[Douglas]

I was wondering if I could get some advice on what I should do about reducing my credit card debt. I currently have a pension sitting in an account with a previous state employer. My credit card debt is $5,500. Should I empty that account, knowing I will incur all the tax penalties (20% to federal and another 10% penalty) to pay that off completely, I've been making minimum payments for 3 years on it and I don't see any other way to get rid of the credit card debt. After all my tax penalties on my pension pulling it out will be around $6,000 that I will have to use.

Would it be better to roll that pension money over into an IRA or Roth IRA tax free and keep trying to chip away the credit card debt? I was wondering what you would do?

 

[Debbie-cat]

Greebo is the best person to answer questions like this. Welcome to Frugal Village!

 

[MaryCarney]

The FIRST thing you should do is make a budget. Taking a 30% (and actually it'll be more like 40%) hit on retirement funds would only make sense to avoid foreclosure.
A budget, on the other hand, will allow you to see where your money is going every month, and make you aware of areas you could cut back on to pay down the CC debt. Do you continue to put things on the CC - or are you serious about getting rid of it? Maybe you need a temporary second job?
Many people post their budgets here - and while we can be blunt at times, we'll always be honest and truly try to HELP you. Willing to try it??

 

[grneyegrl]

no.. cc dept is unsecured debt.. i would work on paying it off as soon as i could..

noway should anyone touch retirement accounts to pay cc bills

 

[khaski]

I agree with above posters - DO NOT take $ out of retirement to pay cc (I would argue you also don't to avoid foreclosure,either). Could you work more? Sell things in a yard sale or online on ebay or etsy to raise more funds to help chip it away? $5500 is not insurmountable, just might take some time. As someone above mentioned, first things first- get yourself on a written budget, so you can actually dedicate a set amount towards extra payment- every little bit helps.

If you took it out of your pension, not only would you be short-changing your future, you would be paying FAR more for the cc, after penalties and taxes- it would take much more than $5500 out to get that amount to pay the cc, as you mention, and it's just not worth it!

 

[Greebo]

Greebo is the best person to answer questions like this. Welcome to Frugal Village!

Bullocks. M-C did a perfect job.

 

[Josephhgoins]

BTW, if you call the CC company they may be willing to set up a repayment plan with a reduced interest rate.

Also, I agree that your first step is an honest budget. Make sure you can live with it and then set up your plan.

Is there anything you can sell to get the $5500.00? I wouldn't take the 30% hit unless I had no other choice.

 

[Frugal Sooner]

Great answers from everyone! Agree with all, especially calling CC company to set up a structured pay-off plan. Get in writing how much per month and for how many months.
Then pay it out and vow never again!

 

[MaryCarney]

Bullocks. M-C did a perfect job.

Awwww.... shucks! << blushes in a lady-like manner >>

 

[Anna43]

I agree do NOT tough the retirement account. Even in bankruptcy retirement accounts are usually exempt from creditors.

Frankly, I constantly see people who have liquidated retirement accounts to pay off debt yet end up in bankruptcy. The reason is they do not change their spending habits, make a budget, and learn fiscal discipline so fall right back in the same debt hole.

Make a budget. Cut whatever you need to to allow a sufficient amount to payoff the credit card in a reasonable period of time. Then call the cc company and see if you can make an arrangement with them. Ask they to reduce or eliminate interest and other charges and promise to pay them a certain amount each month. BTW if you can afford to pay $200 offer them $100. Negotiations will end up at $200 and you'll both be satisfied. Whatever you can afford make your first offer half that amount. Also, ask for the agreement in writing because the person you're talking to might not be in a position to make an offer on behalf of the cc company.

 

[CrazyCat]

here is MY advise..something I did.

I took a personal loan out to pay off my CC balance at a much lower balance than the CC was charging me. I used a credit union~took over 3 years to pay it off~but I PAID IT OFF and DID NOT CHARGE anything else.
With a personal loan..you KNOW what the interest is going to be..they can't raise it on a whim. HOWEVER..like Mary said. YOU CAN'T CHARGE ANYMORE.

I would NEVER cash out a retirement account to pay off a CC company.

 

[miss_cas]

Get a second job for a while. If you work your days off at the hospital answering the phones, nursing home as receptionist, keeping house and running errands for a senior citizen, call center job, pizza delivery, hotel desk clerk or customer service somewhere, you can have this paid off in about a year. It will take a little longer in fast food or retail. (Skip the clothing stores, it costs quite a bit to be a walking manequin and outfit yourself in the store's attire every new season.)

 

[mndtrp]

Just to jump into the chorus, leave the retirement account alone.

 

[bumplett]

Great minds think alike.

:toothy:

 

[Judi Dial]

I agree. Another person I know took a small equity loan out on her home to pay off her minimal ccs. Then whenever she made an extra payment (her DH is a seasonal contractor and she makes extra payments when he's working) she added some extra to cover the cc payoffs. She paid off her cc and the loan in 3 years. I am not advising you to do this, but use it as an example. There are creative ways you can restructure your debt, move things around and pay less interest and not touch that retirement.

Judi