Financial Advise???

shilala · 06-04-2009, 11:05 AM

I believe the penalty on the withdrawal is 22%.

St. Lou Stu · 06-04-2009, 11:11 AM

Quote:

Originally Posted by shilala

I believe the penalty on the withdrawal is 22%.

Not sure about the penalties..... each may vary slightly. Plus income taxes at the end of the year. Unless the 401 institution withholds for you.
Either way, it is taxable income once withdrawn.

But the compounded interest over the life of the credit card debt would exceed the penalties and taxes if I am guessing correctly. I didn't even do the math. 19% is NUTTY.

edit after the fact..... If it isn't being done to pay down in full.... It nullifies the points above regarding the CC interest.
IMHO, if you're willing to take the 401 hit, it must be done to completely resolve the CC debt.

shilala · 06-04-2009, 11:19 AM

Quote:

Originally Posted by St. Lou Stu

IMHO, if you're willing to take the 401 hit, it must be done to completely resolve the CC debt.

I agree on all that other stuff you said. Add the penalty and the income tax hit and she might end up with 3k in hand for a 6k debt.
A better option would be to apply for a new credit card and transfer the balance. Especially one with no interst on the balance transfer.
Then cut the credit card in half, eat oodles of noodles for a year, and get it paid off.
Her other option would be to marry a rich guy. That'd probably be quicker.

madurolover · 06-04-2009, 11:25 AM

Quote:

Originally Posted by shilala

Her other option would be to marry a rich guy. That'd probably be quicker.

I will see if I can hook her up with one.

Thanks for the responses so far guys. I really did not know what to advise as I have never owned a CC in my life.

tchariya · 06-04-2009, 11:22 AM

401K withdrawal/loan shouldn't incur a penalty (but interest on the borrowed amount exists). But like any loan, you have to pay it back. Most people forget that paying back into the 401K is with funds from your income that are taxed at your income level (could be as high as 33%).

If you don't pay it back, you default, then penalties get assessed and the amount you withdraw is also taxed as income at your level.

Borrowing from 401K to pay debt is very bad idea. If you don't have money to pay your credit card now, will you have the money built into your budget to pay back your 401K??

The best route is to never use your credit card unless you know you can pay it back. Also try to position yourself into a credit card with a lower interest rate. Also always pay more than your minimum or you will never beat your balance.

06-04-2009, 11:05 AM	#1
shilala Dear Lord, Thank You. Join Date: Oct 2008 First Name: Scott Posts: 13,721 Trading: (252)	Re: Financial Advise??? I believe the penalty on the withdrawal is 22%. __________________

06-04-2009, 11:22 AM	#5
tchariya Taters of the lost Ark Join Date: Dec 2008 Location: Illinois Posts: 592 Trading: (13)	Re: Financial Advise??? 401K withdrawal/loan shouldn't incur a penalty (but interest on the borrowed amount exists). But like any loan, you have to pay it back. Most people forget that paying back into the 401K is with funds from your income that are taxed at your income level (could be as high as 33%). If you don't pay it back, you default, then penalties get assessed and the amount you withdraw is also taxed as income at your level. Borrowing from 401K to pay debt is very bad idea. If you don't have money to pay your credit card now, will you have the money built into your budget to pay back your 401K?? The best route is to never use your credit card unless you know you can pay it back. Also try to position yourself into a credit card with a lower interest rate. Also always pay more than your minimum or you will never beat your balance. Last edited by tchariya; 06-04-2009 at 11:30 AM.