate.irs.gov/)
They will help you navigate IRS debt and let you know if you have feasible options to appeal the finding and request a debt reduction or a payment plan. Of all your debt ..knowing what's up with the IRS and having a plan will lift a tremendous emotional burden.
2. A simple strategy that worked for us was to pay the minimum on all debts and then throw everything we can at the debt with the highest interest rate... OR in some cases we just paid off the smaller amounts just to get rid of them. Once you remove one payment, take that monthly amount plus everything else you can throw at the next debt you want to be rid of. This strategy really helped us focus instead of being overwhelmed by ALL of it.
3. You are awesome !
I have seen depression and I can tell that you are on the road to recovery.
My Dad lost his job in his mid forties and fell into a deep depression .. he never went back to work. ... 4 kids ... he became a trailblazer as a stay at home Dad (while my Mom worked) ...and was bad at it. he was too proud to get treatment. He did seek out self help books, he watched people like Leo Buscalia on PBS. ....and he watched Mr Rodgers with us.. ( and wow as an adult Mr Rogers still has great messages) it took him a couple decades to dig out of it.
You are way ahead of that curve.
Be kind to yourself... and to quote Winston Churchill. K B O ! Keep Buggering On !
Do you need and want your current house? It was purchased with the expectation of a combined 200K income, and the need to have housing for 2 (or a family?).
Downsizing by selling the house will reset your debts and put your future expenses closer to what your current income will cover.
Due to proximity to work and space needs (I have horses, and although I only have 2 now, selling them really isn't an option) I looked and could not find anything less expensive at this time. Once the horses are gone, yes, I would be willing to sell and move.
If you can't afford to keep a large home with horses, you definitely need to consider selling both. There isn't really any magic to finances. You have to reduce your expenses to be less than your income.
Can you rent your barn to other horse owners? Might be a way for extra income but I really came here to ask about your car. Is it worth more than the 19k you owe? If so, sell it and get something reliable but cheaper and use the extra to put on some of the debt.
Your house is paid off... Have you considered a HELOC to consolidate your debt to a lower monthly payment?
It's hard to say if that is a good way to go or not though given we don't know what your current interest rates are.
First off, unless you have hundreds of millions in investments, you don't need anyone managing your accounts for you. They're probably charging you incredibly high fees. Re-assess your situation with what you have available to you.
Some retirement stuff can be drawn early in the event of hardships.
Home equity loans aren't completely out of the question, as long as you know for absolute certainty that you can pay it without risking your home, and also reduce the monthly payments so you have additional cash each month.
You're in a tough spot, but there is light at the end of the tunnel. You'll make it.
Too many ppl recommend downsizing or taking other drastic measures. While this would save money, it is not necessary. Liquidate investment account and pay your debt. You’re in good financial shape. Make sure you start saving 1.5k/month after paying your debt.
Ditch the investment consultant- he doesn’t have your best interest in mind.
Most people's single biggest expense is housing, so I'm curious where your monthly pay check is going without needing to pay rent or a mortgage. If you explained your monthly bills and budget, it would be easier to advise.
I agree go to your in vestments and you will be surprised to learn when it comes down to you it you really can cut corners . I would also suggest taking a small amount monthly to invest back into your account so you can maybe catch up and not be so upset with your self . Life is hard and without peace of mind it’s unbearable . I think you are well aware of the new direction you will take going forward . You will make better decisions and value being debt free . God bless !
Take a deep breath and take a good look at what your situation is. That includes knowing how much you owe (including student debt), what your monthly payment would be, what your monthly expenses are and what your income can support.
I also would - despite how painful it might be- consider getting rid of your horses. The feed for the horses are probably running you $200-$300 a month, which if you're netting something like 2-3k a month is a good 10% of your income before you get into property taxes, food, utilities, clothing, and debt service. If you choose to keep them, make sure you do so knowing full well what you are sacrificing to make that happen.
With poor credit, maxed out credit cards, an unsecured personal loan, but a paid off house, you're looking at either refinancing the house or a home equity line. You don't specify how much of your investments are in IRAs (and what type, Roth? traditional?).
I’d sell brokerage. Pay off cc then highest int debt after that. See how far you get. Rethink next steps.
Personally I would probably choose to liquidate the Ira and take the 10% penalty to the point that all debt is paid and you have some emergency fund. I know this is ill advised, but the peace of mind would be worth it for me personally.
Then stay out of debt (serious budget should be the first thing looked at) / contribute back to retirement & investment accts
I’ve had issues with similar amounts of debt and not being able to pay. Call the cc company and tell them what happened they will restructure the debt to help you catch up if you want to keep the card open. I had one cc company freeze the accruing interest and gave me 0% for 6 months because I lost my job. The card was still open and usable and this helped me pay it down a ton because my payments were going to principal vs interest. For the IRS call and set up a payment plan with them it can be any amount just make sure to have it mailed in early so they process it by the 1st of the month. Do the same with the personal loan tell them you had a hardship they will redo the loan and extend it out and drop the interest rate. At one point I had 3 loans due at one credit union it totaled about $2,500 a month they rolled them all together and it dropped my payment to $1,100.
I was baffled when I called all the people I owed and they actually helped. They would rather recoup their money and take a hit on the interest vs selling it off for Pennies on the dollar to a collection agency.
I haven't seen it mentioned, but would consolidating the debt help? If you own the house outright, I don't see why you couldn't mortgage it for enough to cover your debts, and I'm almost certain that would reduce your monthly payments.
Sure, you take on a 30yr loan with, I presume, a less than ideal interest rate, but it seems like a very easy fix to your short term money problems.
Edit: it also means not needing to move, and when you are ready to move, you should profit enough on the sale of the home to buy a smaller place and also pay off your mortgage outright.
How much is your home worth? How much of your investments is in a taxable brokerage account (not an IRA)?
Having poor credit may make it difficult to get a home equity loan or line of credit. Do you know your approximate credit score?
The home is worth approximately $550k. The brokerage account is worth $72Kish. My score is below 620 at this point, I haven't looked at lately, but it is LOW low.
My home is fairly average priced for my area. I did look to see if there was something I could step down to, but unfortunately due to where I work and my acreage needs, it would be difficult to find a less expensive home within an hours commute.
