Like almost every other person out there my husband and I are in a financial bind. We have a ton of credit card debt. My husband wants me to cash out my IRA of which probably 90% of it was profit sharing from an old company I used to work for, I myself put in very little of my own money. The fee for cashing out is 10% plus whatever we would get taxed on. My husband also wants to borrow some from his 401K to pay off our credit cards.
My question is should we talk to a financial planner first before doing this? I'm just wondering if there are other options that we don't know about.
You might look into borrowing from the 401ks instead of cashing out. I believe the penalties are pretty steep to cash out...like 30%. Get some sound advice.
Do you have a car with a free and clear title? You can do a cash-out refi. If, for instance, you own a $5,000 car. You can get a loan at say 5% interest and pay off $5,000 worth of credit cards that are probably at least 15% interest. You could possibly take a home equity loan. Usually prime plus 3 or 4%. Still better than credit card interest because it is compounded differantly.
Under no circumstances would i cash out my IRA!! borrow if you absolutely must (if you can) but i would not cash it out. You've worked hard to get that there, and the only way i would cash it out is if it's to pay off a house i plan on living at for the rest of my life and i'm well set for retirement else where.
Don't take money out of any retirement plans. It won't change any of your habits and it will make you hard up during retirement. Don't rob your future, look to it with hope. Instead, cut up every credit card you own and put yourselves on a spending diet using only cash. If you don't need it, don't buy it and put every extra cent you have on the credit cards. Redefine what your "needs" are. You have to change yourselves or you will end up where you are now again.
You should definitely talk to a financial planner. And I also recommend Dave Ramsey and a website I recommend is Mvelopes.com. It is a budgeting website that totally changes the way you see the money you have.
Do not cash out your IRA. Even if you filed bankruptcy I don't think that your IRA can be touched. We did borrow from my husband's 401K to purchase a car and that was great. You pay it back with interest so there's little loss. There is a non-profit called Consumer Credit Counseling. It might be national. I had credit card debt about 18 years ago and they recommended bankruptcy because I made about 23,000/year and had $12,000 debt. I declared bankruptcy (it cost about $750) and my debt was discharged. What a relief. At the time I was a renter. Best decision I ever made.
Don't touch your retirement funds. Seriously, at some point you will stop working and the income will slow. You can always pay-off credit cards, your kids can get loans for college, but you can't take out a life-loan when you retire!
Definitely contact a financial planner. As much as his hard-line approach can be off-putting, check out Dave Ramsey's books. My husband listens to his radio show like it's gospel, but I will say that his suggestions are very applied and no-nonsense.
You will have to have pretty honest conversations about how you got so far into debt- what are you putting on your cards? Why? Are they essential? Be prepared to have these conversations with a financial planner and also be prepared to contact the credit card companies and see what they can do. Many times they are willing to negotiate the rates or the payment options b/c it doesn't help them either if you can't pay the bill!
Do not cash out your IRA. Your credit cards are UNSECURED debt (and hence the high interest rates), but unlike your home or your car, the credit card companies have no collateral to collect on. I agree with the other posters - start reading Dave Ramsey now, and while I am not an advocate of not paying credit cards, I would rather you file bankruptcy before you cashed out your 401k.
Do not touch those retirement savings until you've have gotten some financial counseling. Whether it be a planner or a credit counselor, you must talk to someone who understands the ramifications of cashing in the IRA. Doing that could actually cost you more money than your credit card debt.
Good luck. D.
Yes. Talk to someone first.
Depending on what you own, what you owe, what your future plans are (immediate and distant), and how tight things actually are will determine what your options are and how to keep your money in your savings and retirement.
Don't do it H.. It is better to pay off your credit cards with interest then take from your 401k. we have been down this road before. You can figure losing a 3rd of it to taxes. So if your credit card interest rates are lower then say 30% you are better off just paying them down as much as you can. You lose money when you take out of your 401k. Any financial adviser would flip out on you :)
Dave Ramsey!!!!!!!!, don't cash out your IRA or 401K
I would not cash out your IRA unless you absolutely need to. I would recommend sitting down with a financial planner! A lot of people will also recommend 'self-help' money books and videos like Dave Ramsey- those can work, but only if YOU stick to the program, which many people can't make themselves do.
Retirement is more and more precarious for working families now. Don't sell out your old age by cashing it in too early if you can come up with a better way to do it now. See a financial planner before you do anything!
I agree with the Dave Ramsey idea. Please Google him and start following what he is saying. Don't cash out your 401K that will ultimately hurt you more in the long run. Work up a budget and stick to it. Sale or discontinue thing or services you dont absolutely need anymore.
Updated
I would look into Dave Ramsey's Total Money Makeover...or just check out his website for a financial planner in your area that he endorses.
