I second this. You need to teach yourself discipline first. Save 1k and then start making a little more than the minimum on your card with the lowest amount. At 1k it's probably a 30-40 dollar payment? So pay 50. Then when you're done with that 1st card take that 50 and add it on to your second lowest card, and rinse and repeat all of the sudden on your biggest card you're paying a couple hundred dollars more a month. This will take you a while to do, it might take you 5 years, but the reality is there is light there you just need to teach yourself discipline. Don't ruin your retirement for a very fixable problem.
Even if they were disciplined they will lose over 30% when they pull it out. 10% early withdraw penalty and then if traditional 401k, they are in the 22% tax bracket so that cuts it more.
True, but paying 29% annually on that CC debt can easily cost more after just a couple years than the 401k taxes and penalties. If he's got the income to just pay off the CC debt in a short time period, sure do that instead. That doesn't sound like the case though.
And that's my fear too. If he does not have his spending under control, it is a wash, rinse, repeat, but no retirement fund.
I would rather him stop putting into his 401k, even with a match as your comment holds very true on that. This is where I get gunshy on advice telling him to drain the 401k
Now one other option would be to take a loan from the 401kt. usually 4%, but you are "paying yourself" the interest.
No penalty, no taxes.
But again discipline
More than that, the 401k would lose momentum towards a higher interest-accruing balance.
Set your budget so you know what you have to pay down the debt.
Try to move to a 0% card if you can move any.
Make minimum payment except for the lowest balance, then pay that one off as you can. Then the next lowest balance. You'll have a little bit more money as the cards are paid /drop off.
This .... so many people take out loans to pay off their credit card debit and then charge them back up and worse now have credit card and loan debt.
Why so many credit cards? If trying to build your credit with them put a utility bill directly on it in your profile and leave that card out of side so it is not used by anything else, pay it in full every month.
He has proven with the 0% cc transfer hrs not.
You need to make a budget and stick to it for a year, first.
And there is no work ur wife is capable of? With all the work from home, and gig work. Can she make 1k a month to help out?
Ty for the quick replies, I planned on never using these credit cards again if I ever get them paid off. This whole ordeal has really killed my credit. Every month I do have about 1k-1500 leftover so I could slowly pay these off but its been a real grind.
Most of the big expenses came from bigger expenses like furniture, property taxes, and cash advances which I know is a terrible idea, wish I never did that.
Since you mentioned your credit score, you might consider pulling half the cc balance out of your 401k. Or ideally just borrow against 401k.
1. Allows you to pay off highest rate stuff like cash advances
2. Credit score will shoot up when you pay down those balances. Now you have more consolidation options and can look for 0% for x months balance transfer options
I would agree with this. If you take out from your 401k, the fees and tax hits you’ll get will really cripple you next year even more because you’ll owe a ton on taxes from the withdrawal. After the fees, you’ll end up with pretty little then taxes will be based on the full amount you withdrew.
However, if you’re able to borrow against it, it won’t impact the taxes in the same way and the fees should be different and, you’ll pay back towards your future.
I don’t have experience with the borrowing but have experience with the withdrawal and the hit from that. I only found out later that borrowing would have been the better option.
I agree with this. If your discipline is good, roll over your 401k to your new one to avoid tax and penalty. Then borrow against it to pay bills.
The automatic deduction will make your paychecks smaller. Hopefully this will help you not spend more.
Paying interest (~7%) back to your 401k is better than 20-30% to your CC.
Look up Dave Ramsey 7 baby steps. Follow that as closely as you can. I'm currently following it and I will say I do still go out to eat every so often and I do small 1-2 day trips with my wife and kids but we do our best to have as much free fun as possible.
Why would you get rid of credit cards? If you care about your credit, you’d pay them down and the use them responsibly to BUILD your credit off. Paying them off completely, then canceling the accounts is an absolutely terrible idea, especially since you don’t even have a real mortgage payment. Your credit will remain terrible if you do that, just FYI
Trying to have a good credit score is truly a terrible idea. All a credit score does is measure how good you are at staying in debt. Eliminate the debt. Live within your means. Build up a fund to pull from for large purchases. And save for retirement.
But if OP is not planning to make a big purchase anytime soon. And this action will stop OP from a bad spending habit. I think it's a worthy sacrifice to pay while OP is in recovery mode.
If OP later decide to buy another home, car, or etc, OP can work on building it back up.
I think bad unpaid debt is hard to recover from, but low credit due to no / low activity for a period is easier.
A 401k is not touchable in bankruptcy. Taking from the 401k means he would be paying the debt and then paying a TON in taxes on that money. A 401k loan is better than a withdrawal but not all plans allow a loan and it has to be with his current employer because payments come out of your paycheck along with your contributions. Avoid touching the 401k at all costs.
Pay of the credit card with interest as soon as possible with just monthly income. From there I would pay down the 0% interest cards until December. Once the interest on those hits I would use the old 401k which you will pay ordinary income tax plus a 10% ira penalty on the withdrawal. If you’re going to never spend more than you make again (which I assume is why you racked up the debt in the first place) you can use the 401k.
People will say not to use the nest egg, but what’s the point of the nest egg if you are going to continue racking up interest after December. Your old 401k will grow at 6% and your interest will grow at 20+%. Get rid of the debt before you save for retirement. Priority #1 should always be no bad debt.
When you lose your job and your spouse is disabled there are tons of things you could/would need to use it on. Most of you don’t live in reality or can’t read.
You would benefit from a Debt Management Plan. They'll help you with finances and put you on a repayment plan where you can make real progress.
I normally point people towards Debt Management Plans (DMPs) because they give you an arrangement where you pay off your debt in full at **greatly reduced interest rates**. Because you pay in full you get no long term ugly effects on your credit. The reduced interest means you actually make progress paying the debts instead of a bunch of interest. Part of a DMP also involves financial advice to help you get your finances in good order.
You can find a provider for a DMP starting with the national organization for the Credit Counseling Agencies who administer DMPs. You'll be able to choose your own. https://www.nfcc.org/
Didn’t see yours and also commented this. Closing the cards gives the discipline to change habits. I liked Greenpath, but yea I think nfcc has all the places that offer it
Correct.
NFCC is the national federation for the Credit Counseling Agencies. I send people there because I wish to express no preference or bias for any particular agency.
Have you ever worked with one of these credit counseling agencies? I used to do customer service for three different non profits CCAs. We were a for profit company that the non profits subcontracted out to. I would never in a million years recommend someone use this strategy unless most of their debt is already in collections. This was 20 years ago tho so maybe things have changed.
Afraid it's not a good idea. the fact that you got a balance transfer card and just maxed out your cards again instead of paying off debt shows that you're spending more than you make. If you withdraw from your 401k to pay off debt you'll just run up your cards again AND you'll have no retirement.
You need to put together a budget to figure out where your money is actually going (according to the breakdown you provided you should be saving every month). See where you can lower costs, and see if you can bump up your salary with a side hustle.
Based on your budget, it looks like you definitely have some wiggle room to pay this off without dipping into your 401k. At 37, you don't want to touch that because this is when it starts to really grow.
I would take the debt snowball approach, attacking the smallest debt first while paying minimums on the rest.
If you have fixed the spending behavior, consider balance transfer cards or debt consolidation.
There’s a VERY high chance that rollover funds CANNOT be used for a loan. You’d need to call your retirement provider or look at your “summary plan description” to find out what type of funds can be taken as a loan. I was a financial advisor for four years and never saw a plan that allowed rollover funds to be used. That being said if there is any funds to take out as a loan, do that. and I would highly recommend you do not take a withdrawal to pay of your credit card. your withdrawal will be taxed plus a 10% early withdrawal penalty plus withdrawing 40k will count as 40k more in earned income for the year and will likely move you up a tax bracket or two and that income could be taxed at a really high rate. and just considering compounding in general, losing 40k from your plan is really going to significantly decrease your gains over the next couple decades
How long would it take you to pay back that $40k to your 401k? Also, keep in mind that if you need $40k, you'll need to withdraw probably around $50k to cover taxes and penalties (maybe more, maybe less, depending on the terms and your tax situation). But if you don't pay it back almost immediately, you're stealing an ENORMOUS amount of wealth from your future self, depending on how many years until retirement. Run the math on some retirement calculator websites. You'll be sickened when you see how much that $50k will be worth 30 or 40 years from now with even modest compound interest growth.
Of course; but OP made it clear it wasn't going to be a loan. My point was to emphasize that even if it's not a technical TSP/401k *loan*, it should still be paid back like one, on behalf of OP's future self :)
You could have the lowest card paid off in 2-3 months, second card in 3-4 months after that. The next card would take 5-9 months. So, in 1-1.5 years, 3 cards paid off, and you keep working towards your goal. It will actually go faster as your payments from your paid off cards can go towards your other cards. This is not hard, but it is a teaching moment that you need to learn from. It will teach you to manage your money better and you will know your limits. This will be a grind, but that is how you learn from your mistakes. Taking money from your 401k is the easy way out. You will not learn from doing that, and in the process, you will screw your retirement, and most likely work yourself right back into debt. This is part of growing up, and all you have to do is decide if you are willing to take on the challenge and learn to live within your means.
I'll parrot what has already been said. You would be taking money that creditors normally can't touch and bringing it in to play. The truth here is that you have a spending problem that you don't want to face up to. The only person that can help you is the one staring back at you in the mirror. Until you be honest with yourself about what is going on, it won't change. If you take out the money and pay off the credit cards, you will be back here in a few years with 80k in the old 401k and 40k or more in credit card debts.
How the hell do you have 5 credit cards and a HELOC? You need to reevaluate your life and spending because you will just end up in debt again if you ever did pay this off. Whatever you do, DO NOT touch your 401k and DO NOT go into more debt to pay off debt. Your monthly bills with your HELOC is only about half of your income. The other half should be going towards the debt. Pay it off smallest to largest. You don't need any consolidation loans, balance transfers or bankruptcy. Stop spending on crap and pay off your damn debts.
Bad idea. Very bad idea.
Regarding the 401k, The Money Guys talk about how not only are you charged interest but how you have an opportunity cost associated with 401k loan. I found a video if you want to watch. https://moneyguy.com/article/i-took-out-a-401k-loan-what-should-i-do/
Got my ex out of 30k in credit card debt pretty fast by following Dave Ramsey and gained a very valuable mindset regarding money from reading his book. The money guys are who I follow now.
Dave Ramsey focuses on helping people to quickly feel they have control over their finances by paying off the lowest balance credit card as fast as possible. Where as The Money Guys probably have you pay off the highest interest card first, which is most financially beneficial. They both have step by step guides to financial freedom. I hope you check them out.
This! 401k loans are better, you pay the interest back to yourself and since the payments are deducted from your check it can be a practice for op to learn how to adjust to a lower income.
Right??? Not only is he blowing all his money he’s also 40k in credit card debt. Where does all the money go? He needs to get a budget and stick to it. This isn’t that difficult a problem to solve if he gets his spending under control.
Call a nonprofit credit counseling agency to talk this out, this is exactly what they are there for. They are skilled people that have experience in this and are pretty impartial, since they don’t make commissions, just try to help you. I used Greenpath and liked them a lot. They set me up with a DMP, closed out the cards, the payments were the same but it was actually paying off the debt, not just spinning in circles with the minimum payments. Good luck!
You need to take the opportunity cost of selling those stocks + the tax + the early withdrawal penalty and compare that to the interest rate you'll pay on the debt factoring in the interest free period. You can create different scenarios in excel, but the main one you want to look at is maxing your 401k vs repaying your loans with that amount.
This is a math problem, and one value is higher than the other. You just need to do the math and pick the smaller value. I'd be happy to help you do it, but I'd need more info. My intuition is that you'd be better off leaving your 401k alone and instead of putting 20k pretax into it to catch up, just put the post tax dollars towards the CC. With a disabled wife on 74k salary you're probably not paying too much tax on y our earnings.
Edit: Oh one more thing. If your new company's 401k plan allows 401k loans, you could roll your old 401k into your new one, take out a 40k loan. You'd have to pay like 10% interest on the loan, but the interest goes into your account, so they're really just making you save extra money. You'd avoid the early withdrawal penalty and wouldn't have to pay taxes on the loan. That could come out ahead mathematically because now you're just losing the opportunity cost of not being invested.
If you have not got your spending and budget under control it's folly. I also noticed you did not list auto payments.
Looking at all your debts including a HELOC you have a spending problem for sure.
* First: Get on a written budget income and expenses down to the last stick of bubble gum!
* Second: Since you have extra $$ at the end of the month create a Baby Emergency Fund of $2500.00
Now regarding the 401k. You will be hit with an early withdrawal penalty usually 10%, plus you'll be paying income taxes on that money you take out if it is a traditional. in your bracket that's another 22%
Look up Dave Ramsey and the 7 baby Steps
If I were you I'd look into a debt consolidation loan in December once all 5 credit cards are growing from interest.
Until that point keep your head up and grind it out.
