using IRA $$ to pay CC debt

[mafibisha]

My mom just called to say one of my brothers is doing this, so what do y'all think?

If you have enough in IRAs, retirement funds, stocks etc. enough to basically live well in retirement (nothing guaranteed but seeminlgy so), does if make sense to take some of that, say 10-15K to pay off CC debt?

On Easter, our family had a *spirited* discussion about CC debt, IRAs, and various assorted financial issues and scenarios.

(It all started when talking politics and thankfully, my dad changed the subject, and ended up on this)

Most of us in this discussion are in our mid 40s with 20+ years to still work.
We all have various assorted situations regarding our financial issues, so it seemed hypothetical. But my mom is really worried about my brother, although he seems to have plenty in funds for the future, but somehow accrued much CC debt. He thinks it makes sense to pay them off with just a tiny part of one IRA, and save himself the massive interest paid. So what do y'all experts think.

(sorry if this has been discussed?)

 

[*Flower*]

Is he planning to take the money out of a Roth IRA or a traditional IRA?

That would be the main question to ask- because with a Roth, you can withdraw your deposits with no penalty. Not the earnings, just the original investment money.

With a traditional, there are all sorts of penalties involved.

HTH!

 

[furb & dez]

In my eye, he's spending money he'll need for the future to pay for things he didn't have the money to purchase in the present.

I wouldn't recommend doing this... it's too easy to put off "paying yourself back". I would say he should learn to live within his means first.

 

[annabanna]

In my eye, he's spending money he'll need for the future to pay for things he didn't have the money to purchase in the present.

I wouldn't recommend doing this... it's too easy to put off "paying yourself back". I would say he should learn to live within his means first.

I agree with this. There are other ways to pay off the debt, and quickly enough to avoid lots of interest - it's called a massive budget overhaul. It might take some sacfice and frustration, but it's better than taking out of retirement. It might seem like it's an insignificant amount of money in the whole picture, but $15K is only a couple of months in a nursing home. I certainly wouldn't recommend it. Besides, he's taking money out that's gaining interest to avoid paying interest. If it was going to take him 20 years to pay off the debt, that's one thing. But if he can scrimp and sacrifice, it's better to just pay off the cc without using retirement.

 

[mafibisha]

I agree with this. There are other ways to pay off the debt, and quickly enough to avoid lots of interest - it's called a massive budget overhaul. It might take some sacfice and frustration, but it's better than taking out of retirement. It might seem like it's an insignificant amount of money in the whole picture, but $15K is only a couple of months in a nursing home. I certainly wouldn't recommend it. Besides, he's taking money out that's gaining interest to avoid paying interest. If it was going to take him 20 years to pay off the debt, that's one thing. But if he can scrimp and sacrifice, it's better to just pay off the cc without using retirement.

Yes, thats the thing, it will take them years to pay of the CC debt.

I agree with you all and so do my parents. But my mom just called again, crying, because my brother is in *trouble*. Apparently they will be paying for at least 20 some years, in addition to college loans, their own and now also helping put their kids through college.

He assures her they have enough for retirement, having saved quite a bit plus pensions from previous jobs. Both he and his wife were laid off from fabulous jobs a couple years ago, which is when they incurred much of the debt. Both are working now and doing okay, but not like before.

I'm worried for him but also for my mom. She's not getting any younger and often comes to me and DH for advice so thanks for your thoughts.

So if its really going to take them 20+ years to pay if off, do you think they should cash in part of one IRA
(apparently they have many, among other investments)

 

[sharon_wv]

I still wouldn't recommend robbing from retirement. Besides taking away compounding interest being earned (tax free), unless like the PP said, it's a Roth IRA he's only taking principal from, he'll be paying a boatload of penalties and interest. Not a good move at all in my opinion.

And, another thing... if he plans on " borrowing" from his 401K and then before he "pays himself back", God forbid, he loses his job, he is responsible for paying that whole loan back immediately. That would be much more stressful in the long run, right?

When we were younger, we had over $20K in CC debt, but just honkered down, quit the spending (no it was not fun) and lived within our means for a couple years and paid those things off. We are now debt free with the exception of our mortgage. Well, if you don't count the Disney Credit cards we charge everything to and pay off 100% every month. We have not paid any credit card debt in over 10 years, nor do we ever plan to again.

The problem alot of times when people do this is that they don't change the bad spending habits & get right back in the same hole all over again PLUS have no money in the retirement account. If you actually suffer and sacrifice paying it all back, dollar by dollar, I think you learn a BIG lesson in life and don't crawl back into that same whole as easily.

Good luck to your brother. I'm been there & it sucks!!! But we're out and it's so much nicer to know we accomplished that huge task.

 

[Shelly F - Ohio]

So lets see they got themselves into debt and plan to take their retirement money to get them out. Who to say they won't stay out of debt once its paid off.
I wouldn't do it.

 

[Princesca]

I would never, ever, ever, ever borrow against a realized/tangible asset (which is effectively what he's doing) to pay down unsecured debt. I would instead consider reducing somewhat what's being contributed to the IRA currently, and funnel that toward the CC debt.

Someone who is that well-funded for retirement sounds like they might have the income to take care of that debt pretty quickly... and let the painful interest payments be a lesson to pay your cards off every month or not use them at all...

