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I have $3500 in Rollover IRA. Should I withdraw it early and pay off my credit card debt?
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I have been investing a healthy amount in my current 401k with no plan to withdraw it early. I have $3,500 in a rollover IRA which has been sitting in there for about 4 years and I have done nothing to grow it over the past couple of years.
I have ~$3k in credit card debt and I wonder what the cons would be for withdrawing the IRA money early and using it to pay off my credit card debt. Since I would pay a 10% penalty and 35% in combined state and federal taxes, I think that this would net me approximately $1,900.
The $3,500 seems like such a small amount and therefore I don’t see any big risks by taking it out to pay off my credit card debt. Am I missing something?
united-states 401k ira debt-reduction rollover
edited 22 hours ago
Bob Baerker
9,98811239
asked yesterday
Gerry
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up vote
14
down vote
favorite
I have been investing a healthy amount in my current 401k with no plan to withdraw it early. I have $3,500 in a rollover IRA which has been sitting in there for about 4 years and I have done nothing to grow it over the past couple of years.
I have ~$3k in credit card debt and I wonder what the cons would be for withdrawing the IRA money early and using it to pay off my credit card debt. Since I would pay a 10% penalty and 35% in combined state and federal taxes, I think that this would net me approximately $1,900.
The $3,500 seems like such a small amount and therefore I don’t see any big risks by taking it out to pay off my credit card debt. Am I missing something?
united-states 401k ira debt-reduction rollover
edited 22 hours ago
Bob Baerker
9,98811239
asked yesterday
Gerry
7114
New contributor
Gerry is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
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2
Does your 401(k) plan accept incoming rollovers? If you consider it too small an amount to keep track of, maybe you could roll it into your 401(k) and have one fewer account.
– stannius
18 hours ago
What kinds of funds or indexes does your rollover IRA give you access to? As I recall, accounts specifically labelled "Rollover" are just intended to be holding accounts and don't usually have anything more than money market investment options.
– Arluin
12 hours ago
add a comment |Â
up vote
14
down vote
favorite
up vote
14
down vote
favorite
I have been investing a healthy amount in my current 401k with no plan to withdraw it early. I have $3,500 in a rollover IRA which has been sitting in there for about 4 years and I have done nothing to grow it over the past couple of years.
I have ~$3k in credit card debt and I wonder what the cons would be for withdrawing the IRA money early and using it to pay off my credit card debt. Since I would pay a 10% penalty and 35% in combined state and federal taxes, I think that this would net me approximately $1,900.
The $3,500 seems like such a small amount and therefore I don’t see any big risks by taking it out to pay off my credit card debt. Am I missing something?
united-states 401k ira debt-reduction rollover
edited 22 hours ago
Bob Baerker
9,98811239
asked yesterday
Gerry
7114
New contributor
Gerry is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.
I have been investing a healthy amount in my current 401k with no plan to withdraw it early. I have $3,500 in a rollover IRA which has been sitting in there for about 4 years and I have done nothing to grow it over the past couple of years.
I have ~$3k in credit card debt and I wonder what the cons would be for withdrawing the IRA money early and using it to pay off my credit card debt. Since I would pay a 10% penalty and 35% in combined state and federal taxes, I think that this would net me approximately $1,900.
The $3,500 seems like such a small amount and therefore I don’t see any big risks by taking it out to pay off my credit card debt. Am I missing something?
united-states 401k ira debt-reduction rollover
united-states 401k ira debt-reduction rollover
edited 22 hours ago
Bob Baerker
9,98811239
asked yesterday
Gerry
7114
New contributor
Gerry is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.
edited 22 hours ago
Bob Baerker
9,98811239
asked yesterday
Gerry
7114
New contributor
Gerry is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.
edited 22 hours ago
Bob Baerker
9,98811239
edited 22 hours ago
Bob Baerker
9,98811239
edited 22 hours ago
Bob Baerker
9,98811239
9,98811239
asked yesterday
Gerry
7114
New contributor
Gerry is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.
asked yesterday
Gerry
7114
asked yesterday
Gerry
7114
7114
New contributor
Gerry is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.
New contributor
Gerry is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.
Gerry is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.
2
Does your 401(k) plan accept incoming rollovers? If you consider it too small an amount to keep track of, maybe you could roll it into your 401(k) and have one fewer account.
– stannius
18 hours ago
What kinds of funds or indexes does your rollover IRA give you access to? As I recall, accounts specifically labelled "Rollover" are just intended to be holding accounts and don't usually have anything more than money market investment options.
– Arluin
12 hours ago
add a comment |Â
2
Does your 401(k) plan accept incoming rollovers? If you consider it too small an amount to keep track of, maybe you could roll it into your 401(k) and have one fewer account.
– stannius
18 hours ago
What kinds of funds or indexes does your rollover IRA give you access to? As I recall, accounts specifically labelled "Rollover" are just intended to be holding accounts and don't usually have anything more than money market investment options.
– Arluin
12 hours ago
2
2
Does your 401(k) plan accept incoming rollovers? If you consider it too small an amount to keep track of, maybe you could roll it into your 401(k) and have one fewer account.
– stannius
18 hours ago
Does your 401(k) plan accept incoming rollovers? If you consider it too small an amount to keep track of, maybe you could roll it into your 401(k) and have one fewer account.
– stannius
18 hours ago
What kinds of funds or indexes does your rollover IRA give you access to? As I recall, accounts specifically labelled "Rollover" are just intended to be holding accounts and don't usually have anything more than money market investment options.
– Arluin
12 hours ago
What kinds of funds or indexes does your rollover IRA give you access to? As I recall, accounts specifically labelled "Rollover" are just intended to be holding accounts and don't usually have anything more than money market investment options.
– Arluin
12 hours ago
add a comment |Â
7 Answers
7
active
oldest
votes
up vote
51
down vote
Do not use your IRA to pay off this debt! If the penalties are indeed as high as you state, it's like paying almost 50% interest on your debt!
Your $3500 balance is real money. You can consolidate your rollover accounts if you don't like having small amounts in several places. It's not just some "random account". If you had $3500 in cash right now, would you light $1600 on fire in order to pay down $1900 of debt? Sounds silly, right?
Consider asking a different question: "What's the best way to pay down my credit card debt?"
answered yesterday
Rocky
17k44476
5
I'm not sure I agree with "it's like paying almost 50% interest". The 10% penalty is hefty, but you'll be paying with post-tax money either way, whether it's from the IRA or savings/salary.
– ceejayoz
18 hours ago
3
Also, paying off a CC debt like that can have a rebound effect on you. Since you are used to having a 3K debt you can very easily rationalise to yourself that it is manageable and very soon run up a similar debt. Slow, orderly reduction generally works better.
– theblitz
17 hours ago
add a comment |Â
up vote
11
down vote
Do not use this money to pay off debt.
