Is it ever a good idea to use retirement money to pay off debt?

[Anonymous]

Anonymous wrote:

Anonymous wrote:Yes, do it. 13k is not going to make a difference in retirement.

False, especially if OP is younger than 40. Compound interest is our friend.

Compound interest on credit cards is evil.

[Anonymous]

Oh, OP. How did you get the CC debt in the first place?

If you were mid-20s I would not be worried, but mid-30s is a different story. What happened? I really can't make a recommendation without the bigger picture.

[Anonymous]

Anonymous wrote:No. Instead, pay it down.
First, stop using your credit cards. Cold turkey. You'll get used to it.
Second, try to renegotiate your interest rate. Sometimes it only takes a phone call.
Third, rank your credit debts by interest rate, highest to lowest. Pay monthly fees for all, but pay the maximum you can afford to pay off your highest rate debt first, then go down the line.
Fourth, resolve never to do that again.

PP here: sorry, by "that" I of course mean get all that credit card debt. If you review your payment trail, you may have built that debt in excess expenses like Starbucks, movie tix, accessories and other non-necessities. Instead: take your lunch, drink office coffee (put some good cream in the office fridge), go to outdoor summer concerts instead of movies, etc. Do all you can to eliminate everything but necessaries. Good luck!

[Anonymous]

How is your credit? If it is good, you can get a good rate on loan to consolidate. I got a consolidation loan from Prosper for 6.7%

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Can you roll the CC over to 0% with balance transfer offers? I get that it will wipe out your debt but that is a really high price to pay. So basically your can fully fund your IRAs once the debt is wiped out? What are you contrinuting now? The debt must only be $7-8K, so not a horrible amount of debt. Certainly not worth losing at least $4-5K to taxes and penalties. I know it seems like an easy fix but really it isn't.

The debt is $13k with pretty high interest rates on the cards. Yes, we'll be able to max retirement once the debt is gone. And still have savings leftover.

Wait - the debt is 13K? I thought the retirement account was 13K? If the retirment account will wipe out the debt, than the retirement account must be nearly $20K.

OP here. Sorry for the confusion. The account and debt are $13k. Once I liquidate the account, combined with my own money from savings, I can pay the cards and full.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Yes, do it. 13k is not going to make a difference in retirement.

False, especially if OP is younger than 40. Compound interest is our friend.

blah blah blah. she needs a clean slate now, retirement is not a priority.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Yes, do it. 13k is not going to make a difference in retirement.

False, especially if OP is younger than 40. Compound interest is our friend.

blah blah blah. she needs a clean slate now, retirement is not a priority.

That is an incredibly short-sighted way of looking at this. OP has 13k in credit card debt, 13k in retirement, and ~5-6k in other savings. It makes NO financial sense to take the 13k in retirement savings and lose 5,330 of that in tax and penalty.

There have been several suggestions that make sense - personal loan, debt consolidation company, roll them over to a zero interest introductory card for a year. Or even just pay down the highest interest card with the savings amount and throw everything else at the rest every month.

Also, I would be especially hesitant to liquidate retirement under the guise of "we'll max retirement once this is gone", because there will always be a reason (excuse) that gets in the way. If they would magically free up a bunch of money to put into retirement once the debt is gone, then that magical bunch of money should be used to pay off the debt.

Try to find a zero or low introductory credit card offer, apply for a personal loan at a credit union or bank, or call a debt consolidation company. Someone will work with you, especially if you have 5-6k already to pay down the balance and more than enough in cash each month to make the payments. But liquidating what little retirement you have is, in a word, stupid.

[Anonymous]

Anonymous wrote:Oh, OP. How did you get the CC debt in the first place?

If you were mid-20s I would not be worried, but mid-30s is a different story. What happened? I really can't make a recommendation without the bigger picture.

It's from old medical and legal bills. Please see the original post.
- not OP

[Anonymous]

Anonymous wrote:How is your credit? If it is good, you can get a good rate on loan to consolidate. I got a consolidation loan from Prosper for 6.7%

I agree with this, only you could balance transfer to a card with much lower interest rates. Or, call your creditors, tell them that you want to pay it off, and try to get them to lower the rates. This has worked for many people. If that doesn't work, I agree that getting a loan would be a better idea. Anything lower than the interest rate that you are paying.

If your credit is bad, then you can call the credit card company, make a payment plan and close that credit card completely. I have a friend that did this. They came up with a monthly payment that worked, the account was closed, and within a couple of years it was paid off. Granted, I believe that brought her credit down, but it was down anyway, so she didn't mind.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Yes, do it. 13k is not going to make a difference in retirement.

False, especially if OP is younger than 40. Compound interest is our friend.

blah blah blah. she needs a clean slate now, retirement is not a priority.

That is an incredibly short-sighted way of looking at this. OP has 13k in credit card debt, 13k in retirement, and ~5-6k in other savings. It makes NO financial sense to take the 13k in retirement savings and lose 5,330 of that in tax and penalty.

There have been several suggestions that make sense - personal loan, debt consolidation company, roll them over to a zero interest introductory card for a year. Or even just pay down the highest interest card with the savings amount and throw everything else at the rest every month.

Also, I would be especially hesitant to liquidate retirement under the guise of "we'll max retirement once this is gone", because there will always be a reason (excuse) that gets in the way. If they would magically free up a bunch of money to put into retirement once the debt is gone, then that magical bunch of money should be used to pay off the debt.

