On the brink of solvency.

[Tink1717 2]

So, I started off this year $19K in total unsecured debt. (Divorces are EXPENSIVE) I am now down to where I have enough to give my self the X-mas present of paying off all of it.

BUT, if I do that, I'll only have about $500 left in the savings account and I have no idea what will happen at tax time.

So, the question is simple: Pay it now or wait until tax time?

Skydivers don't knock on Death's door. They ring the bell and runaway... It really pisses him off.
-The World Famous Tink. (I never heard of you either!!)
AA #2069 ASA#33 POPS#8808 Swooo 1717

[ryoder 1,590]

Easy: Which choice will having you paying interest between now and tax time?

"There are only three things of value: younger women, faster airplanes, and bigger crocodiles" - Arthur Jones.

[wmw999 2,534]

First, congratulations. That's a lot of work.

If you KNOW you can add back to your savings, give yourself the gift of paying it off. If you're not so sure, then keep the savings, and keep paying it down aggressively. I can provide some good beans-and-rice recipes

Either way, you'll be both done and back to feeling in control soon. Congratulations

Wendy P.

There is nothing more dangerous than breaking a basic safety rule and getting away with it. It removes fear of the consequences and builds false confidence. (tbrown)

[Tink1717 2]

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Which choice will having you paying interest between now and tax time?

It's not really that simple. If I have to come up with a wad of cash to pay taxes, then what did I accomplish by paying the debt? I could have paid the taxes and put the rest into the debt.

Skydivers don't knock on Death's door. They ring the bell and runaway... It really pisses him off.
-The World Famous Tink. (I never heard of you either!!)
AA #2069 ASA#33 POPS#8808 Swooo 1717

[Tink1717 2]

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First, congratulations. That's a lot of work.

Thanks

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If you're not so sure, then keep the savings, and keep paying it down aggressively.

I want to avoid having to go back into debt, even a small one to pay off a tax bill. That's what keeps me up at night.

The plan is to get rid of ALL mechanisms of going into debt after this. In many ways I feel worse now than I did at the start of the year. Not only can I see the light at the end of the tunnel, but I can see the end of the tunnel. The last mile of the marathon is the hardest.

Skydivers don't knock on Death's door. They ring the bell and runaway... It really pisses him off.
-The World Famous Tink. (I never heard of you either!!)
AA #2069 ASA#33 POPS#8808 Swooo 1717

[wolfriverjoe 1,523]

I have to ask:

Why don't you know what's going to happen at tax time?

If this is too personal of a question, just say so.

But I've always known where I stood at tax time, more or less.

Self-employed, I had to file quarterly estimates, and I knew my exact earnings, so I knew what I'd owe.

Being paid by an employer, I'd set my withholdings to come up just a bit short. I'd rather owe a couple hundred than give the government an interest free loan to get a huge refund.

I would think even though your situation changed over with the divorce and such, that a good tax preparer should be able to put you in the ballpark.
Or I could be wrong.

And I'd go with "practical." Is it cheaper to hold back some cash, not pay off the debt and pay that interest? Or is it cheaper to pay off all your debts and borrow some more to pay taxes if necessary?
Or can you save enough between Christmas and April to pay off any tax burden?

Congrats on getting out of debt. It's really, really nice not to be "beholden" to someone. It's even nicer when all that interest that you were paying goes in your own pocket.

"There are NO situations which do not call for a French Maid outfit." Lucky McSwervy

"~ya don't GET old by being weak & stupid!" - Airtwardo

[JohnMitchell 16]

ALWAYS pay off high interest rate debt as soon as you're able, before anything else. Even with the stock market doing 12%+ this year, 22% interest rates on cards and other debts will kill you. Pay off first before funding IRAs, etc.


Tax time? That's 4 months away. Enjoy being out of debt, save what you can, and borrow what money you MAY need for taxes when it happens. And try to get the best rate when you do. Good luck.

[wmw999 2,534]

Actually, Dave Ramsay (radio financial guy) suggests paying off the debt smallest to largest. You might waste a few pennies or even dollars in interest, but the action of finishing one bill, and then being able to devote all that money to paying off the next one, is a great psychological boost.

Tink, keep your emergency fund. It's what keeps you from going into debt again. Yeah, it means you have to keep paying on the last one, but this way you're not going to your reserve prematurely

Wendy P.

