Should I take money from my retirement savings to pay off high credit card debt?

Question

I have 17,000 in debt

Answer 1

Usually the answer is NO. But, how much do you pay per month in this debt repayment for the 17K? How much do you have in your retirement account? Do you have a plan to repay BACK to your retirement account IF you use those funds - how long will it take you to put back the 17K back into your retirement fund - do NOT include your current contributions - just the repayment portion.

If you have a substantial amount in your retirement account, there is a complicated formula to compare your options. But COMPARE what your retirement plan would do if you did nothing but continue to make your contributions and you experienced the same average rate of return it has performed at over how long you have had the plan.

Then calculate how quickly you could pay down the debt, and how much interest you would pay over that period of time (2-5 years, whatever) THEN, take that same monthly amount you would be paying towards the debt (say 400 per month) REDUCE your retirement account by 17K, add in the 400 per month, plus what your normally put in, and do your calculation for the same time period (2-5 years) and see how much you earned that way.

Chances are, you either lost money OR broke even in which case it is better to leave your investments alone and pay down your revolving debt as quickly as possible.

Hope this helps,

Answer 2

Taking money from your retirement savings should be a last resort. As I see it, you have two real options. If you can pay off your credit card debt and trust yourself not to run the balances back up, check into a low interest debt consolidation loan. You can pay off all of your cards and be making one monthly payment. Your other option is to simply pay off the cards. The best way to do this is to tackle the cards with the highest interest rates first. You should make at least the minimum monthly payments on all your cards, but pay as much as you can to the card with the highest rate. Continue to do this until the balance is paid, then move on to doing this with the next highest rate card. It's a slow process, but honest, and you won't hurt your credit by doing this.

Answer 3

Consolidate your debt to the lowest interest rate possible. Once you do that, check the interest that you are earning on your retirement savings and compare that to what you lose on your credit card debt interest. Find the difference between these numbers.

If you still have a positive income figure out if it would be more or less if you paid off your debt. This could mean only paying a portion.

If it was negative to begin with then pay that debt off because you are losing money everyday.

Answer 4

It depends on the account. If it is a 401k, you can borrow from it, pay the money back and pay interest to yourself.

If you take it from an IRA, you have to pay taxes on the money you withdraw and pay a 10% penalty on top of that...if you are under 59 1/2.

If you pay off the debt, what are the chances you will run up the debt again? That is something you have to be careful of.

Answer 5

Well it might pay you to borrow against your retirement savings but not to take money out of it. If you take money out and you are not yet 59 1/2 you will be subject to a 10% penalty on the money you withdraw and the money will be taxed as ordinary income. If you take out a loan against it, and that depends upon how it is set up whether you can or not you won't have to pay the tax or penalties, in some cases you will have to pay the 'loan' back to yourself within a certain period of time at a reasonable interest rate - the principal and interest that you pay back goes into your account.

Answer 6

depends on what kind of interest and terms you have on the credit cards. I think pulling from your retierment should be the very last resort. Also what weighs in is how old you are and how much you have in retirement. A lot of info is left off here .

Answer 7

No. You'd be better off getting a low-interest consolidation loan. Keep your retirement savings if at all possible.

Answer 8

Try meeting with a credit counselor. They can show you other options that may be more helpful. Withdrawing retirement funds can be a costly event.

Answer 9

if you are that much in debt - borrowing and taking will not solve your problem -- you have a spending problem -- trying to live way over your income level -- do not borrow money from pete to paid paul -- downsize and get you act together and pay off your bills one at time!!!

Answer 10

it probably depends how close you are to retiring. if youre far away, i would. hope it helped!