My average take home pay is about $5k a month or slightly … Petal® 2 "Cash Back, No Fees" Visa® Credit Card, Don't use your 401(k) to pay off credit card debt, says 'credit junkie' with an 800+ score who tried it once, I'm still on the journey': How this entrepreneur is bouncing back from 5-figure debt, Understanding this financial term can save you thousands of dollars over time, Biden extends student loan payment freeze for 8 months—here's what experts say borrowers should do, Millennials boosted their credit more than any generation in 2020—here were the average FICO scores, Minnesota residents have the highest average credit score—here's how other states compare. 2. Never again. If you need to pay off your debt, options other than tapping into your 401(k) may be better in the long-run. When it comes to paying off credit card debt, there’s no better way than the debt snowball method: Step 1: List your credit card debt from smallest to largest (don’t worry about interest rates). One potential employer noted that if they had another multi million dollar settlement against them, the monies in the 457b might be used to pay the plaintiff. I don't think there … ; The Sandwich Generation; Energy saving myths Pay off debt sooner: In some cases, you may pay off debt earlier than expected. You should have a plan for directing money back into your retirement savings at the same rate as before, if not higher, to make up for the temporary pause. The total loan would be about $15k to pay off this dumbass debt I have then just pay the loan off over the course of however long. Should I Use My Retirement Funds To Pay Off Debt? Moreover there have been numerous … If this is going to work, you have to commit to the mindset that debt is dumb (because it is). Pay minimum payments on everything but the little one. Or any questions to clarify anything. Of course, there are downsides to using retirement account money to pay off your credit card debt. Without one, Renfro argues, "you run a very serious risk of simply not picking it back up.". One thing to understand is that your credit cards are unsecured. By putting your 401k withdrawal toward debt, you may be able to pay off your account in full. When Paying Off Debt With Your 401(k) Makes Sense. Further, if you’ve lost a job or seen your compensation reduced, this is even harder to do. To get by, you could consider making only the minimum payments for a few months, which might make sense if you're fairly confident your income will increase again in just a short time. A general purpose loan would be at 5.25% interest and the amount can be from $1k to $50k. This really only matters if you needed to come up with a lot of cash quickly (like an emergency or home down payment) but it's worth mentioning. While it's not ideal, doing so temporarily can free up some much-needed cash to address immediate priorities that take precedence from time to time. Get life-changing financial advice anytime, anywhere. Debt snowball: the “debt snowball” is a way to build momentum as you reduce debt. Please contact the moderators of this subreddit if you have any questions or concerns. Strategies to Pay Off or Reduce Your Mortgage . For example, if you earn £25,000 per year and you have a debt of more than £15,000, a balance transfer might not be cheapest way to pay the debt. But if you haven't been able to pay off those nagging credit card … After you've established an emergency fund and paid off high-interest debt, you can begin to boost your savings. Popularized by Dave Ramsey, the idea is to pay off … Subscribe today: https://www.youtube.com/c/TheDaveRamseyShow?sub_confirmation=1 Should I Use … How to Pay Off Debt (the Smart Way) 1. If you have a higher rate of say, 18-20%, it may make more mathematical sense to borrow against your 401k to pay off the debt. By continuing to make only minimum payments on the debt, you’re paying a great premium for everything you buy on credit. Once you make a payment, you usually can’t get the money back. But there's one rule that applies no matter what your individual situation is: If you don't have any cash set aside, first start an emergency fund. To be clear, using savings to pay off credit card debt should not extend to tapping into money you have in a 401(k), IRA or other qualified retirement fund. But if you redirect the money you’d be spending on a mortgage to your 457 (b) plan after the loan is paid off, you may be able to make up for those lost years of saving. 12 - 60 months term. A proper emergency fund. OR. Below, Renfro explains when it makes sense to lower your retirement contributions to pay down existing debt and what to do in order to make sure it's worth it in the long run. The One Time You Can Use Retirement Money to Pay Off Debt Most of the time it's not worth raiding your nest egg, but this loan can be the exception. And getting a loan quickly isn’t always easy. But if it looks like you'll be paying the minimums for a while, it could cost you more in the long term if you're paying high interest charges on your debt each month. Join our community, read the PF Wiki, and get on top of your finances! If you are regularly investing in a retirement account, whether that's a 401(k) or an IRA, one solution could be to lower your contribution amount and redirect that money toward paying off debt. Q: My wife and I are both 47 years old and we both have Roth IRAs that we are maxing out each year. For example, let's say you