Should I use Roth IRA contributions to pay off Credit-Card debt?

[Skooby]

"Roth IRA contributions may be withdrawn at any time without taxes or penalties".

I don't have much in my Roth IRA...about $3500 in contributions. It's always been a Roth IRA...it was never a conversion.

However, I have about $2700 in credit card debt. So far I've racked up $475.00 in interest charges.

I only have about $100 in an emergency fund.

Also, my job might cut down on the overtime we are allowed to work.

[mcfroggin]

It is a bad idea to ever pull money out of a Roth unless absolutely necessary.

Why can't you pay down this cc debt? What is the interest rate? Can you transfer the balance to a lower rate cc?

[Skooby]

Originally Posted by mcfroggin

It is a bad idea to ever pull money out of a Roth unless absolutely necessary.

Why can't you pay down this cc debt? What is the interest rate? Can you transfer the balance to a lower rate cc?

Interest rate is 14%

No I can't transfer the balance.

I'm just not making enough money right now. Pay is cut but every thing around me the cost is rising. Rent is about to go up by $40 next month.

Also, I've already cut down on some expenses etc.

[jpg7n16]

I just see you paying the card off, then building it right back up - because you're not fixing the real issue here.

You have to adjust your budget. I don't care that you've already cut expenses, if your expenses are still greater than your income, you'll be right back in the same spot in a year or two.

So what do I think you should do? Fix your budget: get advice, post your income and expenses for feedback

Once that's fixed, we can deal with the Roth issue.

[disneysteve]

Originally Posted by Skooby

I'm just not making enough money right now.

You need to make your expenses match your income. In fact, you really need to make your expenses less than your income to account for debt and savings. Raiding your retirement account only puts a band-aid on the problem and leaves you worse off than you started because now you don't have that savings either.

Post your income and expenses and let us take a look.

[dawnwes]

Agreeing with everyone that you need to cut expenses. You say you have cut some, but I am guessing there is more to cut that you don't want to cut. Just saying "prices are increasing" isn't enough to really get us to have an opinion on your budget.

Here are things we have looked at first:

1. Cell phone
2. TV viewing (cable, etc..)
3. Eating out, coffee shops, drinks at convenience places
4. Grocery shopping (could you shop smarter?)
5. Rent- maybe you need to move?
6. Car- do you have a high payment? maybe you can't afford that particular car.
7. Vacations- cut completely if you can't afford it in cash comfortably


In other words:

Get down to your BARE BONES budget and if you still can't make it, you may need to make some drastic changes.

Dawn

[BMEPhDinCO]

I agree with everyone else - if you don't have any money to put to savings, then your expenses are too high and paying off the CC won't help your long term financial health.

While the amount seems high, it's not that bad and with a little work you could have it paid off in a year....you should post what you bring and what goes out and people can help you figure it all out, you don't have to do it alone!

Retirement accounts though should be for that purpose, they are not an emergency fund or an "oops" fund or an "I need money" fund...they are for after you leave the job force.

[amarowsky]

I know there is a lack of information given here , but it sounds like your just not making enough cash in general . U didn't mention your age either , but 3500 is easily recoverable if you are younger. And I highly doubt that your retirement us making more in interest than you are paying in your card . As long as you take out what you need to without penalty you should Dec pay off that card . A little bit towards retirement is no help if your debt is building as fast or faster . Plus its a great deal less stressful and a lot clearer state of mind when you replan your finances from a clean slate rather than under water . But it would be important to elaborate on your employment / employment options (including education or work qualified for ) and age .

[Slug]

Another vote for cut your expenses and post more detail if you want help. Don't raid your Roth just yet.

[Skooby]

34 years old, single no kids. I work for a federal government agency making about $39,000.
Take home pay: $2040 ($1020 every two weeks)
Savings: $100
I have a TSP (government version of 401K) if that amount is needed.
My Roth amount as of yesterday is $3,943.