IF what you get (you'll walk away with about half of it) pays everything off AND you cut up your credit cards AND you start an agressive savings plan and new IRA to replace what you've taken out...then I might give it some consideration. But, you really have to look at the reasons why you're in debt...no judgement, I struggle too because of poor decisions and circumstance that, in the moment, I thought were out of my control.
As for the 401k....same rules apply. Only if you actually pay something off completely and put a good portion of what you've been paying on cards into a savings plan.
Yes talk to someone I did that with my life savings paid of my cards cuz it was a little amount i had to pay and my money needed to be moved anyway. But now we have a card thats jaked after 3 years of not using them my husband used it to fix up the outside of the house which he is not done with. and now we are in doubt again so talk to someone. now i regret it because i rather have used the money for something else.
NO NO NO............ Do not ever remove funds from IRA's, 401K's.
Get a recommendation for a good financial planner in your area to help you. Find other options.
You don't mention how old you are but I'm going to guess you are under 40 as retirement savings doesn't seem high on your priority list. You also don't say how big the debt is or what consequences are occurring because of the debt. Hardship withdrawals from retirement savings plans are allowable if the plan allows and if the hardship meets certain criteria. (for example, a withdrawal to stave off foreclosure or for medical expenses). However, if you are not in that type of extreme circumstance, I would say don't touch your retirement savings. You could look at the loan provision on the 401(k) and see if it makes more financial sense to pay off the 401(k) loan than the credit card debt (i.e a lower interest rate) but I would leave the IRA alone. I would also say take a look at how this debt happened. Are you living beyond your means? Have you or you husband lost employment? Did you mortgage too much house for you current circumstances and are now unable to sell due to the housing market? I am retired now, but when I was working I watched many young people take their funds out of the 401(k) for temporary situations forcing them to pay current taxes on it and having the 10% excise penalty tax imposed - when it didn't make sense - plus they didn't change their lifestyle. And they would be back at their 401(k) a year later. Sit down with your husband and develop a plan for paying off the debt. Your plan should have a long term strategy as well as addressing the short term obligations. If that plan means that that you need to short sale your home and dramatically change the way you are living, maybe that is what you need to consider. I can tell you that even though you might think everyone is doing it, living life within your means and without debt is a lot less stressful.
Absolutely talk to a professional.
Here's the advise I'd give as well. IF you decided to borrow from retirement then you should cut up ALL your cards. You need to start fresh. Set up a budget, and stick to it. Using cash instead of checks or debit cards (and definitely instead of credit cards) can be very helpful, it is much more tangible what you're spending that way. Be sure to put in an amount for emergencies each month, because they come up no matter how well we try to avoid them.
www.crown.org is a great place to get budget ideas, and they even have free budget coaches that can walk you through the process.
Best wishes!
www.daveramsey.com. Read The Total Money Makeover before you do anything. Take a financial peace course before you do anything. It will change your life and the way you think about money.
Lisa
Have you heard of Dave Ramsey? He has a very basic approach to credit card debt and bringing down debt in general. I suggest you read some of his books and attend a "Financial Peace University"...go to his website, enter your zip code and it will show where the nearest classes are held.
If that does not work I would then go to a Financial Planner.
Both are bad ideas. Doesn't matter "how much of your own money" you put into it--it has retirement value and to use it is unwise. Also cashing out or usig part of a 401K is NEVER a good idea. He can pause his contributions to put that monthly amount to the debt reduction.
Get O. of Dave Ramsay's books and start cleaning up the mess the old fashioned way. Work the baby steps in his plan. You didn't get a "ton" of credit card debt overnight and you're not going to get out of it overnight. It can be done. I'm 46 and we have ZERO credit card debt and a paid off house. You can do this. You've gotta work at it. And it's very worth it. You'll stop feeling like a hamster on a wheel. Make your money work for you.
Haley,
If Dave Ramsey seems too drastic for you and your husband, you might want to check out Pam Young's book "The GOOD Book - Get Out Of Debt". Here's a link:
http://www.thegetoutofdebtbook.org/
She teaches you how to control your finances through small changes in your lifestyle. And her techniques are proven because she used them to get out from under her own credit card debt. See if your local library has the book or purchase it off of her website.
Good luck and please don't touch your retirement money - you will need it in the future.
C..
Golden Rule: NEVER take money out of your retirement fund! you get penalized alot and you never get it back in there....you will need it one day and you don't want to mess that up.
I say no, figure out some other way. I know it's not easy, but alot of things in life are not... :)
D.
Dave Ramsey.
Check out his radio show M-F from 7-9 PM on 103.5 FM. He also has a website that is full of helpful resources & you could do a search on his site regarding the same question.
Helpful hint: check craigslist or the library for his books, if you're interested in reading them/starting his program.
Good luck!
