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I have about $14,000 in high interest credit card debt. I am curious as to the best options to attack this issue.

CC1 - $9,500 @ 19%

CC2 - $4,100 @ 21%

I have about $8k in savings I am not willing to touch in case of emergencies. I have about $14k in a 403b from a previous job and $4400 in my 401k at my current job.

I have a credit score in the low 730s. I am considering the option of applying for a credit card with a 5% fee on balance transfers but 0% interest for 21 months. The other option is to get a loan from my bank. I would have no problem making the monthly payment on the no interest card since it is barely more than the two payments from the cards mentioned above combined. The only problem I see here is I may not get approved for enough credit to cover my two problematic accounts.

I have full benefits including health insurance and 401k matching at my current job which I take advantage of. I hope to buy a house in the next year or two, but no other big expenses are planned. Not sure if any of that is relevant.

I am leaning towards the no interest card, but are there other variables I am not seeing? Any advice on the best course of action here would be much appreciated.

edit: I am a homeowner. My disposable income after all the essentials are paid is about $2000.

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    Your $8K cash is not considered a saving since you are sitting on a pile of insanely high-interest debt.
    – mootmoot
    Jul 25, 2019 at 6:57
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    "I have about $8k in savings I am not willing to touch in case of emergencies." $14K of 20% debt is an emergency!!!
    – RonJohn
    Jul 25, 2019 at 8:32
  • Fair enough. Point taken @RonJon
    – alfwhfwef
    Jul 25, 2019 at 13:17
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    Hellmaca, I was in your shoes, with even more CC debt seven years ago, and had to come to the realization that reducing CC debt was actually more important than keeping cash around "for an emergency".
    – RonJohn
    Jul 25, 2019 at 13:28
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    @xyious one of the things I agree with Ramsey on is the starter emergency fund of $1,000. When this deeply in hair on fire debt, there are no good solutions; there's only juggling weighing the sub-optimal vs. the bad. OP's job seems stable, so I'd put $4,100 to finish off CC2, $2,900 to CC1, finish off CC1 in 4-5 months and then build up the E-Fund.
    – RonJohn
    Jul 26, 2019 at 2:34

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CC2 is costing you about $70 per month in interest. It seems a waste to keep that much cash in the bank when you're spending money on interest like this.

First of all, I would make sure that I have my budget under control and am not creating any more debt. Then I would knock out CC2 today. That still leaves you about $4k for "emergencies", and there aren't many emergencies (if any) that cost more then $4k that can't be negotiated, shopped around, or put on a payment schedule.

Normally I would suggest putting a dent in CC1 as well, but since it will take some time to pay it off anyways, but you are already hesitant to touch it, and it's not that bad to leave the $4k in the bank, provided you don't take too much time to pay it off (it's costing you about $63 a month at 19% interest).

Now that leaves CC1, which is costing you about $150 a month in interest. Moving it to the zero-interest card will cost you about $450 in fees, meaning it will be 3 months before you even break even in the interest savings. Plus you haven't really accomplished anything. You've just exchange one debt for another (granted with a lower interest rate). The risk is that you feel like you have more money to spend, which will slow down your debt repayment and actually cost you more in the long run.

The aggressive option is to attack it with a vengeance. Temporarily stop your 401(k) contributions with the goal of getting CC1 paid off in 3 to 6 months (you don't mention what your disposable income is so it's hard to know how long it would take). Once the debt is paid off, replenish your emergency fund and restart your retirement savings at a higher level. It's tough to leave that match on the table, but you have plenty of time to make up for the lost match.

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    I'd highly suggest a clarification to the advice of suspending the 401(k) deposits. I'd reduce to the point of capturing the full match.
    – JTP - Apologise to Monica ♦
    Jul 25, 2019 at 8:53
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    This person is a renter so they don't have the same emergency need that homeowners do, so 4k is generous. No need to replace an HAVC system. I agree to suspend 401K contributions, but would also advocate working a second job or two.
    – Pete B.
    Jul 25, 2019 at 12:02
  • @JoeTaxpayer All due respect, but that was intentional. I know it's very aggressive and mathematically unintuitive, but it is an extreme option. Plus it can be made up for once the debt is gone (assuming OP is not already putting in the max).
    – D Stanley
    Jul 25, 2019 at 13:40
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    @TripeHound I'd be very careful considering the credit card an emergency fund. It can get you right back in the same position you started in. It also increases the possibility of overspending (e.g. buying a new $2k washer/dryer instead of repairing the old ones). I'm not saying it's a terrible idea, but id does require more financial discipline.
    – D Stanley
    Jul 25, 2019 at 14:13
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    @hellmaca My "how do I get out of debt" answers are more behavioral than mathematical. Yes mathematically it seems that you can save some money by maxing out the 0% card (and you might), but a better (IMO) mindset is to work like mad to get rid of it quickly. Moving it to a 0% card gives you a feeling of accomplishment when you're actually in more debt. The risk is that you feel richer, spend more money, and end up in debt longer. The difference in interest is not that much in the long run, so I generally advise not moving debt around too much and focus on paying off the debt.
    – D Stanley
    Jul 25, 2019 at 15:24
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I have about $14k in a 403(b) from a previous job and $4400 in my 401k at my current job.