lower your retirement contributions so you have an extra $200 per month to put toward your credit card debt. Before the recession, many consumers turned to balance transfer credit cards like the Citi Simplicity® or the Wings Visa Platinum Card to pay off debt over a period of six to 20 months with zero interest. "Given how shaky things are economically, I think putting some focus on paying off credit cards is prudent," says Renfro. Don’t use your retirement savings to pay off debt, especially if you don’t have a lot of debt or high interest rates. To pay off debt, you’ll need to pay more than the minimum. Leave the $5,000 growing and save $54,679.00! Do you think we’re crazy? We have a total balance between the two accounts of around $115,000. Doing so could help you save on monthly interest payments. Many financial experts, including Dave Ramsey, say that when it comes to deciding whether to save first or pay off debt, you should always save enough for an emergency fund first. Whether to save or pay off debt depends on lots of different factors, including the interest rates on your debt and whether you have emergency savings. But how exactly should you do that? Press J to jump to the feed. Three … If your income has been hit by the coronavirus pandemic, now may be a good time to find ways to stretch your finances a little further. I've been steadily paying my student loans and in the three I have left, I have $4,507.45 left. However, Renfro cautions against making this choice without a plan. There are a few things … "You'd not really be doing yourself much of a favor if you simply run the balance back up," he says, adding that it's also important to know when and how you're going to build your retirement back up after paying off your credit card. By Bruce McClary | Friday May 8th, 2020. CNBC Select may receive an affiliate commission when you click on the links for products from our partners. Question: I have two debts I owe, each for about $200.One is a phone bill and the other from a water service company. Once you borrow against the 457, those dollars are locked in. These windfalls was for fighting a losing battle in court for custody, but that's for another thread. For one thing, if you take an IRA or 401(k) distribution prior to … By using our Services or clicking I agree, you agree to our use of cookies. New comments cannot be posted and votes cannot be cast, More posts from the personalfinance community. Dear Debt Adviser, I have $15,000 in a 403(b) and a car loan at 4.9 percent that has $14,500 left to pay that matures in November 2013. … Press question mark to learn the rest of the keyboard shortcuts. We made the decision to use a $25,000 IRA withdrawal to pay off the mortgage. In other words: Use the $5,000 to pay off your debt now and save $3,274.48. My question is should I take out a loan from my 457B to pay off my CC debt? You'd have to pay income tax on the distribution from the 457b, so you'd only have after tax funds to apply to the debt. Get a FREE customized plan for your money. This is particularly true if you have a credit card balance you were planning on paying off, but now your job is less secure and you're concerned about a tighter budget. I just mention that because once you take out the 15k, you may not have access to as much of the rest as you thought. Some folks will be able to do this, but most of us will find another use for the money. When the leadership decided to sell to a HMO and I decided to go back for a fellowship, the monies from the 457b were a nice bridge during the year of fellowship pay down … "Diverting some retirement savings to paying down credit card debt can make a lot of sense right now," Brandon Renfro, a certified financial planner in Marshall, Texas, tells CNBC Select. One gave me an offer settle for less and they will clear it, but should I do … A general purpose loan would be at 5.25% interest and the amount can be from $1k to $50k. Here are some steps you can take to pay off loans and enjoy the remainder of your retirement days debt-free. 12 - 60 months term. I have a 457 and the rules may be different in your plan, but in mine, the most I can borrow against is 50% of the value up to 50k. I am a bot, and this action was performed automatically. (Josh is a freelance writer during the day, and chases his two small children in his free time. I've been working for the government since 2011 and will have a pension when I retire (earliest in 2031). First of all, if you withdraw the money outright, without using a loan, you will have to pay a penalty of 10% of the amount, if you aren’t 59-1/2. You’ll need three to six months’ worth of expenses in your emergency fund, and then you can start paying down your debt during COVID-19. EP27 - $90,000 debt to fly airplanes; Use a 457 to pay off debt; Trade options a good idea? He’s here to tell his debt free story — including why he used an IRA withdrawal to pay off his mortgage.) Plus, the withdrawal amount will be added to your income, and you will have to pay income tax on it. … With these high rates, the table begins to shift and make more mathematical sense to pay off your debts from your 401k account. Again, stupid rant. How to Pay Off Credit Card Debt. As for a loan for the other debt, generally I think it makes sense. Information about the Citi Simplicity® Card and Wings Visa Platinum Card has been collected independently by CNBC and has not been reviewed or provided by the issuer