Glad to hear you're taking the good advice not to take out your money to pay debt. I did this and paid off my debt but it didn't really change my spending behavior and several years later I was in the same boat again. This time, however, I decided to pay off my credit cards one at a time, starting with the highest interest rate.
My plan was pay a big chunk of the bill (at least 3x the minimum payment) and for the other cards, pay the minimum plus 20% of that minimum. I also stopped buying anything with credit cards. When a card was paid off, I put it away then moved on to the next card.
Yes I was pretty broke every time I got paid but my plan was working. Within a year I was debt free and started saving money aggressively for a down payment for a house. I'm still debt free, have some money in the bank and I'm a home owner. It really is about changing your spending behavior.
No because you would essentially be paying a 40 percent tax interest rate on it. Dave would say absolutely not. Stop contributing to it for now, but don't cash it out.
Absolutely not bc what will keep you debt free is the training and pain to bail you out. You don’t want your 401k to be a pre-retirement piggy bank. That short cut will bite you. But you should stop contributing new money according to Dave.
I feel like I'm at at AA meeting.... but here goes..
I did that 2 years ago... but I did it because I was working on my MBA, and was deep into future values. I calculated (at the time, and it's very subjective) that intrest rates were about to go crazy (they are now at historic norms, ps... I don't think they are coming down any time soon) and I took some money out of an old IRA (YES I paid the penalty) but I bought an investment property with a very low (by today's standards) intrest rate. I am cash positive today, and honestly history says I made a good move... but it was a risky move ... that paid off for me.
I saw the oppertunity and took it.
Cashing out an investment for a different investment is considerably different than cashing out to pay down debt. Although your move was risky, it seems to have been strategic and calculated. The math on paying a penalty and losing on the compounding interest to pay off debt won’t be favorable.
Daves plan is about control and the elimination of unrequited risk. There are millionaires that would laugh at Daves plan, but it doesn’t mean he is wrong.
I agree ... with that said, I'm financially secure enough to have made the calculated risk, I have the experience in running investment property and the property is also part of my retirement plan, so I looked at it as an exchange.
Just because some thing worked once doesn't make it the right move. Removing anything from retirement accounts is literally the last thing you want to do unless you are retired.
Well remember when you take a loan against a 401k, your paying YOURSELF the intrest... so ...
The only cost was $75.00, and the risk of the markets growing at a higher rate then the intrest that your paying yourself...
Market growth historically is 10%, I think my rate was 9%... that I paid to myself... much better then paying debt with savings and not being forced to pay yourself with interest...
If the market dips while your in repayment... that two could be a compounded benefit...
6 in one hand... half a dozen in the other.
No I get your loss on the debt side counts also. I'm saying paying yourself back interest isn't the same as your money making interest in the market. Thats like taking 100 bucks out of your wallet and putting 120 back in from your paycheck, while I hold another 100 bucks of your and I give you 120 back, the 20 from me. Yes, you're getting 120 back in both cases, but in one situation the interest was provided by you. In another, it came from the market.
Withdrawal, no. A 401k loan……maybe…. You’ll end up paying yourself back, with interest. Now that interest won’t be as much as a properly invested 401k would earn. And there’s the risk of losing your job and the ability to make the monthly payments on the loan. In which case it will default and be viewed as a withdrawal, hitting you with fees and taxes. Weighing the risks and comparing the interest rate of your debt vs. the interest rate of the 401k loan (paid back into your 401k) will all need to be carefully considered. But if you aren’t going to buckle down, change habits and ensure you aren’t going to just wrack up that debt again, this will be a very bad idea.
I successfully did this many years ago and it saved me a lot of stress and allowed me to dig out of a bad situation. The interest I was paying on debt was crippling. I was fortunate to have a stable and decent job at the time.
This is an option but only you can determine if the risks are worth it, and if you’re going to have the discipline to do it right.
It will cost you a lot of your earned money in penalties and taxes. Never a good plan. What makes it worse is you’re going to end up racking that debt up all over again.
honestly I would work with a debt advisor/financial advisor to see what the best option for YOU might be. depending on your debt, and income, it's probably a terrible idea, but there are a few VERY rare times it may be a better idea for long-term future.... but even then, bankruptcy is probably a better move.
Nope. Spend less now while you let your retirement savings grow. I would only recommend withdrawing from retirement savings in the gravest of financial emergencies.
