I have 25000.00 in debt with hight interest rate and 20000.00 in my 401K should I use that money to payoff my debt or not?

November 18, 2007

Posted by Taxman

( 2 ratings )

So your current situation is:
25k in debt
20k in 401k

If you were to withdrawal money from your 401k to payoff debt you wouldn't lose some of the money due to penalty fines you'd lose a large sum. The only instance where I would suggest taking money out of your 401k to pay down debt is if you qualified for a hardship withdrawal.

In order to take a hardship withdrawal you need to meet one of the following criteria:
* Certain medical expenses for you, your spouse or your dependents
* Purchase of a primary residence (excluding mortgage payment)
* Payments of certain post-secondary education expenses for the next year for you, your spouse or your dependents
* To prevent eviction from or foreclosure on your primary home

If you don't meet one of the hardship withdrawal criteria items above, do not touch your 401k, you'll do more harm that good.

What I would suggest is either get another job or sell anything in your home that isn't bolted down. Do you have a new car, sell it. Do you have time on the weekend to pickup an extra job, apply to Starbucks and pickup some extra cash.

You need to have to plan to get out of your debt situation and practice better money habits so this doesn't end up repeating itself.

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April 10, 2008

Posted by knor208

( 1 rating )

Another answer is to borrow from your 401k if the plan allows it. You will then essentially be paying yourself back. However if you leave your job you either have to pay off the loan or you will have to declare the remainder of the loan as income and pay the fines etc. Also if you dont change your habits you will soon be back in the same position plus the loan your paying back. I speak from experience!!!!!!

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November 18, 2007

Posted by bahellman

( 1 rating )

I agree with Taxman. You should also call your credit card company and push hard for a lower interest rate. Most credit card companies will bump consumers interest rate as high as legally possible. The reason for this is that must consumers don't understand finances and accept living in debt their entire lives. You'd be surprised how easy it is to obtain a lower interest rate JUST by calling. Please don't take this in any way to say that I condone credit card debt, because I do not. But, my suggestion could end up saving you money in the long run should you work to pay down your debt.
Best of luck and good for you for realizing the dangers of cc debt.

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