What strategy should I use to attempt to pay off both my secured and unsecured debts at the same time?
Retirement can be fulfilling, but sometimes, the finances can get very stressful. As you are trying to create a debt reduction plan, I would encourage you to begin by tracking all of your spending for a month or two. I think that cash flow is central to so much of financial planning. You can keep up with your spending any way that works for you--you can jot it down on a notepad or keep it in an Excel spreadsheet, or use a budgeting software. The trick is writing down everything--where did you spend it, and how much did you spend. If stores sell a wide range of products, you might separate groceries from clothing.
Once you have completed this, I want you to go back into your list and separate bills that have to be paid, called nondiscretionary spending, (like rent and insurance) from discretionary spending (like shopping or eating out). If your bills exceed your income, you will need to find a way to either spend less or, possibly, get a part-time job. Today, many people are working well into their seventies by choice because it increases their standard of living by so much. If you have money left after you have paid your nondiscretionary bills, you can use that to begin to pay off your secured debt.
As others have said, you may have penalties if you try to withdraw too much from the annuity. Additionally, I suspect it will only pay about half of your debt once the taxes are withheld, and you would be left with no savings at all. I'm not sure I think this is the best strategy.
Since you rent, I'm guessing your secured debt is a car, and if those payments are overwhelming, you may want to sell it and purchase a less expensive vehicle. Additionally, you might want to find less expensive housing. However, I don't know your circumstances, and there may be reasons why this isn't the right way forward for you. I really don't know enough about your background or where you live. I urge you to talk to a financial planner who is willing to act as your fiduciary. If you are having trouble finding someone, contact a local not-for-profit financial support service. Be very careful because some of the debt consolidated services will ruin your credit. Websites should probably end in .org (rather than .com) which means you are working with an organization rather than a company.
Best of luck! Peggy
Hi, the first things that jumps out at me from what you have said is your rent versus your income. You are living beyond your means and need to cut down on your rent. Ideally you should spend less than 28% of your gross income. Assuming you spend 28% of your income- you are freeing up $1,700 per month which translates to over $20,000 a year even if you use half of that towards paying down your debt, you could be debt free sooner than later.
Taking out a loan to pay off a loan is not a good idea unless you can get better terms especially a lower interest rate. In terms of paying off your debt- you should pay down your most expensive debt first- I suspect that would be your credit card debt (unsecured) if you have one. One of the things you can do is call your credit card company to see if they can bring your interest rate down or provide some other relief.
I am not sure what kind of annuity you have but premature withdrawals from an annuity may incur taxes and penalty.
All the best.
Congrat on retiring. Sounds like you will really need to look at new living situation if you ever want to keep you head above water financially. Or perhaps look at other living situations like getting a roommate. It could be fun, think of it as Retiring like the Golden Girls.
Ideally you would be spending 25-30% (or less) of your income on housing. Right now you are spending closer to 79% assuming you don't owe any taxes on your $3400 of monthly income.
Without going back to work, or bankrupty I don't know how you could possibly get this debt paid off. If you took every penny after rent and have no interest due on the debt it would still take 78 months to pay off.
Pull money from the annuity to pay off a chunk would likely mean paying quite a bit more taxes. You may want to consider a conversation with a debt settlement attorney or bankruptcy attorney.
In the meantime pay down the secured debt with the highest rate first.
Best of luck,