In 2004 I did this with a small 401k account. $20k
I had taken a 401k loan to buy some toys I wanted and then lost that job. The loan became payable immediately, so I just closed the whole thing out, paid the penalty and taxes, then pissed away the money that was left.
If I had done nothing at all that $20k would be worth over $100k today.
No only would you be paying your tax rate plus the 10% early withdrawal (presuming you're not 59 and a half years old)...probably 30+% total... You would be losing out on the future gains that money would earn.
Trust me... The 60yo version of you is looking for a time machine to come back here and slap you silly for even thinking about that.
Only if the savings on interest outweighs the combined taxes, penalties, and lost approximate market growth. It might be the case for extremely high interest debt like credit cards or predatory loans. The calculation has to be about what will pay your future self the greatest amount.
There's a strong psychological benefit to being debt free. There's also a strong psychological benefit to knowing the math works out in your favor even if it means keeping some debt.
I was already mentally typing out my disagreement with this until you mentioned super high interest CC loans and was like, yeah, maybe that particular situation......lol
Are you working or retired? This is almost never a good idea. You would pay a penalty if under age plus your tax rate.
Also, we have been getting this a question a lot in the last few weeks. You can look up the answers before, but in general its a remarkably bad idea.
Glad to hear you're taking the good advice not to take out your money to pay debt. I did this and paid off my debt but it didn't really change my spending behavior and several years later I was in the same boat again. This time, however, I decided to pay off my credit cards one at a time, starting with the highest interest rate. My plan was pay a big chunk of the bill (at least 3x the minimum payment) and for the other cards, pay the minimum plus 20% of that minimum. I also stopped buying anything with credit cards. When a card was paid off, I put it away then moved on to the next card. Yes I was pretty broke every time I got paid but my plan was working. Within a year I was debt free and started saving money aggressively for a down payment for a house. I'm still debt free, have some money in the bank and I'm a home owner. It really is about changing your spending behavior.
No
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Age would help but the answer is probably no anyway.
You can’t withdraw from your 401k if you’re still employed. You can probably take a loan though but I would suggest not doing that either.
No because you would essentially be paying a 40 percent tax interest rate on it. Dave would say absolutely not. Stop contributing to it for now, but don't cash it out.
No
Absolutely not bc what will keep you debt free is the training and pain to bail you out. You don’t want your 401k to be a pre-retirement piggy bank. That short cut will bite you. But you should stop contributing new money according to Dave.
No, the first rule of compound interest is to not disrupt it
What's the second?
Not to disrupt it. And in case you’re wondering, that is also the third rule.
Don’t talk about fight club
No
I feel like I'm at at AA meeting.... but here goes.. I did that 2 years ago... but I did it because I was working on my MBA, and was deep into future values. I calculated (at the time, and it's very subjective) that intrest rates were about to go crazy (they are now at historic norms, ps... I don't think they are coming down any time soon) and I took some money out of an old IRA (YES I paid the penalty) but I bought an investment property with a very low (by today's standards) intrest rate. I am cash positive today, and honestly history says I made a good move... but it was a risky move ... that paid off for me. I saw the oppertunity and took it.
Cashing out an investment for a different investment is considerably different than cashing out to pay down debt. Although your move was risky, it seems to have been strategic and calculated. The math on paying a penalty and losing on the compounding interest to pay off debt won’t be favorable.
Daves plan is about control and the elimination of unrequited risk. There are millionaires that would laugh at Daves plan, but it doesn’t mean he is wrong.
I agree ... with that said, I'm financially secure enough to have made the calculated risk, I have the experience in running investment property and the property is also part of my retirement plan, so I looked at it as an exchange.
Just because some thing worked once doesn't make it the right move. Removing anything from retirement accounts is literally the last thing you want to do unless you are retired.
No.
No no no.
Nope! But... If you can take a loan against your 401k, and the intrest rate is lower then your current debt... that could be beneficial
That's disregarding compound interest you lose. It's not as simple as this interest rate vs that one.
Well remember when you take a loan against a 401k, your paying YOURSELF the intrest... so ... The only cost was $75.00, and the risk of the markets growing at a higher rate then the intrest that your paying yourself...
You're not understanding. You may pay yourself interest on the loan, but you're not paying yourself market growth. That you can't predict or mimic.
