Should I close my Roth IRA to pay off credit cards?

Question

I have 6K credit card debt. 7K in Roth IRA. I am up 34% in Roth IRA.
Is it ok to move back home to pay off student loans, car, and credit cards? Thanks for your help.

Answer 1

No, your Roth can grow tax free and no tax on withdrawls so that is a treasure. Some ideas below on how to reduce your expenses so you can pay off your credit cards:
The biggest ways you can do this are in expense categories that are recurring--those you must pay every month that represent a big part of your income. The quickest to address are downsize your car expenses ASAP. You can do this by selling what have at top price as listed on KBB.com private party value. If you take your time selling you should be able to get "Private Party" value for your car. Then plan to buy a lower cost, reliable used car that Consumer Reports rates as most reliable. That way you can minize your repair costs--this is typically a huge ongoing expense for most people. I have four older cars that are of these types that Consumer Reports recommends most reliable: Honda civic and Odyssey, Ford escort and Suburu (mine has 284,000 miles on it). Also, these cars get good gas mileage. Another priority when you buy to help you save $. When you buy use KBB.com and try to find cars selling for well under the Private Party value. I always buy well used cars this way. I wait until I see one advertised well below the private party value, then I call asap, give seller a $50 deposit and write up a contract I will buy it subject to my mechanic finding no major problems. You want to buy an older car for cash (like $1,500) so you don't have to pay any collission or other extra insurance and that reduces your expenses more. I have a Ford Escort wagon (I like wagons and vans because cops pull you over less on these family cars--we have way too many cops, not that I get tickets. But I just like to be left alone, I digress . . .) I bought my Ford Escort wagon for $1,500 five years ago and it has 180,000, miles and looks great, drives like a dream and has had the lowest repair cost of any car I owned. That is my dream car because you can buy them so cheap, about 1,000 for a 1993 easy. Then be sure you shope insurance coverage among various companies--Geico tends to have cheap coverage--to get lowest cost insurance. If you own a home, you can do that same idea by looking for a bargain house. With the depressed market this is a great time to buy a fixer upper well below market to reduce your housing expenses asap. Sell your current home at market rate. If you rent, you need to own because you reduce your expenses by deducting the payment from your taxes. If your credit score is above 500 you should be able to get a loan or find a lender who can help you get your credit score up. By the way, better to buy one of those well used cars with a loan to reduce your car expenses. In general you need to become a serious bargain buyer on quality cars and on houses. You can find bargain houses on the HUD website of foreclousres using a realtor. Just be sure to bid way low on HUD foreclosures--realtors will suggest you bid too high. Be cheap, cheap, cheap and you will reduce your monthly expenses on these things.

One other point, if you find yourself overspending on consumer stuff you buy, you need to get self control. Best way to do this is not a budget but fasting. Start skipping a meal and then work up to where you skip food one day per week. I fast a day a week regularly and am unbelievalbe disciplined. I must be because I provide for a family of 6: with 5 older girls, two in college, etc. Talk about expensive! But I never buy anything in a store on impulse because fasting has trained me to be way disciplined.

Source(s):
KBB.com used car values
Zillow.com home values. Multiply the value they give you by 1.15 and you will be close o market value. Also look at comparable sales on that web site for a per square foot value to apply to the home you are considering. Watch out with realtors. They tend to push you to pay too much but you must use a realtor to buy a HUD foreclosure. You can shop other bargain houses with motivate

Answer 2

If you can only afford the minimun payments each month, then I would beg to differ with your assessment of the situation; you ARE in dire straits! It probably doesn't look that way to you because most people live their lives that way! That doesn't make it right... It's your decision, but I can promise you will live to seriously regret it if you cash out of the Roth or any retirement account. Especially since you are only 34. If you don't want to give up the cable (LOL), then get a second job and dedicate ALL of those earning to paying off the debt. Cut all the cards up. Pay off the smallest balance first (mathematically this may not make sense, but it will make you feel as though it's not an impossible task), then the next, and so on.

Answer 3

Do not close your Roth IRA. Eat beans and rice as Dave Ramsey (financial advisor) would say and live on a budget.

We went from $13,000 in credit card debt to only having a house payment in just a few short years. It CAN be done.

Answer 4

Its not worth it. You going to pay a 10% early withdrawal tax on it if you do. You do not want to retire broke or start all over again to save for retirement. The $7000 you have right now can grow larger over time (if the mutual funds you pick are good).

A better way to pay off your credit cards is maybe consolidating them all into one monthly payment. Then you want to ask the financial company if you can pay bi-weekly or bi-monthly (depending how often you get a paycheck, usually its every 2 weeks).

OR, you can do a budget worksheet listing everything you spend on a monthly basis. For annual payments such as insurance, divide that payment by 12. (semi-annual payment, divide by 6). Then you can take a look at where you can cut your spending and add more money to the principal payment of your credit cards.

Answer 5

Not a smart idea. You are paying with your future. The only way it might be a good idea would be to change your bad habits first so that you do not see this as an "easy" way to get out. You keep this up and you will end up with a house full of stuff and no money. OK to move home, if you were my kid only for a short predetermined period of time and you would pay rent.

Answer 6

Don't do it. The subsequent penalities for early withdrawal will cost you more. Just don't contribute any more to your IRA until the loans are paid off.

Answer 7

good answer, don't do it.