12 months of YNAB… progress… is happening... Decision Time?
12 months of YNAB… progress… is happening.. Decision Time?
Started YNAB in earnest in October of 2020. Progress thus far is basically that we’ve stopped creating new debt. And fixed a lot of previous bad spending habits. (Impulse purchases still spring up, but many more are squashed)
Basically we’ve stopped adding to our credit card debt and have a general understanding of how much it costs to maintain our current life. Other than reigning in impulsive spending, we haven’t made many other changes in terms of reducing our outflows.
So overall, definitely a good year. But now, it is time to start making some progress. I feel that sense of, “It can’t be like this forever” frustration rising in me… and especially with my spouse. I think they definitely need a few carrots harvested soon or they are going to fall off the wagon. (To be clear, we have kept some spending money in the budget and neither of us are going “without”)
Early and mid-forties; We make “good money” … so much that we just went along without ever having serious budget discussions. I did a number of budget systems, listened to Dave Ramsey’s TMM audiobook (twice!), and even made a really sophisticated google spreadsheet that was meant to forecast and turned into a yearly calendar of spending… it was all really enforcing a bad system (oh, how much I’ve learned in 12 months) of looking to see if the amount in the monthly paychecks was bigger than the monthly bills and then moving on with life. (It always was… yet credit cards kept slowly climbing up… how weird.) I tried a number of things, but none really stuck with my spouse. And without them onboard, none of them really stuck with me. (Heck, I even got a YNAB 4 license through a software bundle back in 2014! I bought a lot of software back then… part of the issue, I’m sure.)
There were many other things that contributed to our current situation, like, we managed our money separately without ever really talking about anything and who was paying for what when.
So, my spouse finally hit their limit last October. Not sure how or why, but they were at their wits end and willing to do or try anything. I still our had our monthly expenses calendar and was keeping it up to date, but I knew that wasn’t going to work. Enter YNAB.
I started building the budget in October 2020 and we started using it starting November 1st, 2020. Our YNAB renewal date is November 29th. (it’s in the budget!)
Credit Card Debt
October 2020 - $75k
October 2021 - $63k
(24k paid in, 12k reduced)
Other debt current balance
HELOC - $8k
House disaster repair Loan - $11k
Mortgage - $74k (8 years left)
That is just the debt and not our monthly expenses. The only minor, good news was that after “doing the budget”, we had enough to pay credit card minimums and monthly bills as well as what we believed to True Expenses. (Oh… how much we’ve learned!) and begin a trickle into an emergency fund.
I watched all the YNAB YouTube videos (Thank You Hannah, and Ben and Ernie… and Nick True), I listened to Jesse’s YNAB podcasts, I even dusted off Total Money Makeover audiobook (I didn’t like tone, but some of the info was still pretty good)
Thing is, now I want to start accelerating this puppy.
But it feels like since the pressure is off or released to where my spouse isn’t having a breakdown, I’m back on the front lines by myself.
They get it, but don’t really *get it*… The cooperation is there, but not the “let’s get radical” and really blast out of the hole.
The thing that sticks in my craw
We pay $2k in credit card minimum payments monthly
$1 of that comes back in interest.
So $2k out, $1k benefit (that’s why we went from 75 to 63… there is no spending on these cards for the last 12 months, but they are still costing us)
Even with pinching a couple hundred out of the budget (which would be the “let’s get radical”), I don’t think it moves the needle all that much.
So I modeled out our debt payments
If I took out a 401k loan for $40k, that would squash a bunch of high interest
It would accelerate our departure from debt by only 3 months…
BUT, it would reduce our interest paid by $16k
It would also greatly reduce the number of monthly payments and the general stress involved with multiple credit card bills\dates
Understanding that we would lose some compounding interest by taking out 40K
calculated that I would lose potentially about $7k in savings in the 401k
That would reduce our overall savings down to $9k
Here are the PROs as I see it
- The math seems to work out pretty okay. (of course if the market outperforms, I lose more… though it would have to perform at 15% for me to lose all the benefits)
- We’ve gone 12 months without putting a charge / increasing the balance on any of these cards
- This doesn’t increase our monthly outflow. (including continuing contributions to 401k)
- This isn’t a complete drain of 401k funds (40K out of total of 310K of just my 401K) (I’m in my early 40s)
- Removal of stress/management of 5 monthly payments (which granted are on autopay but require account money moving, YNABing, etc…)
- 9k interest savings (though I’m not interested in that weighing that too heavily, it does mitigate the “losing out on compound interest”)
And the CONS
- 401k loan repayment danger if job loss (I would think that the 401k loan repayment danger in the event of job loss ALSO exists in the lost job and $65k credit card debt world.)
