Use retirement funds to pay off high interest loans?

Discussion in 'The Okie Corral' started by Budqweiser, Nov 14, 2019.

  1. fiasconva

    fiasconva

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    IMHO, never mess with your retirement accounts. You never know what is going to happen down the line. Look into a home equity line and use that to pay off the high interest loans. Equity line interest rates are usually at prime or about 1% above prime. Check with your bank or credit union to see what the procedure is for getting one.
     
  2. Rinspeed

    Rinspeed JAFO

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    I would get a second job long before tapping into retirement funds.
     

  3. WHEEELMAN

    WHEEELMAN

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    The answer is NO.

    Never use your retirement funds (401k, 403b, Roth IRA, Traditional IRA, etc) to pay off debt. Frankly, it is stupid, very stupid. Same goes for taking out a Home Equity line of credit, which is basically a loan. Budget extra money from your income to pay off the debts, don't take out a loan to pay of loans/debt.

    Pay down the highest interest debt first, then start on the next highest debt. Put every cent available towards that debt and get it paid off as fast as you can.
     
  4. JoeCitizen

    JoeCitizen

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    I've seen a few guys do that. Within a couple years the credit cards were right back up there.
     
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  5. ray9898

    ray9898

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    The interest rate on the car loan is inconsequential as long as you are on track to pay it off. The CC's are a priority, then take the money you allocated to pay off the cards to put on the car loan to pay it off early. On a 5y loan it is $200 a year difference, less than $20 per month.

    $16k @ 5.3% = 18,249
    $16k @ 2.99% = 17,246
     
  6. ray9898

    ray9898

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    A withdrawal is about the poorest decision you can make due to penalties and taxes.
     
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  7. ReaPer105

    ReaPer105

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    20% for taxes + a 10% penalty if you're under 59.5 years old.
    So take out almost 39K to get 30K to spend.
     
    Last edited: Nov 14, 2019
  8. Rotn1

    Rotn1

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    No, absolutely not.
    You were not disciplined enough to not get into "car loans and credit card debt" and now you are going to destroy some part of your retirement nest egg.

    You are taking long term tax deferred assets and using them to pay off short term after tax issues.
    Bad idea.

    Tighten your belt and don't touch your retirement funds.

    Ever heard the term "kicking the can down the road"...... Yeah, that would be you.
     
    Last edited: Nov 15, 2019
  9. OLY-M4gery

    OLY-M4gery

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  10. pcbs

    pcbs

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    If you sell your car and buy a beater, make sure it's a Toyota. They're the AK-47s of cars.
     
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  11. Lt. Donn

    Lt. Donn PSO Survivor. currently in NW Georgia

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    If you follow Dave Ramsey at all, he would say to pay off the CC asap, and then cut them up or keep them inactive & switch to cash only until you get ahead...not enough info on your lifestyle, mortage, cell phones, cable bills etc to comment on those...but likely dumping the car would be on his list also...it all depends upon where you want to be 10 yrs from now and what your long-term goals are...but safe bet, pay off the CC asap as a good start...the entire premise of his lectures; is to do whatever is needed, make any cuts, any sacrifices to comfort etc. to become completely debt-free as soon as possible...IF you want that level of freedom...many folks simply do not want to be free...just slaves to the finance companies. In 67 yrs, never had a car loan and I owned nice cars...300ZX Toyota Supra etc...only had 2 mortages in my life, paid both off early...have never paid one cent in CC interest...I refuse to live any other way...if I can't pay up front, I just don't go....but we are all wired differently...that is what keeps Ramsey in business, not dead-beats like me
    ( CC Companies refer to guys like me as dead-beats, because they do not make a cent off us)
     
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  12. treg

    treg

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  13. cityborncountrylivin

    cityborncountrylivin

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    Get rid of debt whenever you can, especially high interest debt.
     
  14. sonoma

    sonoma

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    Never take money from your 401k. A few years from now you will find another reason to take out a little more 401k money.Then you will be 65 and wonder why you will need to work until you are 75.
     
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  15. Budqweiser

    Budqweiser

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    Thank you for all your replies fellas. I can’t work anymore than I already do. Maybe Uber on my off days but I’m at 13hrs a day now. The car won’t be sold. It’s a car I like and it’s not expensive. I’m more thinking about the credit cards. It’s just a pain in my butt. I’m not going under or anything I just would like a clean slate. Sounds like there is no shortcut.
     
  16. Beendare

    Beendare Stick and String, SME, NRA life member

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    I think Jon R is the best comment on this.

    401k loan is fine...withdrawl is only for a dire emergency as you get slaughtered in taxes and fees.


    Borrowing from your 401k is a guaranteed 13.5% return to yourself- hard to beat that. The paperwork involved is critical...and it might not be worth the hassle.

    ...
     
  17. jame

    jame I don't even know....what I'm doing here....

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    I have a pension fund with 5 1/2 years of investment, but I’m no longer employed with that group, and I would have to work for them for another 1 1/2 years to be vested. At 60, that’s exceptionally unlikely.

    I could roll it into our current 401k or 403b accounts and pick up 8-10% over the next five years, or I could cash it in and kill a card that’s demanding 15%. If I get rid of the debt owed to the card, my lifestyle continues as is, and my home is paid off in 5 years, and my wife and I will retire comfortably with our current investments. The only fly in the ointment is that damned card, so it’s going to go away.
     
  18. rugercat78

    rugercat78

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    I’m sure Dave Ramsey mentioned this, but it bears repeating: If you take out a 401K loan and you lose your job, the full balance of the loan is due within 90 days. If you don’t pay it, it’s considered a withdrawal from retirement, so the money would be taxed at your current rate plus 10%. As you stated above, there are no shortcuts.

    Give your cats scritches from me :cat:
     
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  19. BradD

    BradD

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    That. Otherwise you will find yourself back in debt soon and the only real change will be that your retirement account will be smaller.
     
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  20. fg17

    fg17

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    No, I have friends who have went bankrupt, but they will retire with more money than me. I know people who carried debt all their working life, paid it all off upon leaving the work force and retired well. They never touched their retirement funds.

    I’m a minimalist and not real comfortable with debt, but some people aren’t bothered by it. And you don’t need a 60k Dollar vehicle, but not everyone can drive a 3k beater, my commute is 20k a year.
     
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