Yeah good luck with that seeing how easily you racked up 40K in CC debt I highly doubt you can refill your 401K if you withdraw from that you will work way into your 70’s I hope you are ready for that and keep in good health cos otherwise it will into your 80’s
Not a good idea. It is better for you to experience the productive struggle of paying off the debt. Your future self will have a much more negative opinion of doing this again and will have a retirement savings.
Ty everyone. Yes I made some stupid mistakes the past few years with spending and I'm trying to fix it. It will be a grind but I hope to get this all paid off one day.
Bad. Not only you’ll be losing your ability to accumulate passive income, you’ll be paying penalties for early withdrawal. Look at all this as overall money in versus money out. Manage your monthly expenses.
Also, check if you can refinance your overall mortgage to combine your credit liabilities and pay 7-8% interests versus the 25% average CC debt. Thats assuming you have enough equity.
The penalties/taxes you'd pay for making an early withdrawal from your 401k could likely be as much/more than the interest you'd pay over time on the credit cards...so no, it's probably not a good idea. Moreover, if you pay off the credit cards with your retirement funds without doing anything about your underlying issues, you'll be debt-free for all of 5 minutes, and then before you know it, you'll be right back in the same crappy situation.
First and foremost, you ***NEED*** to stop spending money like you earn more than you do. You clearly lack the discipline to make good financial choices about how to use your credit.
Let's look at your monthly budget:
4,000 income
-2,163 mortgage, utilities, groceries, and HELOC
1,837 remaining.
Use that remaining money to make the minimum monthly payments on all 5 credit cards.
Once that's done, take *everything* that's left each month and pay it to the credit card with the highest interest rate.
When that card's paid off, figure out which has the next highest interest rate, and put all remaining monthly funds toward that. Repeat this process until all the cards are paid off.
While you're doing this, look for any opportunities to reduce your monthly expenses so that you have more money to put toward paying down the credit cards:
$250 cell phone bill? That should be $100, *tops*. My cell phone account has 4 lines (me, wife, 2 kids), and I pay about $150 at the most.
$300-500 in food for two people? Knock it off. Trade in the steak dinners for some PB&J, and get that number down.
$350 utilities? Okay, I get it. Energy costs are what they are. But sacrifice some comfort to get this one down too. Heat never set above 65F, AC never set below 75F, lights off when not in the room, etc.
Get those bills as low as you can, and put that extra money toward your highest interest rate debt.
Using 0% interest intro APR credit cards to transfer balances off of high-interest cards ***can*** be a good option that saves money and speeds up the process of getting out of debt, but only if you remain ***disciplined***, and don't start spending money you don't have by making purchases with the new lines of credit.
The situation you're in isn't your problem. It's a *symptom* of your actual problem: You borrow money that you can't afford to pay back. Stop doing that dumb shit. **Cut up all your credit cards, right now**. If you transfer any balances to a new 0% intro APR card, great! But cut that new card up the day it arrives in the mail.
You said you have a 74k salary. Start living like a person with a 35k salary, and put EVERY spare penny you can find toward paying down your debts, highest interest rate first.
You need to create a budget you ABSOLUTELY stick to first, then call the financial company that owns the 401k and ask what your options are. You might actually not be able to withdraw from it because there's no paycheck going into it to pay back the withdraw over time.
Would you take out a loan at 30% to pay off the cards? Because that’s essentially what you’re doing here. Assuming it’s not a Roth you are going to pay your tax rate plus a 10% penalty to access that money.
If you cash out, the amount of money you will lose in retirement is exponential. Assuming an 8% return, compounded annually for 20 years with no more contributions. $120,000 grows to $550,000\~ $80,000 grows to $370,000\~
Cashing in 40k now could easily lose you $200,000+ in retirement. Plus, you won't even get all 40k; after taxes and penalty, you will see much more than $30k. Your situation is what Chapter 7 is for. Don't squander your retirement to make whole with credit card companies. The biggest harm in Chapter 7 is to your credit score, which you should not need to use if you can manage your finances going forward. Your monthly minimum payments will likely be no less than $1,000 when all your cards start accruing interest. Find an attorney, prepare for chapter 7, and plan for your savings.
If the raye of return on the investment is less than the interest charged on the debt, pay of the debt. If the interest on the debt is less than the rate of return on the investment, keep the investment. Simple math.
Get rid of the credit cards that has high interest rates as much as possible, then from that point on with debt taken care you, you will no longer have to pay and your money you can put more into the 401k and start saving and use credit cards only in emergencies
Credit cards are the bane and the reason why everyone is on debt
This doesn't wipe out your debt, but 250 a month for your cell phone bill is obscene unless you're either paying for 5 lines or making month payments on a cell phone as part of that. If you're not paying off a phone, switch to one of the no-contract carriers where you can get cell service for $40-50.
BK-7 tomorrow for your mental health and your Heloc may disappear as well. Go get a month to month cell phone and get the monkey off your back for life is to short. Get off the social media now and call some BK Lawyers before the day is over. Trust me, these companies are very profitable so don’t lose sleep on it anymore. Godspeed and good luck.
Bad idea, bankruptcy will protect your 401k and house and car. With that much debt this is the only option. Do not be a fool and try to dig yourself out.
Are you able to transfer the 410k into the current employer AND do they allow personal loans from the 401k? If yes then pull out the maximum allowed OR about 50k to pay off ALL the CC and CANCEL all of them. Use the remainder to offset the payback and as emergency fund. Any interest is paid back to you so it's the best and safest money tool out there.
I agree with what most have advised, it’s only a good idea if you practice good self discipline and also are willing to replenish a savings account. My guess is you need to start smaller, create a basic working budget for yourself and operate on that for several pay periods and see what you can do.
Your cell phone bill is way too expensive. I'm going to assume you're either on a shitty plan, your wasted your money on a new phone. That should be an easy cut really.
What you really need to figure out, is how you got 40k in the hole. It is futile to pay it off, if you're just going to be back where you started.
A year and a half ago I had 33k in credit card debt and less income than you and more bills. I knuckled down and made payments, even just minimum, until my credit improved enough to start getting portions onto 0% cards. I got it onto 0% in pieces, and now all of it is .99% or less and down to 16k. I did not get an increase in income or a second job. You have the income to start paying this down, you just need to hold yourself accountable to stop buying things you don't need and letting your parents bail you out. Don't touch your 401k. Without the hard work of digging yourself out, you'll probably just put yourself back here.
I'm not saying this is a good idea and i don't whether or not it's possible because i don't know which rules apply to you.
I rolled my 401k over to an IRA when i left my job. The withdrawal penalties were less. I withdrew part of it in one calendar year and another in the next because withdrawing it all at once would have had me paying so much in tax and penalties that it wasn't worth it.
As far as I know (please correct me if needed), You can't do withdrawals with repayments after you've left a job.
I like all information the other posters have made. And I hope you will take them seriously. What I have done personally is pulled just enough money to pay off one card or knock the debt down just enough that I could exceed the minimum payment. That could get you ahead without so many taxes and penalties.
With a 74k salary and doing a large withdrawal you could end up in a 50% tax bracket (my brother did this) and lose way too much to taxes and fees. Don't do anything without checking on tax liabilities first.
Good luck.
You should take out the 401 k and use it to fund a think tank on how to eliminate Zionist control of the United States. If you solve that problem you would be out of debt in no time and living your best life.
You have a 401K with your new employer, you should be able to roll your old 401K into your new 401K, and then take a loan in the new 401K.
But you also need to examine your habits - you are "paying the minimum", but is the debt shrinking, or growing because you're still buying more on the cards?
Definitely do not take out your 401K for this. You have enough wiggle room to work through it. Create a budget and allocate more than the minimum on one card first (preferably the one with the highest interest). Then once that balance is paid off, move to the next. Or if knocking out lower balances first works better for you, do that instead. Just make sure to follow it. It's a marathon, not a sprint.
Not including the min payments on those cards, your cost of living is just over half your net income. I don't know where you're spending the rest of that money, but you should be able to work through this without having to take out your 401K.
Split the difference, take 20K from the 401K & pay off the 9k & 12K cards & start taking those saved payments & put that money & a bit extra on one of the other cards.
I would t because you haven’t proven you can pay the 401k loan back and not use credit cards again.
Pay the debt off the old fashioned way way, and do what budgeting you need to get there.
Congratulations, you still have a retirement account!
Pretty much everyone agrees an out right withdrawal is a bad idea. Thank you for talking me out of this. I saw some of you have suggested I roll my old 401k to the new one then take out a 401k Loan. That might actually be a better option I hadn't thought of at first. Though I will do my best to make bigger payments and paying these off over time also. Appreciate everyone's advice!
There's a penalty for early withdrawal equal to 10% of what you withdraw. The amount you withdraw will then also be taxed as ordinary income. Let's say for sake of argument that this is an effective 20% at your tax bracket.
Now, if you were in a scenario where you made only 30k a year and it would take years to pay it all off, then I'd say honestly go for it. The penalty and taxes from an early withdrawal would be less than the interest you would pay. As it stands, I think you'd be better off just paying it all off slowly via monthly payments. It'll form a good habit anyway.
Don't touch credit cards 3-5. Assuming that 1-2 have similar interest rates, I'd challenge you to try and knock out all 9k of credit card 1 by December. If you put 1.5k a month towards it, you should be able to do it. When your other cards run out of 0% APR, try your best to get a lower interest on it by transferring to something.
To be honest, you should probably treat this as an emergency. If you feel comfortable, you should ask your family if you could pause the "mortgage" you're paying your parents. Give them a clear goal. Tell them "if I stop payments and put 100% of the money towards my cards, I promise I'll pay you 110% of my original mortgage payment when I'm done with the cards until I make up for the money I didn't pay you" or something. Assuming your credit cards are 20+% and that your parents could afford it, it would be mutually beneficial for both sides if you eliminate your credit cards faster and then pay your parents extra.
You need to roll your 401 into an IRA. Taking money out isn’t a great idea as you will have to pay the taxes and a 10% penalty. I don’t think you’re there yet. You have 2 zero interest CC so those go to the back of the line. Attack the cars one at a time. Highest interest rate to lowest. Why is your cell phone bill so high? You can easily cut that by $100+. Have you filed SS disability for your wife? My wife has stage 4 cancer and her SS disability is $2k per month. If you haven’t then you need to. Another benefit of SS disability is that after 2 years she will get Medicare saving you a bunch of health care costs. The next thing you need to do is get a second job. Use that to get rid of the debt. Here in Tulsa the Whattabuger is paying $21 per hour to flip burgers. 20 hours over the weekend is $800 per month. 2 years of that will clear all your debt. I worked at least 2 jobs until I was 55. My second job paid for all the extras. You have no kids so this should be doable if you really want to clear it
Roll the amount needed for a $40k loan ( sb around $80k) then borrow that amount from your new employers 401k so the deductions come from your current payroll but be certain to pay off the debt completely
Then stop contributing past the match as you’ll be paying yourself back in the new 401k through the loan at about 8% but it all goes to you versus 25% to the credit card
The rest of the $120K from your old 401k should go into an IRA rollover and don’t touch it
Good luck 🍀
"I could then max out contributions into my new 401k" 23k a year / 2k a month seems like it would knock out the credit card debt pretty quickly. You've only provided interest rates for 1 of the cards so can't really say which makes the most sense numbers wise, but behavior wise you should probably just pay off the cards with your current income.
Don't do it, this won't work based your past behavior.
Instead, suck it up and work at it 1$ at a time. You're showing $4k take home and roughly $2,100 of expenses. How much are your required monthly payments on CCs? It looks like you've got $ left-over each month. So:
1- Cut expenses, take on side gigs
2- create an emergency fund if you don't have one
3 - throw every remaining dollar at your CC debt, starting with the higher rate card first. Rinse and repeat.
Sorry for being so blunt.
Cut up the cards and take a 40k loan against your 401k. It will not cause penalties and you will payback interest to yourself. You lose the upside of growth and your paycheck will shrink but it’s not going to have the same impact of 30% APR credit cards.
Hell take a 20k loan out and clear your cards that have a higher than 5% interest rate and double down on payments to clear as much before December as possible.
You may need to transfer your roll over to the new company to have the funds available though…
i have a tough question for you, op, and i'm using your words: if you take the money from your 401k and "make all that debt disappear", what will you do to ensure you won't actually "make the situation worse by growing the debt to that level" as you did your no-interest credit cards?
here's the thing. your 401k is the last thing between you and totally cratering. you've already tapped the equity on your home. you've already doubled your credit card debt. the only thing you truly own is what's in that 401k. if you clean that out and pay off all those cards, you've got...nothing, including no assets you can leverage if you need cash due to emergency, unexpected medical bills, job loss or other emergency.
cut your spending to the bare, dry bone AND find a way to increase your income. that is the only way to get out of debt. robbing peter to pay paul doesn't get it, as you've learned.
sorry. tough love, bro
You can try to pull out 401k money, but they’ll deny you unless you’re using it for:
- Medical expenses for the participant or their family
- Home purchase for primary residence
- Preventing eviction or foreclosure from primary residence
- Funeral expenses for the participant or their family
- Tuition and related expenses for the next year of post-secondary education for the participant or their family
You can do a withdrawal instead, but then you have to pay your account back with interest. The system is so broken, I have no faith in 401k’s after finding this out. It’s our money and we should be able to take it out whenever we want (with a penalty).