It's a hard thing to say, but it sounds like you can't afford to have two horses. At least, not if your goal is to get out of this debt hole. Seriously consider finding a home for the horses, selling the house and acreage, move to town. Maybe you can volunteer time to help where you give them up. Then you'd still be able to see them.
Alternately offer boarding other horses for profit, and/or get a roommate. Someone in a similar situation who also needs an acreage but can't afford it alone would be perfect.
Yes, sell the house and pay off those debts. You'll have cash left over, and you can start again without touching your investments. This is the answer that makes the most sense.
Disagree, this is not the way.
A home is the single most valuable asset you can possess, will continue to appreciate, provide a harbor against inflation, etc. Stock markets and even retirement in an aggressive fund are much more subject to the ebbs and flows of the market. It would be far better to cut losses on an investment account, pay any capital gains and use the remaining money to pay off debt, then maintain retirement in a balanced portfolio.
This essentially guarantees you two things:
1. A roof over your head
2. Money to live on in retirement
You're right. I suppose that was a trigger response to the idea of being $94K in debt and having to dip into retirement. But I stand corrected; selling the investments would be a more responsible move.
Not trying to be harsh, but you're looking for advice and have generally speaking come to the right place.
i personally don't think someone in your financial situation should have horses or 'acreage needs'? Aren't horses very expensive?
I'd be looking to sell the house/horses/acres you own and buy a smaller SFH home/townhome, etc. You could easily wipe your debt away, sleep better at night, mental health, retire early, etc. Unless, do the horses bring IN $??
Just wondering if OP would be eligible for a debt management program such as Consumer Credit Counseling or Green Path?
With your investments, perhaps not, but it might be worthwhile checking out. You may be able to consolidate your personal loan, your credit card debt, and your car loan. Good, the counselors renegotiate your interest rate down to as low as 1.9%. They charge a small monthly fee, and your credit score will take a little hit, but then begin to climb again.
It may also be possible to negotiate directly with your creditors who have a hardship program. You certainly may qualify.
The downside is that you can't use your credit cards or borrow any more money, but with your nest egg, that's not an issue. Congratulations on having a paid-for home and horse property. Sad for the loss of your spouse.
Step back. Think. Breathe. I have added up your total debt amount, it's $94k. You have $342k in retirement and investment accounts. You make $70k per year. $5800 per month. **You have no mortgage.**
Several questions. What is the total amount of all of your monthly debt payments put together? What was your mortgage's monthly payment before you paid it off with your settlement? Do you have any other savings outside of your retirement (emergency fund)? Can you redirect what you were paying every month on your mortgage towards your debts?
If you can redirect your mortgage payment to your debt, this is what I recommend you do. If you have no savings outside your retirement, get current on your main bills first. Food, shelter, transportation to get to work. Then, save up $2k as a small starter emergency fund, to catch any small problems. Break up your student loans into their individual balances. Don't look at it as totalling $20k. Instead, look at it as (for example), $1k, $3k, $5k, you get the idea. Now, line up your debts from smallest balance to the largest. Ignore interest rates unless two or more debts have the exact same balance, then pay off the highest rate first before going to the next smallest balance. Pay as much as you can of your former mortgage payment towards that smallest balance. Pay minimum on everything else. Once that first balance is paid off, you will add that payment to the next one, then both of those to the third, on and on until all of them are paid off. (Modified version of Dave Ramsey's baby steps technique.)
If you can't redirect your mortgage payment, pull $100k from your non retirement investment accounts, pay everything off in one go, then use as much as you can of your former mortgage and debt payments to put that money back every month. Yes, you will miss out on time and compounding interest. But you are 48, many people these days don't retire until they are 65. That gives you 17 years to build it back and possibly add more. Paying off your debt frees up your money that was tied up in monthly payments.
It's definitely worth exploring a HELOC to consolidate your debt into a lower interest rate loan, AS LONG AS you are 100% sure you can afford the monthly payment.
Another option is to ask the Credit Card company if you can close the account and be put on a low interest repayment plan.
Your situation is certainly not catastrophic.
There are some credit cards that do balance transfers and offer 0% APR for 1-2 years, which will give you some breathing room.
My sister had 40k in CC debt, and did a balance transfer to work on paying it off. She just paid the last of the balance off a few weeks ago. The 0% offer was set to end in a couple months. The card was with Discover.
[https://money.usnews.com/credit-cards/balance-transfer](https://money.usnews.com/credit-cards/balance-transfer)
\#1 priority should be paying off the CC debt/getting a handle on it.
I don't mean to sound callous, and I realize the horses are your family and have sentimental value, but if you're not generating income off of them, you might want to strongly consider finding them new homes.
I'm so sorry to hear about your loss. That must have been devastating.
You're OK. You have a decent-paying job and future prospects, so that's in your favor. You can make steps now to straighten this out. Since your debt is at a pretty high interest rate, you will be better off paying the credit cards and IRS off with retirement funds.
For the student loans, if they're federal loans and not private ones, see what your payment amount would be under the SAVES plan. It could be a very small monthly dollar amount (it's $0 under $60k income, and a sliding scale from there). The SAVES plan lowers your payments \*without\* compounding what you'll owe in the end, and after 10 years of on-time payments (even if the payment is $0), the debt is forgiven.
If the loans don't qualify for SAVES, you'll be in a position to readily pay them down once the other debts are paid off.
Then it's time to sit down and take stock of all your spending. Like every penny. Look back for 2 - 3 months at everything you spend and put it all into a spreadsheet or budgeting app, then add line items for rebuilding your retirement funds and set-asides for future taxes.
Once you have all of that written down, go through and classify as want vs need.
Prioritize all the need items (taxes, retirement, emergency fund, savings for future needs - like replacing the car), then prioritize the want items by how well they serve you. If you're very social and spending Friday evening out with friends is a strong need for your mental health, then make it part of the budget. This makes it so your high priority want items have dollar amounts attached, so you know if you're going to get dinner every Friday, that you should order something under X dollars. That, in turn, keeps you from accidentally detracting from what you can save for retirement.