Try to find a zero or low introductory credit card offer, apply for a personal loan at a credit union or bank, or call a debt consolidation company. Someone will work with you, especially if you have 5-6k already to pay down the balance and more than enough in cash each month to make the payments. But liquidating what little retirement you have is, in a word, stupid.

there is much more to money management than "financial sense", which is one of the reasons they have a saying penny wise, pound stupid.

for example, there is also psychological sense. it absolutely makes sense to get rid of CC debt in this particular instance. debt is crushing her right now, maker her life miserable. yes, she might lose some money that way in the long run, but it's worth it. the little money she has in the account right now, even with compound interest, is not going to make any difference in her retirement. but the CC is debt is making a helluva difference to her life right now.

[Anonymous]

Penny wise, pound foolish would be a person who coupons aggressively (penny wise = smart with small transactions), while buying Louis Vuitton bags for her toddler to play with (pound foolish = not smart with big transactions). The meaning being it doesn't make a difference if you are good with the little things if you blow it on the big things.

This situation is not a penny wise pound foolish situation. This is a situation where a manageable amount of debt can be consolidated or dealt with in a myriad of ways with options available to OP with a little bit of work. How long would it take for the 13k debt to incur another 5k of interest? Because the liquidation of the retirement account will lose 5k in an instant. 13k is not a small sum - it could be 192k at retirement age if the market averages 8%. How many extra years of working will it take for OP to make that up?

Money management is all about financial sense and delayed gratification, NOT allowing feelings to get in the way. OP just needs a plan and to start acting on it.

[Anonymous]

Anonymous wrote:Penny wise, pound foolish would be a person who coupons aggressively (penny wise = smart with small transactions), while buying Louis Vuitton bags for her toddler to play with (pound foolish = not smart with big transactions). The meaning being it doesn't make a difference if you are good with the little things if you blow it on the big things.

This situation is not a penny wise pound foolish situation. This is a situation where a manageable amount of debt can be consolidated or dealt with in a myriad of ways with options available to OP with a little bit of work. How long would it take for the 13k debt to incur another 5k of interest? Because the liquidation of the retirement account will lose 5k in an instant. 13k is not a small sum - it could be 192k at retirement age if the market averages 8%. How many extra years of working will it take for OP to make that up?

Money management is all about financial sense and delayed gratification, NOT allowing feelings to get in the way. OP just needs a plan and to start acting on it.

this is an absolutely ridiculous assumption. the market is not going to average 8%. the market can also crash at the time she tries to cash in, she might die will before retirement, etc, etc. not to mention, 192k 30 years from now is not going to buy that much.

penny wise pound foolish refers to a situation where a person is foolishly focused on small monetary gain while overlooking bigger issues with more significant implications. you could argue that CC debt is not that big of an issue, but you are one of those penny pinchers who thinks financial decion-making should boil down to math. that's nonsense, and you are giving terrible advice because of it.

[Anonymous]

OP, DCUM is a terrible place to ask any questions about retirement. The crowd here has a totally twisted view of retirement - how much money is enough (5 mil at least!), and what trade-offs are worth making (none, ever! you should live in a trailer park if that is what is needed to max out on retirement). Just the other day, someone argued that, if you make 300k, you need to make sure your retirement savings provide cash flow of 300k a year! So please keep this in perspective and go somewhere else to find a more balanced view of the matter.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Penny wise, pound foolish would be a person who coupons aggressively (penny wise = smart with small transactions), while buying Louis Vuitton bags for her toddler to play with (pound foolish = not smart with big transactions). The meaning being it doesn't make a difference if you are good with the little things if you blow it on the big things.

This situation is not a penny wise pound foolish situation. This is a situation where a manageable amount of debt can be consolidated or dealt with in a myriad of ways with options available to OP with a little bit of work. How long would it take for the 13k debt to incur another 5k of interest? Because the liquidation of the retirement account will lose 5k in an instant. 13k is not a small sum - it could be 192k at retirement age if the market averages 8%. How many extra years of working will it take for OP to make that up?

Money management is all about financial sense and delayed gratification, NOT allowing feelings to get in the way. OP just needs a plan and to start acting on it.

this is an absolutely ridiculous assumption. the market is not going to average 8%. the market can also crash at the time she tries to cash in, she might die will before retirement, etc, etc. not to mention, 192k 30 years from now is not going to buy that much.

penny wise pound foolish refers to a situation where a person is foolishly focused on small monetary gain while overlooking bigger issues with more significant implications. you could argue that CC debt is not that big of an issue, but you are one of those penny pinchers who thinks financial decion-making should boil down to math. that's nonsense, and you are giving terrible advice because of it.

I agree that 8% is aggressive (although the historical average), but whether it is is 5% (72k), 6% (100k), or 7% (139k), the result is still considerably more than ZERO. And no matter the year, 192k or 72k will buy far more than zero will.

I don't know what you want me to tell you about the possibility of death, as it could absolutely happen at any time. I guess that means we may as well not think about kids, retirement, going to work, or personal hygiene, because we may die at any moment. You can function that way if you would like. I will continue to save for retirement and brush my teeth, just in case.

You are advocating for OP to go from a net worth of 5k (13k debt, 13k retirement, 5k cash) to a net worth of ZERO. I (and it would appear a few others) are advocating for the use of information (taxes, penalty, compounding interest, available alternatives) to make the most of the available resources.

You could be right - liquidating and no longer having the debt may make OP feel better. But it would be the same as buying a sweater that you want to wear Friday for 200 on Monday, even though you know you can get it for 100 on wednesday. It might make you feel better, but that doesn't make it a better decision.

[Anonymous]

If you only have $13k worth of debt, and you can somehow "fully fund" retirement once this debt is gone ... I don't understand why you can't get it paid off w/o dipping into the retirement fund now. Unless your definition of "fully fund" is different - I assume it means that both parties can put the max amount in per year as allowed by law, which is $17.5k each. If you have that kind of $$, why can't you get the cards paid off??