As others have stated, this would be a huge waste of money.
Further, how do you have that money invested inside your IRA? The stock market is up roughly 50% over the last two years. If your investment has not grown at all during that time, you have it invested very poorly. Do you just have it sitting in cash inside the IRA? Is it in some fund that is really expensive but has worse than average returns? That you could have money sitting in an IRA and have made nothing over the last few years doesn't really make much sense.
answered 22 hours ago
Kevin
1,219912
2
This is right. Even an inexpensive index fund should have grown significantly in the past few years.
– Barmar
19 hours ago
add a comment |Â
up vote
6
down vote
You are not looking at this correctly.
The entire premise of a tax privileged retirement account is for long term growth. The "rule of 72" says that at 10% return your retirement funds will double every 7 years. If you withdraw that money 28 years from now, then that is 4 doublings.
$3,500 * 2^4 = $3,500 * 16 = $56,000.
So you are not really spending "$3,500" to be debt free. You are sacrificing your future. For sure there are other considerations, like opportunity costs, and how holding debt also sacrifices your future. However, don't steal from yourself (in the future) for a short term gain. This is before even considering the 10% withdrawal penalty which comes right off the top. $3,500 should be manageable debt. Solve the problem of acquiring new debt and fix that and get out of debt with a plan. Even if the debt payment plan is only $200 / month.
If you want to combine a savings emergency fund with retirement you might look into a ROTH IRA. Those allow you to withdraw your contributions penalty free. That way you could save for retirement, but also know that in a pinch you can access the cash you've deposited without penalty.
answered 20 hours ago
James
22016
3
That doesn't make sense. If the credit card is charging 20% interest, it's going to compound much faster than the investment. And 10% is a very optimistic number.
– Acccumulation
17 hours ago
2
@Acccumulation, both valid points. There are definitely numbers where taking the hit make sense. Still, my overall point is to not "rob" from yourself without fixing the underlying problem, otherwise they will end up right back or worse than before when they have $3500 debt + no retirement.
– James
17 hours ago
add a comment |Â
up vote
3
down vote
This is going to sound like a scam because it seems to good to be true, however, it isn't. What if I told you you can make a guaranteed 45% (or more) return on your money? Wow, amazing, must be a scam.
Step 1: Rollover or keep this IRA. Make sure it is with one of the free providers.
Step 2: Reduce your lifestyle and your 401K contributions to pay off this CC. Your goal should be done with this in 2-3 months. Make sure you have at least 1k per month to make the payment.
If you really want to set yourself up for success get a second job instead of reducing your contributions and be done with this 8 weeks from today.
You can do it.
answered 23 hours ago
Pete B.
46.2k1098145
5
I would have up-voted this, except for the "get a 2nd job" bit, plus the unrealistic time frames. Not everyone can get that 2nd job and very few people will be able to find one "today". Also, having a 2nd job can put too much stress on a person and significantly reduce their energy levels, causing their "day job" to suffer. I know this from currently running my own business 30-40 hrs a week after my day job.
– computercarguy
19 hours ago
@computercarguy you miss the point. The goal is to make the time frame short, if it is 4 or 6 months does it change his life? Nope. However, lets say he goes all in. Could he be done in 4 or 6 weeks? With such a small amount, the answer is yes. Doing it in an "unrealistic" time frame will change his life far more than the dollars in question.
– Pete B.
17 hours ago
2
If they are getting matching contributions, it may make sense to put money in a 401(k) rather than paying off the credit card.
– Acccumulation
17 hours ago
Why is 4-6 months not a short enough time frame? Paying this debt off in 4-6 weeks might be detrimental to the OP (stress, marriage, kids, etc.). Also, many of the jobs I've had take 3-4 weeks for the first paycheck to arrive.
– computercarguy
17 hours ago
2
Sorry, I was assuming non-snowflake.
– Pete B.
17 hours ago
 |Â
show 1 more comment
up vote
3
down vote
You have so many options regarding the $3500 to make it grow between now and retirement.
The $3500 just seems like such a small amount and kept in a random
account I have done nothing to grow it the last couple years.
If you are like a typical US worker you will have multiple employers over the years, when you move to the next one you will have an opportunity to rollover the money from your current 401K. So the $3,500 would soon have more rollover money.
If you want to only consider the current $3,500 then realize that there are many companies/funds that would be happy to invest your money. An IRA is a type of account, that is defined by your limited ability to spend it before reaching retirement age. Being an IRA doesn't place many limits on how it can be invested. It can be anything from a account paying almost zero, to a CD, to a bond mutual fund, to a stock mutual fund. Even a mutual fund can range from ultra-safe and conservative to ultra-aggressive.
Moving your money from safe to aggressive can be done easily without any tax implications.
If you want some tax implications you can change the account from a traditional to a Roth account. That would cost you that 35% federal and state taxes, but would allow the account to grow tax free. That might not be a possibility now, with the credit card debt but it is something to consider in the future.
answered 23 hours ago
mhoran_psprep
61.8k785162
1
Converting the account to a Roth IRA does not seem like it will be the right move for OP any time soon. He first needs to pay off the credit card debt, second needs to max out the 401(K), and only then should he consider any Roth conversions.
– stannius
18 hours ago
add a comment |Â
up vote
1
down vote
You take a penalty to use the money in your IRA but you take no penalty if you suspend your 401k contributions to pay off your debt. This automatically puts you ahead because it is like you earned the same amount as the penalty that you would have paid otherwise assuming you were going to use your IRA money.
Personally, I would see where you can alter your lifestyle so that you continue to contribute to your 401k while also saving money elsewhere and using that to pay off your debt.
answered 19 hours ago
user1723699
1213
2
If OP has an employer match, suspending contributions could be as much as 100% "penalty" on the money not contributed.
– stannius
18 hours ago
Besides stannius' point, the OP would be paying CC-level interest on the money until the debt is paid off.
– Acccumulation
17 hours ago
add a comment |Â
up vote
1
down vote
As others stated, don't use your IRA to pay off the debt. With the fees and taxes involved, you just aren't going to get a 1:1 ratio between "cash" and debt.
Reducing your spending might be a way to help you pay off that debt. I've used this method for +15 years and it works, even if it takes time.
Before I start, this answer to another question is related: https://interpersonal.stackexchange.com/a/18381/3616
There are probably a lot of things that you buy without thinking about them that can go a long way to reducing your spending that can give you more money to reduce your debt. Daily drinks (coffee, pop, tea, alcohol, etc.), snacks, cigarettes, and lots more can add up to significant spending each week. If you reduce or eliminate those expenditures, they become savings or even debt reduction.
If you spend $8 a day at lunch then $10 for supper, that's roughly $550 a month. Spend $350 at the grocery store instead for a $200 a month savings. That $5 morning coffee is $150 a month. You can still have that morning coffee, just brew it yourself.