Expenses (Monthly):

Roth IRA: $50

Electric: $50-$60 (avg for the year)(All electric apartment...no gas bill)

Water: $30

Rent: $575 (Current is $535, $575 will start December 1st when I sign a new lease. There is no other viable options available)

Car: $430 (Just paid the 8th month of a 36 month purchase) (I will not sell the car, I am keeping it. Also, public transportation isn't a real option in Indianapolis since the city is really spread out. It'll take forever getting somewhere with the Indianapolis public transportation system)

Extended car warranty: $77 (Just paid 8th month of a 18 month payment)

Car insurance: I pay every six months (I save about $60 doing this) Next one is due Nov 1 at $360. Deducibles: $500 collision and $500 comprehensive

Fuel: $100 (not exact, just a guess)

Cell phone: about $25 every two months (prepaid go phone from at&t) I don't use phones much

Cable, internet, home phone: $126 (I had cable and internet that was $140 total. Comcast package for all three was cheaper)

Groceries (including household items): $200 (I 'try' to limit food groceries to $40 a week. Other items run about $40 a month)

Eating/Ordering out: (I already know I have to cut down on this): $120-$150.

Haircuts: $30

Misc: $50 I went overboard last christmas. I have eight nieces and nephews and my bum ass siblings and their grandparents don't do anything for them. So I try do nice things for them sometimes...like take them out to eat, etc. Also school supplies and little odds and ends they need since no one else buys it for them. I was paying my credit card in full until last christmas...I havn't recovered from it yet.

Except for rent, car payment, roth, electric, water and haircuts I pay everything with my credit card for the reward points. Then use the points to get money off a plane ticket.

I don't go on vacations...in fact I've never even had one before (would like to one day). I usually take leave once a year to visit my grandparents in other relatives in North Carolina.

I had about $1000 in an emergency fund but used it to help family.

I also had about $3000 in stocks but used that for the down payment on my vehicle (I was leasing the vehicle but I bought out the lease).

As stated before I work for the federal government and we took a pay cut this year and will again next year. This was unexpected.

Also, I will probably start grad school next spring.

[disneysteve]

Originally Posted by Skooby

Car: $430 (Just paid the 8th month of a 36 month lease) (I will not sell the car, I am keeping it.

Extended car warranty: $77 (Just paid 8th month of a 18 month payment)

I also had about $3000 in stocks but used that for the down payment on my vehicle (I was leasing the vehicle but I bought out the lease)..

I'm confused. First you said it is a 36-month lease but then you said that you bought out the lease. So are you currently leasing or making payments on a purchase?

Was it a new car purchase? If so, why did you need an extended warranty?

And why so adamant that you won't sell the car? The payment is 21% of your income. Rule of thumb is to not exceed 10% of income so you bought too much car for what you earn.

[Skooby]

Originally Posted by disneysteve

I'm confused. First you said it is a 36-month lease but then you said that you bought out the lease. So are you currently leasing or making payments on a purchase?

Was it a new car purchase? If so, why did you need an extended warranty?

And why so adamant that you won't sell the car? The payment is 21% of your income. Rule of thumb is to not exceed 10% of income so you bought too much car for what you earn.

I just edited the post. I was leasing it then I bought out the lease.

It was a used car purchase...i've been the only owner though.

A couple of years into the lease I knew I got too much, but I like the vehicle, I've never had any problems with it so I decided to keep it. I know it's too much but i'm going with it anyway. I figured I could cut costs elsewhere...i'm cutting my family off.

[jpg7n16]

I hope you realize that your car is costing you your sanity, your free cash, a nice Christmas, and your retirement. All for something that you spend maybe 2 hours/day in. Max. The other 22 hours/day, it's sitting in a driveway or parking lot costing you money.

Of the $1,950/month expenses you listed, $507 is spent on just owning your car.

Just because you have a nice car that works well doesn't mean that every used car out there is a clunker. Used cars can be very nice and well maintained. After all, you're driving a used car right now. At least that's how you'd have to list it in the papers if you sold it.


You can't save for your retirement when you have that much of your income going to your car.


You came to us asking why you didn't have enough money to pay your CC, and if you should cash out your retirement savings to eliminate it. You need to free up some cashflow each month to avoid building that CC up even further.

You've looked at the numbers. Where else do you suggest the money come from?

If you had another $250-300/month, how would that benefit you?

[amarowsky]

The poster sounded fairly adamant about keeping the car . And 500 a month for seeming no worry transportation isn't horrible . It sounds like the most he could cut for the same piece of mind would maybe be 150 not 200-300 . Gasoline costs could further impact the situation, I send almost 250 a month in gas , which is a significant amount . More information about vehicle and monthly gasoline expense would be helpful .