I'd transfer the 403(b) balance to my 401(k). Reduce the 401(k) deposits to the level that's matched. If a loan doesn't keep you from getting matched deposits, borrow $9000*. Pay the cards in full. Make the regular 401(k) payments, but also replenish the savings with the same monthly amount you were paying to the 2 cards. You will save over $2600 in interest in the first year, a good return to your bottom line for the $9000 loan.

Disclaimer - there are those for whom a 401(k) loan is making a deal with the devil. I respect them. We each have our own level of risk tolerance.

*Note, one is permitted to borrow 50% of their vested 401(k) balance. Thus, the $9K vs the $18 balance, post transfer.

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    This is essentially what I did. Other things to be aware of: If you were to lose your job you'd have 60 days to pay back the loan, otherwise it would automatically be converted into a premature distribution which greatly increases your tax burden (likely leading you to having to pay the IRS on April 15th). Still, that's far better than not getting that 401k match, especially if it's 100%
    – xyious
    Jul 25, 2019 at 19:04
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In case you don't want to touch the 401k or the savings:

I would get a 0% introductory APR credit card (like the one you mentioned, 21 months is a long time).
Then I would use that credit card for all spending that you can put on a credit card.
While making the biggest possible payments to credit card 2 until it's paid off. You say you have an emergency fund, so figure out exactly how much money you pay in bills every month that can't be paid by credit card and then only leave enough money (plus $100 or so) in your bank account to pay those bills. Every paycheck you immediately make a payment to CC2 (and 1, after 2 is paid off) only leaving yourself with enough money to cover bills.

This way you don't pay for transfer fees while still getting very good use out of the 0% APR card. $2000 per month in discretionary spending means you should have both cards paid off in 7 months. After both cards are paid off you obviously need to seriously tackle the new card and make sure you don't keep a balance on it beyond the 21 months of 0% APR.

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  • Adding to CC debit while paying off another one is not a sustainable activity. You're basically pushing debt around and not really getting anywhere. I realize the new CC won't be charging any interest during that trial period, but it's way too easy to slip up and get screwed again. Also, introductory interest rates have a nasty habit of becoming retroactively enforced after they expire, meaning that if you have any debt left on the card when the 0% ends, you suddenly owe all the interest you would have had to pay if interest had started right away.
    – computercarguy
    Jul 25, 2019 at 22:46
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    Having the debt at all is not sustainable activity. Moving the debt to a lower rate environment by spend shifting rather than a strict balance transfer can lead to a massive cost savings. Also, introductory rates don't have a nasty habit of being retroactively enforced; iirc that's forbidden under the CARD act. So it's not as though a slip up 9 months will cause a 9-month retroactive net-interest charge. That's a tactic of things like jewelry loans, not credit cards. "No interest if paid in 12 months" is not the same as "0% APR for 12 months"
    – quid
    Jul 26, 2019 at 18:02
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Is your goal to eliminate credit card interest and fees forever? It should be.

A few things to consider:

  • Call and ask each of them for a lower rate.
  • You can also ask for a payment plan at a lower rate.
  • Withdrawal from a 401k/403b will incur a 10% penalty + payment of income tax. Consider that when figuring out amounts.
  • Stop using both cards immediately - do not add to your problem.
  • Consider how to reduce your expenses. Some reductions might seem harsh, but necessary.
  • Some people will max out a card (Visa/MC only) or two, and then stop paying them, letting them go to collection, and offering 20-30% settlement. (This can really reduce a credit score.)
  • Taking money out of a 401k/403b can take days to weeks, so consider that this money is not cash, nor credit.
  • Taking a retirement loan will often give a great interest rate, and has its pros and cons. With CC interest at 19%, likely more pro than con.
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    "letting them go to collection, and offering 20-30% settlement" thereby destroying your credit score for years.
    – RonJohn
    Jul 26, 2019 at 17:19
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I have been in a situation with credit card debt - unemployment led to a large amount of high interest debt.

If it was me: 1. Take advantage of your high credit score. Get a Zero interest balance transfer card and move as much as you can to that new home. Make payments on time. 2. Utilize a loan from your 401k (you can borrow from yourself, the vested balance and interest is essentially paid to you, the lender) to zero out the remaining debt. Do a 6-12 month period. - Each paycheck, a portion will simply go to paying yourself back.

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    Not only do you lose the interest on the 401k loan amount, but also the compounded interest. Normal financial advice says to do this only as a last resort, which doesn't seem to be the case.
    – computercarguy
    Jul 25, 2019 at 22:49

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