If you're already doing this, great! You might want to check out the book "America's Cheapest Family" for other great ways to save. I've read that book 2-3 times to help me figure out where I can "trim the fat" without negatively impacting myself.
Without touching your IRA or 401k contributions, but simply reducing your spending can allow you pay off that $3500 in a year or less. Also, reducing your spending will help prevent that $3500 from constantly regenerating or, worse, growing.
answered 17 hours ago
computercarguy
5318
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7 Answers
7
active
oldest
votes
7 Answers
7
active
oldest
votes
active
oldest
votes
active
oldest
votes
up vote
51
down vote
Do not use your IRA to pay off this debt! If the penalties are indeed as high as you state, it's like paying almost 50% interest on your debt!
Your $3500 balance is real money. You can consolidate your rollover accounts if you don't like having small amounts in several places. It's not just some "random account". If you had $3500 in cash right now, would you light $1600 on fire in order to pay down $1900 of debt? Sounds silly, right?
Consider asking a different question: "What's the best way to pay down my credit card debt?"
answered yesterday
Rocky
17k44476
5
I'm not sure I agree with "it's like paying almost 50% interest". The 10% penalty is hefty, but you'll be paying with post-tax money either way, whether it's from the IRA or savings/salary.
– ceejayoz
18 hours ago
3
Also, paying off a CC debt like that can have a rebound effect on you. Since you are used to having a 3K debt you can very easily rationalise to yourself that it is manageable and very soon run up a similar debt. Slow, orderly reduction generally works better.
– theblitz
17 hours ago
add a comment |Â
up vote
51
down vote
Do not use your IRA to pay off this debt! If the penalties are indeed as high as you state, it's like paying almost 50% interest on your debt!
Your $3500 balance is real money. You can consolidate your rollover accounts if you don't like having small amounts in several places. It's not just some "random account". If you had $3500 in cash right now, would you light $1600 on fire in order to pay down $1900 of debt? Sounds silly, right?
Consider asking a different question: "What's the best way to pay down my credit card debt?"
answered yesterday
Rocky
17k44476
5
I'm not sure I agree with "it's like paying almost 50% interest". The 10% penalty is hefty, but you'll be paying with post-tax money either way, whether it's from the IRA or savings/salary.
– ceejayoz
18 hours ago
3
Also, paying off a CC debt like that can have a rebound effect on you. Since you are used to having a 3K debt you can very easily rationalise to yourself that it is manageable and very soon run up a similar debt. Slow, orderly reduction generally works better.
– theblitz
17 hours ago
add a comment |Â
up vote
51
down vote
up vote
51
down vote
Do not use your IRA to pay off this debt! If the penalties are indeed as high as you state, it's like paying almost 50% interest on your debt!
Your $3500 balance is real money. You can consolidate your rollover accounts if you don't like having small amounts in several places. It's not just some "random account". If you had $3500 in cash right now, would you light $1600 on fire in order to pay down $1900 of debt? Sounds silly, right?
Consider asking a different question: "What's the best way to pay down my credit card debt?"
answered yesterday
Rocky
17k44476
Do not use your IRA to pay off this debt! If the penalties are indeed as high as you state, it's like paying almost 50% interest on your debt!
Your $3500 balance is real money. You can consolidate your rollover accounts if you don't like having small amounts in several places. It's not just some "random account". If you had $3500 in cash right now, would you light $1600 on fire in order to pay down $1900 of debt? Sounds silly, right?
Consider asking a different question: "What's the best way to pay down my credit card debt?"
answered yesterday
Rocky
17k44476
answered yesterday
Rocky
17k44476
answered yesterday
Rocky
17k44476
answered yesterday
Rocky
17k44476
17k44476
5
I'm not sure I agree with "it's like paying almost 50% interest". The 10% penalty is hefty, but you'll be paying with post-tax money either way, whether it's from the IRA or savings/salary.
– ceejayoz
18 hours ago
3
Also, paying off a CC debt like that can have a rebound effect on you. Since you are used to having a 3K debt you can very easily rationalise to yourself that it is manageable and very soon run up a similar debt. Slow, orderly reduction generally works better.
– theblitz
17 hours ago
add a comment |Â
5
I'm not sure I agree with "it's like paying almost 50% interest". The 10% penalty is hefty, but you'll be paying with post-tax money either way, whether it's from the IRA or savings/salary.
– ceejayoz
18 hours ago
3
Also, paying off a CC debt like that can have a rebound effect on you. Since you are used to having a 3K debt you can very easily rationalise to yourself that it is manageable and very soon run up a similar debt. Slow, orderly reduction generally works better.
– theblitz
17 hours ago
5
5
I'm not sure I agree with "it's like paying almost 50% interest". The 10% penalty is hefty, but you'll be paying with post-tax money either way, whether it's from the IRA or savings/salary.
– ceejayoz
18 hours ago
I'm not sure I agree with "it's like paying almost 50% interest". The 10% penalty is hefty, but you'll be paying with post-tax money either way, whether it's from the IRA or savings/salary.
– ceejayoz
18 hours ago
3
3
Also, paying off a CC debt like that can have a rebound effect on you. Since you are used to having a 3K debt you can very easily rationalise to yourself that it is manageable and very soon run up a similar debt. Slow, orderly reduction generally works better.
– theblitz
17 hours ago
Also, paying off a CC debt like that can have a rebound effect on you. Since you are used to having a 3K debt you can very easily rationalise to yourself that it is manageable and very soon run up a similar debt. Slow, orderly reduction generally works better.
– theblitz
17 hours ago
add a comment |Â
up vote
11
down vote
Do not use this money to pay off debt.
As others have stated, this would be a huge waste of money.
Further, how do you have that money invested inside your IRA? The stock market is up roughly 50% over the last two years. If your investment has not grown at all during that time, you have it invested very poorly. Do you just have it sitting in cash inside the IRA? Is it in some fund that is really expensive but has worse than average returns? That you could have money sitting in an IRA and have made nothing over the last few years doesn't really make much sense.
answered 22 hours ago
Kevin
1,219912
2
This is right. Even an inexpensive index fund should have grown significantly in the past few years.
– Barmar
19 hours ago
add a comment |Â
up vote
11
down vote
Do not use this money to pay off debt.
As others have stated, this would be a huge waste of money.
Further, how do you have that money invested inside your IRA? The stock market is up roughly 50% over the last two years. If your investment has not grown at all during that time, you have it invested very poorly. Do you just have it sitting in cash inside the IRA? Is it in some fund that is really expensive but has worse than average returns? That you could have money sitting in an IRA and have made nothing over the last few years doesn't really make much sense.
answered 22 hours ago
Kevin
1,219912
2
This is right. Even an inexpensive index fund should have grown significantly in the past few years.