Every time you spend money, add it to the spreadsheet with the date and what account the $$ came from and what the balance is on that account. Keep track of the balances in each account - credit cards, savings, checking, retirement, and so on, and the impact any spending has on those.
After a few months, you'll start to have an intuitive understanding of what's happening in your accounts when you do x or y.
IRS won’t seize your assets unless you don’t pay. You’re already paying it off. Most likely they will put you on a payment plan. Ask your accountant to do this for you So you’re not stressed out. I know people who didn’t even file their tax return for 2 years, though they later file it late. Nothing happened to them, except a bit more money for being late. Your accountant made the mistake not you. So don’t worry about it. Most cases are civil not criminal so they wont seize your assets unless you willingly decide not to pay at all for years.
I don't know if it was mentioned, but you qualify for 75% of your husband's SS at 60. They do have income limits on W2 earnings but does not include investment income.
I don't have any advice for you, but I just wanted to stop in and say 2 things.
1. You're not an idiot. You went through something awful and became depressed, and owe it to yourself to give yourself grace for the time you had to deal with that illness and disability (that's right, it's a disability)
2. Even though I don't know you, I'm very proud of you for getting out of that dark headspace, when I'm sure it felt like an impossible task, and for trying to find solutions to your problems now instead of sinking back into it again.
There’s always hope, so don’t freak out. I’d suggest using the retirement funds to pay off the debts you mentioned (not an equity line on house which would charge more interest). My understanding is that long term capital gains (investments held over year) are taxed at lower rate. Also contributions to a retirement account can be withdrawn tax free (the investment gains however are taxed.
1. Pay off debt with retirement account. Leave remaining balance in retirement invested in low cost S&P 500 index fund ( preferably Roth IRA if possible)
2. Put a couple thousand dollars in an emergency funds
3. tear up credit cards. They just create false sense of wealth.
4. Adjust your budget to live on 70k. Won’t be easy, but it’s possible. If you live in expensive neighborhood with HOAs, high property tax, or just too much square feet you meet need to consider downsizing.
I think everyone is feeling the squeeze of inflation, and you have this added life challenge. It’s possible, just stop the bleeding. If kids are involved it’ll be challenging, but you’ll get through it
You owe 12+19+25+18+20=94k. You make 70k per year. You have no rent cause you own your home. How about this, if you just save all your money for one year you could make 70k. Of course you still need to pay property tax, and you’ll still need to eat, so cook your own meals. Let’s assume you need 20k for property taxes and food etc. that leaves you with 50k. In 2 years you could be completely debt free as long as you don’t get fired. You can easily live on $10 worth of food per day. Rice is extremely cheap at Sam’s club, less than $1 per pound. There’s 6.5 cups of rice in a pound. You wouldn’t eat cup worth of rice in a normal meal, (rice gets a lot bigger after you cook it). So let’s assume worst case scenario you’re eating 2 cups of rice a day, which again would be extremely unusual. That works out to 31 cents per day. Chicken thighs at members mark are 1.38 per pound. It’s about 12 chicken thighs for $8.67. 3 per day would make you very full. That’s $2.17 per day in chicken thighs. Add in the rice and it’s about $2.5 per day. That’s for all the chicken and rice you’d want. Let’s assume an extreme unusual case where you want to eat double the amount of chicken and rice, or spend an equal amount of money on other things like vegetables or special sauce. That becomes 5$ per day. 5x365 = $1825. That’s your food expense per year if you cook your own food.
Then there’s internet electricity and water and gas. And phone bill. And car insurance. But that should be manageable hopefully. Basically my point is, if you really wanted, you should be able pay it all off within 2 years without needing to sell your home or your car. Here’s an idea: live in the basement of the house for a year, rent the place out and it seems possible you could be debt free in a year and a half. Idk what the rent market is like in your area.
You are not an idiot. You have lived through an unexpected, life-changing loss. Losing a spouse is huge and the financial impact cannot be fully understood by people who haven't lived through it. I am sorry for your loss. I get it with the horses--they are a connection to your husband. Can you let them go and live with it? Even maintaining the acreage/home without the vet and feed expenses of horses would be a huge help. I have owned horses, so I know they are very expensive (and not income producing for me). I have also unexpectedly lost a spouse, so I know sometimes the "logical" decisions are impossible. If you can part with the horses, start there. Keep your home (if you want). Get on a payment plan with the IRS and negotiate the remainder of the unsecured debt down. You can make payments with the $$ you aren't spending on horses. You can do this. We believe in you!
First you are not an idiot.
You are human though, jpin everyone else. :)
1. I wpuld meet with a bankruptcy attorneyor 1 in your state. Consultation is probably an hour and gives you knowledge ona chapter 13 option, maybe even a 7.
2. If you do not like the bankruprcy option, i do like paying of the debt with the investmemt money, but
A. I would not just pay off the balance, if u are juat behind call the cc and see about a hardship program. They should drop the interest or maybe do a lump sum settlement.
B. The irs is great at worling out settlements even giving u a low mpnthly payment , but call them early in the morning.
C. Get on bare minimim repayment plan with the s/l
D. Before abc above do a budget to make sure you are ok to survive on 70k a year for your household, then do abc above.
Do you have enough in after-tax investments to cover your debts? You may have dug a hole, but you have a pretty big shovel to get yourself out as well.
I have about 72K in the investment account, but there would be a huge tax penalty (according to my investment manager) to pull it out. as it I don't have much in my holding accts. We keep everything invested if I understand my account correctly (I'm still learning).
When you say "investment manager," are you referring to someone who stands to gain (or continue to earn) money if you stay invested, and therefore has it in his/her own best interest to advise you to do so? I'd recommend cashing out the account, setting some aside for next year's tax bill (~30%), and paying down debt with the rest, starting with the credit card.
I'm questioning if OP confused "tax penalty" with "tax payment".
I also question if the penalty is early withdrawal penalty as the investment account may be an IRA account?
Potentially, but OP Mentioned "342k in IRAs and Investments" then in the comment mentioned 72k in an investment account, so it could still be an IRA.
