Current Events > I have $56000 in Credit Card debt and about $69000 in 401K savings

(+) Yeah! (+)

Should I cash out of my 401Ks while I can to pay off my entire debt balance?

I've been debating this.

Currently I'm also unemployed. So I don't have significant cash flow to begin paying off the debt. I'm hoping for my unemployment to be approved soon so I can at least have a way to reliably pay my bills.

Don't know what I should do to proceed. I feel like at least with all my debts payed off I'll say least have a decent credit score

And maybe in due time in can find a job and rebuild my retirement savings accounts. I'm an unemployed Software Developer right now

How old are you?

Have you calculated the interest you'd pay if you made a repayment plan and paid it off over time? Knowing how much extra you'd fork out and comparing that to whatever you might earn in savings interest should help.

resetting your retirement (assuming thats what the 401K is for) is a bad idea IMO.

Is that debt all on one card? or do you have multiple cards with various amounts? Do the snowball method (pay smallest first regardless of interest rates etc)

bigblu89 posted...

How old are you?

31

pinky0926 posted...

Have you calculated the interest you'd pay if you made a repayment plan and paid it off over time? Knowing how much extra you'd fork out and comparing that to whatever you might earn in savings interest should help.

I haven't calculated exactly, however if I don't have any income at the moment and the debt keeps ballooning, I figure I'd be better off just paying it all off. Locking down all the cards so that I don't use them. Then working out my day to day expenses on potential unemployment that should be coming through soon and any other means I can scratch for myself

ktownslayer16 posted...

resetting your retirement (assuming thats what the 401K is for) is a bad idea IMO.

Is that debt all on one card? or do you have multiple cards with various amounts? Do the snowball method (pay smallest first regardless of interest rates etc)

It's across 8 different cards.

This is the split basically

Chase Sapphire Reserve - 15000
Discover - 14500
Chase Freedom Unlimited - 10000 - Low Interest
Chase Freedom - 4200
Citi - Best Buy - 4500 - Low Interest
Citi - Travel - 4000 - Low Interest
Capital One - 2500
Marcus - 1000

I also have about $75000 in Crypto I can use as well but it's so unpredictable and the next few months / year is expected to be a bull run so I'm worried about potentially stunting myself if I sell any of it prematurely

Can you take a loan from your 401K instead? That way you wouldn't be hit with the early withdrawal tax and the money would eventually be replaced.

And yeah, just sell the crypto. Didn't see that post.

Sell the crypto before your 401k

I don't think 69k in 401k cashed out would be enough to cover 56k in debt when you factor in all the taxes and early withdrawal penalties.

Maybe get a debt consolidation loan instead?

Bass posted...

Can you take a loan from your 401K instead? That way you wouldn't be hit with the early withdrawal tax and the money would eventually be replaced.

And yeah, just sell the crypto. Didn't see that post.

From speaking to an advisor, I don't believe I can because I'm not employed. I have to have active employment and the funds would have to be rolled into one 401k before I can take out a loan on it

So my other strategy was to do my best to find employment and then I can start making payments towards the debt or even use the 401K loan strategy. But that's easier said than done. Who knows how long I'll be without a job if places aren't hiring

Bro, dump the crypto and pay off your debt. That's an EASY decision.

That's fucking awful on both accounts

littlebro07 posted...

I don't think 69k in 401k cashed out would not be enough to cover 56k in debt when you factor in all the taxes and early withdrawal penalties.

Maybe get a debt consolidation loan instead?

Last month I applied for one with Discover that was supposedly pre approved, but I got denied.

coyot posted...

not really, btc has outperformed everything.

Holding onto an asset that volatile while sitting on a mountain of debt is unbelievably stupid.

2Pacavelli posted...

I also have about $75000 in Crypto I can use as well but it's so unpredictable and the next few months / year is expected to be a bull run so I'm worried about potentially stunting myself if I sell any of it prematurely

You should dump the crypto before you dump the 401k.

Wait, how much of that 75k is crypto gains and how much is money you actually put into it.

coyot posted...

not really, btc has outperformed everything.

You know how finances work I see

How do you have so much debt?

I would 100% dump most of the crypto to pay off all that debt >_> Crypto is too unpredictable imo

2Pacavelli posted...

It's across 8 different cards.

This is the split basically

Chase Sapphire Reserve - 15000
Discover - 14500
Chase Freedom Unlimited - 10000 - Low Interest
Chase Freedom - 4200
Citi - Best Buy - 4500 - Low Interest
Citi - Travel - 4000 - Low Interest
Capital One - 2500
Marcus - 1000

Read about Dave Ramsay's snowball method. He's smarter than any of us here.

Start with the lowest and knock them off 1 by 1, etc.

Good luck

2Pacavelli posted...

I also have about $75000 in Crypto I can use as well but it's so unpredictable and the next few months / year is expected to be a bull run so I'm worried about potentially stunting myself if I sell any of it prematurely

real person who gets in $56,000 credit card debt energy right here

__aCEr__ posted...

Bro, dump the crypto and pay off your debt. That's an EASY decision.

Would even have some left over after taxes as well. Much better idea than dumping a 401k and paying taxes+penalty or interest if it's a loan.

How did you even accrue this debt. I hope it wasn't putting money into crypto somehow.

Credit card debt can have debt interest 20% or higher. That will compound faster than even the best investment. You absolutely need to get out from under it ASAP because it will grow exponentially and bankrupt you.

I would try to use your checking and savings accounts first to pay it off as much as you can before you crack open your long-term investments. You pay a penalty pulling money out of the 401k before you're 55 unless it's in a pre-taxed account like a Roth 401k or Roth IRA.

ktownslayer16 posted...

