Flight training payment options

WildcatPilot

WildcatPilot

Well-Known Member
Looking for some opinions on a plan to pay for my training.

I'm looking to knock out my CFI in the near future so I can be in a position to get some kind of flying job by the time my contract is up at my current job (Sept. 2012). Problem is, I just don't have the disposable income to pay for or save up for training. With a salary under 30k, I'm barely staying ahead of my bills. A considerable amount of my monthly income goes to credit card payments. I made a couple of bad college decisions and carry a balance around 6k. I also have a 401k that I started during college that's sitting at right around 7k. I'm thinking of cashing that in (obviously I'd take a hit) to pay down my cards and free up money to finish my training.

I began private pilot training at 16 with my eyes on the airlines and am now 27 with my commercial and IR. I feel like I've been treading water for most of my twenties and want to finally get on with my aviation career. Obviously this wouldn't be the most financially savvy decision, but I feel like the satisfaction of finally moving forward with flying could be worth it. Thoughts?
 
A small loan may not be bad for your CFI. The payments for a $10K loan would be about $75 depending on the interest rate. I wouldn't suggest any more than that though.
 
WildcatPilot said:
Looking for some opinions on a plan to pay for my training.

I'm looking to knock out my CFI in the near future so I can be in a position to get some kind of flying job by the time my contract is up at my current job (Sept. 2012). Problem is, I just don't have the disposable income to pay for or save up for training. With a salary under 30k, I'm barely staying ahead of my bills. A considerable amount of my monthly income goes to credit card payments. I made a couple of bad college decisions and carry a balance around 6k. I also have a 401k that I started during college that's sitting at right around 7k. I'm thinking of cashing that in (obviously I'd take a hit) to pay down my cards and free up money to finish my training.

I began private pilot training at 16 with my eyes on the airlines and am now 27 with my commercial and IR. I feel like I've been treading water for most of my twenties and want to finally get on with my aviation career. Obviously this wouldn't be the most financially savvy decision, but I feel like the satisfaction of finally moving forward with flying could be worth it. Thoughts?
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Do not even think about touching the 401k, unless you need it to eat.

Pay off the the 6k, then look for a CFI gig. You'll have plenty of time to study for it while you are home saving to pay for it and paying down that 6k.

CFI is 99% studying, you already know the flying. Do it with a FSDO, the ride will be free. No one is ever going to care that you busted your CFI initial, assuming it was the only one. Otherwise, it is only a few hours in the air. And a lot of CFI's will do that for free anyway - professional courtesy (mine did, and I would for anyone I knew, assuming they hit the books seriously)

If you want to do it faster, rent a friends couch and move out of where you are living now. You need to be mobile to land CFI work anyway.

You can realistically do it for less than $2,000. You could even join the Swivel Chair Patrol and probably get it for half that (but let's not go down that rathole on here, take it to PM's for questions)
 
I would cash out the 401k. In the long run, 7k isn't that much, and you will be better off debt free now, rather than paying minimum payments for years and taking out more loans. You're young enough that emptying your small 401k now will not affect your retirement. Once you're debt free, you free up all kinds of money to start rebuilding those savings.
 
jknight8907 said:
I would cash out the 401k. In the long run, 7k isn't that much, and you will be better off debt free now, rather than paying minimum payments for years and taking out more loans. You're young enough that emptying your small 401k now will not affect your retirement. Once you're debt free, you free up all kinds of money to start rebuilding those savings.
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I second this. Unless your 401k returns are outpacing the interest rate on the credit cards, you are only spinning your wheels. Cash the 401k and pay off the credit cards. You'll have $1000 immediately, half of what drunkenbeagle has indicated you can get your CFI for. Then you only have to come up with another $1000.

Go forward owing nothing.
 
jasonb47 said:
I second this. Unless your 401k returns are outpacing the interest rate on the credit cards, you are only spinning your wheels. Cash the 401k and pay off the credit cards. You'll have $1000 immediately, half of what drunkenbeagle has indicated you can get your CFI for. Then you only have to come up with another $1000.

