My wife and I have approximately $56,000 in credit card debt. We have implemented a austerity plan, and am paying that down at the rate of approximately $800 a month.
The problem is that in Dec. 2013, we will have to start paying $1600 a month in college loans for our daughters education. In order to afford that, I feel that we need to eliminate the credit card debt BEFORE the college loans become due.
One option we have looked at is to close an IRA account (this was totally funded by an ex-employer) which, even with the taxes and penalty would reduce our credit card debt down to below $20,000.
This would allow us to achieve this goal. Our retirement from pension and another 401K account would still be over $100,000 a year in about 10 years.
I know that it is never a good idea to raid your retirement accounts, but with the looming college loans, does that make a difference?
The reason I’m not a huge fan of raiding the retirement account once the money is in is because it is protected from creditors. That money is your protection once you get old and can’t work anymore.
My hesitation is that while the intention is to replace it. For the most part that just doesn’t seem to happen.
The good news is you are starting ahead of schedule and planning now for December 2013. Bess you for that.
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If you were going to tap the retirement I’d rather see you do it with the smallest hit possible. If you were willing to take the credit hit now and face collection pressure you could probably settle your outstanding debt for around $30,000, not including the tax hit on withdrawal. The credit can be rebuilt afterwards. But beware, this approach has some potential legal complications and tax liabilities.
If you think it’s a path worth exploring, you may want to contact one of the AACC member companies for help with that approach.
The $800 a month looks like it is your minimum payment and not an amount on top of the minimum payment due. In that case a further reshuffling of your debt isn’t going to make a major difference. Even a credit counseling approach would take about five years and that’s going to bust the timeline.
But here is where I’m a bit confused. Let’s say we eliminate the $800 payment now. If that’s a current maximum you can pay each month, is their something that is going to change to allow you to handle a new payment at $1,600 a month? It seems that from what you’ve shared that even without your credit card debt the college loans are going to break the budget.
Am I reading that wrong?
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