Should I Cash Out my 401K to Pay Off Debt? – Anna

By Steve Rhode
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Anna wrote to me through the GetOutOfDebt.org site and asked the following question. If you have a credit or debt question you’d like to ask just use the online form. I’m happy to help you totally for free.

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“Dear Steve,

I am currently a stay at home mom and my husband is working outside the US. Our monthly income is $13,000/mo. And our revolving debt is listed below:

Home Mortgage – $340,376.98 – 2,098.82
Line of Credit 191,529.48 – 568.53
Credit Card 1 10,088.49 – 336.00
Credit Card 2 15,865.05 – 343.00
Credit Card 3 13,321.12 – 231.00
Total Debt 571,181.12 – 3,577.35

We currently are able to make the payments, but it seems like we can never get out of debt. I currently have about $120,000 in my 401K and my husband has about $130,000. But we have no money in our savings account. Can you tell me if I should cash out my 401K to pay off the credit card debts and part of my line of credit? Please keep in mind I am currently not working and borrow against my 401K is not an option at this time. Please advise. Thank you

Anna”

Dear Anna,

You should not cash out your 401K. Leave it in there and protected from creditors. If you are making $13,000 a month and your debt payments are $3,500 a month, would that not leave you with a significant surplus each month to use to reduce your debts? You could use the debt snowball method.

And please, before you start using all your extra cash to pay down debt, open a savings account and put at least $5,000 in that.

Big hug.

@GetOutOfDebtGuy

Source: Should I Cash Out my 401K to Pay Off Debt? – Anna

Originally posted 2009-04-22 08:27:18.

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Should I Cash Out my 401K to Pay Off Debt? – Anna

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