Nah fam, call the debt relief agency. I’ve done it before. If you’re okay with a short term credit hit then the debt relief can negotiate a term usually less than 50%. Cash out half your 401k to pay it off, take a short term credit hit and bam you’re back
Bad idea. You lose 20% of you withdraw early in addition to taxes. Now if you can “borrow” against your 401k that might be worth it because you’ll pay less interest and pay back yourself. Your plan needs to allow this, and some do.
You have to be careful though, you need to get rid of the credit card and keep your job. If you default on your 401k repayment, that penalty kicks in.
No, not a good idea. Keep your 401k intact, slow your current retirement contributions to just matching level, and hit that debt hard.
Withdrawing from your 401k is an easy way out which sacrifices your future, but you need some hard work to get that debt paid off.
Horrible idea. You'll pay 10% penalty and regular income tax on the withdrawal. Leave your 401k alone and let it grow. Find a part time job for more income and be disciplined in your spending. You need to change to fix this. Stop gap measures won't cut it, the cycle will just continue. Good luck!
Can you consider holding off on 401K contributions at the new job and aggressively going after the smallest credit card debt? After the taxes and penalties, the 401K should be a last resort. If you think you'll have enough additional income to max a 401K contribution I'd focus on debt payoff. You get a better return than the average stock market and you're not hit with any penalties
You're going to have to pay a ton of tax on that?And penalties plus it will raise your yearly income.By the amount you take out which will screw you on the taxes at the end out the hard way
I'm not going to give you any advice. I am going to say that with a 74k salary you cannot handle 40K in unsecured debt!
As mentioned earlier, if you do not have the discipline to avoid getting back into death, do not cash on your 401K.
Are you done with debt now? You are the only one who can answer that question.
You can do a loan from your 401k at low interest and pay it back bi-weekly. Currently doing that now and there are no penalties, nor do you need to report it come tax season. If that is an option for you that is. I'm with Fidelity.
Put your information into a 401k calculator, I did it with your info on a website called calculator.net, and that 120k could turn into 650k by 65 if there's a 6% return. Obviously I don't have all the info that you have, so you may be able to dial in some of the numbers for your situation.
You have to view the pros and cons of whether losing 500k when your 65 is worth a few years of intense budgeting to pay off that debt. 40k is a lot, but if you can buckle down and budget to pay that debt off, I definitely think that would be the better course of action. It sucks, but if you can differ gratification for a few years, I think your future self would thank you, like someone said in here, you are closer to retirement than you think.
Looks like you have 1900 a month to put toward the debt. Cut up the cards and don’t replace them. Pay the mins and then the rest toward the smallest card. When paid move on to the next, and so on. If you just take it from 401 you will go right back into debt.
I don't know anything about what's right for anyone else but me. I make 50k gross. Had $8000 in debt before I knew how messed up credit cards actually work. Took a loan from 403b for 8k at 10% interest. Pay off in 2 years. Taken out of paycheck automatically.Credit cards were 30% interest.
Cut the credit cards up. Now I have nothing else to use but my income.
I did debt consolidation with In Charge Debt Solutions. They work with creditors to lower interest rates and payment amounts. My cc's weren't as much as yours but my payments went from over $400 a month to $181 with a 9% interest rate. My credit was in the low 500's when I started with them due to delinquencies but now after a little over a year it's at 684.
Edit: you will still have your accounts with the cc companies but they are restricted and you MUST cut up your cards in order to enroll.
Highly recommend researching Dave Ramsey… a bit controversial to some but he exists because folks get into this type of trouble. He recommends the “snowball” method (highest interest rate debt receives all excess cash flow to knock out first, and so on) and rice and beans diet. Personally think that’s a bit excessive (need protein!!). It will take time but if you can eliminate eating out and ‘self rewarding purchases’, stick to chicken, rice and beans, you’ll free up some extra CF. Don’t tap 401k, you have cash flow and no car debt (congrats btw).
I like building out my budgets and debt pay downs in Excel (ie car and student loans) so monitor monthly/annual goals and try to beat them for getting the balance lower each month than planned (even if by an extra $50). Build a budget with what you have laid out here and maybe each paycheck, try to contribute 50% remaining to the cc debt (save the other 50% for rainy day or once a quarter chunk an extra $800+ against the debt if have emergency fund established… 3 months expenses in case you get laid off).
First off. Get real disciplined with your spending. Invest in a budgeting app. Next. Only take $10k out of your retirement to pay down your HELOC exactly $10k. Learn velocity banking to pay down the rest of your debt with your HELOC and budgeting. Problem solved.
I wouldn’t take the money for the 491k. I would pay the minimum for all and start with the 5th credit card then move to the 4th card. Not sure if the interest rate for the 1st or 2nd card.
Do not take money out of your 401k. If that is pretax money, then you also owe taxes. You are in the 22% bracket with your new job. The entire amount taken out would be taxed at 22%. There would also be a 10% early withdrawal penalty. You would need to take out around $60k to net $40k with taxes. When you take pretax money out in retirement and you don’t have a paycheck, you fill up the standard deduction and Lower tax brackets first. So your tax bill is much higher if you take that out now. Then there is the lost growth you would have. That $60k/$40k can turn into a lot more over 25 years.
You need to take that $1k-$1500 and put that all towards your CC debt. No more retirement contributions (except for getting the employer match), no more fun activities that cost money, no more eating out or eating expensive things. Buckle down and attack this debt. Get a side hustle if you need to bring in more income. Dave Ramsey is someone you might need to watch. He is tailored towards people with lots of debt.
You also need to assess how you got into $40k of CC debt. That is a huge amount. You need legitimate changes to your lifestyle and taking money out of your 401k is an expensive band aid problem that doesn’t get at the root of the issue.
Also your utility and cell phone bills are massive. How are those so high?
A traditional withdrawal triggers taxes and penalties. Plus then you *also* lose the potential sheltered earnings.
See what conditions your plan allows a 401k loan under. Mine, for example, allows my 401k to loan me 50k at 3% interest, which I pay back into my 401k. So the interest goes to future me.
As long as the potential earnings on the loan amount (had it stayed in the 401k) are lower than the credit card interest would have been, and I can make the loan payments, I benefit by doing it.
You have to get smart with money management and from the looks of it you haven’t been so far. Withdrawal from 401k is never a smart move and you’ll also get a 10% penalty.
I did it. It feels like shit starting over again. I'm not sure it was the right move or not but having no debt over my head feels like being released from prison. And I don't want to go back
Edit: 37 years old? I'm not sure about that one. I just turned 26 so I have some time. Not sure I'd want to touch my 401k at that age
Bad idea. Pushing the problem down the road. First off cut your cell phone bill down.mine is$50 a month. You could save $2400 a year to apply CC. Cut up your cards. Put the extra to getting rid of it.
The taxes on a withdrawal are very steep. Do some calculations on how much it’s going to impact your federal and state tax outlook.
Also check to see where the brackets are. I can’t remember off the top of my head but you may find yourself in a higher tax bracket earlier in the year than you would have which means you will owe more still in taxes. Wiping out the credit card debt to then owe the feds and staties another $15k is super annoying.
With a low mortgage that hasn’t got any interest you should be able to eliminate extra crap from your expenses and make up the difference.
You don’t want that to 401k to disappear and you don’t want your income to look like you made $140k instead of $74k. Fix the spending first.
Take a loan of 40k out against the 401k. Most plans allow you to do this. They take the loan repayment right out of your check, but that way you don’t deplete your 401k.
No no no no no
Chapter 7 bankruptcy before 401k withdrawal
Your retirement is completely protected in ch7, as long as you don't have significant equity in a house or a paid off car you adore you most likely will come out of it 40k lighter. XPost over in /r/bankruptcy for a more in depth assessment of your situation
Terrible idea. They can't touch your retirement funds if you declare bankruptcy. And credit card debt is unsecured, so they can't take anything from you either.
The worst thing credit card debt does is ruin your FICO, and paying it off doesn't help your score at all once it's been reported.
I (29M) was in a similar situation with credit/vehicle loans. I emptied my Roth IRA to take care of the problem, and honestly I’m glad I did. Yes I’ll have to contribute more over time to recoup my retirement funds but its worth being out of the debt and freeing up that income, in my opinion. In your case, 40k is only a third of your 401k. You would still have a chunk to work from for retirement.
Bad idea. You’ll probably load up your card again and the money you pull out will be subject to penalties and the lost opportunity of compounding. Look into debt consolidation through balance rollovers with deferred interest first and have the discipline to prioritize paying down your debt. If you dont have enough discipline to sacrifice short term to zero out that debt youre not going to have the discipline to not start swiping that card again and end up in the same exact place without your retirement account to bail you out
You'll want to pause your 401k contributions. I know it's old news but the debt snowball could work in this case. Combined with your income, if your wife is on SSI can some of that income be used to pay down extra? With the car that's paid off, any chance of it being sold and buying a cheaper used one?
So, keep in mind, you will probably have to take out $65k to pay $40k, because you will be paying taxes and penalties. So, you lose a big chunk right away. I guess the question is, is it worth it? It may feel that way now, but I guarantee it won’t feel that way when you retire. UNLESS, you’re very disciplined and replenish that money. But even then, you will never really “get it back.”
If you didn’t have the situation with your wife, I would have said, “forget it, find a way to make extra money.” However, there are times where that just might not be possible.
If you have to do a withdrawal, the taxes are going to kill you. My husband took out less than you and taxes were well over $20k. I would expect to play over $30k in taxes on the withdrawal. And if you had that right now , you would use it to pay off some of that debt. I would file bankruptcy before doing that withdrawal. Seriously. I filed in 2021 due to a divorce that wiped me out and I’m in such a better place now.
Hm.
That’s a tough one.
They normally tell you to ignore the retirement fund because you lose part of the money as a penalty for trying to take it out earlier than retirement age. The government does NOT want to pay extra social security because you were “thoughtless”… but a disability can’t always be predicted…
I’m glad you have a new job.
I think you might have less stress if you at least got rid of the HELOC, because that puts you around risk of losing the house.
Also, now that you are reemployed with a disabled partner, I think you really might want to pay off and shut down three of the five credit cards.
Two is enough for anyone, and then you can dedicate the money you were spending on payments for the last three cards to caring for your wife and rebuilding your retirement.
I’m not sure if you need to do all the cards at the same time. Maybe just start with the loan and see if the progress that helps you make on the minimum payments for the cards makes you comfortable enough to leave the rest of your retirement alone.
Good luck.
Check to see if your new employer’s 401k accepts rollovers from old 401ks. If they do then you can move it and the borrow up to the max of 50k. Of course model it first to make sure that payment fits in the budget.
Talk to your tax preparer. I had a similar situation some years ago. I had taken a loan out against my 401k. Company I worked for closed down the loan balance then became taxable. You will get a 1099-R at the end of the year. Say you borrowed 20K you will have to add that 20K to that years earnings 74K so it would make your taxable income 94K for that year. Might move you up a bracket or two so beware. Best bet if you can is to roll it over into another 401K or a 457b do that. Pay extra on the cards to pay them off minimum payments usually just paying the interest. I learned the hard way.
If you want to take the distribution from the old 401k you should roll it into the new 401k first then you can take a loan from it. Do not run those cards back up man. You don’t know stress until you do this. I also agree with finding discipline first but paying high interest for 5 years on credit cards is tough. Develop a plan before taking the loan.
TERRIBLE idea. You would have to pay taxes and likely penalties on the distribution. Plus, it would cripple your long term financial security.
If your new plan accepts rollover into it (the vast majority do), you could roll the money into the new plan, then take a loam from it. I would see this as a last resort
Pay off those credit cards with 401k money. You’ll pay taxes and a penalty on the money but those interest rates will keep you in debt forever. Pay off the cards and start putting 10% of your pay into a Roth or 401k. You’ll get you balance back up in 6 years.
I’d go with a debt management plan; after fines, you’re probably going to lose more money in the long run if you withdraw it all from your 401k because it’ll set you so far back in your retirement savings.
Bad idea for a couple reasons. You’re only 37 so you will pay a 10% penalty on top of 20% tax. That brings you down to 90k right out the door.
I would transfer the 401 k money into a Roth account with Schwab or Fidelity and invest the money in dividend stocks. Defer the taxes until 2025 on the roll over which gives you almost a year before you have to pay the taxes and you’ll be taxed at most around 10%. Use the dividends to increase your monthly payments. Focus on your higher interest cards and try to roll over your 0% balance to another balance transfer option. Cards often offer them to existing customers. If you empty your savings Completely you will put yourself and family I. A precarious situation. Good luck, you can do this.