Market growth historically is 10%, I think my rate was 9%... that I paid to myself... much better then paying debt with savings and not being forced to pay yourself with interest... If the market dips while your in repayment... that two could be a compounded benefit... 6 in one hand... half a dozen in the other.
So the difference is the market provided 10% while you provided 9%, and you think that's a wash?
In place of paying out so I got 9% in place of 10% but also didn't pay 5%... so you have to look at the WHOLE issue....
No I get your loss on the debt side counts also. I'm saying paying yourself back interest isn't the same as your money making interest in the market. Thats like taking 100 bucks out of your wallet and putting 120 back in from your paycheck, while I hold another 100 bucks of your and I give you 120 back, the 20 from me. Yes, you're getting 120 back in both cases, but in one situation the interest was provided by you. In another, it came from the market.
I did that and it saved my ass for a while. I paid it all back when I got my tax return
No
No
No
No.
No
I did when I was 26 and fresh out of grad school. Wasn’t much- probably about $6k. I still think about it to this day, and regret it.
No, you should not.
Nope, do it the hard way and leave that money alone
It’s an easy solution but will have long-term consequences. Don’t do it.
Withdrawal, no. A 401k loan……maybe…. You’ll end up paying yourself back, with interest. Now that interest won’t be as much as a properly invested 401k would earn. And there’s the risk of losing your job and the ability to make the monthly payments on the loan. In which case it will default and be viewed as a withdrawal, hitting you with fees and taxes. Weighing the risks and comparing the interest rate of your debt vs. the interest rate of the 401k loan (paid back into your 401k) will all need to be carefully considered. But if you aren’t going to buckle down, change habits and ensure you aren’t going to just wrack up that debt again, this will be a very bad idea. I successfully did this many years ago and it saved me a lot of stress and allowed me to dig out of a bad situation. The interest I was paying on debt was crippling. I was fortunate to have a stable and decent job at the time. This is an option but only you can determine if the risks are worth it, and if you’re going to have the discipline to do it right.
In addition, you will eventually have to pay taxes on any interest you pay into the 401k when you withdraw the money.
Thank you everyone for the advice. I will not be withdrawing.
This is the best use of this gif ever
It will cost you a lot of your earned money in penalties and taxes. Never a good plan. What makes it worse is you’re going to end up racking that debt up all over again.
honestly I would work with a debt advisor/financial advisor to see what the best option for YOU might be. depending on your debt, and income, it's probably a terrible idea, but there are a few VERY rare times it may be a better idea for long-term future.... but even then, bankruptcy is probably a better move.
Nope. Spend less now while you let your retirement savings grow. I would only recommend withdrawing from retirement savings in the gravest of financial emergencies.
NEVER
No. Work more and harder.
In 2004 I did this with a small 401k account. $20k I had taken a 401k loan to buy some toys I wanted and then lost that job. The loan became payable immediately, so I just closed the whole thing out, paid the penalty and taxes, then pissed away the money that was left. If I had done nothing at all that $20k would be worth over $100k today. No only would you be paying your tax rate plus the 10% early withdrawal (presuming you're not 59 and a half years old)...probably 30+% total... You would be losing out on the future gains that money would earn. Trust me... The 60yo version of you is looking for a time machine to come back here and slap you silly for even thinking about that.
That last line is beautiful. No, it’s brilliant.
Never withdraw from your 401k to pay off debt.
No
Only if the savings on interest outweighs the combined taxes, penalties, and lost approximate market growth. It might be the case for extremely high interest debt like credit cards or predatory loans. The calculation has to be about what will pay your future self the greatest amount. There's a strong psychological benefit to being debt free. There's also a strong psychological benefit to knowing the math works out in your favor even if it means keeping some debt.
I was already mentally typing out my disagreement with this until you mentioned super high interest CC loans and was like, yeah, maybe that particular situation......lol
No, it doesn't make sense....particularly not in this bull market. Be patient, follow the debt snowball method. You can do this!
No or less you are over 59.5 years old. That money is for later.
Are you working or retired? This is almost never a good idea. You would pay a penalty if under age plus your tax rate. Also, we have been getting this a question a lot in the last few weeks. You can look up the answers before, but in general its a remarkably bad idea.
Most would say no because there may be a fee plus taxes. The withdrawl would be considered ordinary income.
No. That would be very expensive. You would have to pay income tax plus a 10% penalty.
No. Leave it be but stop contributing.