Should I cash out my 401k to pay off credit card debt?
I recently lost my job and my new job pays about $1300 less each month than the last one. I also have $15k in credit card debt. Things were getting out of hand, so I got into a debt management program about five months ago, who helped me set up a budget, reduce my interest rates, and move forward. The cards are all cut up, the accounts are closed, and everything was fine, but based on my old budget.
I am 26 years old and have $23k in my 401k from my last job. I’m wondering if it’s a good idea to cash out the 401k to pay off my debt. Right now, it would save me $550 a month in my payments to the DMP. I’m working on getting another part-time job, but even that may not help ends to meet. I’m a homeowner, but don’t have enough equity to get a HELOC, and my paychecks are NOT enough to cover everything. I’m living paycheck to paycheck and will have to cut into my savings very soon to keep going.
I have 35+ years left to save for retirement, but will I be screwing myself if I cash out?
I have already tried to renegotiate the payments through the DMP, but I would have to be on the plan for a year in order to qualify, and even then, it would only be temporary. Selling the house isn’t really an option, as I would probably lose money on that deal, with the market this bad. I have cut all ancillary expenses (cell is the only phone, have an efficient car that gets good mielage, I live on ramen noodles). I don’t want to lose the house and I don’t want to file for bankruptcy. I wouldn’t even consider doing this, but my income right now monthly is $700 less than my expenses. I’m working overtime, trying to get a part-time job, mowing lawns in the neighborhood for extra cash, etc. but there seems no end in sight. Paying off the CC debt would free up $550 a month, and I know the tax penalties are outrageous, but I’m running out of options. (Can’t bike to work for lack of bike and the fact that it’s 30 miles each way)
Selling the house and moving nearer to my job wouldn’t solve anything; the house may not even be worth what I owe on it in this market. Then I would lose money, while moving to a more expensive part of town. My car gets 30+ miles to the gallon, so it costs me less each day than public transit would.
My mortgage is not unaffordable. My girlfriend pays half of everything-mortgage, utilities, etc. I can’t ask her to sell the house, which we can only afford together, because of my past mistakes. My income, even without a second job, is enough to cover everything if I can only eliminate the debt. The debt, however, can’t be covered by another part-time job.
Thanks for all of you who gave advice.
Wesley