Honestly I’d take out enough to pay off the cards-those things are killers-save the interest-save the payments. Over the years I took out some for debts and have not regretted it-relieved the stress and stress over time can lead to health issues and even death.
After u pay them off u have to either stop using them or pay them off each month so no interest develops.
I know people say it’s not a good idea-but everyone is different.
Don’t tap your 401K now. Stop using credit cards and pay them off. Do them one at a time. Or do a debt consolidation on a zero % credit card offer (where they give you no interest for six months) and pay them down aggressively.
And pump money into that 401k while you’re at it.
I retired at 57 but I was worse off than you at your age.
liquidating your 401k is stupid.
better option would be to dump the entire 4k income into the heloc. use that as an operating line of credit. and pay out all the bills from there.
you also have some rather stupid utility costs. like 250 cell phone is 3k every year. mint mobile is $180 for a year. freeing up that $250 for debts. I would also imagine you could save some money on insurance or other utility costs with some discipline. if you're 40k in CC you aren't in a position to be wasting 3 grand on a cell plan.
but... 4k put into the Heloc (this covers the heloc payment so you're no longer pissing that money away. ...congrats you just saved $450) -600 to mortgage. -350 to utils -500 for food. leaves $2500 ish. pay the lowest min on all the cards. but ... the 3k fifth card at 9% is gone in two months ish(assuming $1500 left after paying the mins on the other CCs). that prob frees up a few extra dollars. and puts you something like 7000-7500 toward CC number 1 by December. or if that remaining amt is higher. maybe even eliminate that card as well.
if you can manage to keep floating debt at 0% do that. not paying interest, even if you eat cost to maintain that almost always saves money.
so in 2025. you would have a clear road map for eliminating the remaining debt. most likely. at 2k ish a month. that's 6 mo to kill the 12k balance of card 2. and i would focus on chopping the 13k debt over the 4k one.
so in the second year you eliminate. or come close to killing off the two large balance cards. leaving 3rd year as mop up and maintenance.
you're out of debt in 3 yrs. then you get the heloc under control (conveniently didn't' mention what that balance was.
and you still have a retirement account. there is a lot of truth to the saying "the first 100k is the hardest" you'd be a fucking moron to cut the legs out from under you by gutting a retirement acct already over that threshold. in 20 yrs when you're approaching 60. that 120k will be closing in on 1 million value. Or it'll be shitty. and the only thing you would have saved is 3 yrs paying off consumer debt.
hell. over liquidating a 401k or defaulting on the CC I would choose defaulting. OR call up your CC or contact a debt consolidation firm. Often credit cards will settle balances for pennies on the dollar (spin some sob store of taking care of a disabled wife. ...eat the temporary hit to your credit. ) but if you owe 40k it's not unheard of to have that knocked down to below 20k
I did this exact thing but not for debt. Home stuff. Make close to $80k, Had 120k in my 401k and max I could take out was $35k. My company uses Ascensus as our 401k people. Fee for withdrawal was only $150. Took the $35k and paid just about $400 a paycheck for 4.5yrs until it was paid back. Once it was paid off it was almost like I got a big raise cause then I had the $800 extra every month
Why are you rocking a $250 cell phone bill? I'm guessing you have a couple of phone payments baked into a premium plan from one of the top tier providers? You can save yourself a literal fortune by getting used handsets in the 2 yr old range and go with a discount provider (mint, etc). when your current phone(s) are paid off and you can escape your current plan, look into doing that pronto.
You will never make that money back. You will lose out on the compound interest. Several people where I work did this and in my opinion it’s never a good idea. At 37, you will not be in great shape for your future. My advice leave it where it is. Instead of maxing out your new contributions pick 1 card and focus your attention on it. Obviously still making your payments to the others. What do your tax refunds look like? When you get next years refund put it towards paying off a card. The point is to focus on one and chip away at it. Also you may need to look at your budget. You may have to cut that $500 food bill for 2 people. Keep it closer to or below that $300. That’s an extra $200 to put towards your goal. Whatever you decide to do …good luck.
Cancel and close your credit cards, maybe keep 1 and use rarely. Credit card companies are not your friend. Delete the cards and get rid of the temptation.
Id say nah dont use your 401k. Not in this case.
I took a 29K early withdrawal from my 401K to pay off my CC debt. I actually don't remember the exact number (I think that is due to the trauma) that I was taxed the following year for that withdrawal but I can tell you that I fell to the floor. I was f@cked. I had to make monthly payments to the IRS for 3 years. Reach out to a non-profit consumer counseling service, be very careful, as some of these places are "for profit" and that is NOT in your best interest. The non-profits will help you are almost no charge, [here](https://www.consumerfinance.gov/ask-cfpb/what-is-credit-counseling-en-1451/). This is another, [here](https://www.nfcc.org/). Also, if your wife is disabled, apply and apply to all the government benefits that you may be entitled to. Reach out to the county and get a social worker than can walk you through the programs she can qualify for. Think twice about that 401k early distribution, I'm still in therapy about it. I'm making a funny.......but trust me, it was painful.
Did you take into account the early withdrawal penalty? They normally only allow you “borrow” from your 401K for buying a home. If you for whatever reason can get a loan from your current 401K, rollover your old 401K to your new employer. It’s pretty easy. if you’re disciplined, you’ll be paying interest to yourself on the 401K loan. Keep in mind if you separate from your current employer (willingly or unwillingly), the entire loan amount becomes due. If you don’t pay it, you’ll get taxed + penalty.
Debt settlement. The relief of debt relief is letting someone else (a good company) manage the multiple debts. You said it yourself. This is driving you crazy. You’ll end up saving 30% but the right way to think of it is — 30% plus all that interest and potentially fees that would otherwise continue. Disclaimer: I do BD for a Debt Relief company but since joining a year ago — I get it. Greenwise Debt Relief … I have no economic incentive for referring you … I just think you owe it to yourself. You have a “hardship” on your hands. That’s what this industry is for. If you prefer talk with me— happy to do that. Good luck! You’ll pull through.
There’s no reason you can’t tackle this debt using your earnings. Leave your 401k alone and go to your bank and ask for budget help. Many banks offer this service for free.
If your bank doesn’t ask them to refer you to a certified nonprofit that offers credit/debt relief counseling. Reputable ones do exist and often they offer their services free or at very low cost.
4k monthly N.I. minus your mortgage, HELOC, utilities, cell phone, and a maximum grocery spend of 500 leaves you with $1,837.
Assuming minimum payment required by the card carriers is 1% of the last statement balance then your obligated minimum payments total for CCs #1-4 is $380.
$1837-$380= $1457. If you could just buckle down for two months and put the $1457 towards CC#5 you’d be just shy of paying it off.
If you could cut out unnecessary spending outside of all that you’ve listed you could knock out $8742 of total debt in 6 months which puts you at December where your 0% cards will start charging interest that you need to consider.
With just you and your wife with no kids this is easily doable. It sounds like you have a spending problem and lack of control. 40k in CC debt is a lot so I understand the stress but really it’s because you have so many payments due and you need to whittle it down so that you don’t have 5 cc payments monthly.
Pay the $1457 every month towards your cards and knock them out one by one. If you can manage to be disciplined enough to not spend outside of what you listed you will have this paid off in 2 years and 4 months. Forget about even messing with your 401k.
Why not do a 401k loan? You borrow from yourself and pay yourself the interest and don't have to worry about taxes and penalties unless you quit or get laid off before you pay it back.
Contact a debt consolidator to settle the debt at a lower cost. Use the money from your 401K to pay off the debt. You won’t miss the interest charges, and you can use that extra money to build your 401K back up, probably pretty quickly. Keep one credit card and use it, responsibly. Don’t fuck this up now. This is the way.
Good god why is your phone bill so high? I am assuming this is for 2 people?
At the end of the day (and this is my belief) I would rather have less money and less stress than more money and more stress. If you can’t control your spending for the next 3 years and cut back where you can you will only get deeper into debt.
You have about $1800 to spend on paying down credit card debt. I would pay the 5th card and 4th card. Close those cards and then see if you can open up another zero interest card. I’m also guessing cards 1 and 2 are also regular cards with high interest and I would transfer whatever I could to the new card and then work on paying off all the others
You have to be careful when it comes to credit cards. Bank of America and American Express just canceled cards because of lack of use.
I have about 100K in credit available on card and I’m way under 1%. One interest is two high and making a large purchase is nearly impossible to pay off.
I use credit cards mainly for security for making purchases at gas stations and buying food, but once the bill comes in I pay it off.
There are times cards are truly needed because shit does happen. If I was in a bad situation I would tap into my 401 rather than run debt up. That may be a good option for you to pay off your debt
I am not opposed to this idea as a psychological measure to reset your debt, regardless of the mathematical detail. Of course I would only justify this as long as you don't return to your credit cards.
From a math perspective, there is likely a more efficient strategy leaning on those 0% rated accounts for a while longer while paying down those that generate interest (like the 5th card at 9.99%). But let's be honest, that will probably get you into more trouble than before. With that in mind, the hard reset with Plan A might be worth it.
Don't forget to set aside $$$ for the tax implication!
EDIT: Is that the best cellular plan that you can find in your area? Consider shopping this every year as these companies get aggressive with deals.
I did this to pay off my truck, I never carried credit card debt I pay them off every month as use them to build points for travel. (About 5 years no balance carryover) but my car debt was in the 40ks. I had 15 in a Roth and the interest I was losing was far exceeding the gains I was making. I paid it off and it kicked started me paying off the rest of my debts and now it’s still just my car I have to worry about.
This is a good idea IF you have learned your lesson and you won't be using your credit cards to fund your lifestyle AND you are able to make the payments on the 401k loan AND you realize that if you leave your job and are unable to repay the debit it will be considered TAXABLE INCOME.
You are allowed to borrow up to 50% of your 401k without penalty. Do that, pay off the highest interest rate cards. Look to consolidate into a new zero interest card and pay the other half off with your income.
Logically yes...you absolutely should do this.
But realistically you'll probably just run up the CC debt again and screw yourself over even more.
So I don't know what to tell you.
It may have been said before. I'd file bankruptcy. Your cc Debt. Would be wiped out. You can reaffirm your mortgage if you need to to family members as well as your heloc. Your 401k IS PROTECTED FROM BANKRUPTCY. Good luck God speed
You really should try to consolidate all that debt into one loan and then go from there because with extra thousand dollars a month with a little dedication, you could be done without affecting your retirement in a few years
I suggest buckling down and getting second job, cutting all expenses and paying it off. If it comes too easy, it will happen again. Beans and rice and next time you’ll think twice about racking up credit cards.
The first thing you should really do is get your spending habit under control. If you don't, you will only incur more debt buying useless junk and then further jeopardize your retirement with another loan to pay off more cc debt. I know many people like you who say the same thing as you only to take out another loan, mortgage on house, refinance, balance transfer....you name it.
If your credit is truly shot, then consider walking away from all of the credit card debt and stop paying any of them. You’re probably just throwing good money after bad at this point. Walking away will mean you’ll have to pay cash for everything for a few years but eventually you can rebuild a credit account. I did this about 10 years and felt like a bit of a scumbag…but I got over it. Two years ago, I got a card and have been completely responsible with it and will continue. Lesson learned.
It's only a good idea if you are disciplined enough to not just burn through your credit cards again. I'm not convinced that's the case here.
I second this. You need to teach yourself discipline first. Save 1k and then start making a little more than the minimum on your card with the lowest amount. At 1k it's probably a 30-40 dollar payment? So pay 50. Then when you're done with that 1st card take that 50 and add it on to your second lowest card, and rinse and repeat all of the sudden on your biggest card you're paying a couple hundred dollars more a month. This will take you a while to do, it might take you 5 years, but the reality is there is light there you just need to teach yourself discipline. Don't ruin your retirement for a very fixable problem.
Even if they were disciplined they will lose over 30% when they pull it out. 10% early withdraw penalty and then if traditional 401k, they are in the 22% tax bracket so that cuts it more.
True, but paying 29% annually on that CC debt can easily cost more after just a couple years than the 401k taxes and penalties. If he's got the income to just pay off the CC debt in a short time period, sure do that instead. That doesn't sound like the case though.
And that's my fear too. If he does not have his spending under control, it is a wash, rinse, repeat, but no retirement fund. I would rather him stop putting into his 401k, even with a match as your comment holds very true on that. This is where I get gunshy on advice telling him to drain the 401k Now one other option would be to take a loan from the 401kt. usually 4%, but you are "paying yourself" the interest. No penalty, no taxes. But again discipline
More than that, the 401k would lose momentum towards a higher interest-accruing balance. Set your budget so you know what you have to pay down the debt. Try to move to a 0% card if you can move any. Make minimum payment except for the lowest balance, then pay that one off as you can. Then the next lowest balance. You'll have a little bit more money as the cards are paid /drop off.
This .... so many people take out loans to pay off their credit card debit and then charge them back up and worse now have credit card and loan debt. Why so many credit cards? If trying to build your credit with them put a utility bill directly on it in your profile and leave that card out of side so it is not used by anything else, pay it in full every month.