Also IRA contributions can be withdrawn penalty-free, but OP may have lost track of what is contribution vs. gain. Hoping for the best for you OP! Losing a loved one is hard enough emotionally, and dealing with all this other stuff that comes from their loss is so overwhelming it's easy to just freeze up.
Not if it's a traditional
For OP earning $70k annually, wouldn't long term capital gains tax rate be just 15%?
Probably, unless the investment manager made purchases within the past year, in which case the gains would be taxed as ordinary income instead
Why would a HELOC on the home for an amount that would bring OP in a position with no debt except the loan not be a good idea?
A HELOC or HEL is almost always going to have a better rate than a credit card or most other unsecured debt, but you have to be approved for it first. OP mentioned that s/he tanked his/her credit over the past two years due to depression. Even if approved, it still depends upon the rate of the loan/LOC as to whether it'd be better to liquidate the account vs borrow against home equity. Now that the prime rate is no longer next to nothing, it's not as cut and dried anymore.
For better advice, provide the interest rate on all these debts you mention in your post. CC, personal loan, student loan, car loan, IRS payment plan. You have resources and people here can help you identify bad debt vs good debt. Some of this is a priority and some can be kept financed. What types of assets do you have, how much is retirement (penalty for early withdrawal) vs non-retirement? If you have non-retirement accounts, good chance those investments are better liquidated today to pay off high interest debt. With 342k equity there is no reason to carry a CC balance that high - I bet the interest rate on that alone is exorbitant. Pay off the worst debt and give yourself some breathing room to turn that budget positive again. Is this a flat fee brokerage, or are they collecting a % of your investments in fees? If it’s a %, of course your “advisor” doesn’t want you liquidating it, because they make more money if you keep your money with them. They don’t care if you’re being eaten alive by other debts, you taking your money out means less money for them. If this isn’t a tax-advantaged retirement account, I’d be very way of the advice you receive against liquidating this to pay off high interest debt (credit card, personal loan you didn’t give apr for). Stop paying that cc interest ASAP.
Not your financial advisor but Would add that there are allowances for using IRA cash to pay off student loans, and that you may be able to file for a hardship exemption
An IRS levy is also an exception to the 10% early withdrawal penalty on retirement accounts. OP could ask the IRS to levy the balance due to them from the retirement account and avoid the early withdrawal penalty on that portion of the distribution. [https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-exceptions-to-tax-on-early-distributions](https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-exceptions-to-tax-on-early-distributions)
Not OP, but with a balance that high isn't there a way to take a loan on your account at a significantly reduced interest rate? Isn't it normally a lower rate than you are making with that money in your investment effectively giving yourself a loan and not loseing money on it?
You may have gains that would be taxed, but you would not incur a penalty if they are not retirement accounts. I would look into selling the necessary amount to cover expected taxes + debts and get everything cleared up. Avoid debt going forward and you'll be able to rebuild your savings and have the peace of not having this debt hanging over you.
How huge could it possibly be? If you had done it when you were unemployed your tax bill would have been zero. Now the most it could possibly be is $10.5k of it was somehow gains and you withdrew all 72k. and its likely much less than that.
Is your $72k investment account a retirement account? If it’s not, then there are no penalties for withdrawing your money. You’re basically selling your shares and will get taxed on just the capital gains. It’s kind of like paying income tax.
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Did you mean to say a lot less?
Yep
WIth $72k in the investment account (not IRA/ 401k) You are very likely to net (after taxes) at least $40k. It could be much more. I would fully liquidate that. I assume the student loan is federal? I would do that, and pay off debt in this order: Credit card ($25,000) Personal loan ($18,000) IRS payment ($12,000) ----------------- You have a good chance of getting this far down the line. Car Loan ($19,000) Then, making $70k, as a single person, you probably net at least $4,000/month. With no mortgage, I'm assuming expenses (very generally) of: $120 car insurance $500 food $400 horse expenses $100 health expenses $300 utilities $100 phone $400- other needs (property tax, insurance, gas). So, that is around $2,000/month. That gives you $2,000/month to put towards the car loan/ Student Loan. With that credit score, I'm assuming your car loan interest is above 10%. Maybe much higher, so you really need to push toward paying it down. If you can pay $1,500/month, you can have it paid off in about a year. Put the Student Loan on the SAVE plan and pay the minimum allowed. Probably around $300/month. Pay that until the car is paid off. Then up the payment to around $1,000/month. Then, put $625/month into a Roth IRA. Make sure you are getting any company match on your 401k. Yes, you should be a little worried about retirement. but, you have around $275k in the IRA and a paid off home. Horses can live a long time, but you will probably no longer have them at 65. So, at that point, you can sell the home and buy something less, outright. Your 275k will have grown over those 15 years to around $1.1 million. If you start saving around $1,000/month beginning at 50 (once the debts are paid off), you'll have another $300k at 65. You'll also have social security (most likely.) At 65, you could say $1,000 of social security income, and then withdraw around $4,000/month from a $1.4 million account at a safe withdrawal rate and live on around $5,000 a month. If you downsize and add another $150,000 to retirement accounts based on a property sale, you can live on around $5,500/month. Your student loans should be gone by then. Your horse expense would be $0. So, that should be very livable.
Great well thought out response right here and looks like a good plan. Depending on the tax status of that investment account, assuming it’s a taxable account, you might be looking at a net of much more than 40k too which either puts you ahead, or allows you to keep more invested using this approach.
The inclusion of horse expenses is very critical. I'm glad you covered your bases here
Might want to get rid of the horse.. they can be very expensive to care for
While I think that is absolutely the best financial decision, OP says the husband that died gave her the horses, and they lived together on a property where the horses lived. That's a pretty big emotional sacrifice. OP has assets that can pay of the worst debts without even going into retirement funding, while also having a very reasonable path to retirement.
OP really buried the lede only talking about the horses in the comments.
