I make decent money, though living in NYC is pricey, and my paycheck is garnished for child-support for kids I too rarely see, so I’ve been able to live an okay life, though far from sumptuous. But there’s a crisis looming that I’m trying to prepare myself for.
I’ve got a child-support hearing coming up, in which my ex- is going to argue that since my income has gone up considerably since the last time I was assessed for child-support, my child-support should nearly double. If it does, my take home pay will go down to around $1000 per month, which doesn’t cut in NYC, not nearly.
I’ve been socking away some money in a retirement account the last few years, which sum adds to my account and also reduces my taxable income considerably. I’ve been living pretty frugally, because I really look forward to retiring, but that’s not going to be possible if my ex- succeeds in her argument. So should I cut back the retirement funds by the amount my child-support goes up, or should I take that hit on my credit card debts for a few years?
I have to add, I’m very reluctant to take on debt–doesn’t feel right, I’ve rarely owed money (other than a mortgage) to anyone, and it just makes me nervous. OTOH, I’ve often heard that the tax savings and the wisdom of setting aside money for retirement is a top priority, with which I should let nothing interfere. Does it really make sense to go almost a grand a month into the hole to cope with a relatively short-term situation of maybe a year or two (my oldest child is going to turn 21 in a few years, and the child support should come back to a more managable figure). I did this once before, for the same reason: when I first got divorced, I couldn’t make my child-care payments, no matter how I cut back on expenses, unless I took a second job AND racked up credit-card debt, both of which were grueling for me to do and both of which I felt great relief at finally beign able to end.
Does it ever make sense to go into debt as a thought-out rational financial plan? Because that’s all I’ve been able to come up with so far.
Call me a dumbass, but are child support increases *automatically *granted? Have you no right to contest the amount awarded? And how old is your oldest? I thought child support payments stopped when the kid was eighteen.
My opinion (and this is coming from someone who is perpetually confused by money and debt) is to take the hit on your retirement fund. Credit card debt is something you really don’t want to get wrapped up in. It can get out of control and you end up paying soooo much more than you need to. It’s one of those things that can haunt you forever. IRAs have a “catch-up” thing you can do once you turn 50. Good luck.
I think you’re better off putting less into your IRAs for a year or two rather than running up credit card debt, since those interest rates are ridiculous. As long as you’re not actually tapping the IRAs, you should be okay.
It’s very simple, would you borrow money from your credit card to invest in your retirement account? Do your retirement account returns exceed the interest rate on your credit cards? If it’s a choice between taking advantage of the maximum matching contribution from your employer on a 401K and living on your credit cards temporarily and missing out on a 100% match, that might possibly be the only scenario where it might make sense. Maybe. I still wouldn’t do it.
I’m going to chime in here and tell you to get a lawyer. I can’t see the purpose of beggaring yourself just because the numbers say you can afford it. Reality is often different.
You’re going to need someone to argue that you can’t live on $1000 a month in NYC. Hell, I’ve never been there and even I know that much!
Getting into debt on one hand just to be able to save money on the other doesn’t make sense to me.
Well… it could if you can get more from your retirment account than you wil pay in interests on your CC debt. Somehow, it doubt it will be the case (though it did happen to me once that such a deal was advantageous, so, who knows) but if it is, you should borrow money to put in your retrement account whether or not you have child support to pay.
Depending on the type of retirement account you have (401(k), for one), another option may be to borrow against the retirement account. You essentially pay interest to yourself for the duration of the loan. This may be adviseable if you want to keep getting an employer’s match amount and you don’t want to pay usurious credit card rates, but you’d have to run the numbers for yourself to see.
Also, be aware that if you borrow against a 401(k) and change jobs, you have to repay the loan immediately. If you don’t repay the loan on time (or immediately if you change jobs) it’s counted as a distribution and you have to pay taxes + 10% penalty. I’m not sure how it works with other plans.
“Mr. President, we’ve got to make those huge tax cuts permanent, AND expand Medicaid drug coverage dramatically, AND sustain a long-term military presence in Iraq!”
I’m no financial genius, but one thing that got through to me is that taking on debt should be done only when absolutely necessary. Paying off debt is like making an investment. Paying a credit card that charges, for example, 17% APR is like making an investment in something that will return 17% annually – guaranteed.
I really, really doubt that whatever investments you’re making with your retirement are worth more than the interest you’d have to pay on your credit cards. If your investments are making in the neighborhood of 15-20%, which would probably be enough to offset most credit card debts and still provide some growth, then I suggest you go into a new career: finance.