Retirees | Should You Use Your 401k to Pay Off Credit Card Debt??

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Information Retirees | Should You Use Your 401k to Pay Off Credit Card Debt??

Title	:	Retirees \| Should You Use Your 401k to Pay Off Credit Card Debt??
Lasting	:	10.29
Date of publication	:
Views	:	27 rb

So if a person is still working with steady income with ability to work another 3-5 years and is avg 7 return on 401K it may be better to take out of 401K and clean up the high interest debt If they person is past the 595 age so that penalty is lower on the withdrawal from 401K it may make the decision easier Seems to be a good solution to remove the high debt and take the additional money going into cc and put back into 401K at least remove the stress and burden of making the high monthly cc payments
Comment from : Larry Pritchett

I will pay off the credit card immediately! I do not want to carry a high balance and have the disapline to tear up the credit card There there has not been a credit card in this person's wallet for The last 5 years
Comment from : Mark Stephens

15? My credit cards charge me 29
Comment from : Wendys World

This video covers the very thing I've been grappling with You clarified how my emotional side works about the idea of using my TSP to cover that debt I think now I can look at it objectively to determine the best rate of return for my TSP account vs the cost of interest my credit cards are charging me
Comment from : Beverly Ness

What’s the definition of retirement? I got bored and at 73 work part time👍🇺🇸🙏
Comment from : cheryl campbell

Sad thing I’m seeing is if you live to be 95 years young your going to run out of money A friend is bi-polar and now lives on social security only Spent and lost everything Happens😂
Comment from : cheryl campbell

Should you sell your home if close to retirement to pay off student debt that was taken out for the children??
Comment from : ThrottleTwisterTales

Did you take into account that there is tax to be paid when taking money out of a 401K? That was not explained here in this example
Comment from : Quan Sun

Call credit card company they will negotiate a 0 with monthly payment you can afford close account
Comment from : Lindsay Johnston

If you have to take an RMD, it certainly makes sense to do this
Comment from : B T

If I have any credit card debt when I retire, I'll pay it off from the sale of my house That way I won't have to touch the money in my 401k
Comment from : DZL

How about the option of obtaining a loan against your 401k to pay off the CC debt? Here, you would pay off the debt via 401k monthly payments
Comment from : NIO3954

I am 68 and still working full time I pay the three year payoff amount listed on my credit card statement I started collecting Social Security at age 66 so Ihave been paying the three year amounts for payoff for about two years without touching my 401 k which I still contribute toI'm not saying it will work for everybody but it is for me
Comment from : ty53 will

I can't help but wonder why anyone would let themselves accumulate all that credit card dept in the 1st place? There could be a responsible reason for doing it, like a family emergency of some kind but I tend to think that they were very irresponsible to rack up the dept in the 1st place! I think that given the numbers paying it off even if it increases tax dept is worthwhile They should agree to never abuse the card like this again if there going to incur extra tax on it The example didn't mention if SS taxes would be due as a result, but it's still better to put it behind them I never carry dept on my credit cards Maybe they should put the card in a small container of water & freeze it leaving it in the freezer for a true emergency, not a sale
Comment from : George M

I did a 0 credit card, and paid that sucker off as fast as I could I threw every single penny I had at it I paid it off 6 months early
Comment from : Jazzie Red

How about paying off your car loan using your 401K?
Comment from : Retired 2019

You have to take taxes in account on the 401k withdrawal That can cost the individual more than it’s worth to pay off a credit card
Comment from : DogMom60

I answered both questions and I put no I wouldn’t use 401 to pay cards only because I don’t have any card debit or any other debit lol
Comment from : Norman Reed

If that was me leave the 401k alone and use Home equity loan or HELOC to pay off CC If I have a sizable HELOC already from owning most of home I would invest a bit more aggressively at around 6 instead of 5 mentioned here as HELOC can be used as an emergency income if 401k investment tanks
Comment from : Marty M

No Don’t do it I have a suspicion that a retiree with cc debt would be inclined to continue to use their cc, running up more cc debt Crazy Why not think about an actual loan to pay down the debt and destroying your cc brPay as you go If you can’t afford it don’t buy it
Comment from : fuzzyjax