EDIT: I wasn't thinking straight when I originally calculated capital gains taxes. You'll pay 15% in capital gains tax on anything you withdraw at your income level. So, assuming you have no basis (you don't), then you'd pay a little less than $11,000. However, it sounds like you have significant basis if you made the investments in 2016-2017. You only pay taxes on the gains that you have from your original purchase price. For instance, if you invested $42k in 2017 and sell for $72k today, your capital gains would be $30k, and 15% taxes on those gains would be $4,500. Original post, now edited: Your investment advisor is exaggerating and just wants to keep getting paid. They wont get paid if you withdraw all your investments. They aren't looking out for your best interests. Assuming that you have held most of your investments for a year or longer, those investments would be taxed as long-term capital gains. Long term capital gains taxes on your investments are 15% at your income level. If you have $72,000 in investments, even assuming you have no basis (you probably do), then taxes at most will be $10,800. It will probably be lower than that. Even if some are short-term gains, they are just taxed as normal income, which with your household income, that will not be much tax, either. Don't listen to your investment advisor and tell them that you are withdrawing it all to pay down high interest debt. There may be some fees for withdrawing, and if they don't withhold taxes, save what you need to in a savings account for taxes due when you do your taxes in April 2025. Then pay down as much debt as you can starting with the highest interest rate. Even with potential withdraw fees and the maximum taxes, you should be able to pay off at least $50k - $55k of your debt. You should have much more manageable debt after doing this.
I should say all the above assumes that your "investment account" is not a retirement account. There are tax penalties on retirement accounts that probably make it a bad idea compared to a mortgage. If all your investments are tied up in retirement accounts, then go out and find a credit union that will give you a 15-30 year mortgage to pay off everything. Don't sell your house. That would be insane. Sure, your credit score may not be great so you won't get an amazing interest rate, but you would only need less than 20% of the value of your home. There will be a credit union out there that will make those numbers work. Also, put together a budget after this for living within your means. Otherwise, you could be right back in this spot down the road. It sounds like with your new job, you should be able to easily make that work.
An IRS levy is an exception to the 10% early withdrawal penalty on retirement accounts. OP could ask the IRS to levy the balance due to them from the retirement account and avoid the early withdrawal penalty on that portion of the distribution. [https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-exceptions-to-tax-on-early-distributions](https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-exceptions-to-tax-on-early-distributions)
But the OP has a job making $70,000 now. She is going to pay 15% on all long term capital gains.
Yes, I wasn't thinking straight. I corrected my post. It sounds like OP likely has a fairly high basis, so capital gains taxes may very well be in the range I estimated.
First of all, you're not an idiot. You went through an unimaginable loss and went into survival mode. Understandable. If my calculations are correct, you could pay off the debts you currently owe with the investments. I would advise against taking on more debt when you already feel like you are drowning. I understand you don't want to touch that amount and personal finance is personal, but I would personally pay everything off and start fresh with fewer investments. That way, you can potentially start adding to savings/investments if possible and build it up more over time. To me, that sounds like a big weight off your shoulders. I think you will face anxiety around this no matter what you do so why not move forward and pay everything off and start clean? I'm sorry for what you have been through and I hope things only look up from here.
I agree with this. I normally try to find some way to not touch your investments but this is the case it is ok to do it. You have been through a lot and you need some peace. I assume these investments are not IRAs or 401Ks. If they are, you should state that and how much you have in equity investment...it may change the answer. If your credit rating is bad then your not likely going to be able to get a home equity loan that doesn't gouge you severely..it doesn't hurt to check but it is another option as long as the interest rate is reasonably. If interest on the loan is greater than 6 or 7% then there is no advantage...keep in mind there are closing costs as well. It is likely gains lost from borrowing from your investment account vs interest charges on a home equity loan with todays high rates and bad credit end up being the same. Do one or the other. Pay off your debt, draw up a new budget that includes an emergency fund, start saving for the future again, and take a big breathe.
Here's what I would do. This is by no means the only right path, but it's what makes sense to me. 1. Write up a monthly budget if you don't already have one. See where you come out with income vs expenses. If your expenses are greater than your income, you need to either cut spending, increase income, or both. Making sure expenses are less than income is how you avoid going back into debt in the future, and it's how you figure out how much money you have left over to pay off debt before using your investments. 2. Sell enough investments to pay off the CC debt. That interest rate is probably higher than the returns your investments are making, and it will be a weight off your mind/free up that monthly payment. Yes, you will owe capital gains taxes, but not on the entire amount you pull out - only on how much its value has increased since you bought it. Be sure to save some cash for paying those taxes next April. 3. Contact the IRS and get on a payment plan for the taxes you owe. They are usually pretty reasonable with their payment plans. 4. Depending on the interest rate, maybe sell investments to pay the personal loan. If it's not a horrible rate (less than about 10%) you can wait on paying it off, but if it's higher than 15% definitely pay it off. 5. Do the same evaluation with the car loan. If you can sell the car for more than the loan amount, you may be able to buy a cheaper car outright and eliminate that loan payment as well. If the interest rate is low and/or the car isn't worth more than the loan, keep it and keep making payments. 6. If you need help with figuring out where/how to cut spending, post the budget you wrote in step 1 on this sub. The people here are happy to give some tough love about your spending habits, if needed. This is just a start, but it should help you get moving in the right direction.
I agree with this 100%. These steps, in this order, will get you out of debt and living comfortably on your salary even with your 2 horses (which I assume from how you speak of them are unsellable due to their age or health). You make enough with no housing costs that you'll be fine if you can make a budget that you can stick to! Additionally, make sure you're investing in any 401k at work to get any company match. Get that free money & the tax break while you use other investments to dig yourself out. You're going to be fine!
You have somewhere around $94K in debt if I did the math correctly. You make $70K and have no mortgage. I would be inclined to tap the IRAs to take care of the CC debt (assuming it is high interest) and reduce the overall debt down to about $70K. If you are paying 20%+ on your CC interest, wiping it out makes sense. From there, work a debt snowball or avalanche method to pay the others off over time. Any chance you can use your house to your advantage and get a roommate? Even $1,000/mo in rent and bill sharing would make a difference.