 

[starry_solo]

So it's going to take a long time for them to pay off the CC debt? I would see if they can settle the debt for one lump sum payment.

 

[riley2008]

Personally, would I think it was a sound financial decision to pull from an IRA to pay off unsecured debt....NO. If my brother decided to do it and was asking my opinion, I would tell him what I thought and DROP IT.

Your brother is making financial decision for himself and feels that he has the money to do so. Good for him. IMO, your mother shouldn't be "crying" over this. She raised a son who is taking care of his debt. It may not be in the way she would do it, or you or I would do it. He's a big boy and he's not asking for your parents' retirement funds.

 

[marie1203]

Big no no.

 

[annabanna]

When we were younger, we had over $20K in CC debt, but just honkered down, quit the spending (no it was not fun) and lived within our means for a couple years and paid those things off. We are now debt free with the exception of our mortgage. Well, if you don't count the Disney Credit cards we charge everything to and pay off 100% every month. We have not paid any credit card debt in over 10 years, nor do we ever plan to again.

Us too. My husband and I were young and dumb, fresh out of college and paid our bills with credit cards. We finally had enough of living in debt and that was it. We worked our butts off, sold everything that wasn't nailed down, didn't eat out, shopped on a budget and in a few years managed to pay off our debt and start saving for a down payment on a house. And trust me, we did not have much of an income then. If we can do it, anyone can. 12 later we still have no debt besides our house. We are toying around with getting a Disney CC, but even knowing that we would pay it off every month still makes us really nervous.

If it's going to really take him 20 years to pay off 15K in debt, they really need to look at what they are spending money on.

 

[crisi]

Adding to the chorus of no.

 

[furb & dez]

If it's going to really take him 20 years to pay off 15K in debt, they really need to look at what they are spending money on.

"Well, I can't possibly LIVE without my Starbuck's every morning, twice on Saturdays."

"If I can't go to the mall and shop every weekend, I get depressed."

"I don't want to cook more than two or three times a week, I'm too TIRED."

"I couldn't LIVE without cable!"

 

[mafibisha]

So it's going to take a long time for them to pay off the CC debt? I would see if they can settle the debt for one lump sum payment.

Thats what my DH suggested he try. But we know very little about it. Is it possible to settle with the CC companies directly, without going to one of those debt settlement companies?
He has 3 with one bank alone (Chase, I think)

I know he's a big boy, and my mom shouldn't be crying over it or him. But we as mom's know that's much easier said than done, regardless how grown up our kids may become

 

[shortbun]

I think he should let his kids bear the burden of their college loans later OR he could later help them pay when HE is out of debt. Put on your own oxygen mask first. That's just my take on it. We've put enough in DS's college fund to finance two years of most colleges. After that, we'll help but he needs to either take out loans, get scholarships, get a job-something to carry his share.

 

[KarenAylwood]

In my mind 10-15K shouldn't take all that long to pay off with some concerted effort. 20+ years to pay it off?! DH accrued debt with his parents after losing his job before we met. The total was around $15K I think, and we paid that off in around two years and it didn't affect our lifestyle all that much- we still were able to go on vacations and plan a wedding/honeymoon. Granted it was interest free- but still, 20 years for 15K of debt seems a little ridiculous.

Google "how to pay off $15,000 worth of credit card debt" and see what you come up with: tons of stories of "I paid off my CC cards in X amount of time!" There are tons of ways to tackle this, and first I would hope is taking a good hard look at their budget and what they're spending. Making some sacrifices for a few years could help them greatly.

I would not rob from my future to pay for my present (or past).

And like someone (or others) said- say your peace, tell your mom your opinion and then wash your hands of it. Your brother will make whatever decision he thinks he needs to make. You are here to love and support him, and give him guidance when it's asked of you (same thing with your mom). Goodluck!

 

[dizkids]

Agree with the marjority. If he borrows and pays it off there is a good chance he will rack it up again and never pay back what he borrowed.

 

[mrodgers]

Folks, try paying off $15k in debt with normal jobs, not high paying jobs. 50% of households make less than $50k. Electric, housing, heating, transportation, food, medical, phone, etc pretty much eat all of the paycheck. Add to that debt payments and when you folks say to cut, you are homeless, without heat, without electric, no car to go to work, suffering with untreated medical conditions, have no clothes, no hygiene, or any combination of the above.

Great idea, cut the cable bill, the only luxury many folks have. Paying the $85 cable bill towards a $15k debt will take you, you guess it, 15 years without even paying any interest.

My particular bills for a household of 4; house, electric, phone, car insurance, car gas, and groceries, right there is the cost equal to the take-home pay of a $50k/year job.

 

[DisneyEater]

I have been there, racked up the debt, got out of it, and have not been back.

If it can be avoided, I wouldn't take from the IRA. I would cut all contributions to any IRA/401k and funnel all of that to the CC debt. That way he can avoid penalties and the money in the retirement savings can continue to grow.

He needs to sit down, list out expenses and goals, and figure out how long it will take him to both pay off his CC and build up an emergency fund. I think if he can pay off the CC in 2 or 3 years, he should do it that way. If it is really going to take him over 10 years even cutting back and funneling more towards the cards, I would reconsider hitting the retirement savings.