Go forward owing nothing.
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This was my initial thought, although I'd imagine the net amount would be less than the cc balance. Would still help a ton though.
 
WildcatPilot said:
This was my initial thought, although I'd imagine the net amount would be less than the cc balance. Would still help a ton though.
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Most likely since you'll be penalized for early withdrawal, but you will still benefit greatly from getting debt free sometime this century. :)
 
jasonb47 said:
I second this. Unless your 401k returns are outpacing the interest rate on the credit cards, you are only spinning your wheels. Cash the 401k and pay off the credit cards. You'll have $1000 immediately, half of what drunkenbeagle has indicated you can get your CFI for. Then you only have to come up with another $1000.

Go forward owing nothing.
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He won't have $1000 immediately. He would probably get about 2/3's of the $7000 after taxes and penalties for the early withdrawal which may not cover all the credit card debt. I am not trying to plug Suzie Orman, but I recently listened to one of her programs and a gentleman was in your exact position with similar 401K savings and she told him not to cash the money he had because of the taxes and that it "would be worth 90K" by the time he was ready to retire 30 years later.

My advice to you is get a loan if you really want to do it urgently and try to do your CFI training where you want to actually get a job flight instructing. I did this and was able to pay off for my CFI training costs in a few months instructing part time...so it's worth the investment.

P.S. The CFI was my least expensive rating. As others have said, the rating is more about your knowledge and teaching skills than simply flying.
 
panman-pilot said:
He won't have $1000 immediately. He would probably get about 2/3's of the $7000 after taxes and penalties for the early withdrawal which may not cover all the credit card debt.
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True, I assumed he would be clearing $7k. I would still cash it out and pay down the cc's though.

I personally cashed out a 401k a few years back to pay for flight training. For me and my situation, it was a matter of being young enough that I could either wait until I was too old to start flying, take out a bunch of loans, or cash in my savings. I chose to live while I was still young and cash in the savings, because old age isn't a guarantee.

-Do what makes you happy-

Screw the rat race.
 
Something to think about, a traditional 401k @ under $30k a year is kinda pointless IMO. I would cash it in and pay off all debt, if you have any left fund your flight training. You are only in the 15% tax bracket at that point, that is practically nothing. But I would cash it out after having a reduced income, to avoid going into the 25% tax bracket.

I want to say the fee is taxes owed + 10%. So you would owe roughly $1750 and have $5250 left over. That would be paid come tax time next year when you file 2011 taxes, so you could pay off almost all your CC debt and use the amount toward paying that off to save for the $1750 in taxes and finish off the $750 owed on the CC. Not sure what your interest rate is but probably in the 10%-20% range, roughly $600-$1200/yr in interest alone.

You are young enough that liquidating the 401k isn't that big of a deal IMO.

With that income think about a Roth IRA in the future.
 
I'm kind of conflicted with touching the 401k. Yes short term it seems like a good idea. Long term well not so much. As others have stated there are too many penalties for cashing out early anyway. Although wheelsup had a great point about using those funds to pay off you CC debt. Plus your financial house will be in order if/when you take a step down on the pay scale (read regional job).
 
Whatusername said:
As others have stated there are too many penalties for cashing out early anyway.
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I hear this a lot, but it is subjective to how your 401k was funded. My last 401k received a 100% company match up to 6% of my paycheck, so I was making 100% return on my investment before the actual investing even started if I put in 6%. I ended up paying a penalty for early withdrawl, can't remember the amount, but it was less than 25%. Even if it had been a 25% penalty, I would still have a 50% return on MY investment because of the company match, even if the actual investment vehicles the money was in did not produce anything, so I still made money after penalties, after taxes. YMMV.

