Ask Terry Questions Paying off credit cards debt

Paying off credit cards debt

By Terry Savage on September 05, 2018 | Credit/Debt

Hi Terry,

My husband and I are about to be first time parents and I’m getting worried about our credit card debt which is about 20k. My husband has an old 401k from a previous employer that is about 40k. Should we cash it out and pay our debt? I know you say not to do it but we don’t have the money to be paying double on our payments right now and the interest is killing us. Please help!

Terry Says

I’m going to ask you one question first: Are you willing to give up $1.8 million for your retirement? You’ll see why I’m asking at the end of this response!

OK, you know my advice from hearing me say this multiple times: You’re sacrificing your future!
So let me take a different approach. You are about to take on the most expensive event in your life — raising a child! You can’t imagine the expenses that will come up in the next 18 years — According to a recent article based on Agriculture Department calculations you’ll need nearly $250,000!

Now my BIG question: Have you learned your lesson about the dangers of credit and the ease of use of credit cards? Have you BOTH learned that lesson? And can you resolve to pay future credit card bills IN FULL AND ON TIME?

If so, you should at least know the consequences if you take the money out of that old plan and start over, paying down your debt. Remember, you will take a 10 percent penalty PLUS you must pay ordinary income taxes on the money you withdraw. So it will all be used up.

Even worse, if that $40,000 grew at an annual rate of 10% (the historical average return of the stock market over the past 60 years) and presuming you are in your 20s, you will be “giving up” more than $1.8 dollars you would likely have had at retirement!

Small decisions today have huge consequences long term. Now are you sure you still want to do this? Or should your husband get another part-time job to pay down the balance??



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