401 (k) Too Expensive to Pay Off Current Debts

If you are 27 years old, married,and an expecting mother; you may have encountered a situation where you have a credit card debt of let’s say $20,000 that has a high interest rate, 9.5%. The amount is killing you and you would like to pay it off with your sitting 401 (k) deposit in the bank, but the question is should you withdraw all or a few amount of your 401 (k) savings to pay off the liability?

Well, the answer is “no”, here are the reasons why you should not touch your money in the 401 (k) to pay off your debts: first, there is an instant cost involved you pay income tax and a penalty of 10% if you withdraw an amount from your 401 (k) savings. So for example you have a $10,000 savings in your account, it could decrease your balance by 25% from $10,000 you might only have $7,500 dollars left, or less.

Another reason is, withdrawing from this account will affect you dearly in the future. If you withdraw the money, there is a chance that you might not be able to get the long-term growth of your 401 (k) amount. Your $10,000 is going to grow 6% every year for 35 years, and by the end of those years, your money would have grown into $76,861. If you withdraw $1,000 from your account, you will be losing $7,686 in the future.

So what should you do to pay off your excruciating debt? The best remedy is to sit it out with your partner. You and your husband must work out a plan and promise each other to handle your family’s finances more wisely and create a budget and think of ways to make your future financial problems manageable. Paying off all your credit card liabilities is just one of the many stages you must go through in this plan.

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