But as far as buying used I can totally concur with not wanting a more used car , its hard to find one that doesn't cost you the difference in repairs , scheduled maintenance work , and the opportunity cost from headaches and time in the shop

[Slug]

Back around 2000, I went to Wal-mart and bought a Amazon.com: Wahl 79900B Clip-N-Trim 23-Piece Complete Haircut Kit: Health & Personal Care. That was the last time I paid for a haircut. If I had paid $30/mth instead, I'd be about $3,960 poorer today. More if you count lost interest. All for dead follicle removal and vanity.

I know you aren't ditching the auto so I won't mention it except to say anyone who is paying a roughly equivalent amount in rent and auto is crazy.

Cook more. Eat out less. Consider a slow cooker as an investment.

Reduce your Roth contributions to $1/mth for the time being. You're still contributing something, but the guaranteed return you get from putting the $49 to CC debt is better than anything you'll get in today's markets.

I think you need clear boundaries between your family and your finances. Your willingness to help is an admirable trait, but it also puts you in a position of an enabler and someone to be taken advantage of. With as much CC debt as you have, your focus must be on you right now.

It sucks that you had a pay cut and more may be in store. You might want to consider a part-time job on the weekends. Be selective about it and try to align it with a hobby. Like soccer? Then look into soccer refereeing. Any additional dollars you get are worth so much more right now.

By the way, as a fellow credit card rewards chaser who puts everything on the card, I love this approach, but you are losing every single reward due to the credit card interest. It makes me nauseous. You might want to consider cash only for a time or look into the Perk Street debit card (1% cashback).

Good luck.

[disneysteve]

Originally Posted by Slug

Back around 2000, I went to Wal-mart and bought a Amazon.com: Wahl 79900B Clip-N-Trim 23-Piece Complete Haircut Kit: Health & Personal Care. That was the last time I paid for a haircut. If I had paid $30/mth instead, I'd be about $3,960 poorer today.

Same here. I bought a trimmer at the ConAir outlet about 7 years ago for $15 and have cut my hair ever since. I replaced that trimmer once about 2 years ago for about $30 (I upgraded to a better model). So a total of $45 in 7 years for haircuts. The only reason I didn't pick on that point earlier is that the car is such a phenomenal problem here it almost wasn't worth mentioning the haircuts.

[BMEPhDinCO]

If you don't go out to eat, and you don't contribute to the Roth (beyond $7 a month), and you don't get a hair cut every month, you could have the CC paid off in 9-10 more months (you didn't list the minimum payment for that above).

Also, why do you have an extended warranty for your car??? Usually those are rip-offs and at $77 a month, it's costing you a ton....

[disneysteve]

Originally Posted by BMEPhDinCO

Also, why do you have an extended warranty for your car??? Usually those are rip-offs and at $77 a month, it's costing you a ton....

Is it possible to cancel that or are you locked into a contract?

[bjl584]

Originally Posted by disneysteve

Is it possible to cancel that or are you locked into a contract?

I've bought two extended warranties in my life. One was on a used 99 Chevy Blazer. I paid around $1500 for the warranty. A year later I had $3000 worth of work done for a $50 deductible. The second was on a used 06 F250. I paid around $1700 for that one. This truck was plagued with problems and it went to the shop over 13 times having close to $8000 worth of work done to it. All of it only cost me the $100 deductible. I eventually won a lemon law case against Ford and received a settlement. I have since sold the truck.

Long story short, my experience with extended warranties is that they are worth every penny, especially on used vehicles. OP may want to keep it since he is dead set on not selling the car.

[Scanner]

Wow. $430/month for a car.

Wow.

Rather than post something judgmental (I guess I already did) but what is it about cars that guys (and gals) find so alluring? Neither my ex-wife nor I ever displayed cars to our boys. We are both pretty just "Plain Jane" when it comes to cars.

Yet both of them (14 and 9) sit there and lust after cars - "That was a BMW, Dad." We just passed a "Nissan Z, Dad." "Will I ever get to have a nice car, Dad?"

I usually then answer with, "My 1999 Ford Taurus was the coolest car ever!" and they scream, "Not uhhhhhh!!!!!"

I just don't get it. I knew someone who was in debt up to her ears, failing marriage, went out and bought a Mercedez SUV at $800/month - and I don't think it was to necessarily get at the husband. I think she saw everything around her crashing and she thought she'd have a piece of the good life before she went down, I guess?

Just help me with this psychology.