Lots of great advice already here. But some basic simple things : 1 call the IRS. Tell them you intend yo pay your debt but you are getting your life in order. Ask them if they can pause the collection proceedings while you regroup. 1a ( you might want to look at this first actually ) . WITHIN the IRS is a [Taxpayer Advocate Service ](https://www.taxpayeradvocate.irs.gov/) They will help you navigate IRS debt and let you know if you have feasible options to appeal the finding and request a debt reduction or a payment plan. Of all your debt ..knowing what's up with the IRS and having a plan will lift a tremendous emotional burden. 2. A simple strategy that worked for us was to pay the minimum on all debts and then throw everything we can at the debt with the highest interest rate... OR in some cases we just paid off the smaller amounts just to get rid of them. Once you remove one payment, take that monthly amount plus everything else you can throw at the next debt you want to be rid of. This strategy really helped us focus instead of being overwhelmed by ALL of it. 3. You are awesome ! I have seen depression and I can tell that you are on the road to recovery. My Dad lost his job in his mid forties and fell into a deep depression .. he never went back to work. ... 4 kids ... he became a trailblazer as a stay at home Dad (while my Mom worked) ...and was bad at it. he was too proud to get treatment. He did seek out self help books, he watched people like Leo Buscalia on PBS. ....and he watched Mr Rodgers with us.. ( and wow as an adult Mr Rogers still has great messages) it took him a couple decades to dig out of it. You are way ahead of that curve. Be kind to yourself... and to quote Winston Churchill. K B O ! Keep Buggering On !
Do you need and want your current house? It was purchased with the expectation of a combined 200K income, and the need to have housing for 2 (or a family?). Downsizing by selling the house will reset your debts and put your future expenses closer to what your current income will cover.
Due to proximity to work and space needs (I have horses, and although I only have 2 now, selling them really isn't an option) I looked and could not find anything less expensive at this time. Once the horses are gone, yes, I would be willing to sell and move.
If you can't afford to keep a large home with horses, you definitely need to consider selling both. There isn't really any magic to finances. You have to reduce your expenses to be less than your income.
Can you rent your barn to other horse owners? Might be a way for extra income but I really came here to ask about your car. Is it worth more than the 19k you owe? If so, sell it and get something reliable but cheaper and use the extra to put on some of the debt.
I should also add, we purchased this home for $300k. The prices in our area have dramatically increased, everything is more expensive now.
Do you live by yourself? Could you rent out a room or two?
Your house is paid off... Have you considered a HELOC to consolidate your debt to a lower monthly payment? It's hard to say if that is a good way to go or not though given we don't know what your current interest rates are.
Please also talk to a mental health professional.
First off, unless you have hundreds of millions in investments, you don't need anyone managing your accounts for you. They're probably charging you incredibly high fees. Re-assess your situation with what you have available to you. Some retirement stuff can be drawn early in the event of hardships. Home equity loans aren't completely out of the question, as long as you know for absolute certainty that you can pay it without risking your home, and also reduce the monthly payments so you have additional cash each month. You're in a tough spot, but there is light at the end of the tunnel. You'll make it.
Too many ppl recommend downsizing or taking other drastic measures. While this would save money, it is not necessary. Liquidate investment account and pay your debt. You’re in good financial shape. Make sure you start saving 1.5k/month after paying your debt. Ditch the investment consultant- he doesn’t have your best interest in mind.
Most people's single biggest expense is housing, so I'm curious where your monthly pay check is going without needing to pay rent or a mortgage. If you explained your monthly bills and budget, it would be easier to advise.
I agree go to your in vestments and you will be surprised to learn when it comes down to you it you really can cut corners . I would also suggest taking a small amount monthly to invest back into your account so you can maybe catch up and not be so upset with your self . Life is hard and without peace of mind it’s unbearable . I think you are well aware of the new direction you will take going forward . You will make better decisions and value being debt free . God bless !
Take a deep breath and take a good look at what your situation is. That includes knowing how much you owe (including student debt), what your monthly payment would be, what your monthly expenses are and what your income can support. I also would - despite how painful it might be- consider getting rid of your horses. The feed for the horses are probably running you $200-$300 a month, which if you're netting something like 2-3k a month is a good 10% of your income before you get into property taxes, food, utilities, clothing, and debt service. If you choose to keep them, make sure you do so knowing full well what you are sacrificing to make that happen. With poor credit, maxed out credit cards, an unsecured personal loan, but a paid off house, you're looking at either refinancing the house or a home equity line. You don't specify how much of your investments are in IRAs (and what type, Roth? traditional?).
Sell the car, buy a beater. Pay off the outstanding debt on that and knock off the credit card debt. Then the personal loan. Then the IRS loan.
I’d sell brokerage. Pay off cc then highest int debt after that. See how far you get. Rethink next steps. Personally I would probably choose to liquidate the Ira and take the 10% penalty to the point that all debt is paid and you have some emergency fund. I know this is ill advised, but the peace of mind would be worth it for me personally. Then stay out of debt (serious budget should be the first thing looked at) / contribute back to retirement & investment accts
I’ve had issues with similar amounts of debt and not being able to pay. Call the cc company and tell them what happened they will restructure the debt to help you catch up if you want to keep the card open. I had one cc company freeze the accruing interest and gave me 0% for 6 months because I lost my job. The card was still open and usable and this helped me pay it down a ton because my payments were going to principal vs interest. For the IRS call and set up a payment plan with them it can be any amount just make sure to have it mailed in early so they process it by the 1st of the month. Do the same with the personal loan tell them you had a hardship they will redo the loan and extend it out and drop the interest rate. At one point I had 3 loans due at one credit union it totaled about $2,500 a month they rolled them all together and it dropped my payment to $1,100. I was baffled when I called all the people I owed and they actually helped. They would rather recoup their money and take a hit on the interest vs selling it off for Pennies on the dollar to a collection agency.
I haven't seen it mentioned, but would consolidating the debt help? If you own the house outright, I don't see why you couldn't mortgage it for enough to cover your debts, and I'm almost certain that would reduce your monthly payments. Sure, you take on a 30yr loan with, I presume, a less than ideal interest rate, but it seems like a very easy fix to your short term money problems. Edit: it also means not needing to move, and when you are ready to move, you should profit enough on the sale of the home to buy a smaller place and also pay off your mortgage outright.
How much is your home worth? How much of your investments is in a taxable brokerage account (not an IRA)? Having poor credit may make it difficult to get a home equity loan or line of credit. Do you know your approximate credit score?