- Not “learning the lesson” (Though we’ve had 12 consecutive months of not accruing new debt using YNAB)
- Me using my 401k to largely pay off the debts of my spouse (though we’re married 15 years, so these debts are technically both ours as are the 401ks, right?)
- Missing that market growth
I KNOW the 401k loans are greatly frowned upon.
But they are usually because they are seen as the easy way out in terms of not having managed the overall spending and budget.
We have a solid YNAB budget, with money going to most true expenses (even things like YNAB and AAA renewals)
We’re slowly building up an emergency fund, but it’s slow going due to everything you see above.
I know we, as YNABers, have lots of subjective feelings on 401k Loans (DON’T DO IT, pinch more, side hustle etc…)
I’ve read as many threads as I could find on the forums, but I’ve not seen the math behind any of them or any nitty-gritty details.
Hopefully someone in a similar situation can use the above method and links as some resources to do their math.
For the record, I’ve discussed with my spouse and they are of the, “if it’ll work” mindset… though they aren’t interested in splitting the 401k loan into 20k for each of us.
I honestly haven’t decided either way, though it may sound like I have decided to do the loan… pushing the button is a whole different affair.
(if you’ve made it this far, thank you… you must be a Super YNAB Angel)
So I guess, in the end, my question is, are there any considerations I am missing? Something I haven’t thought of that I should add into the overall decision making process?
Thank you so much for even being interested. And thanks for the countless amount of advice I've gotten from this forum.
(also, if you found this even mildly helpful or similar to your situation, I'd be interested to hear about it.)
Well done on the progress Believe And I did read to the end...I also write long posts in YNAB, knowing full well that no-one else may read it. This stuff is hard, and leaning into it is really hard.
I can't shed any light on the maths, because I'm more interested in the motivations and behaviours associated with finances and what will make this year's behaviour long term. People aren't rational and don't behave rationally. The numbers are just useful to help you understand consequences.
Similarly the 0% and switch to lower rates makes lots of sense.
What do I think?
My gut instinct here is that I don't think you should do this, as there is no incentive to keep paying off what is a substantial amount of remaining debt. What is to stop something shifting for your spouse and spending increasing again? Or some real emergency where you need to use that 401k loan which you can't use
That said, I know the numbers stack up (despite the issues re: secured vs unsecured and retirement and divorce etc etc) and if this gives you an incentive then do so.
But the real issue remains that you need to actually cut some things out and turn them into debt repayments, not necessary radically but at least significantly. You're not making real progress on the debts yet as it took you a year to turn this ship around.
Now is the time to dial up a bunch of strategies for the remaining credit card debt and to get rid of the $40k so you can start paying for your future not your past.
What would get your partner more involved?
I'm single these days so can't speak with great knowledge but I'm going to anyway.... Your partner needs to get some skin in the game even if the loan goes ahead. I feel strongly that if there's a loan it should be 50:50 or some other significant trade off.
- What will they agree to do or give up if you go ahead with this loan?
- What assets do you both or they have that can be sold?
- What would work with them in terms of agreeing to hit one of the debts hard for a while?
- What are they willing to give up to live with the fact your current spending is unsustainable?
- What do they think would happen in case of an emergency?
I'm sure you've already read and watched all the YNAB stuff and read all the forums on how to get your partner involved with YNAB, but maybe another next step is to revisit
I'm not terribly wise, but I have had the experience of paying down all my credit cards some years ago (using YNAB) and then recreating the debt in 2019 when I had a major financial and then health crisis. Then COVID hit my business and I had no backlog or remaining credit to help. I'm slowing turning it around now with a contract saving me from having to sell my investment property - which was funded under a much higher income.
I have changed my expense quite profile a bit - but there are still choices to make to really hit back on the debts - which are now slowly going down. Am I happy to keep working a contract like this? (assuming i can find another one in January)
I'm just about finished paying back some arrears and some other big debts, plus allocating enough for true expenses. Next is to save a month or two of income replacement and keep making regular payments on the remaining debts. I also want to keep saving for true expenses. I'm also going to try again re: the high interest credit card.
I know motivation is going to be hard for me as I'm not paying off $1k here or there each pay day. So I'm also thinking about what would help. Mini milestones like $1k paid off and debtris charts? Rewards at each $5k? Old credit card bills where I cross of what I've just paid for? I did the last one in 2011 back when we had paper statements. A temporary challenge?
Best wishes for what ever you decide. You've got this! Your spouse is very lucky to have you.
It sounds like you're highly motivated by minimizing the total amount of interest you're incurring, but it also sounds like you're growing weary of the debt paydown because you can't see the progress - that might be because haven't been able to get rid of any one debt entirely, and won't for another year with your current plan (and then another year and a half after that!).
