Should I pay off my credit card debt with retirement money
Q: We have $28,000 in credit card debt. I am not working, husband does but with all the bills and 20% salary cut since June, he makes barely enough to cover everything. We are renting and have around $45,000 in retirement money, both IRA and 401(k). I figure out that we can withdraw this money, and after all taxes and penalties should get enough to pay off the credit card debt for good. We haven't missed a single payment yet, and both are in our mid twenties. So we want to preserve our credit histories and feel like we will reestablish our retirement funds in a few years, once economy improves even more, I will get a full time employment and my husband salary will increase. Should we pay off credit card debt with retirement money?
A: In my opinion, no credit history is worth wiping your entire retirement money or even part of it, no matter how young you are and how successful you may be in a future. Because, number one, you may not be as successful as you count on and / or economy is not going to recover as fast as you think. Number two, the time is the huge factor when it comes to compound interest and the earliest savings are often the most important ones. Once this money is gone, it is gone. So no, you should not pay off unsecured credit card debt with your retirement money.
Instead, you should try to negotiate with the credit card lenders and ask for a repayment plan you can afford, since paying a lump sum seems to be out of question, unless you can borrow from your family or someone close to you at the nominal or zero interest. You may be very well surprised to see, how far banks are willing to go today to accommodate such requests, especially if you have a chance to file Chapter 7 Bankruptcy. To convince them of the financial hardship, you, most likely, would have to miss at least two payments. So your credit histories would suffer a lot. By the way, is the credit card debt in both of your names? If not, then one of you will keep the credit intact.
If negotiation process does not work then remember, credit card debt is called unsecured for a reason. If you default and do not repay it, no one can come after your other cash assets without filing a lawsuit and obtaining a judgment. Only then they can garnish your wages and bank accounts to the extent which heavily depends on your state. But again, you retirement money are safe.
A few useful posts from the past on debt negotiation,
Do it yourself debt settlement - best debt relief solution
Debt settlement with Citibank
American Express debt settlement
Tue Mar 8, 2011 12:03PM | Copyright: www.bad-credit-advisor.com | More in Credit Card Debt | Comments (0)
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