Why did you call it High Yield credit card debt vs High interest rate CC debt? My CC interest rate is 12, but I still chose to use money from my IRA to pay it off That allowed me to balance my budget and live on my SS income I would have paid it off before I retired, but my knees decided they were done with 12 hr shifts in an ER
Comment from : Wendy W

Don’t pay coz your be tax 20 which is huge for the whole amount Since 401k is tax is 20
Comment from : William Visaya

Perhaps the more important question is "Where did this debt come from and how likely is it to reoccur?" While I view credit card debt as foolish and morally it should be repaid, I also think that it's not a good idea to pay for unsecured debt with your finite retirement savings God forbid that people would significantly lower their spending and pay their debt off over time I put everything I can on our cash back credit cards including our utilities and insurance payments While they sport a 28 interest rate, they don't get a penny from me as we pay them off in full each month with our spending typically totaling $800-$1,500/month depending upon what bills I've had that month Incidentally, pre-retirement I would live in a van down by the river before I touched my retirement savings Of course I'd build it into a camper van with a wet bath, kitchen, house batteries, entertainment center and I'd enjoy relaxing and fishing all day but that's another subject entirely
Comment from : tomj528

Anything I take out of my 401(K) is going to be taxed at 20 percent, I think I'll just leave it in there
Comment from : Paul Jackson

I refuse to even think about using a credit card to purchase a high ticket item unless it’s a zero percent interest card for a designated amount of time And I make sure it’s paid off before the zero percent deal runs out Luckily I have excellent credit and I can obtain these rates If your credit is messed up, you’re sort of screwed Stay out of debt as best you can!
Comment from : Harry Balls

I haven't had a credit card since 2001 Its nice
Comment from : J Nolette

No credit card debt for us !😎
Comment from : Alejandra Rivera

Credit cards "yield"?
Comment from : Ric

This question should be, should you borrow money in retirement? Or more generally, should you spend money in retirement If you have $40,000 debt in retirement should you retire? Any debt in retirement is coming from savings since you are living off savings
Comment from : Jon Nelson

Is bankruptcy an alternative here?
Comment from : Phillip Cruz

You didn’t mention the tax penalty of withdrawing from 401k
Comment from : Harry Houdini

I have thought about using some of my deferred comp savings to pay down or off my house and just eating the penalty to save a lot more in interest We plan on retirement fairly soon
Comment from : Michael Edge

Another way to look at the issue is to consider net worth If you use 401k funds to pay off high-interest CC debt, it doesn't change your net worth, yet your monthly net income goes up Seems pretty straightforward
Comment from : cerealspiller

Thanks for the Great VID! One thing you didn't discuss was the taxes one has to pay depending on their income level For example, at 59 I took $40K out of my TSP (made over 85) for the year, and this caused my taxable income to increase resulting in a move to the next tax bracket While still a plus overall, I did pay over 8K more in taxes
Comment from : Justin TIMEyo

How do I reach you or your company on a private basis?
Comment from : Brian Pinkard

Completely out of debt
Comment from : Mark Sweet

Go with the math! 24 on credit card debt vs 8 return on the investment Pay off that debt!
Comment from : Conure Ron

How is the math if you are taxed on the ($40k) IRA withdrawal?
Comment from : Conure Ron

I have no credit cards that means no credit card debts That means all my 401k is mine to spend on whatever I want
Comment from : Glenn Sjoerdsma

There is a third option Default on the CC I had 16K in CC debt and could not make ends meet I considered using my 401k to retire the debt but after speaking to a lawyer I decided to default I simply quit paying I thought they would sue but they took no action other than idle threats The debt aged out and became unrecoverable I don't feel sorry for the CC company
Comment from : oldsesalt

I just did this myself but for different reasons I wanted my wife to retire but the major excuse was high credit card debt I have enough in my IRA to retire on and still have a 401k with plenty to pay off debt Tax issues aside, it feels good to be debt free Now I just need to decide on retirement All the numbers make sense
Comment from : gbouley1