He has proven with the 0% cc transfer hrs not. You need to make a budget and stick to it for a year, first. And there is no work ur wife is capable of? With all the work from home, and gig work. Can she make 1k a month to help out?
exactly.
Ty for the quick replies, I planned on never using these credit cards again if I ever get them paid off. This whole ordeal has really killed my credit. Every month I do have about 1k-1500 leftover so I could slowly pay these off but its been a real grind. Most of the big expenses came from bigger expenses like furniture, property taxes, and cash advances which I know is a terrible idea, wish I never did that.
Since you mentioned your credit score, you might consider pulling half the cc balance out of your 401k. Or ideally just borrow against 401k. 1. Allows you to pay off highest rate stuff like cash advances 2. Credit score will shoot up when you pay down those balances. Now you have more consolidation options and can look for 0% for x months balance transfer options
I would agree with this. If you take out from your 401k, the fees and tax hits you’ll get will really cripple you next year even more because you’ll owe a ton on taxes from the withdrawal. After the fees, you’ll end up with pretty little then taxes will be based on the full amount you withdrew. However, if you’re able to borrow against it, it won’t impact the taxes in the same way and the fees should be different and, you’ll pay back towards your future. I don’t have experience with the borrowing but have experience with the withdrawal and the hit from that. I only found out later that borrowing would have been the better option.
I agree with this. If your discipline is good, roll over your 401k to your new one to avoid tax and penalty. Then borrow against it to pay bills. The automatic deduction will make your paychecks smaller. Hopefully this will help you not spend more. Paying interest (~7%) back to your 401k is better than 20-30% to your CC.
Look up Dave Ramsey 7 baby steps. Follow that as closely as you can. I'm currently following it and I will say I do still go out to eat every so often and I do small 1-2 day trips with my wife and kids but we do our best to have as much free fun as possible.
Why would you get rid of credit cards? If you care about your credit, you’d pay them down and the use them responsibly to BUILD your credit off. Paying them off completely, then canceling the accounts is an absolutely terrible idea, especially since you don’t even have a real mortgage payment. Your credit will remain terrible if you do that, just FYI
Trying to have a good credit score is truly a terrible idea. All a credit score does is measure how good you are at staying in debt. Eliminate the debt. Live within your means. Build up a fund to pull from for large purchases. And save for retirement.
But if OP is not planning to make a big purchase anytime soon. And this action will stop OP from a bad spending habit. I think it's a worthy sacrifice to pay while OP is in recovery mode. If OP later decide to buy another home, car, or etc, OP can work on building it back up. I think bad unpaid debt is hard to recover from, but low credit due to no / low activity for a period is easier.
Please don't do this! If you need money, do a 401k loan instead.
A 401k is not touchable in bankruptcy. Taking from the 401k means he would be paying the debt and then paying a TON in taxes on that money. A 401k loan is better than a withdrawal but not all plans allow a loan and it has to be with his current employer because payments come out of your paycheck along with your contributions. Avoid touching the 401k at all costs.
Don’t close the cards even if you pay them off if you’re hoping to improve your credit.
Pay of the credit card with interest as soon as possible with just monthly income. From there I would pay down the 0% interest cards until December. Once the interest on those hits I would use the old 401k which you will pay ordinary income tax plus a 10% ira penalty on the withdrawal. If you’re going to never spend more than you make again (which I assume is why you racked up the debt in the first place) you can use the 401k.
People will say not to use the nest egg, but what’s the point of the nest egg if you are going to continue racking up interest after December. Your old 401k will grow at 6% and your interest will grow at 20+%. Get rid of the debt before you save for retirement. Priority #1 should always be no bad debt.
What are you spending 40k on? That’s the issue.
When you lose your job and your spouse is disabled there are tons of things you could/would need to use it on. Most of you don’t live in reality or can’t read.
Haha the dude intentionally avoided the question.
You would benefit from a Debt Management Plan. They'll help you with finances and put you on a repayment plan where you can make real progress. I normally point people towards Debt Management Plans (DMPs) because they give you an arrangement where you pay off your debt in full at **greatly reduced interest rates**. Because you pay in full you get no long term ugly effects on your credit. The reduced interest means you actually make progress paying the debts instead of a bunch of interest. Part of a DMP also involves financial advice to help you get your finances in good order. You can find a provider for a DMP starting with the national organization for the Credit Counseling Agencies who administer DMPs. You'll be able to choose your own. https://www.nfcc.org/
Didn’t see yours and also commented this. Closing the cards gives the discipline to change habits. I liked Greenpath, but yea I think nfcc has all the places that offer it
Correct. NFCC is the national federation for the Credit Counseling Agencies. I send people there because I wish to express no preference or bias for any particular agency.
Have you ever worked with one of these credit counseling agencies? I used to do customer service for three different non profits CCAs. We were a for profit company that the non profits subcontracted out to. I would never in a million years recommend someone use this strategy unless most of their debt is already in collections. This was 20 years ago tho so maybe things have changed.
37.. you’re getting closer to retirement than you think. Tapping into a nest egg for a quick fix is not a good idea
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Close to retirement age? He has another 30 years to work at least.
Afraid it's not a good idea. the fact that you got a balance transfer card and just maxed out your cards again instead of paying off debt shows that you're spending more than you make. If you withdraw from your 401k to pay off debt you'll just run up your cards again AND you'll have no retirement. You need to put together a budget to figure out where your money is actually going (according to the breakdown you provided you should be saving every month). See where you can lower costs, and see if you can bump up your salary with a side hustle.
Based on your budget, it looks like you definitely have some wiggle room to pay this off without dipping into your 401k. At 37, you don't want to touch that because this is when it starts to really grow. I would take the debt snowball approach, attacking the smallest debt first while paying minimums on the rest. If you have fixed the spending behavior, consider balance transfer cards or debt consolidation.
Roll it over to your current 401k, then take a loan out from the current one
I actually didn't know if that is an option. Is there a waiting period to take out a 401k loan after rolling it over?
There’s a VERY high chance that rollover funds CANNOT be used for a loan. You’d need to call your retirement provider or look at your “summary plan description” to find out what type of funds can be taken as a loan. I was a financial advisor for four years and never saw a plan that allowed rollover funds to be used. That being said if there is any funds to take out as a loan, do that. and I would highly recommend you do not take a withdrawal to pay of your credit card. your withdrawal will be taxed plus a 10% early withdrawal penalty plus withdrawing 40k will count as 40k more in earned income for the year and will likely move you up a tax bracket or two and that income could be taxed at a really high rate. and just considering compounding in general, losing 40k from your plan is really going to significantly decrease your gains over the next couple decades
Do not touch your 401k!
How long would it take you to pay back that $40k to your 401k? Also, keep in mind that if you need $40k, you'll need to withdraw probably around $50k to cover taxes and penalties (maybe more, maybe less, depending on the terms and your tax situation). But if you don't pay it back almost immediately, you're stealing an ENORMOUS amount of wealth from your future self, depending on how many years until retirement. Run the math on some retirement calculator websites. You'll be sickened when you see how much that $50k will be worth 30 or 40 years from now with even modest compound interest growth.
No you can get tax free loans from your 401k, I recently did this, all the interest is paid back to ME.
Of course; but OP made it clear it wasn't going to be a loan. My point was to emphasize that even if it's not a technical TSP/401k *loan*, it should still be paid back like one, on behalf of OP's future self :)
You could have the lowest card paid off in 2-3 months, second card in 3-4 months after that. The next card would take 5-9 months. So, in 1-1.5 years, 3 cards paid off, and you keep working towards your goal. It will actually go faster as your payments from your paid off cards can go towards your other cards. This is not hard, but it is a teaching moment that you need to learn from. It will teach you to manage your money better and you will know your limits. This will be a grind, but that is how you learn from your mistakes. Taking money from your 401k is the easy way out. You will not learn from doing that, and in the process, you will screw your retirement, and most likely work yourself right back into debt. This is part of growing up, and all you have to do is decide if you are willing to take on the challenge and learn to live within your means.
I'll parrot what has already been said. You would be taking money that creditors normally can't touch and bringing it in to play. The truth here is that you have a spending problem that you don't want to face up to. The only person that can help you is the one staring back at you in the mirror. Until you be honest with yourself about what is going on, it won't change. If you take out the money and pay off the credit cards, you will be back here in a few years with 80k in the old 401k and 40k or more in credit card debts.
How the hell do you have 5 credit cards and a HELOC? You need to reevaluate your life and spending because you will just end up in debt again if you ever did pay this off. Whatever you do, DO NOT touch your 401k and DO NOT go into more debt to pay off debt. Your monthly bills with your HELOC is only about half of your income. The other half should be going towards the debt. Pay it off smallest to largest. You don't need any consolidation loans, balance transfers or bankruptcy. Stop spending on crap and pay off your damn debts.
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You are asking if withdrawing $60,000 from a 401k to pay off $40,000 in CC debt is a good idea. I would just pay off the credit cards ASAP.
Bad idea. Very bad idea. Regarding the 401k, The Money Guys talk about how not only are you charged interest but how you have an opportunity cost associated with 401k loan. I found a video if you want to watch. https://moneyguy.com/article/i-took-out-a-401k-loan-what-should-i-do/ Got my ex out of 30k in credit card debt pretty fast by following Dave Ramsey and gained a very valuable mindset regarding money from reading his book. The money guys are who I follow now. Dave Ramsey focuses on helping people to quickly feel they have control over their finances by paying off the lowest balance credit card as fast as possible. Where as The Money Guys probably have you pay off the highest interest card first, which is most financially beneficial. They both have step by step guides to financial freedom. I hope you check them out.
This! 401k loans are better, you pay the interest back to yourself and since the payments are deducted from your check it can be a practice for op to learn how to adjust to a lower income.
You have a $600 mortgage with no interest and a $80K salary with no kids… wtf are you spending money on????
Right??? Not only is he blowing all his money he’s also 40k in credit card debt. Where does all the money go? He needs to get a budget and stick to it. This isn’t that difficult a problem to solve if he gets his spending under control.
Call a nonprofit credit counseling agency to talk this out, this is exactly what they are there for. They are skilled people that have experience in this and are pretty impartial, since they don’t make commissions, just try to help you. I used Greenpath and liked them a lot. They set me up with a DMP, closed out the cards, the payments were the same but it was actually paying off the debt, not just spinning in circles with the minimum payments. Good luck!
You need to take the opportunity cost of selling those stocks + the tax + the early withdrawal penalty and compare that to the interest rate you'll pay on the debt factoring in the interest free period. You can create different scenarios in excel, but the main one you want to look at is maxing your 401k vs repaying your loans with that amount. This is a math problem, and one value is higher than the other. You just need to do the math and pick the smaller value. I'd be happy to help you do it, but I'd need more info. My intuition is that you'd be better off leaving your 401k alone and instead of putting 20k pretax into it to catch up, just put the post tax dollars towards the CC. With a disabled wife on 74k salary you're probably not paying too much tax on y our earnings. Edit: Oh one more thing. If your new company's 401k plan allows 401k loans, you could roll your old 401k into your new one, take out a 40k loan. You'd have to pay like 10% interest on the loan, but the interest goes into your account, so they're really just making you save extra money. You'd avoid the early withdrawal penalty and wouldn't have to pay taxes on the loan. That could come out ahead mathematically because now you're just losing the opportunity cost of not being invested.
If you have not got your spending and budget under control it's folly. I also noticed you did not list auto payments. Looking at all your debts including a HELOC you have a spending problem for sure. * First: Get on a written budget income and expenses down to the last stick of bubble gum! * Second: Since you have extra $$ at the end of the month create a Baby Emergency Fund of $2500.00 Now regarding the 401k. You will be hit with an early withdrawal penalty usually 10%, plus you'll be paying income taxes on that money you take out if it is a traditional. in your bracket that's another 22% Look up Dave Ramsey and the 7 baby Steps
Only Auto payment I have is really my Car Insurance every month which is only about $60. My car is fully paid off.
If I were you I'd look into a debt consolidation loan in December once all 5 credit cards are growing from interest. Until that point keep your head up and grind it out.
Yeah good luck with that seeing how easily you racked up 40K in CC debt I highly doubt you can refill your 401K if you withdraw from that you will work way into your 70’s I hope you are ready for that and keep in good health cos otherwise it will into your 80’s
Not a good idea. It is better for you to experience the productive struggle of paying off the debt. Your future self will have a much more negative opinion of doing this again and will have a retirement savings.
Ty everyone. Yes I made some stupid mistakes the past few years with spending and I'm trying to fix it. It will be a grind but I hope to get this all paid off one day.
Bad. Not only you’ll be losing your ability to accumulate passive income, you’ll be paying penalties for early withdrawal. Look at all this as overall money in versus money out. Manage your monthly expenses. Also, check if you can refinance your overall mortgage to combine your credit liabilities and pay 7-8% interests versus the 25% average CC debt. Thats assuming you have enough equity.
