Help Pay off CC Debt with Retirement Savings??

[verona]

Hello!

I'm 23 years old with a ton of CC debt. I have about $12k, which is a combination of supporting myself in college, using my CCs to support my study abroad and travel after school, and just living outside my means. I don't regret the debt I used to travel, but I do regret living outside my means.

I'm making smarter choices now, which prevents me from racking up more debt, but I'm not paying off the debt as aggressively as I'd like. I get about $2,800 a month post tax, and about $1,700 goes towards necessary bills like rent, utilities, cable, student loan, gym, phone, transportation and car insurance. I need a couple hundred for groceries and random expenses/cash. I'm using whatever's left towards my CCs, ranging from 600-800 per month.

So, I just switched companies and I started a new 401(K). However, I have my old 401(k) that's just hanging out, waiting for me to roll it over into my new 401(k), or roll over into an IRA.

OR I was wondering if it would be a terrible idea to take that money and the associated penalty (not really sure what that is) to put towards my credit cards??

I have a little over $5k in the old 401(k). I hate hate hate the idea of taking this retirement money that could accrue a lot of interest over the years, however, I feel like I'm in a bad spot financially. I'm not struggling month to month or anything, but I don't want this debt hanging over my head for years. I don't want to take a vacation or buy things I want until I pay the majority of this debt off. I'm also young and have a lot of time ahead of me to rebuild the retirement savings.

Suggestions???

Thanks!!!

[creditcardfree]

No, do not cash in your 401K. Ever.

You are actually doing really well. You can have this credit card debt paid off in about 1.5 years if you continue paying $800/month. Not everyone has that much to put towards debt, so be grateful that you do.

What is the interest rate on your card(s)?

[skydivingchic]

You will not find any fans of cashing out the 401k on this site unless you are in danger of losing your house or some similar extreme circumstance. Even then, most would recommend some extreme cuts before the retirement accounts are considered. Do NOT cash out the retirement plan. You will have to pay taxes and a 10% early withdraw penalty, which will only leave you somewhere around $3000 to use toward your CCs. Plus you loose all the future compounding.

I ran a calculation assuming you only pay $600/month at 18% interest. At that rate you will have the CCs paid off in 2 years. While this isn't the best situation, it also is not dire. I bet if you post your full budget, the people here could help find areas to save and you would be able to pay off the CCs sooner. Also, any "extra" money you get like birthday money or bonuses or a tax return could go straight to the CCs to help pay them off sooner.

Bottom line - DO NOT touch the retirement accounts.

[buildmybudget]

You could also try to earn some extra income, such as working a second job, mowing lawns, etc. This would help you pay off the debt faster while helping you keep the 401k intact--a win win!

[frito833]

NO. Sell everything you don't need and get a part time job to pay off your CC debt faster.

[disneysteve]

$1,700 goes towards necessary bills like rent, utilities, cable, student loan, gym, phone, transportation and car insurance.

would be a terrible idea to take that money and the associated penalty (not really sure what that is) to put towards my credit cards??

Yes, it would be a terrible idea. Don't do it. Don't even consider it.

You also need to change your mindset about what constitutes a "necessary" bill. Cable and gym membership are NOT necessities. They are luxuries. I wonder what else in your budget could be easily trimmed to get rid of this debt even faster.

[NickLeavens]

I know how it can be, being young and needing to make ends meet- but see if you can stick with a plan to pay things off before digging into a 401k (that you'll end up paying penalties on).

On the bright side, you're also in the unique position of being young and having figured out the debt game already, so you're one step ahead of many people!

[wincrasher]

It may be a good idea to reduce your 401k contributions to the level of your company match and put the balance against your credit cards. Do this for 6 months or a year to get the balance down.

Alot of the gurus say to only contribute up to the match anyways and put additional savings in other investment vehicles.