Stop payment on 403B/credit card order to payment
I have about $17 in credit card debt. The bulk of which is on no -interest credit cards. They will time out next year. We are making steep payments. There are notable expenses coming up - Christmas and needing to purchase 3 tickets to visit family next summer. I had the idea of stopping payment on my 403b withdrawals for 4 months (until the end of the year) to free up some cash to help us not accrue more credit card debt to pay for these items and to help paydown the credit card with the interest. My husband does not agree, noting the significance of compound interest over time and a bad habit potentially being set up. I have never done this before. I am 48 years old and have been working 25 years. What do you think? The other question is on order of payoff. We have been paying down all 3 credit cards, but only one has interest. That one is connected to airline miles which is where we place most of bills and discretionary expenses. I am new to YNAB and budgeting and don't yet have a good handle on the budget. I want to pay down the credit card with interest first and only minimal payment on the others. However, that is a moving target for the aforementioned reasons. The others hold most of the debt. Do you think my plan of freeing up cash to cover the new spendy expenses and paying down the highest credit card debt card first, keep to a budget moving forward and then steep payments to the others makes sense or is it problematic?
Hi Snowy Owl !
Before making any big decisions, take a look at everything in your current state. If you don't stop payment on your 403b, how long would it take you to pay off your current amount of debt? Do you have any savings set aside (an Emergency Fund) so that if something comes up you don't have to go back into debt to cover it? We suggest padding your savings first, then focusing on debt.
Once you make a debt plan, you'll have a basis to go off of and you can then play around with alternatives (like which order to pay off debt, whether to stop payment on your retirement accounts, etc.). A number of users in the forum use undebt.it to look at the best order to pay off debt. What you described is the snowball method and it suggests starting with the lowest balance first so you free up more cash flow to use towards the larger debts.
Personally, I wouldn't suggest cutting off your 403b. When switching to a mindset to live within your means, you still want to factor in retirement and should only make cuts there if you have no better options. This is essentially giving yourself permission to overspend rather than taking your expenses into consideration and trying to limit yourself to what you can afford. Can you do a slightly smaller Christmas this year? Can you find alternate travel plans to cut back on costs? Are there any other areas of your budget that can be slimmed down? If you've already taken a look at those options, I'd double and triple check before messing with the retirement account - future you will thank you for it. :)Reply
I agree with Fanness's advice, and I would add this, although it feels paternalistic to say it: cut up your credit cards. The airline miles or other bonus points you're earning are not worth how easy it makes it for you to slide further into debt. Once your credit card debt is gone and stays gone for a few months or a year, then you can talk about whether to reintroduce credit cards into your budget. I know this sounds like overkill, but I've been there and it's not.Reply