There is nothing more dangerous than breaking a basic safety rule and getting away with it. It removes fear of the consequences and builds false confidence. (tbrown)

[JohnMitchell 16]

wmw999

Tink, keep your emergency fund. It's what keeps you from going into debt again. Yeah, it means you have to keep paying on the last one, but this way you're not going to your reserve prematurely

Another opinion on that is to pay off all debt, even to the point of using your "emergency fund". If a true emergency does arise before you rebuild your cash supply, you can use a credit card to cover it. It would better than having a cash reserve and still carrying high interest debt.

Paying small to large? Yes, I can see the psychological advantage. But higher interest first makes more mathematical sense, as I'm sure you understand.

Sometimes it makes sense to carry debt, if the rate is low enough. A year and a half ago, my daughter bought a brand new Honda Civic. I went to the dealer to cosign. She was planning to pay $4K down, financing the rest over 5 years. But they offered financing at .9% . I told her that with the money that cheap, to finance the whole thing, no money down.

Later, when she was jobless for 2 months, she had a great cash reserve to fall back on and continue to easily make her payments.

[ryoder 1,590]

JohnMitchell

If a true emergency does arise before you rebuild your cash supply, you can use a credit card to cover it. It would better than having a cash reserve and still carrying high interest debt.

Exactly!

One of the news-mag TV shows once did a story about consumer debt, and it was amazing how many people they found who were keeping cash in the bank, (at interest rates that were a joke), as their "emergency funds". And meanwhile they while floating big CC balances and paying exorbitant interest rates.

"There are only three things of value: younger women, faster airplanes, and bigger crocodiles" - Arthur Jones.

[skymama 37]

How secure are you in your job? My reply hinges on that answer.

She is Da Man, and you better not mess with Da Man,
because she will lay some keepdown on you faster than, well, really fast. ~Billvon

[Tink1717 2]

Very secure in both jobs and my fire dept. pension. I just have no idea about what will happen at tax time.

Skydivers don't knock on Death's door. They ring the bell and runaway... It really pisses him off.
-The World Famous Tink. (I never heard of you either!!)
AA #2069 ASA#33 POPS#8808 Swooo 1717

[Tink1717 2]

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Why don't you know what's going to happen at tax time?

Because I took a second job and refinanced the house, plus my pension chronically under taxes me.

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Or can you save enough between Christmas and April to pay off any tax burden?

I normally do taxes in feb, as soon as I get all the paperwork. I plan on bumping up the debt payments till then.

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Congrats on getting out of debt. It's really, really nice not to be "beholden" to someone. It's even nicer when all that interest that you were paying goes in your own pocket.

Not only can I see the light at the end of the tunnel, but I can see the end of the tunnel. The most frustrating part is the waiting.

Skydivers don't knock on Death's door. They ring the bell and runaway... It really pisses him off.
-The World Famous Tink. (I never heard of you either!!)
AA #2069 ASA#33 POPS#8808 Swooo 1717

[Tink1717 2]

[reply ]I can provide some good beans-and-rice recipes

[Tink1717 2]

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If a true emergency does arise before you rebuild your cash supply, you can use a credit card to cover it.

Which is more or less how I got here to begin with. Going forward, I'll be eliminating as many mechanisms of going into debt as possible. Credit cards are the first on the list. (Even though I only have two), I'm gonna axe all forms of unsecured credit. If I can't pay in full, then I don't need it.

Skydivers don't knock on Death's door. They ring the bell and runaway... It really pisses him off.
-The World Famous Tink. (I never heard of you either!!)
AA #2069 ASA#33 POPS#8808 Swooo 1717

[skymama 37]

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Very secure in both jobs and my fire dept. pension. I just have no idea about what will happen at tax time.

I think you should just wait to pay everything off until you do your taxes. It's only a few more months and $500 in savings just really isn't that much of a cushion. Have you calculated how much that amount of interest payments will be if you don't pay off the debt?

She is Da Man, and you better not mess with Da Man,
because she will lay some keepdown on you faster than, well, really fast. ~Billvon

[Dean358 0]

Something else to consider is how good it will feel to pay off any debt related to your divorce and get all of that crap behind you. Much to be said for starting the new year with a clean slate on that front.