The problem about paying off credit cards is that income tax rates can be higher than credit card interest rates, so when you take out your money from a 401k for example they are taking 30 upfront in tax, even if no tax is owed Sure you can file and get that money back, but it still is lost until you get a refund I would love to pay off all my credit debt, but it is not financially viable when tax rates are higher than credit debt I am currently holding It really all depends on what rate you are paying for that debt
Comment from : James Alias

Smart people get rid of credit cards and live off cash! The younger you are when you learn this, the better off you’ll be!
Comment from : Scott Salyer

Math solves everything The numbers tell the whole story How much of the $40k was taxed?
Comment from : Brian West

With the way the economy has been for the past 10 years plus, not surprised that many people go into retirement with credit card debt I'm lucky that, when my mom passed away about 8 years ago, the money I received after her death was enough to pay off our $19,000 credit card debt, plus have a nice chunk to put away as a nest egg Luckily, we've been in the situation where we haven't had to run our cc debt up again But so many don't have this luck/opportunity
Comment from : Susan L

Just pay off the minimum, don't pay off the CC with your 401k, you can run out of money you need for retirement They can't come after you when you are dead
Comment from : S CT

Losing the most important element of the time value of money…I say NOT
Comment from : Enlig Ulv

My spouses Self Control is the issue I’ve paid off CC debt several times over the years only to have my spouse run it up again The credit limits on our several credit cards keeps it from getting overly out of hand Have plenty of savings to pay them off at any time Certainly this is voodoo economics but there is the human factor as well
Comment from : Northern Captain

I've been fortunate not to let my credit card debt get out of hand and always it paid off when it comes in
Comment from : Roy Miller

Thanks, I would have said no to paying off debt with 401k money but you showed me that I was mistaken
Comment from : WJC

Should I use my 401k to pay back social security for overpayment?
Comment from : mike fox

A moral issue with paying off debts you willingly incurredand this is why America is where it is today
Comment from : Andrew Neilson

What about taxes on that money you would use to pay off credit card debt
Comment from : Marty Wortman

Retiring with any debt at all--is a BIG risk and stressful Debt-free retiring will have less stress so one can retire with some peace of mind
Comment from : Teri Tran

I think this question should not be up if you live within your means
Comment from : Chris Coccia

🔜 iGet rid of high interest debt !/i And don't do that again 💰'´
Comment from : James California

I'm in the process of selling an asset to pay off CC debt as I walk into retirement as of Aug 1, but that's just me, I like being debt free, that's TRUE FREEDOM
Comment from : William McCaslin

Good points One point I didn't see you make is that on that $40,000 withdrawl, you'll take an additional $40,000 taxable income burden for 2021 taxes Depending on your expected tax bracket, that could make a big difference
Comment from : MathGives YouPower

Hoke'ty Smoke'dee!!! brWell Jeff I just arrived at this point in my own journey! But I've got some "X" factorsbr1)20x20 cards of which five MUST go awaybr2)Trad IRA rollover so 20 MORE to the big guy so that #1 goes away*br3)Slowly though* so as not to get all 20 card limits tanked thus a probable score increase (yes they "can" drop limits so utilization goes back to 99 each and presumably every 6 months or so per card underwriting parameters)br4)STRESS times 1,000br5)Scissors (to keep available credit on fico but never rinse/repeat)brbr7)Fortunately I can start a new business in my field to "catch up**"(next year-because distribution counts as income this year)br8)Like Scott down below, I went through "divorce" thus catch up**br9)My accountant says the 20 will actually help this year (but I won't repeat his true opinion-yikes!)br10) So after I officially retired I still had to work but 30 decrease in wagesso there it isbrSad but truebrI appreciate your open ended presentation on this apparently somewhat common predicamentbrSo thanks!brEdit: no clue about #6poof!!!??
Comment from : JubileeValence

And all this time I thought older folks were smart Taking debt into retirement is counter productive to ones goals
Comment from : Harry L