– Barmar
19 hours ago
add a comment |Â
up vote
11
down vote
up vote
11
down vote
Do not use this money to pay off debt.
As others have stated, this would be a huge waste of money.
Further, how do you have that money invested inside your IRA? The stock market is up roughly 50% over the last two years. If your investment has not grown at all during that time, you have it invested very poorly. Do you just have it sitting in cash inside the IRA? Is it in some fund that is really expensive but has worse than average returns? That you could have money sitting in an IRA and have made nothing over the last few years doesn't really make much sense.
answered 22 hours ago
Kevin
1,219912
Do not use this money to pay off debt.
As others have stated, this would be a huge waste of money.
Further, how do you have that money invested inside your IRA? The stock market is up roughly 50% over the last two years. If your investment has not grown at all during that time, you have it invested very poorly. Do you just have it sitting in cash inside the IRA? Is it in some fund that is really expensive but has worse than average returns? That you could have money sitting in an IRA and have made nothing over the last few years doesn't really make much sense.
answered 22 hours ago
Kevin
1,219912
answered 22 hours ago
Kevin
1,219912
answered 22 hours ago
Kevin
1,219912
answered 22 hours ago
Kevin
1,219912
1,219912
2
This is right. Even an inexpensive index fund should have grown significantly in the past few years.
– Barmar
19 hours ago
add a comment |Â
2
This is right. Even an inexpensive index fund should have grown significantly in the past few years.
– Barmar
19 hours ago
2
2
This is right. Even an inexpensive index fund should have grown significantly in the past few years.
– Barmar
19 hours ago
This is right. Even an inexpensive index fund should have grown significantly in the past few years.
– Barmar
19 hours ago
add a comment |Â
up vote
6
down vote
You are not looking at this correctly.
The entire premise of a tax privileged retirement account is for long term growth. The "rule of 72" says that at 10% return your retirement funds will double every 7 years. If you withdraw that money 28 years from now, then that is 4 doublings.
$3,500 * 2^4 = $3,500 * 16 = $56,000.
So you are not really spending "$3,500" to be debt free. You are sacrificing your future. For sure there are other considerations, like opportunity costs, and how holding debt also sacrifices your future. However, don't steal from yourself (in the future) for a short term gain. This is before even considering the 10% withdrawal penalty which comes right off the top. $3,500 should be manageable debt. Solve the problem of acquiring new debt and fix that and get out of debt with a plan. Even if the debt payment plan is only $200 / month.
If you want to combine a savings emergency fund with retirement you might look into a ROTH IRA. Those allow you to withdraw your contributions penalty free. That way you could save for retirement, but also know that in a pinch you can access the cash you've deposited without penalty.
answered 20 hours ago
James
22016
3
That doesn't make sense. If the credit card is charging 20% interest, it's going to compound much faster than the investment. And 10% is a very optimistic number.
– Acccumulation
17 hours ago
2
@Acccumulation, both valid points. There are definitely numbers where taking the hit make sense. Still, my overall point is to not "rob" from yourself without fixing the underlying problem, otherwise they will end up right back or worse than before when they have $3500 debt + no retirement.
– James
17 hours ago
add a comment |Â
up vote
6
down vote
You are not looking at this correctly.
The entire premise of a tax privileged retirement account is for long term growth. The "rule of 72" says that at 10% return your retirement funds will double every 7 years. If you withdraw that money 28 years from now, then that is 4 doublings.
$3,500 * 2^4 = $3,500 * 16 = $56,000.
So you are not really spending "$3,500" to be debt free. You are sacrificing your future. For sure there are other considerations, like opportunity costs, and how holding debt also sacrifices your future. However, don't steal from yourself (in the future) for a short term gain. This is before even considering the 10% withdrawal penalty which comes right off the top. $3,500 should be manageable debt. Solve the problem of acquiring new debt and fix that and get out of debt with a plan. Even if the debt payment plan is only $200 / month.
If you want to combine a savings emergency fund with retirement you might look into a ROTH IRA. Those allow you to withdraw your contributions penalty free. That way you could save for retirement, but also know that in a pinch you can access the cash you've deposited without penalty.
answered 20 hours ago
James
22016
3
That doesn't make sense. If the credit card is charging 20% interest, it's going to compound much faster than the investment. And 10% is a very optimistic number.
– Acccumulation
17 hours ago
2
@Acccumulation, both valid points. There are definitely numbers where taking the hit make sense. Still, my overall point is to not "rob" from yourself without fixing the underlying problem, otherwise they will end up right back or worse than before when they have $3500 debt + no retirement.
– James
17 hours ago
add a comment |Â
up vote
6
down vote
up vote
6
down vote
You are not looking at this correctly.
The entire premise of a tax privileged retirement account is for long term growth. The "rule of 72" says that at 10% return your retirement funds will double every 7 years. If you withdraw that money 28 years from now, then that is 4 doublings.
$3,500 * 2^4 = $3,500 * 16 = $56,000.
So you are not really spending "$3,500" to be debt free. You are sacrificing your future. For sure there are other considerations, like opportunity costs, and how holding debt also sacrifices your future. However, don't steal from yourself (in the future) for a short term gain. This is before even considering the 10% withdrawal penalty which comes right off the top. $3,500 should be manageable debt. Solve the problem of acquiring new debt and fix that and get out of debt with a plan. Even if the debt payment plan is only $200 / month.
If you want to combine a savings emergency fund with retirement you might look into a ROTH IRA. Those allow you to withdraw your contributions penalty free. That way you could save for retirement, but also know that in a pinch you can access the cash you've deposited without penalty.
answered 20 hours ago
James
22016
You are not looking at this correctly.
The entire premise of a tax privileged retirement account is for long term growth. The "rule of 72" says that at 10% return your retirement funds will double every 7 years. If you withdraw that money 28 years from now, then that is 4 doublings.
$3,500 * 2^4 = $3,500 * 16 = $56,000.
So you are not really spending "$3,500" to be debt free. You are sacrificing your future. For sure there are other considerations, like opportunity costs, and how holding debt also sacrifices your future. However, don't steal from yourself (in the future) for a short term gain. This is before even considering the 10% withdrawal penalty which comes right off the top. $3,500 should be manageable debt. Solve the problem of acquiring new debt and fix that and get out of debt with a plan. Even if the debt payment plan is only $200 / month.
If you want to combine a savings emergency fund with retirement you might look into a ROTH IRA. Those allow you to withdraw your contributions penalty free. That way you could save for retirement, but also know that in a pinch you can access the cash you've deposited without penalty.
answered 20 hours ago
James
22016
edited 20 hours ago
answered 20 hours ago
James
22016
answered 20 hours ago
James
22016
answered 20 hours ago
James
22016
22016
3
That doesn't make sense. If the credit card is charging 20% interest, it's going to compound much faster than the investment. And 10% is a very optimistic number.
