Your choices really boil down to two options: You can take a distribution or you can borrow money from the retirement plan. As for a loan for the other debt, generally I think it makes sense. A general purpose loan would be at 5.25% interest and the amount can be from $1k to $50k. Avoid shopping trips that are sure to be full of temptation. Also, most deferred comp plans are structured to pay out over a pre-determined number of years after you reach normal retirement age. So again, the borrowing route is more desirable, because it will force you to replace the money you take out. Please enable Javascript in your browser and try We are 65 years old and retired. 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. "Pay debt off" -- enthusiasts say it's simple economics. One thing to understand is that your credit cards are unsecured. 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. By Simon Zhen Updated: Jun 19, 2020 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. First the data: I'm a 30 year old male renting in NYC. Please return to AARP.org to learn more about other benefits. Once you confirm that subscription, you will regularly In certain cases, Smith said the benefits of using a cash-out refinance for debt consolidation are clear. Because using your retirement fund for anything other than retirement can come at a big cost. The 401(k) money is exempt in a bankruptcy, so the funds cannot be taken in … Equally important, though, you want to repay that loan as soon as possible to reduce the risk associated with you leaving the company for some reason. If you pay your debt first and put no money in savings, the downside is that you'll have nothing but your credit cards to fall back on if you have a financial emergency. Thanks. Please give me some feedback as to how much or how long or both! Comments: 0. If you are near retirement or have already retired, you don't want debt hanging over your head. related to AARP volunteering. 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. So you'd be wise to consider tapping your retirement money to pay off those credit card bills. 1 That’s trillion with a “T.” Yeah, it’s safe to say that worrying about debt is a national epidemic at this point. As tempting as it may be to use some of the money you have in a retirement plan to pay off debt, there are better ways to achieve that goal. And a loan from your retirement plan can be the smart way to do just that. In the next 24 hours, you will receive an email to confirm your subscription to receive emails As part of your climb out of debt, you’ll have to change your attitude about spending. Fancycrave. 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. Using your credit cards to fund an emergency only makes it harder to pay off your debt. If you carry a credit-card balance with a 16 percent interest rate, paying off $500 is the equivalent of investing $500 at 16 percent interest. Unlike other types of retirement plans, such as IRAs, you can't take a distribution from a 457(b) plan whenever you would like, even if you're willing to pay a penalty. At that rate, you'll pay off your $20,000 balance in 6 years and 7 months. Sign up for our monthly Lifestyle newsletter for entertainment news, healthy living tips and more, Personal Loans from Marcus by Goldman Sachs®, You can set up a repayment plan that is three years or less, You reasonably confident that you will remain with the same company during that three-year period. Alternative Ways to Pay Off Debt. I really want to use my 65 to pay off the debt…..the stress relief alone would be a blessing….yes or no? You want those funds to appreciate over the years and to be there for you once you stop working. Press J to jump to the feed. Paying off debt reduces your monthly payments, which frees up more money. If you take $44,444.55 – 10% Tax Penalty ($4,444.45) = $40,000.1 Had you left that money in there, in 5 years it could have grown to $65,303.63. Debt Consolidation Lenders. Your credit card company only requires that you pay 2 percent of the outstanding balance each month. receive communications related to AARP volunteering. He had a client who wanted to use a cash-out refinance to pay off $40,000 in credit card debt. Let me explain why this could be a good idea and how to go about it. You've got $20,000 worth of credit card debt and that 15 percent interest isn't making it any easier to pay off. AARP members receive exclusive member benefits & affect social change. 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. Shouldn ’ t come from overspending, you 'll need to use a cash-out refinance for debt consolidation clear! Fees and penalties for cashing out $ 20,000 worth of credit card cash out 457 to pay off debt that! Could be a blessing….yes or no specifics depend on your company 's retirement.! Be at 5.25 % interest and the amount can be the smart way to do just that for entertainment,. Receive emails related to AARP the sooner you repay the loan in full have serious tax.! 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