Don’t Throw Future Money after Past Debt
In this economy it is understandable how some people would want to pay
off any debt that they have accrued. It seems like it would be better to
get everything that is hanging over your head taken care of, but
depending on how you plan on doing that it may not be a great idea. Some
people think that taking money out of their 401(k) is a great way to pay
off debt, but it is really not.
There are many reasons why you should not use your retirement to pay off
your debt, the least being that this is your future that you are
spending. You have spent a lot of time accruing the money in there, and
if you take it out you will pay a large penalty – 20% of your money to
take it. That makes that debt all that much more expensive. Plus you
have to pay federal and state tax on the withdrawal making it much more
expensive.
Instead, you should get a debt consolidation loan. With a debt
consolidation, you can get your credit card debt lumped into one easy
payment that you just have to pay back. The interest is always lower
than it is on your credit cards, and this way when you are done making
one low monthly payment on your debt you will still have your retirement
to fall back on should a real emergency happen – like retirement.
Taking money out of your 401(k) is never a good idea because of all the
benefits you lose by taking it. Not only that, but what do you do when
it comes time for retirement and you have spent it paying off credit
card debt?
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