Ask The Get Out of Debt Experts Retirement Related

Should We Sacrifice Our Retirement Funds to Settle Our Debts? – Alex

“Dear Steve,

My family and I are behind on $96,000 of credit card debt equalling 7 accounts. These accounts are all between 120 and 150 days pass due. My family budget is about $1,200 a month short to make the monthly minimun payment on these accounts.

One of our credit lenders who represents $82,000 and 5 of the accounts is offering to settle the debt for $33,000. I have $45,000 in my 401K. If I cash out my 401K, I know I will pay a hefty penalty. However, I will now have room in my budget to make the payments on the other two accounts? We have started using Dave Ramsey budgeting plan and baby steps and have no desire to go into debt again.

Thanks for your advice.


Dear Alex,

I wrote about this just yesterday in Should I Cash Out My 401K to Pay Off My Credit Card Debt? – Angie and I urge you to read that post about my position of cashing out the 401(K).

You might also be interested in an alternative spending plan approach by downloading my free book “Eliminate Your Debt Like a Pro”, start reading on page 81.

Be careful as you move forward, living on an all cash basis and avoiding having a credit card at all can hurt you more in the long run. Your credit can be easily rebuilt using secured credit cards that will let you live without debt but will also restore your credit score which will be beneficial in the future.

Please update me on your progress by posting updates here in the comments section of your question. I’m very interested in how this works out for you.


You are not alone. I'm here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don't give up.

P.S. Be sure to read ‘The Secret of Surviving Through Difficult Economic Times. What I Learned On My Journey‘.

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About the author

Steve Rhode

Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.


  • Steve,

    I met with a bankruptcy attorney today as I think it will be the best option for me. The attorney quote a fee of $3,000. $350 down, the balance will be paid in monthly installments with the bankruptcy over a 5 year period. Does this sound like a standard price?

    Also, the way the math worked out during my consult painted a picture which basically had me paying 10 cents on the dollar for my unsecured debt. Is that a normal rate, or a realistic rate for a typical Chapter 13?

    Thanks for all that you do.

    • Alex,

      Yes, that is an average rate for a Chapter 13 bankruptcy. Not every attorney does the payment plan so it looks like you found one that is accommodating. Are you in North Carolina?

      For your income and situation the 10% return is what it is. Now you can see why bankruptcy is a much better solution than draining retirement funds to settle debts for 50% and pay the settlement company 15% of the total debt on top of that.


  • Steve,

    Thanks for your advice. I have decided to not pursue the 401K for four reasons. 1) my company 401K program will not allow me to cash out unless I am seperated from my company which I am not going to do. 2) I do not want to rob my future to pay for my family past. 3) My 401K is protected incase of bankruptcy, so why lose it. 4) I am going to try the plan A approach listed in discussed in chapter 5 of your e-book that you posted.

    On the book, I have a question about the figure on Debt Repayment Dollars on page 108. I do not understand how you came up with $534 for DRD?


    • Alex,

      LOL. Nobody ever pointed out that mistake to me before. I guess when the layout artist put it together something go a bit mixed up. The number should be $1634. How that got changed to $534, I’ll never know. Good eye.

      Just remember to factor in putting money in savings each month even while you are digging your way out of debt.


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