Author Topic: paying off debt with retirement  (Read 2759 times)

Famof5

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paying off debt with retirement
« on: July 11, 2015, 05:27:44 PM »
I am no longer working - with 3 kids I was paying more for daycare than I was bringing home. Other than a mortgage (my husband purchased before we were married) the only debt we have left is just over $50,000 in student loans. We were able to use various funds to pay off our cars (I cannot convince my husband to sell them... I have tried...) but I would like to knock out that student loan debt.

I have some money stashed in a retirement plan from a previous employer. I am looking for advice; should I cash out the retirement to pay down the debt (it wouldn't cover all of it but it would cover the higher interest rate loans) or just continue to pay what we can (we pay interest every month and can put about $200 toward it otherwise.

Thanks!

forummm

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Re: paying off debt with retirement
« Reply #1 on: July 11, 2015, 06:07:21 PM »
What is the interest rate and balance on the highest interest loans? Will you be in a lower tax bracket during retirement than now? How much, if any, do you have in Roth contributions?
« Last Edit: July 11, 2015, 06:27:19 PM by forummm »

Bumbling Bee

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Re: paying off debt with retirement
« Reply #2 on: July 11, 2015, 06:23:01 PM »
What type of account is the retirement in? You could be looking at a 10% IRS penalty (I'm assuming you're under 59 1/2 years old) as well as paying income taxes on the distribution. Can you refinance the loans, eg, with SoFi or DRB, and then throw everything at the loan?

RunHappy

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Re: paying off debt with retirement
« Reply #3 on: July 11, 2015, 06:54:49 PM »
If you want to get the best advice, you should post a case study with all your numbers. 

Emptying your retirement to pay off your debt is a drastic step.

Insanity

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Re: paying off debt with retirement
« Reply #4 on: July 11, 2015, 06:57:27 PM »

If you want to get the best advice, you should post a case study with all your numbers. 

Emptying your retirement to pay off your debt is a drastic step.

While true, I thought about doing it part way at one point figuring at my income I could replace it very fast.

Course the only way it makes sense is a time the market approach -  sell high , hope for the crash and rebuy low.

mozar

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Re: paying off debt with retirement
« Reply #5 on: July 12, 2015, 08:49:48 AM »
Quote
While true, I thought about doing it part way at one point figuring at my income I could replace it very fast.

So why can't you just use your income?

RunHappy

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Re: paying off debt with retirement
« Reply #6 on: July 12, 2015, 09:55:30 AM »

If you want to get the best advice, you should post a case study with all your numbers. 

Emptying your retirement to pay off your debt is a drastic step.

While true, I thought about doing it part way at one point figuring at my income I could replace it very fast.

Course the only way it makes sense is a time the market approach -  sell high , hope for the crash and rebuy low.

If you can use your income to replace your retirement account fast, then why not use you income to pay off your debt really fast?

I have known too many people who emptied their retirement accounts to pay off some of their debts, but are still struggling to finish paying off their debt and most likely will never pay themselves back. 

Famof5

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Re: paying off debt with retirement
« Reply #7 on: July 12, 2015, 11:21:16 AM »
The interest rate for the biggest two loans are at 6.8%; I am freelancing but do not anticipate enough income to move me up in the tax bracket. What is in the retirement is $16,000 and I would pay myself back but I cannot say when (Freelancing is never a guarantee for income).

I could go back to work but the cost of daycare for 3 kids sometimes 4 is more than what I would be bringing home. What I am doing now is $0 dollar payments since I am not bringing in any income. 

Merrie

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Re: paying off debt with retirement
« Reply #8 on: July 12, 2015, 11:34:23 AM »
$16,000 would barely make a dent. I'd hold onto it. What is the long term plan for loan payoff? Are you doing IBR or one of those kind of plans where you eventually get the remaining amount forgiven? It's hard to make much traction on a loan at 6.8% when you don't have a lot of spare cash to throw at it. Can you refinance? This may or may not be a good idea because you lose IBR type benefits if you do. But if your plan is to pay interest only for X many years and then get the rest forgiven, it may (or may not) be better to keep doing what you're doing. We'd need more details.