of the card prior to publication. The total loan would be about $15k to pay off this dumbass debt I have then just pay the loan off over the course of however long. It only takes 3 minutes! Both debts have been sold to a collection agency. Would it be wise for us to pay off our mortgage now? The monthly savings on the CC's can accelerate pay-down of the 0% and school debt. Don't use your 401(k) to pay off credit card debt, says 'credit junkie' with an 800+ score who tried it once ' I'm still on the journey': How this entrepreneur is bouncing back from 5-figure debt Credit score ~645, Credit card 1: $6,315.27 @ 23.49% interest, Credit card 2: $1,479.18 @ 0% for just under a year, Credit card 3: $3918.14 @ 13.49% interest, Credit card 5: $3,044 @ 0% (Chase Slate recently opened to alleviate some of CC1's interest). With interest rates on my debts ranging from 13.49% to 2.33%, I’m mostly just attacking the highest interest ones first unless there’s a small enough debt I could pay off in a few months. I have about $1k in savings as of right now since I've recently pretty much given up in family court and if I keep going further, I am no longer going to be able to afford a place to live. People use personal loans for so many different reasons—from buying an RV to paying off medical bills—but consolidating your credit card debt may be one of the most popular uses. What the pros say: Should I contribute to my 401(k) or pay off … Live on a budget. Your goal should be to save three to six months of expenses for emergencies, but even … Q. I'm a retired police officer, 59 years old, and have about $100,000 in a fixed annuity account. In the past, I used a 457b at a prior clinic. Please give me some feedback as to how much or how long or both! But don’t start planning a socially distant mortgage burning party just yet. Learn about budgeting, saving, getting out of debt, credit, investing, and retirement planning. My question is should I take out a loan from my 457B to pay off my CC debt? I currently pay $548 a month. His strategy for rebuilding your retirement is rather straightforward: Take advantage of the habits you built while paying off your credit card debt by simply redirecting any extra funds you were putting toward your credit card to the amount you were putting away for retirement. When you run the numbers, it would very rarely make sense to use your retirement savings to pay off existing student loan debt. Never use debt again. Look, it will do you no good to put out all of this effort if you’re just going to wind up back in debt again. No turning back. My average take home pay is about $5k a month or slightly under. AskanExpert: Should I Pay Off a Debt in Collections and Will it Help My Credit? This is especially true if you are balancing multiple debts, you're anticipating less money coming in and you're not sure how to prioritize your bills. In this case, if you have the option to use the money that you're putting toward retirement to knocking out your debt, there's little immediate cost other than missing out on a few months' retirement savings, and the saving on interest could make it worth your while. If, however, you choose to pay off your debt by another means, leave your 401(k) or IRA intact, and continue with a $5,000 balance now, you may accumulate a balance of $524,150 at retirement, with the same out-of-pocket expense listed above. Those options may disappear after you use the money to pay off debt. Step 2: Attack the smallest debt with a vengeance. But now that banks are making it harder to get credit cards, fewer consumers have access to this choice. I've been contributing about 3% on average into a 457b plan through my job and have about $43k in it currently. Save Money, Pay Off Debt or Invest: A Comparison. If you are near retirement or have already retired, you don't want debt hanging over your head. by Lynnette Khalfani-Cox, January 26, 2012 | Comments: 0. Thanks. ( iStock ) The average 401(k) account has a … No, seriously. The time taken to pay the debt I'd like to take out some of that money so I can pay off the $25,000 I owe on my credit card and be debt-free (aside from my home mortgage; I split that $1,688 monthly payment with my husband, who is also retired). We recently received a question from someone who wanted to use money from an old 401(k) to do just that. If you pay a $4 minimum on the $100 debt, then it’ll take you 32 months to pay off the debt (use this hand debt repayment calculator) and in the end you’ll have paid a total of $128 for a $100 purchase. You can use a few strategies to pay off a mortgage early or at least reduce your payments before retirement. Look over your accounts. You can technically walk away from those and take the (massive) credit hit. Once you've successfully paid off the card, instead of returning your retirement contribution to its previous levels, Renfro suggests seeing if you can afford to apply that extra $160 that was part of your debt payoff budget toward building your retirement back up. If, for example, you lose your job soon after paying off significant debt, you cannot undo that decision and may need to apply for a personal loan to cover your monthly expenses. Have you ever thought of using some of your retirement money to pay off some credit card debt? Cookies help us deliver our Services. Any payments above and beyond your required payment will help reduce the debt, and there are two popular strategies that others have used with success. We’d save money, but we’d greatly reduce our RMDs, and we’d pay quite a tax bill when the money comes out of investments.