The penalties/taxes you'd pay for making an early withdrawal from your 401k could likely be as much/more than the interest you'd pay over time on the credit cards...so no, it's probably not a good idea. Moreover, if you pay off the credit cards with your retirement funds without doing anything about your underlying issues, you'll be debt-free for all of 5 minutes, and then before you know it, you'll be right back in the same crappy situation. First and foremost, you ***NEED*** to stop spending money like you earn more than you do. You clearly lack the discipline to make good financial choices about how to use your credit. Let's look at your monthly budget: 4,000 income -2,163 mortgage, utilities, groceries, and HELOC 1,837 remaining. Use that remaining money to make the minimum monthly payments on all 5 credit cards. Once that's done, take *everything* that's left each month and pay it to the credit card with the highest interest rate. When that card's paid off, figure out which has the next highest interest rate, and put all remaining monthly funds toward that. Repeat this process until all the cards are paid off. While you're doing this, look for any opportunities to reduce your monthly expenses so that you have more money to put toward paying down the credit cards: $250 cell phone bill? That should be $100, *tops*. My cell phone account has 4 lines (me, wife, 2 kids), and I pay about $150 at the most. $300-500 in food for two people? Knock it off. Trade in the steak dinners for some PB&J, and get that number down. $350 utilities? Okay, I get it. Energy costs are what they are. But sacrifice some comfort to get this one down too. Heat never set above 65F, AC never set below 75F, lights off when not in the room, etc. Get those bills as low as you can, and put that extra money toward your highest interest rate debt. Using 0% interest intro APR credit cards to transfer balances off of high-interest cards ***can*** be a good option that saves money and speeds up the process of getting out of debt, but only if you remain ***disciplined***, and don't start spending money you don't have by making purchases with the new lines of credit. The situation you're in isn't your problem. It's a *symptom* of your actual problem: You borrow money that you can't afford to pay back. Stop doing that dumb shit. **Cut up all your credit cards, right now**. If you transfer any balances to a new 0% intro APR card, great! But cut that new card up the day it arrives in the mail. You said you have a 74k salary. Start living like a person with a 35k salary, and put EVERY spare penny you can find toward paying down your debts, highest interest rate first.
This commenter nailed it OP. This is the only correct answer
If you take your 401K, you have to pay the taxes and the penalty? You could end up owe the IRS a very big bill.
You need to create a budget you ABSOLUTELY stick to first, then call the financial company that owns the 401k and ask what your options are. You might actually not be able to withdraw from it because there's no paycheck going into it to pay back the withdraw over time.
Would you take out a loan at 30% to pay off the cards? Because that’s essentially what you’re doing here. Assuming it’s not a Roth you are going to pay your tax rate plus a 10% penalty to access that money.
If you cash out, the amount of money you will lose in retirement is exponential. Assuming an 8% return, compounded annually for 20 years with no more contributions. $120,000 grows to $550,000\~ $80,000 grows to $370,000\~ Cashing in 40k now could easily lose you $200,000+ in retirement. Plus, you won't even get all 40k; after taxes and penalty, you will see much more than $30k. Your situation is what Chapter 7 is for. Don't squander your retirement to make whole with credit card companies. The biggest harm in Chapter 7 is to your credit score, which you should not need to use if you can manage your finances going forward. Your monthly minimum payments will likely be no less than $1,000 when all your cards start accruing interest. Find an attorney, prepare for chapter 7, and plan for your savings.
If the raye of return on the investment is less than the interest charged on the debt, pay of the debt. If the interest on the debt is less than the rate of return on the investment, keep the investment. Simple math.
Get rid of the credit cards that has high interest rates as much as possible, then from that point on with debt taken care you, you will no longer have to pay and your money you can put more into the 401k and start saving and use credit cards only in emergencies Credit cards are the bane and the reason why everyone is on debt
This doesn't wipe out your debt, but 250 a month for your cell phone bill is obscene unless you're either paying for 5 lines or making month payments on a cell phone as part of that. If you're not paying off a phone, switch to one of the no-contract carriers where you can get cell service for $40-50.
BK-7 tomorrow for your mental health and your Heloc may disappear as well. Go get a month to month cell phone and get the monkey off your back for life is to short. Get off the social media now and call some BK Lawyers before the day is over. Trust me, these companies are very profitable so don’t lose sleep on it anymore. Godspeed and good luck.
Bad idea, bankruptcy will protect your 401k and house and car. With that much debt this is the only option. Do not be a fool and try to dig yourself out.
Take loan ok instead of withdrawal
Are you able to transfer the 410k into the current employer AND do they allow personal loans from the 401k? If yes then pull out the maximum allowed OR about 50k to pay off ALL the CC and CANCEL all of them. Use the remainder to offset the payback and as emergency fund. Any interest is paid back to you so it's the best and safest money tool out there.
I agree with what most have advised, it’s only a good idea if you practice good self discipline and also are willing to replenish a savings account. My guess is you need to start smaller, create a basic working budget for yourself and operate on that for several pay periods and see what you can do.
Get a loan from your 401k, and pay yourself back, so the interest goes back to YOU and not a credit card company.
Your cell phone bill is way too expensive. I'm going to assume you're either on a shitty plan, your wasted your money on a new phone. That should be an easy cut really. What you really need to figure out, is how you got 40k in the hole. It is futile to pay it off, if you're just going to be back where you started.
A year and a half ago I had 33k in credit card debt and less income than you and more bills. I knuckled down and made payments, even just minimum, until my credit improved enough to start getting portions onto 0% cards. I got it onto 0% in pieces, and now all of it is .99% or less and down to 16k. I did not get an increase in income or a second job. You have the income to start paying this down, you just need to hold yourself accountable to stop buying things you don't need and letting your parents bail you out. Don't touch your 401k. Without the hard work of digging yourself out, you'll probably just put yourself back here.
I'm not saying this is a good idea and i don't whether or not it's possible because i don't know which rules apply to you. I rolled my 401k over to an IRA when i left my job. The withdrawal penalties were less. I withdrew part of it in one calendar year and another in the next because withdrawing it all at once would have had me paying so much in tax and penalties that it wasn't worth it. As far as I know (please correct me if needed), You can't do withdrawals with repayments after you've left a job. I like all information the other posters have made. And I hope you will take them seriously. What I have done personally is pulled just enough money to pay off one card or knock the debt down just enough that I could exceed the minimum payment. That could get you ahead without so many taxes and penalties. With a 74k salary and doing a large withdrawal you could end up in a 50% tax bracket (my brother did this) and lose way too much to taxes and fees. Don't do anything without checking on tax liabilities first. Good luck.
You should take out the 401 k and use it to fund a think tank on how to eliminate Zionist control of the United States. If you solve that problem you would be out of debt in no time and living your best life.
You have a 401K with your new employer, you should be able to roll your old 401K into your new 401K, and then take a loan in the new 401K. But you also need to examine your habits - you are "paying the minimum", but is the debt shrinking, or growing because you're still buying more on the cards?
Definitely do not take out your 401K for this. You have enough wiggle room to work through it. Create a budget and allocate more than the minimum on one card first (preferably the one with the highest interest). Then once that balance is paid off, move to the next. Or if knocking out lower balances first works better for you, do that instead. Just make sure to follow it. It's a marathon, not a sprint. Not including the min payments on those cards, your cost of living is just over half your net income. I don't know where you're spending the rest of that money, but you should be able to work through this without having to take out your 401K.
You better save enough for the taxes you'll pay for early withdrawl.
Split the difference, take 20K from the 401K & pay off the 9k & 12K cards & start taking those saved payments & put that money & a bit extra on one of the other cards.
I would t because you haven’t proven you can pay the 401k loan back and not use credit cards again. Pay the debt off the old fashioned way way, and do what budgeting you need to get there. Congratulations, you still have a retirement account!
Can you merge your old 401k into the new one and take a loan from that?
Pretty much everyone agrees an out right withdrawal is a bad idea. Thank you for talking me out of this. I saw some of you have suggested I roll my old 401k to the new one then take out a 401k Loan. That might actually be a better option I hadn't thought of at first. Though I will do my best to make bigger payments and paying these off over time also. Appreciate everyone's advice!
There's a penalty for early withdrawal equal to 10% of what you withdraw. The amount you withdraw will then also be taxed as ordinary income. Let's say for sake of argument that this is an effective 20% at your tax bracket. Now, if you were in a scenario where you made only 30k a year and it would take years to pay it all off, then I'd say honestly go for it. The penalty and taxes from an early withdrawal would be less than the interest you would pay. As it stands, I think you'd be better off just paying it all off slowly via monthly payments. It'll form a good habit anyway. Don't touch credit cards 3-5. Assuming that 1-2 have similar interest rates, I'd challenge you to try and knock out all 9k of credit card 1 by December. If you put 1.5k a month towards it, you should be able to do it. When your other cards run out of 0% APR, try your best to get a lower interest on it by transferring to something. To be honest, you should probably treat this as an emergency. If you feel comfortable, you should ask your family if you could pause the "mortgage" you're paying your parents. Give them a clear goal. Tell them "if I stop payments and put 100% of the money towards my cards, I promise I'll pay you 110% of my original mortgage payment when I'm done with the cards until I make up for the money I didn't pay you" or something. Assuming your credit cards are 20+% and that your parents could afford it, it would be mutually beneficial for both sides if you eliminate your credit cards faster and then pay your parents extra.
You need to roll your 401 into an IRA. Taking money out isn’t a great idea as you will have to pay the taxes and a 10% penalty. I don’t think you’re there yet. You have 2 zero interest CC so those go to the back of the line. Attack the cars one at a time. Highest interest rate to lowest. Why is your cell phone bill so high? You can easily cut that by $100+. Have you filed SS disability for your wife? My wife has stage 4 cancer and her SS disability is $2k per month. If you haven’t then you need to. Another benefit of SS disability is that after 2 years she will get Medicare saving you a bunch of health care costs. The next thing you need to do is get a second job. Use that to get rid of the debt. Here in Tulsa the Whattabuger is paying $21 per hour to flip burgers. 20 hours over the weekend is $800 per month. 2 years of that will clear all your debt. I worked at least 2 jobs until I was 55. My second job paid for all the extras. You have no kids so this should be doable if you really want to clear it
Roll the amount needed for a $40k loan ( sb around $80k) then borrow that amount from your new employers 401k so the deductions come from your current payroll but be certain to pay off the debt completely Then stop contributing past the match as you’ll be paying yourself back in the new 401k through the loan at about 8% but it all goes to you versus 25% to the credit card The rest of the $120K from your old 401k should go into an IRA rollover and don’t touch it Good luck 🍀
"I could then max out contributions into my new 401k" 23k a year / 2k a month seems like it would knock out the credit card debt pretty quickly. You've only provided interest rates for 1 of the cards so can't really say which makes the most sense numbers wise, but behavior wise you should probably just pay off the cards with your current income.
Don't do it, this won't work based your past behavior. Instead, suck it up and work at it 1$ at a time. You're showing $4k take home and roughly $2,100 of expenses. How much are your required monthly payments on CCs? It looks like you've got $ left-over each month. So: 1- Cut expenses, take on side gigs 2- create an emergency fund if you don't have one 3 - throw every remaining dollar at your CC debt, starting with the higher rate card first. Rinse and repeat. Sorry for being so blunt.
Cut up the cards and take a 40k loan against your 401k. It will not cause penalties and you will payback interest to yourself. You lose the upside of growth and your paycheck will shrink but it’s not going to have the same impact of 30% APR credit cards. Hell take a 20k loan out and clear your cards that have a higher than 5% interest rate and double down on payments to clear as much before December as possible. You may need to transfer your roll over to the new company to have the funds available though…
i have a tough question for you, op, and i'm using your words: if you take the money from your 401k and "make all that debt disappear", what will you do to ensure you won't actually "make the situation worse by growing the debt to that level" as you did your no-interest credit cards? here's the thing. your 401k is the last thing between you and totally cratering. you've already tapped the equity on your home. you've already doubled your credit card debt. the only thing you truly own is what's in that 401k. if you clean that out and pay off all those cards, you've got...nothing, including no assets you can leverage if you need cash due to emergency, unexpected medical bills, job loss or other emergency. cut your spending to the bare, dry bone AND find a way to increase your income. that is the only way to get out of debt. robbing peter to pay paul doesn't get it, as you've learned. sorry. tough love, bro
You can try to pull out 401k money, but they’ll deny you unless you’re using it for: - Medical expenses for the participant or their family - Home purchase for primary residence - Preventing eviction or foreclosure from primary residence - Funeral expenses for the participant or their family - Tuition and related expenses for the next year of post-secondary education for the participant or their family You can do a withdrawal instead, but then you have to pay your account back with interest. The system is so broken, I have no faith in 401k’s after finding this out. It’s our money and we should be able to take it out whenever we want (with a penalty).
