Author Topic: 401K's but 8k in credit card debt  (Read 1598 times)

Bmore

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401K's but 8k in credit card debt
« on: February 03, 2017, 01:29:04 PM »
Hello everyone! I've come for advice! My current situation is as follows:

Age: 27
Income: $51,000
Rent: $950
Retirement TSP Account: ~$17,000
Retirement Vanguard Account (2055 Life Cycle Fund) ~$8,200
Student Debt: $10,000
Personal Loan: $9,500 (9% interest)
Credit Card Debt: $8,000 (16%)

Between a car payment, insurance, cell phone, food and gas, I'm basically check to pay check. I absolutely pay everything on time and have a great credit score (780). I would really like to get rid of my credit card debt as soon as possible. I find it very tempting to cash in some of my retirement account to get rid of it completely but realize I would be missing out on potential gains. GOOD or BAD idea? I'm also in the works to drive for Uber on the side to put a bigger dent into getting the debts paid off. So, basically my main question is whether or not it's a terrible idea to cash in come retirement to get rid of the high interest CC debt. Once I get rid of that debt, I can instead be putting more money into retirement and savings instead of towards a CC payment. Any advice would be greatly appreciated!

GizmoTX

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Re: 401K's but 8k in credit card debt
« Reply #1 on: February 03, 2017, 01:47:15 PM »
BAD idea. You'll likely be paying a big penalty to tap your retirement fund, & that contribution amount can never be replaced.

Yes, 16% & 9% on $17.5K of debt is a hair on fire emergency -- you should be increasing your income & cutting spending still further. Make sure you really can come out ahead with Uber/Lyft driving. Otherwise, consider replacing your car with a beater to get out of the car payment & realize extra cash.

Platypuses

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Re: 401K's but 8k in credit card debt
« Reply #2 on: February 03, 2017, 01:50:54 PM »
Are you currently contributing to your 401k? If so how much, and is your company matching?
 I would be hesitant to cash out, but 16% interest is in the range of considering. You will have to pay a 10 % early withdrawal fee I believe.

Ynari

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Re: 401K's but 8k in credit card debt
« Reply #3 on: February 03, 2017, 02:00:13 PM »
I'd consider posting a full case-study. Not knowing your car payment, cell phone costs, etc., it's hard to say if you can improve there or not. (Cell phones are a notoriously simple area to cut slack out of by switching plans.) Try to cut as much slack as you can, and then consider if the 401k penalty makes sense.

Have you looked into income-based repayment for your student loans? Since that interest rate is almost assuredly lower than 16%, it may be worth it to see if you can lower that payment to give you some wiggle room to pay off the credit card debt sooner.

bugbaby

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Re: 401K's but 8k in credit card debt
« Reply #4 on: February 03, 2017, 02:33:23 PM »
In your case a 401k loan makes sense as long as your job is fairly secure. Thus way no withdrawal penalty. Pay it back in a year, plus continue doing max possible 401k contributions.

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yachi

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Re: 401K's but 8k in credit card debt
« Reply #5 on: February 03, 2017, 02:50:19 PM »
Did I miss something, or did no one even ask what type of retirement account this is?  If it's a 401(K), I'd suggest taking out a loan against it.  If it's a Roth IRA, then you can withdrawal all your contributions without penalty. Edit: Got it, it's in the title

I think you need more motivation to pay off the credit card, and carry a balance on it again.
Here is the growth of $8,000 at 16% interest (ignoring Late fees or penalties):
Today:            8,000
in 5 years:     16,802
in 10 years:   35,291
in 20 years: 155,686
in 30 years: 686,799

You have an excellent income for what you are paying in rent.  From what you posted, it's hard to see how that much income isn't covering your needs.
« Last Edit: February 03, 2017, 02:59:20 PM by yachi »