Using IRA to pay off CC debt

**jIM_Ohio** · 01-03-2008, 07:36 AM

I would not look to cash out any retirement accounts to pay off $8800 in cc debt.

I would do the following before taking any action:

1) create a budget
2) verify you can follow the budget
3) look to do any of the following afterwards:
a) 401k loan (if you have $17,000 in 401k, this might work)
b) stop IRA contributions
c) stop 401k contributions
d) tap home equity to pay off
e) get a second job to pay off loans

If you do anything in 3 without 1 and 2, it's probable the problem will repeat itself and you will have a larger problem if 3a-b-c-d was done to fix the problem.

I work two jobs and would clear $8800 in about 10 months of my second job.

If your return was low in the 401k/IRA, I would also like to know what you were invested in. One of my funds had a 17% return last year.

**sweeps** · 01-03-2008, 07:36 AM

If you have the skill and discipline to continue using 0% interest offers, do that. Cutting into your retirement funds should be a last resort.

**bjl584** · 01-03-2008, 11:08 AM

I would advise against cashing out your retirement to pay off cc debt. If your performance isn't that good in your IRA's then take a look at your investments and realocate them to get a better return. You might want to try and call the cc company and ask for a lower interest rate. The worst that can happen is they will tell you no. Beyond that, set up a budget and repayment plan as already stated in another post.

**disneysteve** · 01-03-2008, 11:36 AM

Originally posted by ashlic View Post

I know everyone says that it is a big no no. I have 2 IRA's, one is a Roth with about 2,000 in it and one is a traditional with about 8,000 in it.

Those accounts are different in one very important way. Any money you take from the traditional IRA would count as an early withdrawal. You'll pay a 10% penalty and taxes. I wouldn't touch that at all.

The Roth, however, allows you to withdraw the amount you have contributed, but not the earnings, penalty-free at any time and for any reason. So that might be something to consider.

However, I agree with the others. $8,800 is not a lot of debt. If you can do another 0% balance transfer until you pay it off, I'd probably go that route.

In the meantime, as Jim suggested, work on your budget. Cut your spending as much as possible and direct any extra money toward retiring that debt. Temporarily stop retirement plan contributions if necessary to get rid of the debt. Find another source of income - 2nd job, selling on ebay, etc. Most importantly, be sure that you are no longer using your credit cards and not adding to your existing debt. If you don't have cash, you can't afford it. And even if you do have cash, be sure what you are buying is a need and not a want.

Leave those retirement plans alone, except for reevaluating how the money is invested and aiming for a better return.

**ashlic** · 01-05-2008, 05:53 PM

thanks!

Thank you all for the advice. I am invested in American Century Ultra Mutual Funds with my IRA's. It did okay in the last few months of 2007 but overall the fund performance has been low and I've had the fund since 1996.

I have a budget, and I work 60 hours a week so another job truly isn't really possible for me at this moment but I will look into it. And I am selling pretty much everything I can on Ebay or half.com and my credit cards haven't had anything new put on them in a long time, in fact the actual cards have been cut up.

I'll just continue to chip away and look into another mutual fund to move my IRA's to.

Using IRA to pay off CC debt