– Acccumulation
17 hours ago
2
@Acccumulation, both valid points. There are definitely numbers where taking the hit make sense. Still, my overall point is to not "rob" from yourself without fixing the underlying problem, otherwise they will end up right back or worse than before when they have $3500 debt + no retirement.
– James
17 hours ago
add a comment |Â
3
That doesn't make sense. If the credit card is charging 20% interest, it's going to compound much faster than the investment. And 10% is a very optimistic number.
– Acccumulation
17 hours ago
2
@Acccumulation, both valid points. There are definitely numbers where taking the hit make sense. Still, my overall point is to not "rob" from yourself without fixing the underlying problem, otherwise they will end up right back or worse than before when they have $3500 debt + no retirement.
– James
17 hours ago
3
3
That doesn't make sense. If the credit card is charging 20% interest, it's going to compound much faster than the investment. And 10% is a very optimistic number.
– Acccumulation
17 hours ago
That doesn't make sense. If the credit card is charging 20% interest, it's going to compound much faster than the investment. And 10% is a very optimistic number.
– Acccumulation
17 hours ago
2
2
@Acccumulation, both valid points. There are definitely numbers where taking the hit make sense. Still, my overall point is to not "rob" from yourself without fixing the underlying problem, otherwise they will end up right back or worse than before when they have $3500 debt + no retirement.
– James
17 hours ago
@Acccumulation, both valid points. There are definitely numbers where taking the hit make sense. Still, my overall point is to not "rob" from yourself without fixing the underlying problem, otherwise they will end up right back or worse than before when they have $3500 debt + no retirement.
– James
17 hours ago
add a comment |Â
up vote
3
down vote
This is going to sound like a scam because it seems to good to be true, however, it isn't. What if I told you you can make a guaranteed 45% (or more) return on your money? Wow, amazing, must be a scam.
Step 1: Rollover or keep this IRA. Make sure it is with one of the free providers.
Step 2: Reduce your lifestyle and your 401K contributions to pay off this CC. Your goal should be done with this in 2-3 months. Make sure you have at least 1k per month to make the payment.
If you really want to set yourself up for success get a second job instead of reducing your contributions and be done with this 8 weeks from today.
You can do it.
answered 23 hours ago
Pete B.
46.2k1098145
5
I would have up-voted this, except for the "get a 2nd job" bit, plus the unrealistic time frames. Not everyone can get that 2nd job and very few people will be able to find one "today". Also, having a 2nd job can put too much stress on a person and significantly reduce their energy levels, causing their "day job" to suffer. I know this from currently running my own business 30-40 hrs a week after my day job.
– computercarguy
19 hours ago
@computercarguy you miss the point. The goal is to make the time frame short, if it is 4 or 6 months does it change his life? Nope. However, lets say he goes all in. Could he be done in 4 or 6 weeks? With such a small amount, the answer is yes. Doing it in an "unrealistic" time frame will change his life far more than the dollars in question.
– Pete B.
17 hours ago
2
If they are getting matching contributions, it may make sense to put money in a 401(k) rather than paying off the credit card.
– Acccumulation
17 hours ago
Why is 4-6 months not a short enough time frame? Paying this debt off in 4-6 weeks might be detrimental to the OP (stress, marriage, kids, etc.). Also, many of the jobs I've had take 3-4 weeks for the first paycheck to arrive.
– computercarguy
17 hours ago
2
Sorry, I was assuming non-snowflake.
– Pete B.
17 hours ago
 |Â
show 1 more comment
up vote
3
down vote
This is going to sound like a scam because it seems to good to be true, however, it isn't. What if I told you you can make a guaranteed 45% (or more) return on your money? Wow, amazing, must be a scam.
Step 1: Rollover or keep this IRA. Make sure it is with one of the free providers.
Step 2: Reduce your lifestyle and your 401K contributions to pay off this CC. Your goal should be done with this in 2-3 months. Make sure you have at least 1k per month to make the payment.
If you really want to set yourself up for success get a second job instead of reducing your contributions and be done with this 8 weeks from today.
You can do it.
answered 23 hours ago
Pete B.
46.2k1098145
5
I would have up-voted this, except for the "get a 2nd job" bit, plus the unrealistic time frames. Not everyone can get that 2nd job and very few people will be able to find one "today". Also, having a 2nd job can put too much stress on a person and significantly reduce their energy levels, causing their "day job" to suffer. I know this from currently running my own business 30-40 hrs a week after my day job.
– computercarguy
19 hours ago
@computercarguy you miss the point. The goal is to make the time frame short, if it is 4 or 6 months does it change his life? Nope. However, lets say he goes all in. Could he be done in 4 or 6 weeks? With such a small amount, the answer is yes. Doing it in an "unrealistic" time frame will change his life far more than the dollars in question.
– Pete B.
17 hours ago
2
If they are getting matching contributions, it may make sense to put money in a 401(k) rather than paying off the credit card.
– Acccumulation
17 hours ago
Why is 4-6 months not a short enough time frame? Paying this debt off in 4-6 weeks might be detrimental to the OP (stress, marriage, kids, etc.). Also, many of the jobs I've had take 3-4 weeks for the first paycheck to arrive.
– computercarguy
17 hours ago
2
Sorry, I was assuming non-snowflake.
– Pete B.
17 hours ago
 |Â
show 1 more comment
up vote
3
down vote
up vote
3
down vote
This is going to sound like a scam because it seems to good to be true, however, it isn't. What if I told you you can make a guaranteed 45% (or more) return on your money? Wow, amazing, must be a scam.
Step 1: Rollover or keep this IRA. Make sure it is with one of the free providers.
Step 2: Reduce your lifestyle and your 401K contributions to pay off this CC. Your goal should be done with this in 2-3 months. Make sure you have at least 1k per month to make the payment.
If you really want to set yourself up for success get a second job instead of reducing your contributions and be done with this 8 weeks from today.
You can do it.
answered 23 hours ago
Pete B.
46.2k1098145
This is going to sound like a scam because it seems to good to be true, however, it isn't. What if I told you you can make a guaranteed 45% (or more) return on your money? Wow, amazing, must be a scam.
Step 1: Rollover or keep this IRA. Make sure it is with one of the free providers.
Step 2: Reduce your lifestyle and your 401K contributions to pay off this CC. Your goal should be done with this in 2-3 months. Make sure you have at least 1k per month to make the payment.
If you really want to set yourself up for success get a second job instead of reducing your contributions and be done with this 8 weeks from today.
You can do it.
answered 23 hours ago
Pete B.
46.2k1098145
answered 23 hours ago
Pete B.
46.2k1098145
answered 23 hours ago
Pete B.
46.2k1098145
answered 23 hours ago
Pete B.