I retired over 7 years ago at the age of 55 I would stress that not having any debt when you retire is the key to financial independence I definitely see how this method can work but if you’re younger I would suggest doing anything other than tapping into retirement savings Mathematically this works and is an option so I’m not undermining this video But if one can figure out how to eliminate debt prior to retirement without touching these funds it’s the best option I was $30,000 in CC debt many years ago (That would be more than $40,000 in today’s dollars) I was blessed to be able to refinance my home and clear my debt at a 3875 interest rate Anyway, I guess my point is to get rid of debt as it will be such a lifted weight when you retire
Comment from : Ron M

1 Close large credit card debt because it's much more expensive than what you can expect to make through your investments, even considering potential tax benefits of 401k moneybr2 Stop carrying cc debt from month to month That's how you ended up with such a huge credit card debt Pay it all fully every single month, AUTOMATICALLY Don't decide how much you pay every month toward the credit card debt Pay it fully by default
Comment from : Omry Yadan

Thank you for thisbrbrWhat I have been doing is refraining from pulling money from my 401k but constantly rolling over the zero debt before the interest rate goes up each yearbrbrThe balance transfer fee is usually 3 and the guarantee period is usually one year, so essentially I'm paying only 3 interest per year as long as I can keep rolling the credit card balance over annuallybrbrThis has worked so far
Comment from : Michael Guillot

I would never use 401 money to pay off credit card debt I've had retirement funds for 35 years and haven't touched it once
Comment from : East Texas Nomad

The math doesn’t lie Thanks for being so clear on all these issues
Comment from : wolfman

Is it possible that the people who said they would not use 401K money to pay down credit card debt said no because they have no credit card debt?
Comment from : Lynn Peiffer

I'm SO GLAD, that I learned at an early age to pay off my credit card the day it POST Not the end of the month!! It's your money, but I would urge people to stop using credit cards if at all possible Very few people actually know how to use it to benefit themselves Also, stop listening to people who are in worst financial ruins than you LOL I always laugh when someone gives me "advice" on what to do, yet they don't have a dime to their name, and in debt I'm not saying my way if the "right" way I'm just saying I prefer to live stress free, and actually have some money saved away But good luck to you all! No matter what path you choose
Comment from : Food4thought

Generally I don’t think it’s a good idea to pay off debt with 401K Cut up the credit card and get a second or third job to pay off the debt Cut out the discretionary spending
Comment from : Michael Torrey

Big fan of your videos but you dropped the ball on this onebrYou have to talk taxes whenever you think about taking a large taxable distribution amount from a 401K or IRA Not one mention of taxes in this video $40k increase on the income you use in this example would increase taxes That tax increase should be included in your analysis
Comment from : John Badilla

Where is the hot chick??? Luv your vids but what a tease!!!
Comment from : Gareth

The withdrawal from the 401k is taxed at a minimum of 15……so the actual amount you would need to withdraw is on the order of $46,000 to payoff a $40,000 credit card debt?
Comment from : Tom Morelli

How bout if the 401K deduction is taxed Federal tax of 20 & NJ state 5525 where the CC is 15 should I still pay off my CC?
Comment from : Rene Jimenez

I'm not sure that anyone has suggested a third alternative - obtaining a loan on your 401k from the provider In that way, you're eliminating your credit card debt, you're repaying that debt at a much lower rate (probably around 5) and, being a loan, you have to pay it all back in a specified time In this way, you would preserve the 150K in your retirement account and pay off the high interest credit card debt, as well Just my two cents
Comment from : WashCounty

I would say it depends on your cash flow Ideally, cut back on debt and get things paid off before retiring, but of course that's not possible for everyone
Comment from : Kate Burkes

