Dear Terry,
I am in desperate need of help. Our credit card bills amount to 40,000.00. Yep you read that right. It has become increasingly hard to keep afloat. So here is my question. My husband has about 600,000.00 in his 401k. He is about 5 years from retiring. My house is worth about 300,000 and will be paid for in 61/2 years. And I have a simple IRA with maybe 12,000.00. I feel at this point my options are bankruptcy or taking out the money from his 401k then upping to the maximum contribution for the next 5 years to recover some of it. His company matches 4%. Does this make sense? I am so tired of poor financial decisions. Most of the debt was for college tuition, which at the time, seemed like a feasible idea. Any input you may have would be so much appreciated. Both my husband and I have read your columns and watched on television. Boy, if we only listened. Thank you.

Terry Says:

OK, this is tough.  First, you do realize that in order to net the $40,000 to pay off these bills, you will have to take out $80,000 from the retirement account (assuming about half will go in taxes, federal and state, since this amount will be added on to your ordinary income and likely push you into the highest tax bracket).  And that’s assuming that he is 59-1/2 and won’t pay the 10 percent penalty!

Even worse, you’ll lose all future growth of that money — even if you stick to the plan to keep investing after paying off your bills.

The other alternative is to refi your house and use the money to pay down your debts.  At least that interest will be far lower than credit card interest rates — and the interest will be deductible.  Of course, with all that debt you won’t get the lowest rate, but still it will be much less than credit cards.  And since he is still working (are YOU working), you should be able to refi.  Contact my mortgage source Leslie Struthers ( to see if this strategy will work.

Oh, and as I was answering, the thought came to mind:  If YOU  are not working, the easiest way would be for you to get a job and put ALL that money toward paying down the cards.  If you’ve listened to me, you know that if you DOUBLE THE CURRENT MIMIMUM PAYMENTS ON EACH CARD, AND KEEP PAYING THAT SAME AMOUNT EVERY MONTH, AND DON’T CHARGE ANOTEHR PENNY, YOUR CARD(S) WILL BE PAID OFF IN LESS THAN 3 YEARS!