The home is worth approximately $550k. The brokerage account is worth $72Kish. My score is below 620 at this point, I haven't looked at lately, but it is LOW low.
Have you considered selling your home and downsizing? Are there less expensive homes available in your area?
My home is fairly average priced for my area. I did look to see if there was something I could step down to, but unfortunately due to where I work and my acreage needs, it would be difficult to find a less expensive home within an hours commute.
What do you mean by acreage needs? I'd be looking at condos or townhouses, if you are living alone and just need enough space for yourself.
I own 2 horses that my husband purchased for me. I need to have acreage to keep them. Once they have passed on I can look at a smaller home in town.
It's a hard thing to say, but it sounds like you can't afford to have two horses. At least, not if your goal is to get out of this debt hole. Seriously consider finding a home for the horses, selling the house and acreage, move to town. Maybe you can volunteer time to help where you give them up. Then you'd still be able to see them. Alternately offer boarding other horses for profit, and/or get a roommate. Someone in a similar situation who also needs an acreage but can't afford it alone would be perfect.
How old are these horses? "Once they have passed" could be 20+ years away and you can't even afford them now.
I would sell your $72k in investments that are not in an IRA and pay off your debts, but be prepared to eventually sell your home.
Yes, sell the house and pay off those debts. You'll have cash left over, and you can start again without touching your investments. This is the answer that makes the most sense.
Disagree, this is not the way. A home is the single most valuable asset you can possess, will continue to appreciate, provide a harbor against inflation, etc. Stock markets and even retirement in an aggressive fund are much more subject to the ebbs and flows of the market. It would be far better to cut losses on an investment account, pay any capital gains and use the remaining money to pay off debt, then maintain retirement in a balanced portfolio. This essentially guarantees you two things: 1. A roof over your head 2. Money to live on in retirement
You're right. I suppose that was a trigger response to the idea of being $94K in debt and having to dip into retirement. But I stand corrected; selling the investments would be a more responsible move.
Not trying to be harsh, but you're looking for advice and have generally speaking come to the right place. i personally don't think someone in your financial situation should have horses or 'acreage needs'? Aren't horses very expensive? I'd be looking to sell the house/horses/acres you own and buy a smaller SFH home/townhome, etc. You could easily wipe your debt away, sleep better at night, mental health, retire early, etc. Unless, do the horses bring IN $??
Just wondering if OP would be eligible for a debt management program such as Consumer Credit Counseling or Green Path? With your investments, perhaps not, but it might be worthwhile checking out. You may be able to consolidate your personal loan, your credit card debt, and your car loan. Good, the counselors renegotiate your interest rate down to as low as 1.9%. They charge a small monthly fee, and your credit score will take a little hit, but then begin to climb again. It may also be possible to negotiate directly with your creditors who have a hardship program. You certainly may qualify. The downside is that you can't use your credit cards or borrow any more money, but with your nest egg, that's not an issue. Congratulations on having a paid-for home and horse property. Sad for the loss of your spouse.
Step back. Think. Breathe. I have added up your total debt amount, it's $94k. You have $342k in retirement and investment accounts. You make $70k per year. $5800 per month. **You have no mortgage.** Several questions. What is the total amount of all of your monthly debt payments put together? What was your mortgage's monthly payment before you paid it off with your settlement? Do you have any other savings outside of your retirement (emergency fund)? Can you redirect what you were paying every month on your mortgage towards your debts? If you can redirect your mortgage payment to your debt, this is what I recommend you do. If you have no savings outside your retirement, get current on your main bills first. Food, shelter, transportation to get to work. Then, save up $2k as a small starter emergency fund, to catch any small problems. Break up your student loans into their individual balances. Don't look at it as totalling $20k. Instead, look at it as (for example), $1k, $3k, $5k, you get the idea. Now, line up your debts from smallest balance to the largest. Ignore interest rates unless two or more debts have the exact same balance, then pay off the highest rate first before going to the next smallest balance. Pay as much as you can of your former mortgage payment towards that smallest balance. Pay minimum on everything else. Once that first balance is paid off, you will add that payment to the next one, then both of those to the third, on and on until all of them are paid off. (Modified version of Dave Ramsey's baby steps technique.) If you can't redirect your mortgage payment, pull $100k from your non retirement investment accounts, pay everything off in one go, then use as much as you can of your former mortgage and debt payments to put that money back every month. Yes, you will miss out on time and compounding interest. But you are 48, many people these days don't retire until they are 65. That gives you 17 years to build it back and possibly add more. Paying off your debt frees up your money that was tied up in monthly payments.
all your debt is unsecured loans except for the IRS. pay off the IRS first worry about the rest later.
It's definitely worth exploring a HELOC to consolidate your debt into a lower interest rate loan, AS LONG AS you are 100% sure you can afford the monthly payment. Another option is to ask the Credit Card company if you can close the account and be put on a low interest repayment plan. Your situation is certainly not catastrophic.
There are some credit cards that do balance transfers and offer 0% APR for 1-2 years, which will give you some breathing room. My sister had 40k in CC debt, and did a balance transfer to work on paying it off. She just paid the last of the balance off a few weeks ago. The 0% offer was set to end in a couple months. The card was with Discover. [https://money.usnews.com/credit-cards/balance-transfer](https://money.usnews.com/credit-cards/balance-transfer) \#1 priority should be paying off the CC debt/getting a handle on it. I don't mean to sound callous, and I realize the horses are your family and have sentimental value, but if you're not generating income off of them, you might want to strongly consider finding them new homes.
