Hello - I have about $22K in credit card debt at about 9% interest rate. I currently have a home that has already been refinanced. I would be able to manage fairly well if I didn't have the $22K. I looked at refinancing and didn't see the advantage there, so I'm thinking of cashing in my 401K. I have about $30K. What are the advantages/dis to doing this? Anything I should look out for ? Any suggestions that don't include cashing the 401K?
2006-07-10 03:37:25 · 6 answers · asked by m0nchis 1 in Business & Finance ➔ Personal Finance
I have cashed in a 401k plan to pay off credit card debt, now the trick is to put that money away that would have gone to your credit card payments.
It has worked out for me, what I needed to do was concentrate on not charging again. Now whenever I do use it, I pay off the balance monthly so I will not get any more credit card debt.
This is easier said than done though without a plan to stop charging for things, you will end up with high debt and no savings.
I actually had a $40,000 plan and used it to pay off about $30,000 card. Now I have started agian to build up my 401 plan. It sure is a good feeling to not have to worry about making credit card payments.
Good luck.
2006-07-10 04:26:24 · answer #1 · answered by Dave 6 · 0⤊ 0⤋
If you are 55 or over, there are no tax consequences from cashing out your 401k. If it's for your current job, you may have to quit in order to do so, depending upon the rules.
Any cash-out will have Federal income taxes withheld at 25%, so you'll only net $22,500 from $30k.
The cashout will be taxed as ordinary income. If you are under 55, there will be a 10% penalty tax on top of that.
Only you can decide if that is worth doing.
2006-07-10 06:03:33 · answer #2 · answered by Bostonian In MO 7 · 0⤊ 0⤋
Only considering cashing in your 401k if you're on the verge of bankruptcy and have no other options.
If you cash it in, you're going to get hit with penalities. Pay off the debt yourself.
It may take some time, but you'll be thankful that you did. If you choose to go that route, contact me directly. I've helped several families get out of debt.
Scott....
2006-07-10 08:54:07 · answer #3 · answered by Anonymous · 0⤊ 0⤋
You will pay tax on the 401k, and an additional penalty for early withdrawel. Don't do it, there are other ways to pay off your CCs, and a 9% rate is damn good in the meantime.
You have to start thinking about retirement. 401k isn't a savings account, it's a pension account. Don't touch it!!
2006-07-10 03:41:33 · answer #4 · answered by miketorse 5 · 0⤊ 0⤋
9% on credit card debt is actualy a pretty low rate.
if you cash in your 401k, you will have to pay taxes AND a penalty for early withdrawl. I wouldnt do it. You would probably end up with less than $20K total.
2006-07-10 03:42:51 · answer #5 · answered by Kutekymmee 6 · 0⤊ 0⤋
How old are you? If you are under 30, yes. If you are over 35, no.
When you are under 30, you can start over again in your retirement savings. When you are over 35, time flies too fast and you have other monetary priorities.
If you do cash it out, let them withold the taxes, and be prepared to pay a 5% fee.
2006-07-10 06:14:50 · answer #6 · answered by Anonymous · 0⤊ 0⤋