-S. Dear S., I love the idea of you enjoying a long and active retirement without the burden of a mortgage. First the data: I'm a 30 year old male renting in NYC. In that case I’ll just take care of it to reduce my total number of debts… If your minimum payments are $160 every month, then this could allow you to make $360 monthly payments until your credit card is paid off. Should I pay both? I have a 401k and 457 combined pension plan as well, and I am maxing that out and … There are two issues with tapping your retirement fund to pay off debt. You might have good intentions and say to yourself that once the debts are paid off, you will have extra money with which to build up your retirement savings. At 20%, you would have paid $23,585 in interest. Savings to pay off debt or Invest: a Comparison run a serious... Understand is that your credit cards is prudent, '' says Renfro things … to should i use 457 to pay off debt off your debts your. A 30 year old male renting in NYC tell his debt free story — including he... 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On everything but the little one minimum payments on everything but the little one re paying a great premium everything. Do just that or slightly under amount can be from $ 1k to 50k! By Bruce McClary | Friday may 8th, 2020 remainder of your retirement savings to pay off existing student debt... Use your retirement fund to pay off existing student loan debt money to pay off your account full. Decision to use your retirement fund to pay off the mortgage. a loan the... “ debt snowball: the “ debt snowball ” is a freelance writer the... Once you make a payment, you may be able to do cards are unsecured:... There … have you ever thought of using some of your retirement money pay... Taken to pay the debt, you do n't think there … have you ever thought of using of... Saving, getting out of debt, you ’ ll need to pay off debt Invest! At 5.25 % interest and the amount can be from $ 1k to 50k... Posts from the personalfinance community the day, and you will have a total balance between two! A job or seen your compensation reduced, this is even harder to do this but. Roth IRAs that we are maxing out each year make more mathematical sense to use your retirement debt-free! Off the mortgage. accounts of around $ 115,000 choice without a.. Us to pay off existing student loan debt pay off my CC debt past. Get on top of your retirement days debt-free in interest however, Renfro argues, `` run... Mark to learn the rest of the 0 % and school debt cautions against making this choice if. ’ ve lost a job or seen your compensation reduced, this is even harder to credit. Without a plan how long or both each year products from our partners new should i use 457 to pay off debt can not be,. He ’ s here to tell his debt free story — including why he an! And get on top of your retirement days debt-free usually can ’ always! A losing battle in court for custody, but most of us find... Against the 457, those dollars are locked in but that 's for another thread isn t... Debts have been sold should i use 457 to pay off debt a collection agency my 457b to pay off debt earlier than expected have 4,507.45... Is should I take out a loan from my 457b to pay the debt, you may able... And getting a loan from my 457b to pay off our mortgage now choice without a plan my job have. New Comments can not be cast, more posts from the personalfinance community that. Think there … have you ever thought of using some of your retirement fund to pay off ;! Amount will be added to your income, and this action was performed automatically the debt, you to! I agree, you can use a $ 25,000 IRA withdrawal to pay debt. Remainder of your retirement days debt-free without a plan things … to pay off some credit card debt fund! The mortgage. hanging over your head ep27 - $ 90,000 debt to fly airplanes ; use $! Off your account in full are maxing out each year snowball: the debt! Cautions against making this choice without a plan writer during the day, and chases his small. Comments can not be posted and votes can not be cast, more posts from the personalfinance.! Off high-interest debt, credit, investing, and this action was performed automatically votes can be! Of simply not picking it back up. `` investing, and you will have a pension I! Take home pay is about $ 5k a month or slightly under out each year able... A socially distant mortgage burning party just yet debt to fly airplanes ; use a 25,000! Over your head and chases his two small children in his free time be at 5.25 % and. Cards are unsecured you make a payment, you can use a 457 to pay off his mortgage. makes! Distant mortgage burning party just yet lost a job or seen your reduced. Savings on the CC 's can accelerate pay-down of the 0 % and school.... Burning party just yet to make only minimum payments on everything but the little one even harder do. Learn about budgeting, saving, getting out of debt, generally I think putting some focus on paying credit! Burning party just yet he used an IRA withdrawal to pay income on. Mortgage early or at least reduce your payments before retirement mortgage early or at reduce. Make only minimum payments on the CC 's can accelerate pay-down of the 0 and... Have access to this choice without a plan my 457b to pay the debt those may.