Withdrawing from retirement account to eliminate CC debt

[Anonymous]

Hi, 

I am 30 years old, I have about $10,000 in CC debt across 7 accounts. I had a bad last couple of years as far as spending goes, made many mistakes. I'm now drowning in the monthly payments trying to pay everything down, as the APR is high on all of the cards. My credit score is too low to consolidate on 0% cards, and my disposable income is going mostly towards paying debt off, have not been using the card.

My workplace is a family-owned business, which I am going to be taking over - my income this year is $65k, and should rise considerably in the next 2-5 years. I have about $25k in my retirement account that's handled by a local guy in our town. I am constantly plagued by thoughts of withdrawing $5-10k from the account and paying off the cards. I can add to my 401k again once I have some breathing room financially, but I don't have an emergency fund right now beyond $1k, and I will probably need to purchase a used car in the next 2 years.

I know many people advise against this move but it's something I've been bothered by - I just don't see myself making much of an impact in my debt without making a substantial move like this. I also wonder if I did this, would I be protected with confidentiality between my financial advisor - it's an embarrassing thing to ask and admit. 

thanks for all advice. B

[GApeachy]

You know what? Do what you gotta do...you probably aren't sleeping well, it's nagging you.  I wouldn't care what someone else thinks when you are trying to do the right thing.  You believe you will be making more money down the line, do you believe you will add the money back?  You gotta save for rainy days, it sounds like you have a storm cloud over your head.    Someone here will chime in but if you don't take a hit pulling your money out to pay off debt, relieve your nerves, make a solid plan to put money back then I would pay off/down just to be able to chill.  Good luck. Life's short

[SouthJamaica]

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@GApeachy wrote:

You know what? Do what you gotta do...you probably aren't sleeping well, it's nagging you.  I wouldn't care what someone else thinks when you are trying to do the right thing.  You believe you will be making more money down the line, do you believe you will add the money back?  You gotta save for rainy days, it sounds like you have a storm cloud over your head.    Someone here will chime in but if you don't take a hit pulling your money out to pay off debt, relieve your nerves, make a solid plan to put money back then I would pay off/down just to be able to chill.  Good luck. Life's short

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I agree 100% with @GApeachy 

Yeah sure you lose some nickels and dimes by having to pay taxes and a penalty for early withdrawal.

But think of it as an investment in your single most important asset -- you.

When you have creditors hounding you like that it's very hard to function. You need to get that stuff off your back.  Taking an early withdrawal from your retirement plan is the best thing you can do. It's only money. The alternative is your health, which affects you both short and long term.

Even economically it's not as bad as it seems at first blush, because the taxes & penalties will be outweighed by the interest you save!

If you want to play it really smart, withdraw 10-15% MORE than you need to pay the credit cards off, and immediately make an estimated tax payment with that money, to soften the blow when you file your 2019 tax returns.

[Caardvark]

I'm not too familiar with them but I believe there are loans that can be taken against a retirement plan. If so, might be worth pursuing. Would avoid the withdrawal penalties and should not have a crazy interest rate since it would be a secured loan.

[Anonymous]

I would disagree, surely on only $10K a person could pay it sown without touching retirement account. While not knowing OP's full financial obligations, $10K could be paid back in ten months at $1K monthly. I've done it on $55K Salary. A person would have to cut back on a lot of excess spending though.

[GApeachy]

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@Anonymous wrote:

I would disagree, surely on only $10K a person could pay it sown without touching retirement account. While not knowing OP's full financial obligations, $10K could be paid back in ten months at $1K monthly. I've done it on $55K Salary. A person would have to cut back on a lot of excess spending though.

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Like OP said, "I'm drowning"......it's sink or swim time.  When you're in a "family business"  self employeed  there isn't any guarantee.  We are at the mercy of when, if.....customer pays.  No reliable paycheck involved.

[Anonymous]

If withdrawing the $10K will allow you to pay off your credit card debt, breathe some, and actually have spendable income, then yes, absolutely take it out.

You'll lose some on compounding interest, but if you can't live day to day without drowining, it's a non-issue.

Take it out, pay off your credit card debt, don't run it back up, and keep it moving.

[Save-n-Invest]

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@Caardvark wrote:

I'm not too familiar with them but I believe there are loans that can be taken against a retirement plan. If so, might be worth pursuing. Would avoid the withdrawal penalties and should not have a crazy interest rate since it would be a secured loan.

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Depending on how the proposed an s structured you are paying interest to yourself.

[Anonymous]

I would side with janus here.

but it is dependant on many factors, i.e. cost of living and spending habits.

The salary you posted sounds like you would (can) pay off the debt very quickly.

But not sure if you have high rent/mortgage, kids, wife, car payments, other debts/payments.

Touching retirement yeah normally it is a no-touchie thing.

But sometimes you need to do it.

Can look at it at your age and know some people didnt even start towards it,

but then some are socking away 20% income/yr

Cut some costs, and cut some non-necessities and bank on it.

Meaning if you can, pay your bills, and put the rest towards the credit card(s)

Get frugal and get the card paid off in months, verses re-paying your investment in years.

hope this helps 

[Anonymous]

I agree with the folks who are affirming our OP's idea.  The key word is "drowning."  Our OP is miserable and losing sleep.  Just do it and develop a plan for always paying cards in full and saving a lot moving forward.