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Cash out old retirement to pay debts
Posted on 2/7/17 at 5:19 pm
Posted on 2/7/17 at 5:19 pm
Help me out money board. I know the consensus here is to never do that and I really don't want to but it's tempting. I've got about 18k in an old 401k.
We have a decent amount of credit card debt and this would knock it out saving us about 600 a month in payments. We don't use the cards, cut costs everywhere, changed spending habits, but the $680 every 2 weeks for daycare has basically put us where we can't save as much or pay off as much as we'd like.
I still contribute 5k a year to an FSA and we use that towards bills and bills only. This year we paid off my truck saving that payment every month has helped a ton.
Per my budget and planning we can knock it out in 2-3 years, but it's going to be a tight 2-3 years. Is it ever actually worth it to cash out retirement to pay off debt?
We have a decent amount of credit card debt and this would knock it out saving us about 600 a month in payments. We don't use the cards, cut costs everywhere, changed spending habits, but the $680 every 2 weeks for daycare has basically put us where we can't save as much or pay off as much as we'd like.
I still contribute 5k a year to an FSA and we use that towards bills and bills only. This year we paid off my truck saving that payment every month has helped a ton.
Per my budget and planning we can knock it out in 2-3 years, but it's going to be a tight 2-3 years. Is it ever actually worth it to cash out retirement to pay off debt?
8
Posted on 2/7/17 at 5:26 pm to BoogaBear
What is your APR on your debt? Across how many cards?
There are a whole host of reasons why this is a terrible idea, most notably the 10% penalty. I know there are hardship rules that enable you to waive the penalty but I don't know if they apply to credit card debt.
I would definitely consider it, if the rate on the card was high enough.
You know there are other strategies out there to reduce your debt payments.
There are a whole host of reasons why this is a terrible idea, most notably the 10% penalty. I know there are hardship rules that enable you to waive the penalty but I don't know if they apply to credit card debt.
I would definitely consider it, if the rate on the card was high enough.
You know there are other strategies out there to reduce your debt payments.
Posted on 2/7/17 at 5:41 pm to BoogaBear
You will get hammered on taxes.
Posted on 2/7/17 at 5:57 pm to BoogaBear
Maybe look at transferring as much as possible to an interest free card. There is at least one card that will give you 21 months no interest. Might make it a bit easier to avoid cashing out.
Posted on 2/7/17 at 6:16 pm to BoogaBear
Do you have an option to take a 401k loan, pay off CC with it, and then pay back 401k loan over the 2-3 years (lower interest rate that you are likely paying back to yourself anyway).
Posted on 2/7/17 at 6:52 pm to elposter
IMO, this would be a better idea - especially if he could transfer the old 401k to his current employer and tap into it that way. But I'd exhaust all other possibilities before liquidating a 401k to pay off CC debt.
Posted on 2/7/17 at 7:13 pm to BoogaBear
I can't remember the math but you'll basically cost yourself half that in taxes. $9,000. It sounds like from your math you're thinking all of the 18K would go towards that debt.(600 x 2-3 years) That's not the case with taxes considered. It might just be better to restructure that debt or find a way to make more money.
Posted on 2/7/17 at 7:32 pm to BoogaBear
No don't tap your 401k.
Most people don't truely need a truck. If I had CC debt, I'd sell it and buy a beater.
Most people don't truely need a truck. If I had CC debt, I'd sell it and buy a beater.
Posted on 2/7/17 at 7:41 pm to BoogaBear
If you're BORROWING from a 401k, yeah maybe....especially considering the fact that you seem to have solved the root of the problem (budgeting, better spending etc). But still a bad idea.
If you're cashing out like like you described in the OP, definitely NOT.
I'd look elsewhere. Good luck
If you're cashing out like like you described in the OP, definitely NOT.
I'd look elsewhere. Good luck
Posted on 2/7/17 at 8:25 pm to jmtigers
Truth. $3k vehicle will get you by just fine.
Posted on 2/8/17 at 10:50 am to jmtigers
quote:
No don't tap your 401k.
Most people don't truely need a truck. If I had CC debt, I'd sell it and buy a beater.
This, and this more. Cashing out a 401k is a horrible financial decision, and its taking the easy way out. If you take the easy way out of debt, you don't learn your lesson. If you just payed off your truck then its not really a burden on you enough to cash out your 401k. You need to make some more drastic life changes, or else you are going to pay your debt off and be right back into debt in 2 years and then not have a 401k to pay it off with.
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