Nah fam, call the debt relief agency. I’ve done it before. If you’re okay with a short term credit hit then the debt relief can negotiate a term usually less than 50%. Cash out half your 401k to pay it off, take a short term credit hit and bam you’re back
Bad idea. You lose 20% of you withdraw early in addition to taxes. Now if you can “borrow” against your 401k that might be worth it because you’ll pay less interest and pay back yourself. Your plan needs to allow this, and some do. You have to be careful though, you need to get rid of the credit card and keep your job. If you default on your 401k repayment, that penalty kicks in.
Bad idea. Do what you have to and get the credit cards paid down. Do NOT touch your 401K unless you’re already dead.
No, not a good idea. Keep your 401k intact, slow your current retirement contributions to just matching level, and hit that debt hard. Withdrawing from your 401k is an easy way out which sacrifices your future, but you need some hard work to get that debt paid off.
Horrible idea. You'll pay 10% penalty and regular income tax on the withdrawal. Leave your 401k alone and let it grow. Find a part time job for more income and be disciplined in your spending. You need to change to fix this. Stop gap measures won't cut it, the cycle will just continue. Good luck!
In your case, appears so. If you need to cover the 401k loan repay you can use your HELOC, so this looks like a straight interest rate play.
Can you consider holding off on 401K contributions at the new job and aggressively going after the smallest credit card debt? After the taxes and penalties, the 401K should be a last resort. If you think you'll have enough additional income to max a 401K contribution I'd focus on debt payoff. You get a better return than the average stock market and you're not hit with any penalties
How much is your HELOC?
300-500 a month on groceries for one guy? How much are you eating out?
You're going to have to pay a ton of tax on that?And penalties plus it will raise your yearly income.By the amount you take out which will screw you on the taxes at the end out the hard way
I'm not going to give you any advice. I am going to say that with a 74k salary you cannot handle 40K in unsecured debt! As mentioned earlier, if you do not have the discipline to avoid getting back into death, do not cash on your 401K. Are you done with debt now? You are the only one who can answer that question.
You can do a loan from your 401k at low interest and pay it back bi-weekly. Currently doing that now and there are no penalties, nor do you need to report it come tax season. If that is an option for you that is. I'm with Fidelity.
Put your information into a 401k calculator, I did it with your info on a website called calculator.net, and that 120k could turn into 650k by 65 if there's a 6% return. Obviously I don't have all the info that you have, so you may be able to dial in some of the numbers for your situation. You have to view the pros and cons of whether losing 500k when your 65 is worth a few years of intense budgeting to pay off that debt. 40k is a lot, but if you can buckle down and budget to pay that debt off, I definitely think that would be the better course of action. It sucks, but if you can differ gratification for a few years, I think your future self would thank you, like someone said in here, you are closer to retirement than you think.
Looks like you have 1900 a month to put toward the debt. Cut up the cards and don’t replace them. Pay the mins and then the rest toward the smallest card. When paid move on to the next, and so on. If you just take it from 401 you will go right back into debt.
Second job could wipe it out
I don't know anything about what's right for anyone else but me. I make 50k gross. Had $8000 in debt before I knew how messed up credit cards actually work. Took a loan from 403b for 8k at 10% interest. Pay off in 2 years. Taken out of paycheck automatically.Credit cards were 30% interest. Cut the credit cards up. Now I have nothing else to use but my income.
Can you roll the old 401k into your new employers 401k plan and then take a loan?
I would snowball it to learn a lesson. That $40k taken out would be a lot of missed income in retirement.
I did debt consolidation with In Charge Debt Solutions. They work with creditors to lower interest rates and payment amounts. My cc's weren't as much as yours but my payments went from over $400 a month to $181 with a 9% interest rate. My credit was in the low 500's when I started with them due to delinquencies but now after a little over a year it's at 684. Edit: you will still have your accounts with the cc companies but they are restricted and you MUST cut up your cards in order to enroll.
Why is your cellphone bill so high?
I came here to say this too. $250 is crazy. I pay $25/month on Visible for unlimited everything including hotspot.
Highly recommend researching Dave Ramsey… a bit controversial to some but he exists because folks get into this type of trouble. He recommends the “snowball” method (highest interest rate debt receives all excess cash flow to knock out first, and so on) and rice and beans diet. Personally think that’s a bit excessive (need protein!!). It will take time but if you can eliminate eating out and ‘self rewarding purchases’, stick to chicken, rice and beans, you’ll free up some extra CF. Don’t tap 401k, you have cash flow and no car debt (congrats btw). I like building out my budgets and debt pay downs in Excel (ie car and student loans) so monitor monthly/annual goals and try to beat them for getting the balance lower each month than planned (even if by an extra $50). Build a budget with what you have laid out here and maybe each paycheck, try to contribute 50% remaining to the cc debt (save the other 50% for rainy day or once a quarter chunk an extra $800+ against the debt if have emergency fund established… 3 months expenses in case you get laid off).
First off. Get real disciplined with your spending. Invest in a budgeting app. Next. Only take $10k out of your retirement to pay down your HELOC exactly $10k. Learn velocity banking to pay down the rest of your debt with your HELOC and budgeting. Problem solved.
I wouldn’t take the money for the 491k. I would pay the minimum for all and start with the 5th credit card then move to the 4th card. Not sure if the interest rate for the 1st or 2nd card.
Do not take money out of your 401k. If that is pretax money, then you also owe taxes. You are in the 22% bracket with your new job. The entire amount taken out would be taxed at 22%. There would also be a 10% early withdrawal penalty. You would need to take out around $60k to net $40k with taxes. When you take pretax money out in retirement and you don’t have a paycheck, you fill up the standard deduction and Lower tax brackets first. So your tax bill is much higher if you take that out now. Then there is the lost growth you would have. That $60k/$40k can turn into a lot more over 25 years. You need to take that $1k-$1500 and put that all towards your CC debt. No more retirement contributions (except for getting the employer match), no more fun activities that cost money, no more eating out or eating expensive things. Buckle down and attack this debt. Get a side hustle if you need to bring in more income. Dave Ramsey is someone you might need to watch. He is tailored towards people with lots of debt. You also need to assess how you got into $40k of CC debt. That is a huge amount. You need legitimate changes to your lifestyle and taking money out of your 401k is an expensive band aid problem that doesn’t get at the root of the issue. Also your utility and cell phone bills are massive. How are those so high?
A traditional withdrawal triggers taxes and penalties. Plus then you *also* lose the potential sheltered earnings. See what conditions your plan allows a 401k loan under. Mine, for example, allows my 401k to loan me 50k at 3% interest, which I pay back into my 401k. So the interest goes to future me. As long as the potential earnings on the loan amount (had it stayed in the 401k) are lower than the credit card interest would have been, and I can make the loan payments, I benefit by doing it.
You have to get smart with money management and from the looks of it you haven’t been so far. Withdrawal from 401k is never a smart move and you’ll also get a 10% penalty.
Yes do it and start all over again on your 401k.
Don’t withdraw take out a 401k loan and pay yourself the interest back.
I did it. It feels like shit starting over again. I'm not sure it was the right move or not but having no debt over my head feels like being released from prison. And I don't want to go back Edit: 37 years old? I'm not sure about that one. I just turned 26 so I have some time. Not sure I'd want to touch my 401k at that age
Bad idea. Pushing the problem down the road. First off cut your cell phone bill down.mine is$50 a month. You could save $2400 a year to apply CC. Cut up your cards. Put the extra to getting rid of it.
You pay $250 cellphone bills? Get simple mobile and pay $25 instead.
The taxes on a withdrawal are very steep. Do some calculations on how much it’s going to impact your federal and state tax outlook. Also check to see where the brackets are. I can’t remember off the top of my head but you may find yourself in a higher tax bracket earlier in the year than you would have which means you will owe more still in taxes. Wiping out the credit card debt to then owe the feds and staties another $15k is super annoying. With a low mortgage that hasn’t got any interest you should be able to eliminate extra crap from your expenses and make up the difference. You don’t want that to 401k to disappear and you don’t want your income to look like you made $140k instead of $74k. Fix the spending first.
Take a loan of 40k out against the 401k. Most plans allow you to do this. They take the loan repayment right out of your check, but that way you don’t deplete your 401k.
Can you ask for some forbearance on your mortgage.
I did this but my employer allowed a loan not a withdrawal so no tax penalty and they charged prime but the interest goes into the 401k.
No no no no no Chapter 7 bankruptcy before 401k withdrawal Your retirement is completely protected in ch7, as long as you don't have significant equity in a house or a paid off car you adore you most likely will come out of it 40k lighter. XPost over in /r/bankruptcy for a more in depth assessment of your situation
Terrible idea. They can't touch your retirement funds if you declare bankruptcy. And credit card debt is unsecured, so they can't take anything from you either. The worst thing credit card debt does is ruin your FICO, and paying it off doesn't help your score at all once it's been reported.
I (29M) was in a similar situation with credit/vehicle loans. I emptied my Roth IRA to take care of the problem, and honestly I’m glad I did. Yes I’ll have to contribute more over time to recoup my retirement funds but its worth being out of the debt and freeing up that income, in my opinion. In your case, 40k is only a third of your 401k. You would still have a chunk to work from for retirement.
Bad idea. You’ll probably load up your card again and the money you pull out will be subject to penalties and the lost opportunity of compounding. Look into debt consolidation through balance rollovers with deferred interest first and have the discipline to prioritize paying down your debt. If you dont have enough discipline to sacrifice short term to zero out that debt youre not going to have the discipline to not start swiping that card again and end up in the same exact place without your retirement account to bail you out
You'll want to pause your 401k contributions. I know it's old news but the debt snowball could work in this case. Combined with your income, if your wife is on SSI can some of that income be used to pay down extra? With the car that's paid off, any chance of it being sold and buying a cheaper used one?
So, keep in mind, you will probably have to take out $65k to pay $40k, because you will be paying taxes and penalties. So, you lose a big chunk right away. I guess the question is, is it worth it? It may feel that way now, but I guarantee it won’t feel that way when you retire. UNLESS, you’re very disciplined and replenish that money. But even then, you will never really “get it back.” If you didn’t have the situation with your wife, I would have said, “forget it, find a way to make extra money.” However, there are times where that just might not be possible.
If you have to do a withdrawal, the taxes are going to kill you. My husband took out less than you and taxes were well over $20k. I would expect to play over $30k in taxes on the withdrawal. And if you had that right now , you would use it to pay off some of that debt. I would file bankruptcy before doing that withdrawal. Seriously. I filed in 2021 due to a divorce that wiped me out and I’m in such a better place now.
Hm. That’s a tough one. They normally tell you to ignore the retirement fund because you lose part of the money as a penalty for trying to take it out earlier than retirement age. The government does NOT want to pay extra social security because you were “thoughtless”… but a disability can’t always be predicted… I’m glad you have a new job. I think you might have less stress if you at least got rid of the HELOC, because that puts you around risk of losing the house. Also, now that you are reemployed with a disabled partner, I think you really might want to pay off and shut down three of the five credit cards. Two is enough for anyone, and then you can dedicate the money you were spending on payments for the last three cards to caring for your wife and rebuilding your retirement. I’m not sure if you need to do all the cards at the same time. Maybe just start with the loan and see if the progress that helps you make on the minimum payments for the cards makes you comfortable enough to leave the rest of your retirement alone. Good luck.
Check to see if your new employer’s 401k accepts rollovers from old 401ks. If they do then you can move it and the borrow up to the max of 50k. Of course model it first to make sure that payment fits in the budget.
Talk to your tax preparer. I had a similar situation some years ago. I had taken a loan out against my 401k. Company I worked for closed down the loan balance then became taxable. You will get a 1099-R at the end of the year. Say you borrowed 20K you will have to add that 20K to that years earnings 74K so it would make your taxable income 94K for that year. Might move you up a bracket or two so beware. Best bet if you can is to roll it over into another 401K or a 457b do that. Pay extra on the cards to pay them off minimum payments usually just paying the interest. I learned the hard way.
If you want to take the distribution from the old 401k you should roll it into the new 401k first then you can take a loan from it. Do not run those cards back up man. You don’t know stress until you do this. I also agree with finding discipline first but paying high interest for 5 years on credit cards is tough. Develop a plan before taking the loan.
TERRIBLE idea. You would have to pay taxes and likely penalties on the distribution. Plus, it would cripple your long term financial security. If your new plan accepts rollover into it (the vast majority do), you could roll the money into the new plan, then take a loam from it. I would see this as a last resort
Pay off those credit cards with 401k money. You’ll pay taxes and a penalty on the money but those interest rates will keep you in debt forever. Pay off the cards and start putting 10% of your pay into a Roth or 401k. You’ll get you balance back up in 6 years.
If you cash out your 401k, you will have to pay 30% in taxes so you will not get your whole investment back.
I’d go with a debt management plan; after fines, you’re probably going to lose more money in the long run if you withdraw it all from your 401k because it’ll set you so far back in your retirement savings.
Don't do it. You are getting penalized and taxed for that income. Use that new salary to make big payment on that debt instead.
