another question about cashing in retirement acct

[bluecricket]

Goooood morning,
I have read back through many posts looking for your suggestions about cc debt payment. I have read info regarding cashing in a 401k ("don't do it!") and I'm thinking my question will be answered in the same way, but I had to try anyway.

My trouble started with cc debt accumulating over several years. About 3 years ago, I hit the wall and began an earnest campaign to pay down debt. I have paid off 2 cc's and have not made a charge since I started in debt recovery. I have a few more to pay off as well as a student loan. I'm making more than the minimum payments -- sometimes it's $25 and sometimes it's a couple of hundred, depending on income and expenses for that month. I have about 33K in student loan debt at 9% (consolidated years and years ago before the rates went down), a citi cc at $12K at 1.99% for life, a BOA cc for $3500 at 7.9% and a Chase cc for $5300 at 4.9%. I have an IRA for about $5800 at a promo rate of 18% until March 2007. No other savings. Until recently, I had a job in which I participated in a state retirement account and have about 12K in that. I recently left that job (marriage and moving out of state) and now have to figure out what to do with the money. I can leave it in the state account until retirement, roll it into an IRA, or take a refund. I have been out of work for a couple of months although I don't expect it to be much longer before I get another job. (The interviews are coming along nicely. yay.) I have been considering taking a refund, despite the taxes (25%) and penalties (another 11%), and throwing it at the two smaller cc accounts.

Whaddayathink?

Thanks

[creditcardfree]

No, don't do it. I understand how tempting it is to have money sitting there that could be used, but the money is for your retirement. Remember you can't borrow money for retirement.

It sounds like you have been really good about staying on track with the debt repayment, so I would continue your plan.

As soon as you have a job, make a budget and find as much money from your income to put towards these cc's. Take a second job if necessary. Sell some of your things.

This is a simplified answer. I'm short on time. I'm sure you'll get some more responses and I'll check back later.

[disneysteve]

Originally Posted by bluecricket

Until recently, I had a job in which I participated in a state retirement account and have about 12K in that. I recently left that job (marriage and moving out of state) and now have to figure out what to do with the money...I have been considering taking a refund, despite the taxes (25%) and penalties (another 11%), and throwing it at the two smaller cc accounts.

Whaddayathink?

So if you take out 12K, you will pay about $4,320 in taxes and penalties (36%) leaving you with just $7,680.

You want to use that to repay CCs at 5 and 8%.

As I think you already know, it makes no sense at all to pay 36% in order to save 5 or 8%.

Be sure your monthly payments above the minimum are all going toward the debt with the highest interest rate. That will save you the most money over time.

[poundwise]

Definitely don't do it.

Based on the information you've given, it would be a foolish move IMO. Roll it over into an IRA. Pay the minimums on all your credit card accounts except the one with the highest interest and send that one the largest payment you can each month until its gone. Then move on to the next one and so on.

You may feel that even with the taxes and penalty you'd be willing to get that lump sum in order to help you get out of debt faster but it is just too costly.

[ren]

As stated above, you can pay 36% for the money now. What happens if you roll it over?

With compound interest at 11% (average stock market return) on $12,000 with nothing added, given 30 years (picked at random) to grow, you would have $274,707.56. Can you afford to take that money? How are you going to make up that loss if you take the money now?

Calculator used: http://www.moneychimp.com/calculator...calculator.htm

Hell, if you can roll it into that 18% IRA, that $12,000 will be nearly $13,000 just by the time the promotional period is over. (Don't suppose you'd let the rest of us know where we can get 18% on an IRA, would you? )

Also, I hope you're putting the extra money toward the BOA card even though the interest rate on the student loan is higher, since you should be able to deduct the interest on that, so the effective interest rate is a lot lower. Since it looks like you're in the 25% tax bracket, the math is: 9% x (100% - 25%) = 6.75%

[bluecricket]

Very very good. Thank you for your recommendations. I will roll it over to an IRA. My DH said to do the same thing, but I so urgently want to correct my past wrongs and get out of debt that I wasn't thinking clearly. I appreciate that many of you have crunched some of the numbers for me and provided links to additional tools. Again, thanks very much!!!

[bluecricket]

By the way, the 18% on my IRA was an 18 month bump up offered by my credit union. I love my credit union

[Ima saver]

I agree with the others. And you do have a good credit union.

[HalMd]

I vote for don't do it. Pay minimums until you get a job then budget for the paydown.

Can you move the BoA credit card balance to the Chase card to get the lower rate?

[greedy4chips]

No mention of a spouse or family. Get 2 jobs or even 3 for a few months and you will notice a huge change in your finances.

I would pay off that BOA balance first while still keeping current on all your other payments. Then move onto the Chase acct. Student loans should go next since that 9% will kill you if you don't start to pay it off. The 1.9% for life card could be saved for last if and only if you are positive the rate will stay that low.

Try to find a 0% card with no transfer fees to move some of the balances to. It will save you a little each month in interest, nothing to get excited about, but it does count.

With a 2nd job and paying all extra income to the debt you will be amazed where you will be in 1 year. The sacrifices are worth it!