46.2k1098145
46.2k1098145
5
I would have up-voted this, except for the "get a 2nd job" bit, plus the unrealistic time frames. Not everyone can get that 2nd job and very few people will be able to find one "today". Also, having a 2nd job can put too much stress on a person and significantly reduce their energy levels, causing their "day job" to suffer. I know this from currently running my own business 30-40 hrs a week after my day job.
– computercarguy
19 hours ago
@computercarguy you miss the point. The goal is to make the time frame short, if it is 4 or 6 months does it change his life? Nope. However, lets say he goes all in. Could he be done in 4 or 6 weeks? With such a small amount, the answer is yes. Doing it in an "unrealistic" time frame will change his life far more than the dollars in question.
– Pete B.
17 hours ago
2
If they are getting matching contributions, it may make sense to put money in a 401(k) rather than paying off the credit card.
– Acccumulation
17 hours ago
Why is 4-6 months not a short enough time frame? Paying this debt off in 4-6 weeks might be detrimental to the OP (stress, marriage, kids, etc.). Also, many of the jobs I've had take 3-4 weeks for the first paycheck to arrive.
– computercarguy
17 hours ago
2
Sorry, I was assuming non-snowflake.
– Pete B.
17 hours ago
 |Â
show 1 more comment
5
I would have up-voted this, except for the "get a 2nd job" bit, plus the unrealistic time frames. Not everyone can get that 2nd job and very few people will be able to find one "today". Also, having a 2nd job can put too much stress on a person and significantly reduce their energy levels, causing their "day job" to suffer. I know this from currently running my own business 30-40 hrs a week after my day job.
– computercarguy
19 hours ago
@computercarguy you miss the point. The goal is to make the time frame short, if it is 4 or 6 months does it change his life? Nope. However, lets say he goes all in. Could he be done in 4 or 6 weeks? With such a small amount, the answer is yes. Doing it in an "unrealistic" time frame will change his life far more than the dollars in question.
– Pete B.
17 hours ago
2
If they are getting matching contributions, it may make sense to put money in a 401(k) rather than paying off the credit card.
– Acccumulation
17 hours ago
Why is 4-6 months not a short enough time frame? Paying this debt off in 4-6 weeks might be detrimental to the OP (stress, marriage, kids, etc.). Also, many of the jobs I've had take 3-4 weeks for the first paycheck to arrive.
– computercarguy
17 hours ago
2
Sorry, I was assuming non-snowflake.
– Pete B.
17 hours ago
5
5
I would have up-voted this, except for the "get a 2nd job" bit, plus the unrealistic time frames. Not everyone can get that 2nd job and very few people will be able to find one "today". Also, having a 2nd job can put too much stress on a person and significantly reduce their energy levels, causing their "day job" to suffer. I know this from currently running my own business 30-40 hrs a week after my day job.
– computercarguy
19 hours ago
I would have up-voted this, except for the "get a 2nd job" bit, plus the unrealistic time frames. Not everyone can get that 2nd job and very few people will be able to find one "today". Also, having a 2nd job can put too much stress on a person and significantly reduce their energy levels, causing their "day job" to suffer. I know this from currently running my own business 30-40 hrs a week after my day job.
– computercarguy
19 hours ago
@computercarguy you miss the point. The goal is to make the time frame short, if it is 4 or 6 months does it change his life? Nope. However, lets say he goes all in. Could he be done in 4 or 6 weeks? With such a small amount, the answer is yes. Doing it in an "unrealistic" time frame will change his life far more than the dollars in question.
– Pete B.
17 hours ago
@computercarguy you miss the point. The goal is to make the time frame short, if it is 4 or 6 months does it change his life? Nope. However, lets say he goes all in. Could he be done in 4 or 6 weeks? With such a small amount, the answer is yes. Doing it in an "unrealistic" time frame will change his life far more than the dollars in question.
– Pete B.
17 hours ago
2
2
If they are getting matching contributions, it may make sense to put money in a 401(k) rather than paying off the credit card.
– Acccumulation
17 hours ago
If they are getting matching contributions, it may make sense to put money in a 401(k) rather than paying off the credit card.
– Acccumulation
17 hours ago
Why is 4-6 months not a short enough time frame? Paying this debt off in 4-6 weeks might be detrimental to the OP (stress, marriage, kids, etc.). Also, many of the jobs I've had take 3-4 weeks for the first paycheck to arrive.
– computercarguy
17 hours ago
Why is 4-6 months not a short enough time frame? Paying this debt off in 4-6 weeks might be detrimental to the OP (stress, marriage, kids, etc.). Also, many of the jobs I've had take 3-4 weeks for the first paycheck to arrive.
– computercarguy
17 hours ago
2
2
Sorry, I was assuming non-snowflake.
– Pete B.
17 hours ago
Sorry, I was assuming non-snowflake.
– Pete B.
17 hours ago
 |Â
show 1 more comment
up vote
3
down vote
You have so many options regarding the $3500 to make it grow between now and retirement.
The $3500 just seems like such a small amount and kept in a random
account I have done nothing to grow it the last couple years.
If you are like a typical US worker you will have multiple employers over the years, when you move to the next one you will have an opportunity to rollover the money from your current 401K. So the $3,500 would soon have more rollover money.
If you want to only consider the current $3,500 then realize that there are many companies/funds that would be happy to invest your money. An IRA is a type of account, that is defined by your limited ability to spend it before reaching retirement age. Being an IRA doesn't place many limits on how it can be invested. It can be anything from a account paying almost zero, to a CD, to a bond mutual fund, to a stock mutual fund. Even a mutual fund can range from ultra-safe and conservative to ultra-aggressive.
Moving your money from safe to aggressive can be done easily without any tax implications.
If you want some tax implications you can change the account from a traditional to a Roth account. That would cost you that 35% federal and state taxes, but would allow the account to grow tax free. That might not be a possibility now, with the credit card debt but it is something to consider in the future.
answered 23 hours ago
mhoran_psprep
61.8k785162
1
Converting the account to a Roth IRA does not seem like it will be the right move for OP any time soon. He first needs to pay off the credit card debt, second needs to max out the 401(K), and only then should he consider any Roth conversions.
– stannius
18 hours ago
add a comment |Â
up vote
3
down vote
You have so many options regarding the $3500 to make it grow between now and retirement.
The $3500 just seems like such a small amount and kept in a random
account I have done nothing to grow it the last couple years.
If you are like a typical US worker you will have multiple employers over the years, when you move to the next one you will have an opportunity to rollover the money from your current 401K. So the $3,500 would soon have more rollover money.
If you want to only consider the current $3,500 then realize that there are many companies/funds that would be happy to invest your money. An IRA is a type of account, that is defined by your limited ability to spend it before reaching retirement age. Being an IRA doesn't place many limits on how it can be invested. It can be anything from a account paying almost zero, to a CD, to a bond mutual fund, to a stock mutual fund. Even a mutual fund can range from ultra-safe and conservative to ultra-aggressive.
