Author Topic: IRA to pay off credit card debt?  (Read 3079 times)

fornewtraub

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IRA to pay off credit card debt?
« on: February 24, 2015, 06:44:48 AM »
I have been reading quite a bit on the site, but this is my first post to the forum. I am the target audience….in middle-class poverty. Details: Married, 2 kids, mortgage, auto loans (2!), credit cards and obscene student loans. We pay all our bills on time, but we live paycheck to paycheck and save a meager few hundred each month. I have a 401k that I contribute to and a Vanguard IRA that was rolled over from a previous employer 401k that I do not contribute to. We have resolved to adjust what we have become ‘accustomed’ to in order to live debt free and are currently trimming the fat (cable is gone, cell plan is on its way out and groceries are adjusted weekly).

However, my question/inquiry for today is regarding my IRA and credit card debt. In an effort to really get things moving I’m considering using my IRA to pay off my credit card debt. This will leave more money for reducing other debt quicker (cars/student loans)however I’m concerned with not having that little ‘security blanket’. There will be a tax implication of about 20% for withdrawal, but the credit card debt will be completely paid off. I would really love any input on this so thanks in advance for helping a newb on her way to becoming debt free!

James

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Re: IRA to pay off credit card debt?
« Reply #1 on: February 24, 2015, 07:06:01 AM »
No, don't use IRA. Go all "PANTS ON FIRE!!!" to pay of your cc debt. Restocking your IRA just won't have the same pressure on you that your cc debt has, and you need that pressure to help keep you on track.

Obviously with more information my opinion might change, but I doubt it. Just cut everything and pay off your debt asap, and use other methods to try and limit the interest you pay.

http://www.mrmoneymustache.com/2012/04/18/news-flash-your-debt-is-an-emergency/
« Last Edit: February 24, 2015, 07:14:46 AM by James »

catccc

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Re: IRA to pay off credit card debt?
« Reply #2 on: February 24, 2015, 07:33:43 AM »
I also say no.  It's kind of an expensive easy out.  Punish yourself a little, it will be good for you in the end.

mveill1

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Re: IRA to pay off credit card debt?
« Reply #3 on: February 24, 2015, 08:01:15 AM »
+1 to both points above. The biggest return will come from a lifestyle change. Using IRA would ruin that opportunity.

fornewtraub

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Re: IRA to pay off credit card debt?
« Reply #4 on: February 24, 2015, 08:54:15 AM »
Thank you very much! I viewed it as a way to jump start my debt free lifestyle by being able to tackle bigger debts with the money it would free up, but I don't want to lose that investment. I will readjust for the 'PANTS ON FIRE' approach and be happy that IRA is still in tact. :-)

gergg

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Re: IRA to pay off credit card debt?
« Reply #5 on: February 24, 2015, 09:41:58 AM »
I would reduce my 401k contribution down the minimum to get the match, if you have no match then stop the 401k all together.  Stop all other saving and investing and redirect all of that money to the debt until it's paid off.  Once everything is paid off, then take all of the money that was going to debt and redirect it into your investments.

TexasStash

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Re: IRA to pay off credit card debt?
« Reply #6 on: February 24, 2015, 09:43:04 AM »
Best of luck to you with your pants on fire approach. Get really ruthless. The debt payoff will feel really good!

Make sure you look at everything. Cable and cell phone are good start. Inventory your spending if you don't know exactly where all that money is going. Consider selling a car if you live in an area where other transportation options are available. Drop gym memberships (if any). Sell stuff you have but don't need. Cancel any subscriptions you have but don't really need. And stop contributing to the 401k till the debt is paid off (other than any employer match as mentioned). Some may disagree with some of these, but I think they're all good options.

If it hurts, that's a good thing. You're leaving a lot on the table if it doesn't hurt for awhile.

mxt0133

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Re: IRA to pay off credit card debt?
« Reply #7 on: February 24, 2015, 09:50:05 AM »
Post a case study and list out your expenses in detail.  The exercise will be more than worth it as it will shed some light on where your money is going and if it is really adding value to your life.  And if it is adding value can you do without it until your hair is no longer on fire?