Use retirement funds to pay off high interest loans?

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

  1. IndyGunFreak

    IndyGunFreak

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    This right here... If you don't change your behavior and are right back here in 5-8yrs then it was completely useless.

    Personally, I'm not a fan of borrowing my way out of debt, which like it or not you are doing.

    I would only do this as an absolute last resort, but that's just me
     
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  2. Lawdog3

    Lawdog3 " Fast is fine but, accuracy is everything"

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    Never touch your retirement funds. Take your highest interest cc and pay extra every month. Do this until it hurts. Pay it off then work on your second loan pay extra and so on. You have to leave your investment build your retirement. I took money from my retirement account 25 years ago to pay off a vehicle and guess what? I traded it for another vehicle. Stupid move on my part. Learn from my mistake and learn to drive paid off vehicles. Only charge on a credit card when you pay the balance off every month.

    Retirement sneaks up on people and you have to be prepared. I might suggest to talk to your investment counselor. If he or she is worthy of your funds they will help you formulate a plan to get out of your mess. If you must draw money and have a Roth IRA that may be the best place to pull your money since you have already been taxed on it. Never touch your traditional IRA. I would strongly suggest you get some advise.
     
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  3. Ed1110

    Ed1110

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    None of this advice is going to matter. I say this because of your answer to selling the vehicle and getting a beater. “ I’m not selling it, I like it”. Then you like being in debt.

    I like a lot of things I can’t afford, but I dislike debt more. It’s not about what you like but what you can afford. If you don’t like debt then you can’t afford the lifestyle you’re living. No loan or 401k withdrawal will help you if you continue to live beyond your means.
     
  4. dudel

    dudel

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    I guess the question would be, what would keep you from running up the cards once they are paid off? Have you learned discipline since you made the mistakes? Too many people have their cards at their limits, get a consolidation loan, pay off the cards, then run them back to the limits.

    If you pay off the cards, you might consider lower the card limit to help prevent it from happening again.

    Preference would be to keep the 401(k) intact, and cut other expenses to increase your payments to the cards. Get them cleared the old fashion way, and then keep them clear.

    Best of luck. It's not easy. Ex wife left me with $20K of CC and HELOC loans; but I was happy to get my freedom.
     
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  5. Budqweiser

    Budqweiser

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    I don’t drive some fancy vehicle. It’s a used Subaru. It’s not very painful to pay for it. It just would feel good to wipe out debt. Sounds like I should probably just forget about it and keep plugging along.
     
  6. Darklock

    Darklock

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    You could temporarily stop paying into the 401 and use that money to pay off debt.
     
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  7. Grumpy_old_man

    Grumpy_old_man

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    Whatever you do, find a way to get rid of the credit card debt ASAP. Its not just that you're bleeding almost a grand a year in interest on the balance, if you're still using the card it doesn't have a grace period. Quite a few people use CC instead of carrying cash and as long as its paid down to zero every month, most cards have a "grace period" so you don't get dinged interest on that month's charges. But that goes out the window as soon as you have any balance at all that you're carrying. So if you put $1000/month living expenses on a card, even if you pay those new charges every month, you will get dinged another $180 annually on average that you can add to your $900 for the 5K balance at 18%.

    Another reason to zap that CC debt is that your credit scores are partially based on "credit utilization". Here's how it works: let's say you have a $10,000 limit on the card and you carry $5000 on it and rack up another $1000 living expenses that you pay down monthly. You have 60% utilization which is going to lower your credit score. 30% is regarded as the max you should ever carry and less is better.

    Options if your belt is as tight as it can be are:
    1. Stop paying in to your 401K until you knock down the CC. Calculate how many months it will take and compare the interest charges vs the lost retirement savings and see which does less damage.
    2. Take a loan out against your 401K. You pay interest, but the interest is "to yourself" and while you will get double-taxed on part of it, calculate and compare the costs of CC interest vs loss in your retirement.
    3. Bite the bullet, take the 10% penalty plus tax. Compare costs to see which is the lesser of two evils.
    4. If you are getting "zero APR on balance transfers for 18 months" CC ads you can consider it but ONLY if you are sure you can pay it to zero in the time allotted. Compare the balance transfer fee to the other options. I do not like this one at all, because if anything goes wrong you will have whatever you didn't take to zero at an even higher interest rate; in some cases well over 25% APR.

    Good luck,
    Grumpy
     
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  8. BradD

    BradD

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    That's what I would do.

    Follow the Ramsey baby steps. Pay off lowest balance first to get momentum and confidence that you can do this. With that plan, you'll see quick improvements to your cash flow.

    Some will tell you to pay the one with highest interest rate first, but if that principal is large, you'll probably give up after a few months of not seeing an improvement in your cashflow and life in general. If you had the determination for this plan, you probably wouldn't be in this situation.

    Besides, if you go at this with intensity, you'll be done pretty quickly anyway, so the difference in interest would probably not be significant. If you have low intensity, you'll fail regardless.
     
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  9. Flying-Dutchman

    Flying-Dutchman

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    Leave it alone. Time flies.

    Your old self will thank your young self.
     
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  10. GWG19

    GWG19

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    Suck it up eat cheap, live cheap, sell off some stuff.
    Sell the car buy a cheaper car.
    Look up Dave Ramsey.
     
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  11. nikerret

    nikerret Mr. Awesome

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    Do you have things you can sell now that are easily replaceable, later?
     
  12. TheDreadnought

    TheDreadnought

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    I'm still of the opinion that you should pay off the credit card debt *IF* you can take a loan from your 401k rather than an actual withdrawal. Look into that.

    18% on paying off credit card debt is a better rate of return than you have any right to expect from your retirement investments.

    5.3% on your car isn't great, but it's not going to break you. Try for that re-fi after you pay off your credit cards.

    I'll echo the suggestion of others to sell some crap you don't really need if you can.
     
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  13. Jon_R

    Jon_R

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    If you are getting a match from your employer hard to go below the level to get the match. That is basically free money. 50-100% return pending how your 401k is with your employer. Do what you got to do but hard to drop the match is all.

     
  14. JoeCitizen

    JoeCitizen

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    Can't believe Ramsey makes so much money simply speaking the obvious.
     
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  15. FullClip

    FullClip Native Mainiac CLM

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    But there is never a shortage of people who seem to ignore the obvious.
     
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  16. G33

    G33 Frisky! CLM Millennium Member

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    Will your habits change?
    Will you replace the money into the retirement?
    Will you answer these three honestly?

    One NO answer and you are toast!
    :)
     
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