Compare Mortgage Quotes

Refinance Rates for Today

Please enable JavaScript for the best experience.

In the mean time, check out our refinance rates!

CompanyLoan TypeAPREst. Pmt.

Cashing IRA to pay off Credit Card debt

I have $45K in a IRA (I had moved my 401K to an IRA from a previous employer) that I would like to cash out to pay credit card debts.
I am 37 years old. How would that affect my credit score and what amount of taxes am I looking at?

smith.sussane's picture
smith.sussane | Joined: September 18, 2008 09:57 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi joelsema!

Welcome to forums!

As you have mentioned that you want to pay off the credit card debts, I don't think you should go for cashing out the money that you have in your IRA. You can check out the options of debt consolidation or debt settlement. In debt consolidation, the interest rates for paying the debt will be reduced whereas in debt settlement, your payments will be reduced by 40%-60%. The reduction will depend upon your financial situation. You can contact any debt consolidation or debt settlement company and check out the options with them. I know of a debt consolidation company called "debtconsolidationcare.com". You can visit their website and speak to the financial coach. May be they will assist you in dealing with the issue.

However you should note that a debt consolidation has a positive effect on your credit report whereas a debt settlement will have a negative effect.

Feel free to ask if you have further queries.

Sussane

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 01:26 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Thank you Sussane -
I wasn't too thrilled about the prospect of cashing that IRA. On a related topic, how / why does Debt Consolidation have a positive effect (and how much) on Credit Score and Debt Settlement the opposite?

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 01:26 | Post subject:

jerry's picture
jerry | Joined: October 17, 2005 03:24 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Guest,

In a debt settlement, 40%-60% of the payments are reduced because you are unable to pay the debts. Settlement stays in the credit report for seven years because it describes that you have been not able to pay the balance you owed and due to some financial difficulties settled for a lesser amount.

In case of a debt consolidation, your credit report will show a statement saying that you are using the consolidation program. This statement has no negative impact on your credit report if compared with any other debt elimination programs. At the maximum, it may or may not have a minor dip in your credit score.

Thanks,

Jerry

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 01:26 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I KEEP HEARING DON'T TAKE YOUR MONEY OUT OF YOUR IRA,THE PEOPLE WHO TELL YOU THIS , SHOULD ALSO TELL YOU THEIR JOBS DEPEND ON IT! IT'S THE BIRDS OF A FEATHER GIG!THE MARKET WILL GO TO 5000 ,AND WHEN IT DOE'S YOUR IRAS WON'T BE WORTH THE PAPER WORK.IM TELLING YOU THE TRUTH!

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 01:26 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I have $100,000 in debt. I have a IRA coming due in October. $160,000.
Should I just pay everything off and work for the rest of my life? Or is there a way I can enjoy some of my money?
Jimmy

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 01:26 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Jimmy what kind of Debt is this $100,000/-

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 01:26 | Post subject:

Realgeni's picture
Realgeni | Joined: April 13, 2009 08:03 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

JoelSema,

Do not encash your IRA. You will end of payign lot fo taxes at the end of year and also you are messing up your retirement now.

if you still have 401K and workign, one option is to take a loan from your 401k to pay some of yout Debt and you can pay your 401K back every month. Atleast it earns interest for your self.

Think over it.

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 01:26 | Post subject:

Realgeni's picture
Realgeni | Joined: April 13, 2009 08:03 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

If it is a credit card debtand if you have good credit score, try to see if you can get a 0% APR balance transfer cards and pay it at a lowere rate an over 12 months.

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 01:26 | Post subject:

Realgeni's picture
Realgeni | Joined: April 13, 2009 08:03 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Jimmy,

What kind fo Debt is it.

Try to see fi you can pay your Debt by working rather then ecashign your IRA and payign your debt and workign to rebuild it again.

It take lot of discipline and effort to save $160,000/-

How old are you?

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 01:26 | Post subject:

gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

jimmy it makes no sense to cash in your ira to pay off this indebtedness. there are other alternatives to repayment that will not sap you of your retirement savings and burden you with a heavy tax liability. bankruptcy is an option if the situation is really dire, of course.
but you want to preserve your funds as much as possible.

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 01:26 | Post subject:

s.mckaybiz's picture
s.mckaybiz | Joined: April 24, 2008 08:05 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

I agree with realgeni on this one.

If you need to consolidate your debt so you can pay it off faster than why not consider taking out a loan against your 401K as opposed to cashing it out and paying all those taxes.

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 01:26 | Post subject:

gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

but it's an ira, per the post. you cannot borrow against an ira.

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 01:26 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

i cashed in my ira to pay off credit card debt and also because my ira lost 40% in four months and i did not want to lose any more this money in the ira was a roll over from my 401k from 15 years ago most of the 401k money was money i contributed while working in the steel mill for 20 years why should i have to pay taxes on money i contributed ,i am 63 years 0ld and rather than lose money in the ira i decided to pay off credit card debt why should i be punished with taxes spending money i contributed?

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 01:26 | Post subject:

gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

guest, when you began your ira, did you not understand that you would be taxed on that money once you began to draw on it?

i should not have to elaborate on that question.