As for taxes, while you must file your taxes on time you don't need to pay them on time. You can always file for an extension to delay paying what you owe. I believe the IRS offers a 120 day extension with zero interest or a longer installment plan or extension with a modest penalty. Not sure what the options are for your state taxes. (I am NOT an accountant so do check your specifics.) Details here:

http://www.irs.gov/uac/Extensions-and-Payment-Options/

If it was me I'd pay off the unsecurred debt right now and be done with it, even if that cost a few pennies more in the long run. And good luck with the debt free plan Tink -- thats' an excellent way.

www.wci.nyc

[NWFlyer 2]

Tink1717

I normally do taxes in feb, as soon as I get all the paperwork. I plan on bumping up the debt payments till then.

You can complete them in Feb (to confirm whether you owe or will get a refund) but not file till April if you owe. That's usually how I do it.

You may want to rethink closing the credit card accounts altogether, particularly if you've had them for a long time, as it may have a negative impact on your credit rating, which can have implications on a lot of things besides availability of credit. If you're worried about enforcing discipline on yourself you can do something to make it difficult to use the cards (I've heard of people literally freezing the cards in a block of ice). Or, if you feel like you have the discipline, use the cards to your advantage - use them for monthly expenses and pay them off each month. Keeps the cards active but you're not going beyond your means.

But I know from experience that can be difficult, so you have to know yourself. I've been completely debt-free for about five years now, after years of paying off student loans and carrying some amount of credit card debt. I used proceeds from the sale of my house, as well as a couple years of company bonuses to get myself to a clean slate. I don't remember the exact strategy I used - I think generally I focused on the highest-rate balances first, but at the same time I remember paying off a couple of smaller, lower-interest balances just because I could and it felt good to "git er done."

I still use credit cards all the time, but I never ever carry a balance. If I buy it, I've got to be able to pay it off when the bill comes. Meanwhile I rack up lots of airline and hotel points that I can use to save on travel.

"There is only one basic human right, the right to do as you damn well please. And with it comes the only basic human duty, the duty to take the consequences." -P.J. O'Rourke

[JohnMitchell 16]

NWFlyer

You may want to rethink closing the credit card accounts altogether, particularly if you've had them for a long time, as it may have a negative impact on your credit rating, which can have implications on a lot of things besides availability of credit. If you're worried about enforcing discipline on yourself you can do something to make it difficult to use the cards (I've heard of people literally freezing the cards in a block of ice). Or, if you feel like you have the discipline, use the cards to your advantage - use them for monthly expenses and pay them off each month. Keeps the cards active but you're not going beyond your means.


I still use credit cards all the time, but I never ever carry a balance. If I buy it, I've got to be able to pay it off when the bill comes. Meanwhile I rack up lots of airline and hotel points that I can use to save on travel.

Great advice in the top paragraph. Use your cards as a tool to help you, not as an anchor to drag you down. I had all of our kids get CC's as young as they could, to start building credit.

We put everything on CCs, then have them automatically paid in full each month. I can go on vacation for a month and not worry about a single bill.

[JohnMitchell 16]

Iago

I never liked this idea of 'building' credit. I know where you're coming from but I'm not a fan of that concept.

For years I operated on cash and never used credit until my mid-twenties and was okay. Today's world is definitely different, with your credit score affecting your ability to rent an apartment, get car insurance cheaply, and certainly ever finance a home or get a decent auto loan rate. It's a sad fact that it's become a major metric for many things.

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You don't repair credit, credit recovers on it's own over time.

Very true, to a certain extent. One factor is how long you've had certain accounts open. Another is your debt-to-available credit ratio. But yes, quiet and calm with no new request should raise your score over time.

There is no privacy anymore.

[Tink1717 2]

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Have you calculated how much that amount of interest payments will be if you don't pay off the debt?

$178.00/month, $564.00 total. More than the total left in savings after I pay off the bill.

Planning on dumping the bill around the first of March.
And then returning to the sport in a big way.

Skydivers don't knock on Death's door. They ring the bell and runaway... It really pisses him off.
-The World Famous Tink. (I never heard of you either!!)
AA #2069 ASA#33 POPS#8808 Swooo 1717

[Tink1717 2]

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.....add in Rick Edelman......

Who just happens to be right down the street from where I live. Who knew?

Skydivers don't knock on Death's door. They ring the bell and runaway... It really pisses him off.
-The World Famous Tink. (I never heard of you either!!)
AA #2069 ASA#33 POPS#8808 Swooo 1717