Real quick question. I’ve got a little cash in a 401k that I’m no longer contributing to at the moment because we are full steam ahead at knocking out debt. Does it make sense to cash out the 12k to just throw towards the CC’s? It’s not doing much there and I feel like even with the penalty it would be more beneficial to get rid of it and we can build up the funds back when we’re out of the woods. Thoughts?
Hi! I think there are two parts to this answer:
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Financial = What is the balance and interest on your debt? What would the penalty be? How much are you contributing toward debt monthly? When do you plan to pay off your debt? With all of this info, you can run a simple calculation to decide which is best… Maybe if your debt is large enough and will take you more than 1-2 years to pay off it could be worth it.
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Emotional/Habit-Forming = I think it is not a negligible thing to have a retirement balance and even be contributing more (even if small) while you pay off your debt. This allows you to flex that saving muscle and know you have more than $0 in retirement. It is a good mental checkbox for many. Similar to above, I would only do this if you have a solid near term plan to pay off that debt - if not, tackle the debt first, then worry about savings!
Good luck!
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I like @peterpiper’s answer, but to keep it even more simple, I’d say no, don’t do that. You pay a penalty, and as Peter pointed out there may be underlying behavioral/emotional/habits that lead to that credit card debt so you might be addressing the symptom but not the problem. I’d say pause investing for the moment, and just go HAM on paying off that debt.
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Thank you both for this insight. I am right there with both of you. The money is just sitting there and no contributions since May. After doing some calculations the interest alone doesn’t equal more than what the penalty would be so it really makes zero sense to do that. We’re going to continue to go HAM!! THANKS Y’ALL!
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Good luck and report back!
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