Moving your money from safe to aggressive can be done easily without any tax implications.
If you want some tax implications you can change the account from a traditional to a Roth account. That would cost you that 35% federal and state taxes, but would allow the account to grow tax free. That might not be a possibility now, with the credit card debt but it is something to consider in the future.
answered 23 hours ago
mhoran_psprep
61.8k785162
1
Converting the account to a Roth IRA does not seem like it will be the right move for OP any time soon. He first needs to pay off the credit card debt, second needs to max out the 401(K), and only then should he consider any Roth conversions.
– stannius
18 hours ago
add a comment |Â
up vote
3
down vote
up vote
3
down vote
You have so many options regarding the $3500 to make it grow between now and retirement.
The $3500 just seems like such a small amount and kept in a random
account I have done nothing to grow it the last couple years.
If you are like a typical US worker you will have multiple employers over the years, when you move to the next one you will have an opportunity to rollover the money from your current 401K. So the $3,500 would soon have more rollover money.
If you want to only consider the current $3,500 then realize that there are many companies/funds that would be happy to invest your money. An IRA is a type of account, that is defined by your limited ability to spend it before reaching retirement age. Being an IRA doesn't place many limits on how it can be invested. It can be anything from a account paying almost zero, to a CD, to a bond mutual fund, to a stock mutual fund. Even a mutual fund can range from ultra-safe and conservative to ultra-aggressive.
Moving your money from safe to aggressive can be done easily without any tax implications.
If you want some tax implications you can change the account from a traditional to a Roth account. That would cost you that 35% federal and state taxes, but would allow the account to grow tax free. That might not be a possibility now, with the credit card debt but it is something to consider in the future.
answered 23 hours ago
mhoran_psprep
61.8k785162
You have so many options regarding the $3500 to make it grow between now and retirement.
The $3500 just seems like such a small amount and kept in a random
account I have done nothing to grow it the last couple years.
If you are like a typical US worker you will have multiple employers over the years, when you move to the next one you will have an opportunity to rollover the money from your current 401K. So the $3,500 would soon have more rollover money.
If you want to only consider the current $3,500 then realize that there are many companies/funds that would be happy to invest your money. An IRA is a type of account, that is defined by your limited ability to spend it before reaching retirement age. Being an IRA doesn't place many limits on how it can be invested. It can be anything from a account paying almost zero, to a CD, to a bond mutual fund, to a stock mutual fund. Even a mutual fund can range from ultra-safe and conservative to ultra-aggressive.
Moving your money from safe to aggressive can be done easily without any tax implications.
If you want some tax implications you can change the account from a traditional to a Roth account. That would cost you that 35% federal and state taxes, but would allow the account to grow tax free. That might not be a possibility now, with the credit card debt but it is something to consider in the future.
answered 23 hours ago
mhoran_psprep
61.8k785162
answered 23 hours ago
mhoran_psprep
61.8k785162
answered 23 hours ago
mhoran_psprep
61.8k785162
answered 23 hours ago
mhoran_psprep
61.8k785162
61.8k785162
1
Converting the account to a Roth IRA does not seem like it will be the right move for OP any time soon. He first needs to pay off the credit card debt, second needs to max out the 401(K), and only then should he consider any Roth conversions.
– stannius
18 hours ago
add a comment |Â
1
Converting the account to a Roth IRA does not seem like it will be the right move for OP any time soon. He first needs to pay off the credit card debt, second needs to max out the 401(K), and only then should he consider any Roth conversions.
– stannius
18 hours ago
1
1
Converting the account to a Roth IRA does not seem like it will be the right move for OP any time soon. He first needs to pay off the credit card debt, second needs to max out the 401(K), and only then should he consider any Roth conversions.
– stannius
18 hours ago
Converting the account to a Roth IRA does not seem like it will be the right move for OP any time soon. He first needs to pay off the credit card debt, second needs to max out the 401(K), and only then should he consider any Roth conversions.
– stannius
18 hours ago
add a comment |Â
up vote
1
down vote
You take a penalty to use the money in your IRA but you take no penalty if you suspend your 401k contributions to pay off your debt. This automatically puts you ahead because it is like you earned the same amount as the penalty that you would have paid otherwise assuming you were going to use your IRA money.
Personally, I would see where you can alter your lifestyle so that you continue to contribute to your 401k while also saving money elsewhere and using that to pay off your debt.
answered 19 hours ago
user1723699
1213
2
If OP has an employer match, suspending contributions could be as much as 100% "penalty" on the money not contributed.
– stannius
18 hours ago
Besides stannius' point, the OP would be paying CC-level interest on the money until the debt is paid off.
– Acccumulation
17 hours ago
add a comment |Â
up vote
1
down vote
You take a penalty to use the money in your IRA but you take no penalty if you suspend your 401k contributions to pay off your debt. This automatically puts you ahead because it is like you earned the same amount as the penalty that you would have paid otherwise assuming you were going to use your IRA money.
Personally, I would see where you can alter your lifestyle so that you continue to contribute to your 401k while also saving money elsewhere and using that to pay off your debt.
answered 19 hours ago
user1723699
1213
2
If OP has an employer match, suspending contributions could be as much as 100% "penalty" on the money not contributed.
– stannius
18 hours ago
Besides stannius' point, the OP would be paying CC-level interest on the money until the debt is paid off.
– Acccumulation
17 hours ago
add a comment |Â
up vote
1
down vote
up vote
1
down vote
You take a penalty to use the money in your IRA but you take no penalty if you suspend your 401k contributions to pay off your debt. This automatically puts you ahead because it is like you earned the same amount as the penalty that you would have paid otherwise assuming you were going to use your IRA money.
Personally, I would see where you can alter your lifestyle so that you continue to contribute to your 401k while also saving money elsewhere and using that to pay off your debt.
answered 19 hours ago
user1723699
1213
You take a penalty to use the money in your IRA but you take no penalty if you suspend your 401k contributions to pay off your debt. This automatically puts you ahead because it is like you earned the same amount as the penalty that you would have paid otherwise assuming you were going to use your IRA money.
Personally, I would see where you can alter your lifestyle so that you continue to contribute to your 401k while also saving money elsewhere and using that to pay off your debt.
answered 19 hours ago
user1723699
1213
answered 19 hours ago
user1723699
1213
answered 19 hours ago
user1723699
1213
answered 19 hours ago
user1723699
1213
1213
2
If OP has an employer match, suspending contributions could be as much as 100% "penalty" on the money not contributed.
– stannius
18 hours ago
Besides stannius' point, the OP would be paying CC-level interest on the money until the debt is paid off.