I wonder if it might help you to try the snowball method for at least some of your 13%+ interest loans, to gain some momentum (and cash flow) from smashing through several loans over the course of 2 years. Run a couple scenarios through undebt.it, but I think you could probably get through each of the smaller credit card balances every 6-8 months and then by October of 2023 have three fewer bills every month. All those minimum payments, plus the original snowball, can go towards the larger debts and you'll hopefully be energized by the feeling of accomplishment every time you close out an account. Either way you've got a few years to go on this journey, so I vote for whatever method keeps you motivated to keep up the fight!
[I'm not gonna touch the 401k loan because I don't know enough about them, but it seems like the above method might help with some of the more emotional frustration you're feeling right now and have less overall risk? I also think it is a red flag that the debt is mostly your spouse's but you're the only one willing to pull from your own 401k]
Just one small comment: why don't you keep the same monthly payment between the case without and with the 401K? I understand the min. payments will reduce but instead of cashing in the difference for yourself, why not add the difference to the debt repayment? It would result in the debt being paid even sooner.
Or are you also looking at freeing some cashflow?
Have you verified that you can continue contributions while you have an outstanding 401k loan?
How much are you contributing? What (if any) is the employer match?
You will be taxed on the withdrawal of the interest paid to the 401k loan because it is post-tax money that will be treated as pre-tax upon withdrawal. This means it is essentially double taxed. That is a hidden cost.
Hey Believe ! I don't have any thoughts on your exact path to paying off your debt, but I just want to throw some encouragement your way. Those first years of debt paydown are. so. slow. So. Slow. But it really is exponential. Even though you haven't made much visible progress on paying down your debt, you've made massive progress by not relying on your credit cards. By funding your true expenses. By establishing an emergency fund - well done!! Regardless of the way you tackle your debt, a payoff by 2025-26 is huge!
401(k) loan greatly increases your personal risk, reduces your investment return, and moves the needle by only three months.
No thank you. Get really good at the balance transfer game instead. Once you're done paying off credit cards, learn to productively use credit card float in YNAB to accelerate paying off the installment loans.
Also without looking at the rest of your budget, I'm going to guess there's more money for your snowball without even having to go hair on fire Dave Ramsey style. People who are deep in debt because they have no wiggle room and have had to charge things to get by do not end up owing $10,000 to REI. You need to get more serious about paying these down if you're serious about paying them down, not shift them to a different kind of more risky debt vehicle.
I would lean against the 401K loan because as previously mentioned it may be too easy and the debt will be ran back up. Cutting expenses and sacrificing will hopefully be a reminder as to why y’all would never want to run the credit cards up again. I might would keep a running total somewhere visible of the payment amount and how much of that payment went to interest. That would motivate me to cut out all unnecessary spending. Good luck whichever way you choose.
I'm currently contributing 12.5%, there is no employer match (employer provides a pension instead.) I toyed with the idea of decreasing contributions to increase debt payoff, but I do not like that for a number fo reasons. (The numbers didn't change all that much after considering pre-tax contributions versus post-tax debt payoff. And just generally part of staying as close to "not robbing from the future" as possible.)
I think it should be pointed out that reducing 401k contributions and taking a 401k loan are both robbing from the future. But the 401k loan carries more underlying risk.
I wonder if it might help you to try the snowball method for at least some of your 13%+ interest loans
This is what I suggest. You have made a few great strides. No new debt. Woo hoo!!!!
I think you are nerding out too much. I am an accountant so I run the numbers. And I wanted to get intense on the debt. And I couldn’t get hubby excited.
Fast forward to now. 2 months away from last credit card being paid. Hubby is so excited about YNAB he shows it to his friends.
My suggestion is to get rid of that Old Navy debt and focus everything on it. Is your wife into games? Maybe one of the debt payoff colouring charts would help motivate her. It’s amazing what some of us will do to be able to colour an extra square.
No to the 401K loan. Using debt to deal with debt is not a good plan. However, you should look into a balance transfer offer to help some of that interest.
You say you make good money. Maybe its time to squeeze a little on something. And then every penny of that goes to Old Navy. Or sell some stuff. Not Dave Ramsey level but is there anything around that can raise a few bucks?
I could never get my husband to be intense on cutting expenses but I did give him way more leeway than I wanted. You say you have enough in the spending categories so you don’t have to go without. I don’t know what the rest of the budget looks like, but I bet you could shave a dollar off a category here and there. Not drastic.
Basically you need to move to the next level. Not crazy level just up the game. Have you tried using just cash? We did that for a year and it made a huge difference.
I feel you on those total combined payments. But right now you have a log jam and you need to get rid of one of those debts. And then have a celebration. So the month you pay off the Old Navy card take the payment amount that next month and spend it on something awesome. Dinner out. Theatre. Something you love. And then the next month throw that at the next debt.
it takes time. And restraint. But its totally worth it.