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 01:26 | Post subject:

Garysnober's picture
Garysnober | Joined: March 17, 2009 12:22 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Please dont cash out and ira to pay of debt. Taxes will be alot of money and your risking your retirement money. Worse case you can claim a BK.

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 01:26 | Post subject:

Realgeni's picture
Realgeni | Joined: April 13, 2009 08:03 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Again, whats new in thsi answer??

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 01:26 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I am in a similar situation with $26K in credit card debt and $105K in IRA and $10K in 401k. Despite spotless credit, all three of my major credit cards jacked rates on me recently. My wife and I decided no more credit cards!!! If we are making 10% on our investments but paying 17% on debt, it does not take a genius to figure out this makes sense EVEN with a penalty. Besides, it is highly likely that when I retire in 25 years, our tax rates will be much higher to pay for the massive entitlements!!

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 01:26 | Post subject:

Realgeni's picture
Realgeni | Joined: April 13, 2009 08:03 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Guest

That's good question!

But you cannot avoid taxes. You did not pay taxes on that money when you contributed, so need to pay that now

Good luck and feel free to ask

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 01:26 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

OK I am 44, doubtful I'll ever retire. If I cash out my miniscule $4800 IRA I will get what about $3700 cash?? OK I take $3K of that to pay off one one my credit cards (that paid for medical bills over the summer). Paying off that will make me eligible to [url=http://www.mortgagefit.com/refinance.html]refinance[/url] my mortgage, saving me about $200/ month. Which will me pay of my other credit card with $9K on it. Tell me what to do. I am betting most here that keep saying hold onto your IRA do not feel their back against the wall.

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 01:26 | Post subject:

gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

phil, i feel your pain - truly. for the piddling amount you have in your ira, maybe it's in your best interests to liquidate it and pay off what you feel you need to pay. it's certainly not the best situation to be in, and i think that's where most everyone is coming from. nevertheless, it's a situation that you're in, and you're pinched and kind of lost in the wilderness.

don't let me be the person who says "liquidate the ira" but at the same time, i can't tell you not to, based on what you've just said. you may be quite right that those who say don't do it are not in the same position you're in, and it's easy for them to say what they've said. if you had $50K in an ira and talked about liquidation, i'd be on their bandwagon. but since you've got less than $5000, i can say i don't see it as a financial nightmare for you to do it.

it's your decision, ultimately, isn't it...we don't know your age - maybe you're 60 and $4800 isn't going to do you much good anyway. or maybe you're 30 and you can easily begin to sock money away again after a short while, so the funds will be replenished eventually.

in 2009, unfortunately, we are being forced to do what we've gotta do to survive, and that involves some hard decisions.

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 01:26 | Post subject:

s.mckaybiz's picture
s.mckaybiz | Joined: April 24, 2008 08:05 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Alright I'm just going to say it...

CASH IN THOSE IRA'S!!!!!

I did and I couldn't be happier. If you think about it, unless you're almost ready to retire, most investments are going down while credit card rates are going up. Say you hav about 50,000 in cc debt and your monthly payments are just the 1.5% most cc companies make you pay. That's $750/month or $9K/year. So if you were to cash in $50K worth of IRA's to pay it off you could save that money back up in just 5-6 years. Where as if you just continued to make your min. payments on your cc's, the balances would be going nowhere and you would probably find yourself using all of your IRA payments at retirement just to pay your cc debt!

It may just be me but I don't see how sitting on money when you are so far in debt can be a good thing. If you are needing to borrow money to get by than maybe you shouldn't be putting so much of it into retirement and use that money to keep you from getting in the hole to begin with!

What says you??? :D

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 01:26 | Post subject:

gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

i agree with that logic, scott. i suppose it depends on someone's age, too. but the bills don't go away, that's for sure.

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 01:26 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

It sounds logical to pay off cc debt with your ira money especially if your paying 18% interest and really only able to make the minimum payments. I have 31k in debt and 53k in ira. Minimum payments are $720 month. 45 yrs old, Ira had dropped all the way down to 41k a year ago from a high of 55k. My thought is use the money now while markets back up and value is there. I really dont want to but every part of me is saying get this cc debt off my back, tear them up and never use again which I have done. I have only been able to contribute about $200 month so i could apply that towards cc debt but at $2400 more per year I know i would still pay a TON of interest on these cc. Help!

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 01:26 | Post subject:

gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

jjb, since you're only 45 i suppose that means you'll have plenty of time to build back up your ira between now and retirement. since your cash flow situation now has pretty much eliminated your ability to contribute to the ira, it might just improve so that you'll be back to speed in shorter order. i guess it's pretty clear that in certain situations it's an advantage to do what you propose. but i think age is certainly key in making that decision.