– Acccumulation
17 hours ago
add a comment |Â
2
If OP has an employer match, suspending contributions could be as much as 100% "penalty" on the money not contributed.
– stannius
18 hours ago
Besides stannius' point, the OP would be paying CC-level interest on the money until the debt is paid off.
– Acccumulation
17 hours ago
2
2
If OP has an employer match, suspending contributions could be as much as 100% "penalty" on the money not contributed.
– stannius
18 hours ago
If OP has an employer match, suspending contributions could be as much as 100% "penalty" on the money not contributed.
– stannius
18 hours ago
Besides stannius' point, the OP would be paying CC-level interest on the money until the debt is paid off.
– Acccumulation
17 hours ago
Besides stannius' point, the OP would be paying CC-level interest on the money until the debt is paid off.
– Acccumulation
17 hours ago
add a comment |Â
up vote
1
down vote
As others stated, don't use your IRA to pay off the debt. With the fees and taxes involved, you just aren't going to get a 1:1 ratio between "cash" and debt.
Reducing your spending might be a way to help you pay off that debt. I've used this method for +15 years and it works, even if it takes time.
Before I start, this answer to another question is related: https://interpersonal.stackexchange.com/a/18381/3616
There are probably a lot of things that you buy without thinking about them that can go a long way to reducing your spending that can give you more money to reduce your debt. Daily drinks (coffee, pop, tea, alcohol, etc.), snacks, cigarettes, and lots more can add up to significant spending each week. If you reduce or eliminate those expenditures, they become savings or even debt reduction.
If you spend $8 a day at lunch then $10 for supper, that's roughly $550 a month. Spend $350 at the grocery store instead for a $200 a month savings. That $5 morning coffee is $150 a month. You can still have that morning coffee, just brew it yourself.
If you're already doing this, great! You might want to check out the book "America's Cheapest Family" for other great ways to save. I've read that book 2-3 times to help me figure out where I can "trim the fat" without negatively impacting myself.
Without touching your IRA or 401k contributions, but simply reducing your spending can allow you pay off that $3500 in a year or less. Also, reducing your spending will help prevent that $3500 from constantly regenerating or, worse, growing.
answered 17 hours ago
computercarguy
5318
add a comment |Â
up vote
1
down vote
As others stated, don't use your IRA to pay off the debt. With the fees and taxes involved, you just aren't going to get a 1:1 ratio between "cash" and debt.
Reducing your spending might be a way to help you pay off that debt. I've used this method for +15 years and it works, even if it takes time.
Before I start, this answer to another question is related: https://interpersonal.stackexchange.com/a/18381/3616
There are probably a lot of things that you buy without thinking about them that can go a long way to reducing your spending that can give you more money to reduce your debt. Daily drinks (coffee, pop, tea, alcohol, etc.), snacks, cigarettes, and lots more can add up to significant spending each week. If you reduce or eliminate those expenditures, they become savings or even debt reduction.
If you spend $8 a day at lunch then $10 for supper, that's roughly $550 a month. Spend $350 at the grocery store instead for a $200 a month savings. That $5 morning coffee is $150 a month. You can still have that morning coffee, just brew it yourself.
If you're already doing this, great! You might want to check out the book "America's Cheapest Family" for other great ways to save. I've read that book 2-3 times to help me figure out where I can "trim the fat" without negatively impacting myself.
Without touching your IRA or 401k contributions, but simply reducing your spending can allow you pay off that $3500 in a year or less. Also, reducing your spending will help prevent that $3500 from constantly regenerating or, worse, growing.
answered 17 hours ago
computercarguy
5318
add a comment |Â
up vote
1
down vote
up vote
1
down vote
As others stated, don't use your IRA to pay off the debt. With the fees and taxes involved, you just aren't going to get a 1:1 ratio between "cash" and debt.
Reducing your spending might be a way to help you pay off that debt. I've used this method for +15 years and it works, even if it takes time.
Before I start, this answer to another question is related: https://interpersonal.stackexchange.com/a/18381/3616
There are probably a lot of things that you buy without thinking about them that can go a long way to reducing your spending that can give you more money to reduce your debt. Daily drinks (coffee, pop, tea, alcohol, etc.), snacks, cigarettes, and lots more can add up to significant spending each week. If you reduce or eliminate those expenditures, they become savings or even debt reduction.
If you spend $8 a day at lunch then $10 for supper, that's roughly $550 a month. Spend $350 at the grocery store instead for a $200 a month savings. That $5 morning coffee is $150 a month. You can still have that morning coffee, just brew it yourself.
If you're already doing this, great! You might want to check out the book "America's Cheapest Family" for other great ways to save. I've read that book 2-3 times to help me figure out where I can "trim the fat" without negatively impacting myself.
Without touching your IRA or 401k contributions, but simply reducing your spending can allow you pay off that $3500 in a year or less. Also, reducing your spending will help prevent that $3500 from constantly regenerating or, worse, growing.
answered 17 hours ago
computercarguy
5318
As others stated, don't use your IRA to pay off the debt. With the fees and taxes involved, you just aren't going to get a 1:1 ratio between "cash" and debt.
Reducing your spending might be a way to help you pay off that debt. I've used this method for +15 years and it works, even if it takes time.
Before I start, this answer to another question is related: https://interpersonal.stackexchange.com/a/18381/3616
There are probably a lot of things that you buy without thinking about them that can go a long way to reducing your spending that can give you more money to reduce your debt. Daily drinks (coffee, pop, tea, alcohol, etc.), snacks, cigarettes, and lots more can add up to significant spending each week. If you reduce or eliminate those expenditures, they become savings or even debt reduction.
If you spend $8 a day at lunch then $10 for supper, that's roughly $550 a month. Spend $350 at the grocery store instead for a $200 a month savings. That $5 morning coffee is $150 a month. You can still have that morning coffee, just brew it yourself.
If you're already doing this, great! You might want to check out the book "America's Cheapest Family" for other great ways to save. I've read that book 2-3 times to help me figure out where I can "trim the fat" without negatively impacting myself.
Without touching your IRA or 401k contributions, but simply reducing your spending can allow you pay off that $3500 in a year or less. Also, reducing your spending will help prevent that $3500 from constantly regenerating or, worse, growing.
answered 17 hours ago
computercarguy
5318
answered 17 hours ago
computercarguy
5318
answered 17 hours ago
computercarguy
5318
answered 17 hours ago
computercarguy
5318
5318
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2
Does your 401(k) plan accept incoming rollovers? If you consider it too small an amount to keep track of, maybe you could roll it into your 401(k) and have one fewer account.
– stannius
18 hours ago
What kinds of funds or indexes does your rollover IRA give you access to? As I recall, accounts specifically labelled "Rollover" are just intended to be holding accounts and don't usually have anything more than money market investment options.
– Arluin
12 hours ago