How Do We Eliminate Our Debt? – Brenda

“Dear Steve,

Husband is employed and I am a stay at home mom. We have loads of credit card debt and need advice on how to eliminate it.

Ok, here goes. My husband and I have about 60K in credit card debt. Ugly, I know. I am now a stay at home mom with 3 little kids. We have always been able to use balance transfer checks to keep the interest rate low, however with the recent credit crunch we are losing credit and I am terrified as to what will happen when the balance transfer offers expire.

We will be unable to make the payments and will go only deeper and deeper in debt. I have about $32K in my 401K and I know if I cash it in I will lose 10% in penalty fees and we will have to pay the taxes. My husband has about $11K that he can take out of his retirement fund penalty free (but not tax free). The only way we can see out of this mess is to use this money to reduce our debt. We have a great credit rating and am unsure which is the best route. Screw up our credit by using one of those debt reduction organizations, or cashing in this money. What do you suggest?


Dear Brenda,

Sorry to hear about your situation.

The balance transfer deal is a dead end street at this point. The creditors primarily used it as a marketing tool to attract new customers, not as a great way for you to pay off your debt for free. The goal was at some point they’d snag you with the offer expiring and then make a killing on interest.

What concerns me is that if you are only making the 0% balance transfer minimum payments and finding that hard to make or unable to pay more than that then the option on what to do is limited.

See also  Should I Take Money Out of My IRA and Use it to Pay Off Debt? - Dan

I am no fan of reaching into your retirement fund that is protected from creditors to address the situation. The losses from doing that are massive when you calculate lost growth, taxes and penalties.

Before you jump to any conclusion I really need for you to click here to find a local bankruptcy attorney. Make a free appointment for you and your husband to go and talk to the attorney and discuss how bankruptcy would allow you to get out of debt, protect your house, and keep the retirement money untouched.

Will bankruptcy impact your credit, yes, but it can easily be rebuilt afterwards. Much easier than trying to rebuild the lost retirement money.

Your homework, if you choose to accept it, go to the bankruptcy attorney, talk it over and give me an update about what you thought in the comments below.


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.

Do you have a question you'd like to ask me for free? Go ahead and click here.
Damon Day - Pro Debt Coach

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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.
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