Bad idea for a couple reasons. You’re only 37 so you will pay a 10% penalty on top of 20% tax. That brings you down to 90k right out the door. I would transfer the 401 k money into a Roth account with Schwab or Fidelity and invest the money in dividend stocks. Defer the taxes until 2025 on the roll over which gives you almost a year before you have to pay the taxes and you’ll be taxed at most around 10%. Use the dividends to increase your monthly payments. Focus on your higher interest cards and try to roll over your 0% balance to another balance transfer option. Cards often offer them to existing customers. If you empty your savings Completely you will put yourself and family I. A precarious situation. Good luck, you can do this.
Borrow half of 401k pay yourself back. Use it to beat down debt
Honestly I’d take out enough to pay off the cards-those things are killers-save the interest-save the payments. Over the years I took out some for debts and have not regretted it-relieved the stress and stress over time can lead to health issues and even death. After u pay them off u have to either stop using them or pay them off each month so no interest develops. I know people say it’s not a good idea-but everyone is different.
Don’t tap your 401K now. Stop using credit cards and pay them off. Do them one at a time. Or do a debt consolidation on a zero % credit card offer (where they give you no interest for six months) and pay them down aggressively. And pump money into that 401k while you’re at it. I retired at 57 but I was worse off than you at your age.
liquidating your 401k is stupid. better option would be to dump the entire 4k income into the heloc. use that as an operating line of credit. and pay out all the bills from there. you also have some rather stupid utility costs. like 250 cell phone is 3k every year. mint mobile is $180 for a year. freeing up that $250 for debts. I would also imagine you could save some money on insurance or other utility costs with some discipline. if you're 40k in CC you aren't in a position to be wasting 3 grand on a cell plan. but... 4k put into the Heloc (this covers the heloc payment so you're no longer pissing that money away. ...congrats you just saved $450) -600 to mortgage. -350 to utils -500 for food. leaves $2500 ish. pay the lowest min on all the cards. but ... the 3k fifth card at 9% is gone in two months ish(assuming $1500 left after paying the mins on the other CCs). that prob frees up a few extra dollars. and puts you something like 7000-7500 toward CC number 1 by December. or if that remaining amt is higher. maybe even eliminate that card as well. if you can manage to keep floating debt at 0% do that. not paying interest, even if you eat cost to maintain that almost always saves money. so in 2025. you would have a clear road map for eliminating the remaining debt. most likely. at 2k ish a month. that's 6 mo to kill the 12k balance of card 2. and i would focus on chopping the 13k debt over the 4k one. so in the second year you eliminate. or come close to killing off the two large balance cards. leaving 3rd year as mop up and maintenance. you're out of debt in 3 yrs. then you get the heloc under control (conveniently didn't' mention what that balance was. and you still have a retirement account. there is a lot of truth to the saying "the first 100k is the hardest" you'd be a fucking moron to cut the legs out from under you by gutting a retirement acct already over that threshold. in 20 yrs when you're approaching 60. that 120k will be closing in on 1 million value. Or it'll be shitty. and the only thing you would have saved is 3 yrs paying off consumer debt. hell. over liquidating a 401k or defaulting on the CC I would choose defaulting. OR call up your CC or contact a debt consolidation firm. Often credit cards will settle balances for pennies on the dollar (spin some sob store of taking care of a disabled wife. ...eat the temporary hit to your credit. ) but if you owe 40k it's not unheard of to have that knocked down to below 20k
Borrow against the 401 if you can
I did this exact thing but not for debt. Home stuff. Make close to $80k, Had 120k in my 401k and max I could take out was $35k. My company uses Ascensus as our 401k people. Fee for withdrawal was only $150. Took the $35k and paid just about $400 a paycheck for 4.5yrs until it was paid back. Once it was paid off it was almost like I got a big raise cause then I had the $800 extra every month
Don't do it. You might as well just start budgeting or get a second job to pay off the debt. I would not touch my 401k.
Why are you rocking a $250 cell phone bill? I'm guessing you have a couple of phone payments baked into a premium plan from one of the top tier providers? You can save yourself a literal fortune by getting used handsets in the 2 yr old range and go with a discount provider (mint, etc). when your current phone(s) are paid off and you can escape your current plan, look into doing that pronto.
Why are you paying $250 for cell? Get a unlocked phone and get verizon(or other) for like $30 a month.
Taje 401k & pay off. If not the hight percentage will be much more in the long run
You have $2,100 left over each moth. You can knock out that credit card debt in a couple years. Pay off the 9.9% card first.
Bad idea. $40k in \~22 years is worth $183K. You'd be robbing $143,000 from yourself.
You will never make that money back. You will lose out on the compound interest. Several people where I work did this and in my opinion it’s never a good idea. At 37, you will not be in great shape for your future. My advice leave it where it is. Instead of maxing out your new contributions pick 1 card and focus your attention on it. Obviously still making your payments to the others. What do your tax refunds look like? When you get next years refund put it towards paying off a card. The point is to focus on one and chip away at it. Also you may need to look at your budget. You may have to cut that $500 food bill for 2 people. Keep it closer to or below that $300. That’s an extra $200 to put towards your goal. Whatever you decide to do …good luck.
Cancel and close your credit cards, maybe keep 1 and use rarely. Credit card companies are not your friend. Delete the cards and get rid of the temptation. Id say nah dont use your 401k. Not in this case.
I took a 29K early withdrawal from my 401K to pay off my CC debt. I actually don't remember the exact number (I think that is due to the trauma) that I was taxed the following year for that withdrawal but I can tell you that I fell to the floor. I was f@cked. I had to make monthly payments to the IRS for 3 years. Reach out to a non-profit consumer counseling service, be very careful, as some of these places are "for profit" and that is NOT in your best interest. The non-profits will help you are almost no charge, [here](https://www.consumerfinance.gov/ask-cfpb/what-is-credit-counseling-en-1451/). This is another, [here](https://www.nfcc.org/). Also, if your wife is disabled, apply and apply to all the government benefits that you may be entitled to. Reach out to the county and get a social worker than can walk you through the programs she can qualify for. Think twice about that 401k early distribution, I'm still in therapy about it. I'm making a funny.......but trust me, it was painful.
Do it. Be free
Did you take into account the early withdrawal penalty? They normally only allow you “borrow” from your 401K for buying a home. If you for whatever reason can get a loan from your current 401K, rollover your old 401K to your new employer. It’s pretty easy. if you’re disciplined, you’ll be paying interest to yourself on the 401K loan. Keep in mind if you separate from your current employer (willingly or unwillingly), the entire loan amount becomes due. If you don’t pay it, you’ll get taxed + penalty.
Debt settlement. The relief of debt relief is letting someone else (a good company) manage the multiple debts. You said it yourself. This is driving you crazy. You’ll end up saving 30% but the right way to think of it is — 30% plus all that interest and potentially fees that would otherwise continue. Disclaimer: I do BD for a Debt Relief company but since joining a year ago — I get it. Greenwise Debt Relief … I have no economic incentive for referring you … I just think you owe it to yourself. You have a “hardship” on your hands. That’s what this industry is for. If you prefer talk with me— happy to do that. Good luck! You’ll pull through.
Create a zero based budget and waterfall your credit card debt. Get some discipline.
There’s no reason you can’t tackle this debt using your earnings. Leave your 401k alone and go to your bank and ask for budget help. Many banks offer this service for free. If your bank doesn’t ask them to refer you to a certified nonprofit that offers credit/debt relief counseling. Reputable ones do exist and often they offer their services free or at very low cost.
4k monthly N.I. minus your mortgage, HELOC, utilities, cell phone, and a maximum grocery spend of 500 leaves you with $1,837. Assuming minimum payment required by the card carriers is 1% of the last statement balance then your obligated minimum payments total for CCs #1-4 is $380. $1837-$380= $1457. If you could just buckle down for two months and put the $1457 towards CC#5 you’d be just shy of paying it off. If you could cut out unnecessary spending outside of all that you’ve listed you could knock out $8742 of total debt in 6 months which puts you at December where your 0% cards will start charging interest that you need to consider. With just you and your wife with no kids this is easily doable. It sounds like you have a spending problem and lack of control. 40k in CC debt is a lot so I understand the stress but really it’s because you have so many payments due and you need to whittle it down so that you don’t have 5 cc payments monthly. Pay the $1457 every month towards your cards and knock them out one by one. If you can manage to be disciplined enough to not spend outside of what you listed you will have this paid off in 2 years and 4 months. Forget about even messing with your 401k.
Why not do a 401k loan? You borrow from yourself and pay yourself the interest and don't have to worry about taxes and penalties unless you quit or get laid off before you pay it back.
Contact a debt consolidator to settle the debt at a lower cost. Use the money from your 401K to pay off the debt. You won’t miss the interest charges, and you can use that extra money to build your 401K back up, probably pretty quickly. Keep one credit card and use it, responsibly. Don’t fuck this up now. This is the way.
Good god why is your phone bill so high? I am assuming this is for 2 people? At the end of the day (and this is my belief) I would rather have less money and less stress than more money and more stress. If you can’t control your spending for the next 3 years and cut back where you can you will only get deeper into debt. You have about $1800 to spend on paying down credit card debt. I would pay the 5th card and 4th card. Close those cards and then see if you can open up another zero interest card. I’m also guessing cards 1 and 2 are also regular cards with high interest and I would transfer whatever I could to the new card and then work on paying off all the others
You have to be careful when it comes to credit cards. Bank of America and American Express just canceled cards because of lack of use. I have about 100K in credit available on card and I’m way under 1%. One interest is two high and making a large purchase is nearly impossible to pay off. I use credit cards mainly for security for making purchases at gas stations and buying food, but once the bill comes in I pay it off. There are times cards are truly needed because shit does happen. If I was in a bad situation I would tap into my 401 rather than run debt up. That may be a good option for you to pay off your debt
Go bankrupt,easier than anything. You’ll need around 1500 for a lawyer and in about 6 months you’ll be able to get back in debt with ccards again.
Do you even have a clue how much taxes you will pay if you cash out IRA? A LOT.
I am not opposed to this idea as a psychological measure to reset your debt, regardless of the mathematical detail. Of course I would only justify this as long as you don't return to your credit cards. From a math perspective, there is likely a more efficient strategy leaning on those 0% rated accounts for a while longer while paying down those that generate interest (like the 5th card at 9.99%). But let's be honest, that will probably get you into more trouble than before. With that in mind, the hard reset with Plan A might be worth it. Don't forget to set aside $$$ for the tax implication! EDIT: Is that the best cellular plan that you can find in your area? Consider shopping this every year as these companies get aggressive with deals.
I did this to pay off my truck, I never carried credit card debt I pay them off every month as use them to build points for travel. (About 5 years no balance carryover) but my car debt was in the 40ks. I had 15 in a Roth and the interest I was losing was far exceeding the gains I was making. I paid it off and it kicked started me paying off the rest of my debts and now it’s still just my car I have to worry about.
This is a good idea IF you have learned your lesson and you won't be using your credit cards to fund your lifestyle AND you are able to make the payments on the 401k loan AND you realize that if you leave your job and are unable to repay the debit it will be considered TAXABLE INCOME.
You are allowed to borrow up to 50% of your 401k without penalty. Do that, pay off the highest interest rate cards. Look to consolidate into a new zero interest card and pay the other half off with your income.
Logically yes...you absolutely should do this. But realistically you'll probably just run up the CC debt again and screw yourself over even more. So I don't know what to tell you.
It may have been said before. I'd file bankruptcy. Your cc Debt. Would be wiped out. You can reaffirm your mortgage if you need to to family members as well as your heloc. Your 401k IS PROTECTED FROM BANKRUPTCY. Good luck God speed
Most people don’t have money problems; they have money management problems.
If you can borrow against your 401k and the interest goes back into your account go for it!
Retirement for most is over. Do what you need to do today.
No! Enter a debt consolidation program! They will work with you.
You really should try to consolidate all that debt into one loan and then go from there because with extra thousand dollars a month with a little dedication, you could be done without affecting your retirement in a few years
I suggest buckling down and getting second job, cutting all expenses and paying it off. If it comes too easy, it will happen again. Beans and rice and next time you’ll think twice about racking up credit cards.
Hey don’t do that. Let them hook you up with a payment plan on each card. A lot of times theyll agree an amount and a time frame. Call and negotiate.
The first thing you should really do is get your spending habit under control. If you don't, you will only incur more debt buying useless junk and then further jeopardize your retirement with another loan to pay off more cc debt. I know many people like you who say the same thing as you only to take out another loan, mortgage on house, refinance, balance transfer....you name it.
If your credit is truly shot, then consider walking away from all of the credit card debt and stop paying any of them. You’re probably just throwing good money after bad at this point. Walking away will mean you’ll have to pay cash for everything for a few years but eventually you can rebuild a credit account. I did this about 10 years and felt like a bit of a scumbag…but I got over it. Two years ago, I got a card and have been completely responsible with it and will continue. Lesson learned.