Jeff, brThere's a small error in your math And a bias in your polls brMath error: Strictly speaking, taking money directly out of a 401K incurs a mandatory tax withholding of 20 Of course if you are using "401k" as a catchall for "tax deferred retirement plans," that would be different But, at retirement it's nearly always more advantageous to roll the employer sponsored plan to an IRA brMath assumption: Paying off the credit card saves 15 only for the year in which the credit card is paid off The loss of return on the cash is permanent So even with a modest rate of return, the long term loss of earning power on say $40,000 is much greater than 5 Using the rule of 72, without withdrawals, that $40K would be worth $80K unadjusted for inflation in 144 years 5 is pretty meager for a return though Conservative retirement rate of return should target 10 which is relatively easy to do, if the investor disregards asset allocation theory brPoll bias: The first question wasn't pointed directly at retirees, so of course paying off consumer and even mortgage debt would be smart ahead of retirement After all, your best hedge against inflation and cost of living is income from employment Naturally, most respondents would want to pay down debt to streamline and maximize cash flow in retirement Surprisingly, few people actually do pre-retirement planning and budgeting to understand what a loss of employment income really means to them brPoll bias 2: Conversely, in full retirement, cash flow his more tightly controlled and is less likely to fluctuate unless the retiree has invested wisely So doing a major withdrawal, especially early in retirement could create a catastrophic impact on future retirement cashflow The most likely need for that is medical expense But retirement assets are protected from creditors, so wise counsel is really needed in that case brAlso, a common retirement funding error is to not contribute enough, thereby making cash flow withdrawals relatively meaningless Obviously, that might mean that to overcome a cash flow/budget shortfall, the retiree has to either continue to work as long as possible and/or accept more investment portfolio fluctuation in order to achieve a higher average rate of return brCredit score: In my experience working with retiree's, at some point the need/ ability to borrow money becomes highly unlikely Therefore, depending on the retiree maintaining a credit score is unnecessary Credit card debt is also unsecured debt and is most often forgiven at death I can't recall of having heard of a single decedents estate being sued or having a claim placed against it for credit card debt collection Which is one of the reasons why joint credit cards are a bad idea So, the retiree may just conceptualize that credit card payment the same as they would for property taxes and insurance It's just another budgeted payment Cut the cards up Close the accounts And pay a few dollars more than the minimum Don't accept any changes to interest rate unless it is their favor brMostly good stuff though Thanks for the thought exercise Keep it up
Comment from : Kevin Jarchow

Thanks Schmidty!
Comment from : richard c

I will pay off any debt I have when I retire brbrAlso, when buying a condo in retirement, will I be able to get a tax break If it is my main residence? Even if that main residence is in Germany?
Comment from : EricOnYouTube

If I had 40000 in credit card debt,and only 150000 in 401k, I wouldn’t even consider retiring!
Comment from : Lynn Lajoie

Many possible scenarios I'm 59 and still carrying some credit card debt I could probably pay off most or all of that debt with savings now, but wasbrplanning on using that money to buy a florida condo within the next 1-2 years Unable to do both I just make sure to pay well above the monthly minimumsbron the accounts The banks & credit card companies get what they want In time, I'll get what I want
Comment from : INTERNETVID

YES, pay off debt with 401K, I know scary Going forward, there is only ONE way of wise credit card use, and fortunately it is a good one IF you pay your card off every 30 days, it is FREE to youjust think it is a revolving 30 day loan, never ending Check your specials as Visa v Discover v AMEX gives credits, and they compete against each otherthe basic 2 but some go up to 5 - so they PAY YOU - even Dave Ramsey must like that one! I earning about $100 to $120 per month in credits, I take it as a transfer to my checking account
Comment from : Mike Flair

I ran the numbers on paying off my house with retirement money or not Because my interest was high (on a manufacture home) , I came out way ahead to pay off the house That netted my about 600 more per month and in effect tax free At 12 return on that money in my 457B account I would only of made 150 per month I did have to pay taxes on the money distributed I have been debt free for several years First time in my adult life since the first year or two I entered the workforce
Comment from : Stephen Cullum

If I take money out of my 401K, I pay 17 income tax on that money now that I am over 65brI am also TAXED on my Social Security benefits I should have spent all of my 401k before signing up for Social Security Right now, I am making 10 return on my DIVIDENDSbrMaybe, once I turn 72, I can economically use my 401K
Comment from : Wayne Smith

What about all tge penalties and taxes for the 40k withdrawal? It's not like you get that 40k of your own money tax free
Comment from : vcarr32126

What about the taxes you'll owe on the extra 401k income and moving to a higher bracket Also, does this affect taxes owed on Social Security payments due to additional income?
Comment from : rbazola