5 years ago, my husband and I made the decision for him to go back to school. We lived like paupers with our two children and moved to a different state for a job upon graduation. We incurred about $7,500 in credit card debt from the move (20% interest), since it was somewhat unexpected and we just didn't have the cash to pay for first and last month's rent, deposit, and travel to our new place. We planned on using this year's tax return money to pay it off in full, but Murphy had different ideas for us (as always) and that money was quickly gobbled up by a surprise surgery for our third child (5 months) and a hospitalization for my husband. We feel like we're throwing away our monthly rent and our goal is to get ourselves in a position to buy a house in a few years, so I don't want any bills going to collections.
Meanwhile, our credit card debt is demanding $150/month in interest alone. While in school, we managed to stash away $10,000 in a Roth IRA, which is now sitting at about $14,000. As I understand it, I could withdraw the contributions penalty-free, just not the earnings? We haven't touched it thus far because compound interest is my favorite, but I'm beginning to think that we would be better off just getting rid of the credit card debt so we could actually start gaining some traction? I recently applied and got approved for a different credit card with 0% interest until June 2015 with no balance transfer fee (limit of $2,500). The debt is spread over two cards currently (5,000 on one and 2,500 on another). I was planning on splitting the 5,000 in half, paying down the high-interest half first, then moving on to the interest-free card to have it paid off in time. I'd then tackle the remaining balance. We only have about $200/month to dedicate to the cards, as we are currently paying on our car loan (5,000 @5%), three hospital accounts (3,000 @0%), and our student loans (27,000 @ 5%).
I understand that the main argument against a move like this is that you don't correct the overspending behavior and chances are you'll just end up with more credit card debt and no savings, but I don't feel like we have a spending problem. We made $45,000 last year and will make $63,000 this year. With me staying home to raise our three kids, our finances are definitely tight, but staying in our budget is generally not a problem.
Would any of you seasoned vets support me in this tactic of withdrawing the $5,000 to just be done with the credit card debt?
