I am 57 year female, gainfully employed. I am married, have a 13 year old son and live in Park slope Brooklyn. My husband is also empolyed but in really bad debt – to credit card compaines. My credit is fine his is not. Because of his debt i have incurred about 15 grand in credit card debt. I want to borrow from my pension to pay off, think i could then put more in to saving – penison. We dont own anything, yes we are a mess!!
Not sure how he is going to resolve his problem, it’s all on him, we have not joint credit cards, thankfully.
I want to borrow 15 grand from my pesnion to pay off credit cards?
My view on this is longer than just to quickly eliminate the immediate pain and stress you may be trying to quench by raiding your retirement funds, so bear with me.
The reason I’m not in favor of you raiding your pension for a “loan” to pay off the debt is because you say you are 57 and “don’t own anything.” That statement tells me that for whatever reason you are not in a stable financial situation with saving and assets to fall back on. It sounds to me as if you are frustrated and have been just making it by or had saving and assets at one time but those are now gone.
Your retirement funds are almost certainly protected from your creditors so by taping them all you are doing is robbing from your future to meet an immediate need. But which need is more important? Is it protecting your retirement funds for when you are not earning money and need them most or taking from them now to repay a debt that appears to not solve your overall situation?
I think the preservation of retirement funds is not only the right thing to do but generally the more responsible thing to do in your case. By not draining the pension money you are leaving it in place, to grow at a faster rate than if you took it out and then tried to repay it over time on your month-to-month budget.
Let’s say you took out the funds now and repaid the money with nominal interest, say 5%, over the next five to ten years. What you feel you would gain is an elimination of the credit card debt at a probably low interest rate. Let’s just say that in the same five to ten year period the stock market improves, which it has been doing. During the same time the market grows at a rate of 10% per year. In this example your pension loan would not cost you just 5% interest but the difference between what you pay and what you would have earned. That means the pension loan could actually cost you 15% interest and that’s not a bargain at all.
If you were prepared to pay that kind of money for a loan to payoff the credit card debt then looking into an unsecured loan from LendingClub.com would be a smarter bet in my book. LendingClub.com extends unsecured, fixed rate, debt consolidation loans to people that qualify. The loan would not drain your retirement, would payoff your credit card and help to resolve that immediate problem.
But another statement you made caught my eye as well. You said, “My husband is also empolyed but in really bad debt – to credit card companies.” So that tells me that the financial problem you are experiencing is not limited to just $15,000 but there is a larger household debt problem in the works. In that case it is doubtful that a pension loan for just your debt is going to put your household in a sufficient enough position to best prepare for the future.
I think before you do anything or make any decision you should see a local bankruptcy attorney. The bankruptcy route could address the entire household debt, protect the retirement funds and save those for the future, and give you the best chance of breaking free from this current cycle of debt that has left you in an unsafe financial position without any savings or emergency fund.
You can click here to find a local bankruptcy attorney and if you’d like a second opinion about your situation or a personal consultation by another debt coach, please feel free to contact