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I’m Using My 401K to Get By And Have No Job. – Foster

Foster

“Dear Steve,

I lost my job in November and have cashed and used my 401k to get me through so far. It is now exhausted and I still have no job prospects. My wife works and I get unemployment, but we cannot make ends meet. I have had my credit card accounts closed for some time now ( I was enrolled in debt management until I lost my job), I know that my wife and I could get by without these old credit bills but the balance never goes down. I have calculated that nearly 40% of my balance is interest.

Can my creditors forgive most of my debt or at least stop the interest on interest? Maybe offer an occasional skip a payment like my car loan does.

Foster”

The Answer

 

Dear Foster,

Please stop using money from your 401K to pay credit card bills. You are only cutting your own throat by using money that you will absolutely need in your non-income producing years to get by on.

Taking cash from the 401K, which is protected from your creditors, only pushes the real problem out into the future.

Your statement about the debt management plan failing because of the loss of your job is one of the reasons I’m not thrilled with debt management plans. Unless you make all the payments and get totally out of debt, the money paid into the debt management plan before the plan failure provides you with no benefit since the problem still exists, indebtedness.

Creditors are not going to treat you individually. Your accounts are on a raft and they are floating downstream through the collection process and will be sold off to another company to chase you or be put on the truck to be taken to court where you will be sued.

Foster, as hard as this might be to face, unless there is an immediate prospect of a job, you need to go bankrupt. Don’t discount bankruptcy as a solution simply because of how you think you might feel. Bankruptcy can feel bad and suck, but you know what sucks worse, being old and broke because you drained the 401K in a desperate attempt to stop something that you have no control over.

Do me this favor, just contact a local bankruptcy attorney and schedule a free bankruptcy consultation. Go in and talk to the attorney, not with the intention of filing bankruptcy, but to really educate yourself about what bankruptcy would mean for you.

If you have any reasons why you think this is not the right advice for you, tell me in the comments. I’d love to address those points.

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About Steve Rhode

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.

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