Hello everyone,
I've been reading through a lot of the discussions on here about cashing in on your 401K to pay off debt. What I've realized is everyone's situation is different, so, I figured I would put down what mine is and ask for your input. So here it goes...
I'm 34, who unfortunately had very foolish spending habits and fairly recently realized the importance of saving for retirement. So in the last 2 years or so, I've managed to put up about $10,400 in a simple IRA. I went through a divorce a few years back, and unfortunately was left with a lot of debt that my ex incurred. She was supposed to clear them, but she didn't, so have had to take care of them myself. Because of this, my credit is pretty bad, mid 600's. I'm working for a company who, beginning Jan 1, 2014, will be switching our simple IRA to a 401(K). I've increased my contributions to 9% of my income (less than $50K/yr base salary) to go towards my 401(K), and increase by 1% every year until it hits 12%. A questionnaire determined I was an Aggressive to Growth kind of an investor, so have elected for my 401(K) contributions to reflect that. My company matches up to 3%, plus another 3% of my income per year as part of a Safe Harbor plan. In addition to all this, I also have a life insurance with Northwestern Mutual. I'm not completely familiar with the lingo, but I have immediate death benefit, and a separate one which I pay about $200/month. This one is so by the time I retire, I have approximately $200,000 that I can take out for retirement.
All that being said, here's the fun part...my debt! I have credit card debt of about $4500 (interest rate at 26%), and store card debt of about $2200 (interest rate at 22%), and a horrible payday loan of about $1000 (God only knows what the interest rate on that is). On the flip side, I don't have a car payment, I paid off my college loans about 2 years ago, take public transportation so as to save on gas money, and have made my living arrangements to where I'm paying about $300/month. While this may not seem like a lot to some, it is hard for me because by the time everything is said and done, I have only about $200/month (and still have to cover food, gas, cell phone bill etc).
So what I need your advice/opinions is on whether I should cash in my 401(K) to pay this debt off, or at least part of it. I've thought to cash in about $6500, and whatever debt I have left pay off with my income tax return. Yes, I have made horrible mistakes, but I'm trying to do better. I'm just so tired of paying and not even making a dent in my debt. I'm also getting married in September of next year. My fiance is very aware of my financial situation, so we've opted for just a simple ceremony (no reception etc), asked friends to help decorate, and use a personal friend as photographer to cut costs.
Your advice and opinion is much appreciated.
Thank you.
LRZ
I've been reading through a lot of the discussions on here about cashing in on your 401K to pay off debt. What I've realized is everyone's situation is different, so, I figured I would put down what mine is and ask for your input. So here it goes...
I'm 34, who unfortunately had very foolish spending habits and fairly recently realized the importance of saving for retirement. So in the last 2 years or so, I've managed to put up about $10,400 in a simple IRA. I went through a divorce a few years back, and unfortunately was left with a lot of debt that my ex incurred. She was supposed to clear them, but she didn't, so have had to take care of them myself. Because of this, my credit is pretty bad, mid 600's. I'm working for a company who, beginning Jan 1, 2014, will be switching our simple IRA to a 401(K). I've increased my contributions to 9% of my income (less than $50K/yr base salary) to go towards my 401(K), and increase by 1% every year until it hits 12%. A questionnaire determined I was an Aggressive to Growth kind of an investor, so have elected for my 401(K) contributions to reflect that. My company matches up to 3%, plus another 3% of my income per year as part of a Safe Harbor plan. In addition to all this, I also have a life insurance with Northwestern Mutual. I'm not completely familiar with the lingo, but I have immediate death benefit, and a separate one which I pay about $200/month. This one is so by the time I retire, I have approximately $200,000 that I can take out for retirement.
All that being said, here's the fun part...my debt! I have credit card debt of about $4500 (interest rate at 26%), and store card debt of about $2200 (interest rate at 22%), and a horrible payday loan of about $1000 (God only knows what the interest rate on that is). On the flip side, I don't have a car payment, I paid off my college loans about 2 years ago, take public transportation so as to save on gas money, and have made my living arrangements to where I'm paying about $300/month. While this may not seem like a lot to some, it is hard for me because by the time everything is said and done, I have only about $200/month (and still have to cover food, gas, cell phone bill etc).
So what I need your advice/opinions is on whether I should cash in my 401(K) to pay this debt off, or at least part of it. I've thought to cash in about $6500, and whatever debt I have left pay off with my income tax return. Yes, I have made horrible mistakes, but I'm trying to do better. I'm just so tired of paying and not even making a dent in my debt. I'm also getting married in September of next year. My fiance is very aware of my financial situation, so we've opted for just a simple ceremony (no reception etc), asked friends to help decorate, and use a personal friend as photographer to cut costs.
Your advice and opinion is much appreciated.
Thank you.
LRZ
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