Get a FREE customized plan for your money. If this is going to work, you have to commit to the mindset that debt is dumb (because it is). CNBC Select may receive an affiliate commission when you click on the links for products from our partners. There are two issues with tapping your retirement fund to pay off debt. Without one, Renfro argues, "you run a very serious risk of simply not picking it back up.". 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. 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. How to Pay Off Credit Card Debt. 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. I currently pay $548 a month. But how exactly should you do that? Look over your accounts. Please contact the moderators of this subreddit if you have any questions or concerns. Pay off debt sooner: In some cases, you may pay off debt earlier than expected. Get life-changing financial advice anytime, anywhere. 12 - 60 months term. 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. By Bruce McClary | Friday May 8th, 2020. 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. In the past, I used a 457b at a prior clinic. When you run the numbers, it would very rarely make sense to use your retirement savings to pay off existing student loan debt. Moreover there have been numerous … 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. The monthly savings on the CC's can accelerate pay-down of the 0% and school debt. 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. 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. 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. In other words: Use the $5,000 to pay off your debt now and save $3,274.48. My average take home pay is about $5k a month or slightly under. One gave me an offer settle for less and they will clear it, but should I do … Once you make a payment, you usually can’t get the money back. If you are near retirement or have already retired, you don't want debt hanging over your head. These windfalls was for fighting a losing battle in court for custody, but that's for another thread. … 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. Cookies help us deliver our Services. My question is should I take out a loan from my 457B to pay off my CC debt? 12 - 60 months term. 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. However, Renfro cautions against making this choice without a plan. "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. I've been working for the government since 2011 and will have a pension when I retire (earliest in 2031). My question is should I take out a loan from my 457B to pay off my CC debt? Should I Use My Retirement Funds To Pay Off Debt? 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. With these high rates, the table begins to shift and make more mathematical sense to pay off your debts from your 401k account. OR. 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. Three … But now that banks are making it harder to get credit cards, fewer consumers have access to this choice. 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. 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). ( iStock ) The average 401(k) account has a … 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. Once you borrow against the 457, those dollars are locked in. When Paying Off Debt With Your 401(k) Makes Sense. Please give me some feedback as to how much or how long or both! … And getting a loan quickly isn’t always easy. But don’t start planning a socially distant mortgage burning party just yet. I have a 401k and 457 combined pension plan as well, and I am maxing that out and … 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. 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. 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! Again, stupid rant. The time taken to pay the debt 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. I am a bot, and this action was performed automatically. Of course, there are downsides to using retirement account money to pay off your credit card debt. Leave the $5,000 growing and save $54,679.00! AskanExpert: Should I Pay Off a Debt in Collections and Will it Help My Credit? 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. After you've established an emergency fund and paid off high-interest debt, you can begin to boost your savings. My average take home pay is about $5k a month or slightly … You can technically walk away from those and take the (massive) credit hit. Do you think we’re crazy? Would it be wise for us to pay off our mortgage now? 2. To pay off debt, you’ll need to pay more than the minimum. (Josh is a freelance writer during the day, and chases his two small children in his free time. By using our Services or clicking I agree, you agree to our use of cookies. 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. A proper emergency fund. In that case I’ll just take care of it to reduce my total number of debts… 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. 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). 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 Q: My wife and I are both 47 years old and we both have Roth IRAs that we are maxing out each year. Should I pay both? Both debts have been sold to a collection agency. If you need to pay off your debt, options other than tapping into your 401(k) may be better in the long-run. As for a loan for the other debt, generally I think it makes sense. What the pros say: Should I contribute to my 401(k) or pay off … No, seriously. Never use debt again. Never again. 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. Or any questions to clarify anything. 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. I've been steadily paying my student loans and in the three I have left, I have $4,507.45 left. Those options may disappear after you use the money to pay off debt. A general purpose loan would be at 5.25% interest and the amount can be from $1k to $50k. Press question mark to learn the rest of the keyboard shortcuts. by Lynnette Khalfani-Cox, January 26, 2012 | Comments: 0. Press J to jump to the feed. We have a total balance between the two accounts of around $115,000. 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. ; The Sandwich Generation; Energy saving myths But if you haven't been able to pay off those nagging credit card … Subscribe today: Should I Use … 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. EP27 - $90,000 debt to fly airplanes; Use a 457 to pay off debt; Trade options a good idea? There are a few things … 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. You can use a few strategies to pay off a mortgage early or at least reduce your payments before retirement. One thing to understand is that your credit cards are unsecured. Step 2: Attack the smallest debt with a vengeance. Debt snowball: the “debt snowball” is a way to build momentum as you reduce debt. 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. 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. First the data: I'm a 30 year old male renting in NYC. 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. Pay minimum payments on everything but the little one. 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. 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. "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. Live on a budget. Some folks will be able to do this, but most of us will find another use for the money. Question: I have two debts I owe, each for about $200.One is a phone bill and the other from a water service company. For one thing, if you take an IRA or 401(k) distribution prior to … Doing so could help you save on monthly interest payments. 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). He’s here to tell his debt free story — including why he used an IRA withdrawal to pay off his mortgage.) Q. I'm a retired police officer, 59 years old, and have about $100,000 in a fixed annuity account. 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. 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. 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. Your goal should be to save three to six months of expenses for emergencies, but even … How to Pay Off Debt (the Smart Way) 1. Popularized by Dave Ramsey, the idea is to pay off … 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.

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