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 01:26 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I agree with the last few comments. I am not a financial expert but I do understand math and debt. What is the point of keeping $$ in an IRA or 401K when you have very high credit card debt, with high interest and with most people only paying the minimum balance. They will retire in 20 - 30 years with great retirement, but still paying of high interest credit card. Atleast if you can use some or all of the retirement savings even with the penalties, you still have the chance depending on age to rebuild the IRA or 401K. Some friends of mine are in this exact situation. They have about $40K in credit card debt between 4 cards with interest rates of between 20-29%. One credit card is over $500 a month. They are 54 and 59 years old. Then they have a mortgage and other bills. At the rate they are going, paying the minimum balance, it will take more than 20 years to pay off these credit cards and most of it will be the interest. They have an 401k with about $40K+ and I suggested that they take out $20-30K to at least pay off one of the credit cards that has a $17K balance. It makes no sense to be trying to save money for retirement and still retire with thousands of dollars in credit card debt with such high interest rate. At least now you are working and can even supplement with another job. At 75 or 80 you should not have to work to pay off credit card debt. I know there will be penalties, but…At least they still have the opportunity to save for real now without credit card debt to worry about. I have advised them to call and try to negotiate with the credit card companies 1st to see if they can get the balances down. Then try to consolidate. Then make the decision about the 401k. With state of the credit card industry, I think it is crazy that you can use your 401k $$$ to buy a house, but you are penalized because you are trying to help yourself out of debt

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 01:26 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

i owe 27,000.00 in credit cards i want to use my IRA money and pay off my credit cards. The interest rate is very high. so If i am paying between 19% to 27% interest rate, and i am going to be tax one time is it worth it? I just dont see any other option.

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 01:26 | Post subject:

banker0679's picture
banker0679 | Joined: November 15, 2007 10:05 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

it will depend...if you can do a debt consolidation it maybe cheaper BUT

we would need to look at ALL the hard facts or the numbers

almost impossible to say.

another thing to consider...why not just cut back on stuff and payoff the debt?
a lot of people pay off their debt with 401k/IRA but max out their credit cards AGAIN!

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 01:26 | Post subject:

gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

well said, banker.

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 01:26 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hello,

Lots of good info in this forum. Appreciate all of the comments. I was doing some research online regarding the pitfalls of cashing out my IRA to pay off credit card debt. I can across this particular thread and I thought I'd try putting my situation out there and seeing what type of input I receive. So here it is:

I'm 38 years old
Roughly 80k in an IRA
$18,000 in cc debt
I've been a seasonal worker for the past two years, and I could possibly be unemployed for a portion of the summer.
Own 2 rental properties. One is underwater the other has lots of equity, however I'm having trouble qualifying to access the equity because if my debt ratio.

I know that i'm going to have to pay tax and penalties, but I feel like I can recover from that pretty quickly and get back to saving again. I just don't see any end in sight with paying a little over the minimum on these credit cards. I also realize this risk of paying the cc debt off then running it up again. Don't really see that happening because almost all of the debt was incurred during a year when I was let go from my job and unemployed for a long period of time. I'm in a much more stable position employment wise and really want to start putting money away again and not towards this debt and interest.

Sorry for the rambling, but any input would be greatly appreciated.

Thank You.

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 01:26 | Post subject:

gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

fj, i think your reasoning is sound.

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 01:26 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I have a cc debt I would like to pay off. I was laid off from my job the year I turned 55. I rolled the money in 401K to IRA r/o and was wondering if I could withdraw without 10% penalty

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 01:26 | Post subject:

adonis's picture
adonis | Joined: October 22, 2005 05:04 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi cgmarte,

Generally, you cannot borrow money from your IRA account. In case, you're looking for a short-term source of money, you can borrow it from your IRA account. However, you'll have to repay those funds within a 60-day period.

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 01:26 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

If your interest on your credit cards is 20+%, then that is a heck of a lot more than you are going to pay in penalty and taxes if you withdraw from your IRA to pay off credit card debt that carries a very high interest rate. Sometimes you just have to do what is best for you. If you are constantly paying out everything you make towards credit card debt, you will never be able to make deposits to your IRA or any other retirement vehicle. That's just my opinion. I'm considering doing this as well.

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 01:26 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I posted a question on this forum yesterday and now it is gone....Is this normal???

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 01:26 | Post subject:

jameshogg's picture
jameshogg | Joined: December 20, 2005 02:58 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi fdxorf,

Your query has not been deleted. You can find your query and it's reply at:
http://www.mortgagefit.com/credit-rating/about43402.html

Thanks

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 01:26 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I am 45 and have $55K in a IRA and little over 5K in 401K. I would like to cash out 25K from IRA to pay credit card debts (appx 27K). Is it a good idea ???

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 01:26 | Post subject:

jameshogg's picture
jameshogg | Joined: December 20, 2005 02:58 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Kharkhowa,

It is not a good idea as you'll be liable for paying 10% penalty if you cash out your IRA before you reach the age of 59 and 1/2 years.

Thanks

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 01:26 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

What about paying off my $23,000 credit card balance from my IRA monthly over a 2 year period so not hit as hard on taxes. I am 62 and lost my job and my unemployment is not enough to cover all my bills...What are you thoughts.

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 01:26 | Post subject:

jameshogg's picture
jameshogg | Joined: December 20, 2005 02:58 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Alyce,

I don't think IRA monthly withdrawal will be a good option. Nevertheless, you should contact an attorney or a tax adviser and take their opinion in this matter.

Thanks

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 01:26 | Post subject:

Page loaded in 0.735 seconds.