Cashing IRA to pay off Credit Card debt

joelsema · Joined: 06 Jan 2009 Posts: 1 1.69 Dollars($)

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?

smithsussane · Posted: Tue Jan 06, 2009 7:34 pm Post subject:

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

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?

jerry · Posted: Thu Jan 08, 2009 1:50 am Post subject:

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

Guest

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!

Guest

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

Posted: Mon Apr 20, 2009 8:13 am Post subject:

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

Realgeni · Joined: 13 Apr 2009 Posts: 1434 99.77 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.

Realgeni · Joined: 13 Apr 2009 Posts: 1434 99.77 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.

Realgeni · Joined: 13 Apr 2009 Posts: 1434 99.77 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?

gmakerley · Posted: Mon Apr 20, 2009 9:10 am Post subject:

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.

smckaybiz · Posted: Mon Apr 20, 2009 6:55 pm Post subject:

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.

gmakerley · Posted: Tue Apr 21, 2009 11:02 am Post subject:

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

Posted: Sat Jul 18, 2009 5:22 pm Post subject:

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?

gmakerley · Posted: Mon Jul 20, 2009 7:15 am Post subject:

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.

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