thoughs on cashing out retirement fund

[samanthasmom]

i'm sure this has been discussed before and i think i know the answer (its a bad idea) but i'm just looking for thoughts..

my dh and i have about 30k in cc debt.  we pay out about 800/month in payments.  we have gotten our rates and min payments lowered as much as we can by calling and enrolling in assistance programs.  we are barely making our mortgage payment and our fico scores are terrible.  why would it be so bad to cash out out retirement savings to pay off this debt?  after fees for cashing out we would have no cc debt but no retirement savings left.  then with no cc debt we can pay all our other bills on time.  won't that increase our fico score over time?  we are both 36 with a 5year old and 20 month old. 

wdyt?

[ElliesMomma]

is there a pressing need to improve your FICO scores this moment?

the best reason i can tell you to NOT do this, is that you truly need to suffer with that credit card debt... suffer to pay it off (and do pay it off). you need to be writing several checks a month to the cards. the one that needs to get there on time, and then a second or third (even if it's just an extra $10 or $20 here and there)l the reason you have to *feel this pain* is so that you DON'T ACCUMULATE CREDIT CARD DEBT AGAIN.

too often people will use a windfall (ie, gift from their parents) to retire their credit card debt, thinking that "now we can concentrate on starting to save," but without the suffering, they quickly fall back into old habits, buying things on credit that should be paid for in cash (ie, ANYTHING for you at this point).

how many years have you guys paid into the retirement account? how many years are left until retirement? you have to realize that cashing out $30,000 now is actually robbing yourselves of -- possibly -- $100,000 or more in potential retirement funds given compounding interest over how many more years are to come.

you're right: don't do it.

[zebra15]

No do take from retirement funds, there are some tax issues you need to educate yourself about as well.  You need to 'feel the pain' of the debt as the PP has said.  Maybe you need a 2nd job, a weekend job, read dave ramsey, susie oreman etc... but there is no way I would take $$ from a retirement account to pay debt.

[kristandthekids]

Someone please correct me if I'm wrong but I believe that cashing out means:
There’s a 10 percent penalty for early withdrawal
Your employer is required to withhold 20 percent toward income taxes.

So with that if my 2:30am brain is doing math correctly:
That 30k in CC debt will actually cost you 50k AND you'll have nothing in retirement (gaining interest and becoming more money.)

Sounds like a poor plan to me.

I don't think you need to worry about your FICO for a while because you're not going to be borrowing money for a good long while. 30k in CC debt is a whole lot of crazy spending. You need to use this living on a budget and paying it back time to start new, good habits so this never happens again.

[samanthasmom]

its not a pressing need to increase my fico score, i just know its crap thats all.  its that we can't pay our bills.  my dh was out of work for awile and we had to use the cc to help pay bills, buy food etc.  and we do suffer with this debt.  its a physical weight i can feel all the time. weighing us down.  i heard you can get a loan from a 403b but i don't know anything about that.  but don't fear. i do feel the pain. our whole family does.

[kristandthekids]

If you honestly can NOT pay all your bills, then don't. Skip the credit cards all together. Feeding your babies and keeping the lights on is more important than worrying about FICO.
But DH not delivering pizzas when he was out of work long enough to rack up 30k might mean DH delivering pizzas now.

I'm less worried about you "feeling the pain" than I am, like I said, use this living on a budget and paying it back time to start new, good habits. I don't think getting yet another loan is the answer.

Hang in there, Mama. You're not the first or the last family to be in the hole. Others have crawled out of it and you can too.

[cristina47454]

We made the mistake of cashing out our retirement several years ago. I say "mistake" for all the reasons mentioned before, except that our retirement accts actually had lost a HUGE amt of money bcs of the way they were invested and that makes me feel a little better about it.

[Denvergirlie]

Don't use retirement accounts unless you are in danger of losing your home. If no danger of losing home, then just buckle down and pay off the credit cards.

We buckled down, took part time jobs and odd jobs, took in scrap metal we found dumpster diving, held yard sales and cut our budget to the bare bones, paid of $29K in debt in 18 months. It wasn't that bad, in fact we had a lot of fun and met some good people for the months when we were totally focused on paying down that debt.

best

[ArtsyMomma]

I wouldn't cash out retirement savings. I agree with the other posters about 'suffering'. Yes, it's stressful and you want to pay off the debt ASAP. My ex and I did that several times, but we truly didn't change our habits. We thought we would, we were sure we would. I've been trying to get out of debt for 8 years - but I was never really dedicated. Last summer, it really set in. My spending habits totally changed, I made real reasonable goals. It never would have happened if money hadn't been so tight for months (I didn't even have $$ for snow cones at the park one day....a measly $3). But, we got by scraping pennies together, when things got a bit easier I had a real lasting determination to get out of debt and every extra cent goes to paying off debt or my short term savings goals.

[Katwoman]

How about this.  Think about how long it took you to accumulate the retirement amount.  (Were you maxing out your contributions?  Or just adding to your retirement?)  Now think about how long it took to accumulate the cc debt.  

......

Accumulating debt is always way easier than accumulating savings.  (Assuming you weren't maxing out your contributions when you were childless and had a lot of disposable income.  (I'm not accusing you of this, just acknowledging that most people don't.)  What makes you think it will be any easier to get all that retirement paid back and contributing new money to it now?  Even with no debt.?)  Also, there are pretty good resources describing how investing early will generate more money than investing later.  Everything you take out is not generate you money for your retirement later. 

[sunnysandiegan]

Super bad idea for many, many reasons. The one I haven't seen mentioned thus far is it is short-term thinking. Only thinking short-term leads to big problems down the line. What happens is one is never prepared financially for anything. Always robbing Peter to pay Paul. STRESSFUL on an on-going basis.

[enkmom]

I cashed mine out almost 21 years ago.  It did not make financial sense for me to work, but in order to make the break we used my retirement fund to pay off our car loan.  I was then a happy stay at home mom for many years.  I did not have a large amount in the fund.

Fast forward to now.  I am 46 years old and each year goes faster than the last.  I have worked part-time for many years, but my social security benefit is going to be tiny.  I save 10% of my pre-tax income in an employee plan now, and am opening another account at a bank, but it just doesn't add up as quickly as I want it to.  I will never get those years of interest back.  My husband has a nice amount in his retirement account, but with the cost of everything will it ever be enough?  The older I get, the more worried I get.  Don't do it.