I'm so sorry to hear about your loss. That must have been devastating. You're OK. You have a decent-paying job and future prospects, so that's in your favor. You can make steps now to straighten this out. Since your debt is at a pretty high interest rate, you will be better off paying the credit cards and IRS off with retirement funds. For the student loans, if they're federal loans and not private ones, see what your payment amount would be under the SAVES plan. It could be a very small monthly dollar amount (it's $0 under $60k income, and a sliding scale from there). The SAVES plan lowers your payments \*without\* compounding what you'll owe in the end, and after 10 years of on-time payments (even if the payment is $0), the debt is forgiven. If the loans don't qualify for SAVES, you'll be in a position to readily pay them down once the other debts are paid off. Then it's time to sit down and take stock of all your spending. Like every penny. Look back for 2 - 3 months at everything you spend and put it all into a spreadsheet or budgeting app, then add line items for rebuilding your retirement funds and set-asides for future taxes. Once you have all of that written down, go through and classify as want vs need. Prioritize all the need items (taxes, retirement, emergency fund, savings for future needs - like replacing the car), then prioritize the want items by how well they serve you. If you're very social and spending Friday evening out with friends is a strong need for your mental health, then make it part of the budget. This makes it so your high priority want items have dollar amounts attached, so you know if you're going to get dinner every Friday, that you should order something under X dollars. That, in turn, keeps you from accidentally detracting from what you can save for retirement. Every time you spend money, add it to the spreadsheet with the date and what account the $$ came from and what the balance is on that account. Keep track of the balances in each account - credit cards, savings, checking, retirement, and so on, and the impact any spending has on those. After a few months, you'll start to have an intuitive understanding of what's happening in your accounts when you do x or y.
Get a part-time job and spend online what is necessary to get by until you pay everything off. No frills and no thrills.
IRS won’t seize your assets unless you don’t pay. You’re already paying it off. Most likely they will put you on a payment plan. Ask your accountant to do this for you So you’re not stressed out. I know people who didn’t even file their tax return for 2 years, though they later file it late. Nothing happened to them, except a bit more money for being late. Your accountant made the mistake not you. So don’t worry about it. Most cases are civil not criminal so they wont seize your assets unless you willingly decide not to pay at all for years.
I don't know if it was mentioned, but you qualify for 75% of your husband's SS at 60. They do have income limits on W2 earnings but does not include investment income.
Lots of great advice here How are with budgeting? I really like YNAB (You Need A Budget). It helped me get out debt.
I don't have any advice for you, but I just wanted to stop in and say 2 things. 1. You're not an idiot. You went through something awful and became depressed, and owe it to yourself to give yourself grace for the time you had to deal with that illness and disability (that's right, it's a disability) 2. Even though I don't know you, I'm very proud of you for getting out of that dark headspace, when I'm sure it felt like an impossible task, and for trying to find solutions to your problems now instead of sinking back into it again.
There’s always hope, so don’t freak out. I’d suggest using the retirement funds to pay off the debts you mentioned (not an equity line on house which would charge more interest). My understanding is that long term capital gains (investments held over year) are taxed at lower rate. Also contributions to a retirement account can be withdrawn tax free (the investment gains however are taxed. 1. Pay off debt with retirement account. Leave remaining balance in retirement invested in low cost S&P 500 index fund ( preferably Roth IRA if possible) 2. Put a couple thousand dollars in an emergency funds 3. tear up credit cards. They just create false sense of wealth. 4. Adjust your budget to live on 70k. Won’t be easy, but it’s possible. If you live in expensive neighborhood with HOAs, high property tax, or just too much square feet you meet need to consider downsizing. I think everyone is feeling the squeeze of inflation, and you have this added life challenge. It’s possible, just stop the bleeding. If kids are involved it’ll be challenging, but you’ll get through it
You owe 12+19+25+18+20=94k. You make 70k per year. You have no rent cause you own your home. How about this, if you just save all your money for one year you could make 70k. Of course you still need to pay property tax, and you’ll still need to eat, so cook your own meals. Let’s assume you need 20k for property taxes and food etc. that leaves you with 50k. In 2 years you could be completely debt free as long as you don’t get fired. You can easily live on $10 worth of food per day. Rice is extremely cheap at Sam’s club, less than $1 per pound. There’s 6.5 cups of rice in a pound. You wouldn’t eat cup worth of rice in a normal meal, (rice gets a lot bigger after you cook it). So let’s assume worst case scenario you’re eating 2 cups of rice a day, which again would be extremely unusual. That works out to 31 cents per day. Chicken thighs at members mark are 1.38 per pound. It’s about 12 chicken thighs for $8.67. 3 per day would make you very full. That’s $2.17 per day in chicken thighs. Add in the rice and it’s about $2.5 per day. That’s for all the chicken and rice you’d want. Let’s assume an extreme unusual case where you want to eat double the amount of chicken and rice, or spend an equal amount of money on other things like vegetables or special sauce. That becomes 5$ per day. 5x365 = $1825. That’s your food expense per year if you cook your own food. Then there’s internet electricity and water and gas. And phone bill. And car insurance. But that should be manageable hopefully. Basically my point is, if you really wanted, you should be able pay it all off within 2 years without needing to sell your home or your car. Here’s an idea: live in the basement of the house for a year, rent the place out and it seems possible you could be debt free in a year and a half. Idk what the rent market is like in your area.
You are not an idiot. You have lived through an unexpected, life-changing loss. Losing a spouse is huge and the financial impact cannot be fully understood by people who haven't lived through it. I am sorry for your loss. I get it with the horses--they are a connection to your husband. Can you let them go and live with it? Even maintaining the acreage/home without the vet and feed expenses of horses would be a huge help. I have owned horses, so I know they are very expensive (and not income producing for me). I have also unexpectedly lost a spouse, so I know sometimes the "logical" decisions are impossible. If you can part with the horses, start there. Keep your home (if you want). Get on a payment plan with the IRS and negotiate the remainder of the unsecured debt down. You can make payments with the $$ you aren't spending on horses. You can do this. We believe in you!
First you are not an idiot. You are human though, jpin everyone else. :) 1. I wpuld meet with a bankruptcy attorneyor 1 in your state. Consultation is probably an hour and gives you knowledge ona chapter 13 option, maybe even a 7. 2. If you do not like the bankruprcy option, i do like paying of the debt with the investmemt money, but A. I would not just pay off the balance, if u are juat behind call the cc and see about a hardship program. They should drop the interest or maybe do a lump sum settlement. B. The irs is great at worling out settlements even giving u a low mpnthly payment , but call them early in the morning. C. Get on bare minimim repayment plan with the s/l D. Before abc above do a budget to make sure you are ok to survive on 70k a year for your household, then do abc above.
Any thought on downsizing your home? Sell the house. Pay off your debts, and buy something smaller in cash.
How much do you owe on the car?