Even so, if you have credit card debt, odds are high that you are paying more in credit card interest than you are earning in any 401k. Assuming funds are limited, as the OP suggested, the credit cards may take years to pay off, and the OP will pay a lot more in CC interest than any company 401k is going to produce in the same time period.

Investment companies circulate this myth that you will lose 40% :panic:of your investment by early withdrawl just to keep their coffers full of play money. I would love to know how many billions in stale old 401ks are sitting out there because people are afraid of this. This is bull. You pay a penalty when you take the withdrawl, (much less than 40%, say 10-15%), then you will pay income taxes on it at the end of the year (which could be up to 25% depending on your tax bracket -worst case scenario), but you would pay that in income tax on any monies you make during the year anyway. Since 401ks are "pre-tax" vs. a roth IRA for example, which is "post-tax", you will be taxed on your withdrawls anyway when you retire, at the then-current tax rate, so its a mute point for them to even try to add that to the supposed "losses" :eek:that you will take by early withdrawl.

IMHO, 401ks are a joke anyway. If you do the research, you will find that they perform very poorly vs. the investments they are allocated to. Most of your "earnings" are eaten up by the investment companies fees. Most 401ks barely match major market indices year over year. Remember, they (brokers and fund managers) will always make money, whether you do or not - with your money. The only advantage to a 401k is if you have a company match, and then you should only invest in it up to the limit of the match. Otherwise, you are better investing on your own.

Any financial hawks out there, correct me if I am wrong, but I think he is best to cash the 401k and put it towards the debt first.
 
To be 27 yrs old with $7000 in retirement funds is commendable. To have $6000 in consumer debt isn't, but we were all there once, and your position isn't insurmountable. But, before you pull out that money to pay off your consumer debt (on things that are in all probability long gone) consider the following:

If you left the money untouched until you are 62, you'll have $53,802.61 at 6% growth. If you can manage 8% gain over your life, you'll have $103,497.41. If you can do slightly better than the stock market average over the last 30 yrs and gain 10%, you have a tidy $196,717.06. Now, I'm not a rocket scientist, but that's not a worthless 401(k) as some may have led you to believe. The big thing you have on your side is the compounding power of time...provided you let it work for you.

Or you could take the money out now:

After paying 10% early withdrawal fee and (likely) 25% taxes, you'll have $4725 to pay toward your consumer debt. ($5355 if you stay in the 15% tax bracket.)

What would you rather have, $5K now or $100K+ later?

However, the big problem is you won't have figured out what got you into that situation and will likely repeat it. I would be a little more for the idea of cashing out your 401(k) if you could pay off all your debt, buy your CFI ticket and get a new start from there, but you don't have enough money in your account to do that.

Frankly, $30K is a decent salary and you probably need to tighten your budget before you do something drastic like making an irreversible withdraw of 100% of your retirement funds. That is, of course, unless you have this deep seeded desire to give your hard earned money away to the government and not even get a thank you note in return. If you're not on a budget, that's your first step. Get on one, and stay on it no matter how bad it hurts. Until you tighten your belt and learn to spend less than you make you'll keep treading water and keep barely squeaking by, regardless of how much you make.

I've been there, done that; except that when I was 25 I had more than a full year's salary on my credit cards, that I spent on...I don't even know what. My best friend in high school was in the same boat but with a smaller balance. However, he took the easy way out by getting a consolidation loan. It relieved the pressure so he didn't have to change his habits. He paid off his debts but 6 months later he was in a worse position. 20 yrs later he still lives hand to mouth. My wife and I cracked down on every dime we spent and did things that were uncomfortable and even embarrassing in order to make it, but we finally defeated our credit troubles and have been debt free ever since. (To include paying cash for an airplane six years later.)

I got some tough love from a close friend when I was a young man, and now I'm paying it forward to you. Don't take the easy way out, take the smart way out. Master your finances now and they will serve you for the rest of your life. Don't let it be the other way around.

~Rob

BTW, when I made the first flight in a plane I owned completely, every sacrifice I made to get there was worth it!
 
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