Read about Dave Ramsay's snowball method. He's smarter than any of us here.

Start with the lowest and knock them off 1 by 1, etc.

Good luck

Why not save the low interest cards to pay off last?

emblem-man posted...

You should dump the crypto before you dump the 401k.

Wait, how much of that 75k is crypto gains and how much is money you actually put into it.

Mostly gains

I'm also concerned because I'd have to pay short term capital gains if I do withdraw from the Crypto

Absolutely pay it off with the crypto.

badjay posted...

How did you even accrue this debt. I hope it wasn't putting money into crypto somehow.

Lifestyle creep during my time of employment, plus support family members in terms of their rent and bills. Once I lost the job the debt began to snowball

I don't know about the snowball method, but the optimal play is to figure out your average rate of returns on your investments (10% annually or whatever) then pay off all debts that accrue faster than that, by order of highest interest rates to lowest. As aggressively as you can pay off those debts. The faster the more you save in the long-term.

You don't pay off a 10% interest loan with a 20% interest investment, but some credit cards rates are so high they will eclipse everything, and that includes crypto even on a good year.

Man I get nervous when I put $1k on my CCs that I pay off every month. Good luck getting out of that. I wouldn't take from your 401k. Crypto seems like the obvious choice especially if you're unemployed. Dunno how much gains you expect to receive if a bull run does happen.

Smashingpmkns posted...

Man I get nervous when I put $1k on my CCs that I pay off every month. Good luck getting out of that. I wouldn't take from your 401k. Crypto seems like the obvious choice especially if you're unemployed. Dunno how much gains you expect to receive if a bull run does happen.

His credit card debt is on a bull run RIGHT NOW into the negatives. It's at best a wash, at worse he's losing dollars every moment.

SilvosForever posted...

His credit card debt is on a bull run RIGHT NOW into the negatives. It's at best a wash, at worse he's losing dollars every moment.

Yeah he should just sell that shit off and get out from underneath that debt.

2Pacavelli posted...

Lifestyle creep during my time of employment, plus support family members in terms of their rent and bills. Once I lost the job the debt began to snowball

Were you paying their rent and bills while you were unemployed? I can't imagine anyone in my family allowing me to do that

At the very least pay off all the high-interest cards.

How though? What did you buy?

Smashingpmkns posted...

Man I get nervous when I put $1k on my CCs that I pay off every month. Good luck getting out of that. I wouldn't take from your 401k. Crypto seems like the obvious choice especially if you're unemployed. Dunno how much gains you expect to receive if a bull run does happen.

I'm looking to a potential 3-10x on my current portfolio once things start getting momentum

About a month or two ago my same crypto savings was at about $105K total.

So it's really the potential growth that I'm worried about missing out on

The 401K on the other hand is valuation has mostly been stagnant for the last 4 years. What I have in it is primarily from my contributions and employer matching

So that's why I'm debating it right now.

I'm the other hand I know how volatile crypto can be as well on the negative side to so I also understand the idea that I should withdraw from that instead

I was also thinking maybe withdraw an even percentage from everything both the 401K accounts and the Crypto. The main thing holding me back is tax implications and penalties. I'm anxious about that. And once I do withdraw I'll be in the hook for whatever those penalties are

2Pacavelli posted...

Mostly gains

I'm also concerned because I'd have to pay short term capital gains if I do withdraw from the Crypto

When do you hit the year mark? Have you just bought and held or have you been actively trading?

401ks are worthless. Who knows if youll even live to 65 to retire.

Smashingpmkns posted...

Man I get nervous when I put $1k on my CCs that I pay off every month

Bank considers you a "deadbeat" (is actual banking term fyi not flaming you) and tc a premiere customer....lol

Banks suck

https://www.thebalancemoney.com/with-credit-cards-being-a-deadbeat-is-a-good-thing-961068

[LFAQs-redacted-quote]


Lol

2Pacavelli posted...

Lifestyle creep during my time of employment, plus support family members in terms of their rent and bills. Once I lost the job the debt began to snowball

Is it really lifestyle creep if you're paying for it through credit cards instead of what you're making?

Anyway...you'll probably have to talk to an advisor about the consequences of selling your retirement (although the strat of doing it as a loan is probably better than selling retirement), vs selling off your crypto. You're subject to taxes if you sell off your crypto, most likely capital tax gains.

If you REALLY want to raw dog this without having professional help, you could, if you're really crazy about this, believe in that bull run on crypto and hope that outearns what you lose to interest on debt, while trying to restructure all your debt.

If you want to get even more clunky, look for new credit cards to roll over your debt into with balance transfers that you don't have to pay off for a year. OF COURSE there's a fee on balance transfers usually. If you find offers with no fees you may be lucky, or you better be reading the fine print. So yeah, first recommendation if you really want to delay this, balance transfer into a lower interest card or cards, pay the fees and hope you can handle this in a year with a better position on crypto.

If not, your tax dude can help you navigate whether your retirement loan idea, selling off your retirement, or selling your crypto is the best way to manage this debt.

No thats bad idea. You only tap your retirement if its a emergency and as a last resort.

Just cut your expenses , put your income torwards paying it off. In 5 years your can pay this off.

2Pacavelli posted...

Mostly gains

I'm also concerned because I'd have to pay short term capital gains if I do withdraw from the Crypto

Short term capital gains tax is just your income tax rate right? How long have you been unemployed? If for most of this year, you might not even have much tax to pay cause your income is so low. If you've made no income from a job this year, you'd just be paying income tax on whatever your crypto gains are for the year.

If you withdraw your 401k, you're paying that income tax + 10% penalty right off the bat.

2Pacavelli posted...

The 401K on the other hand is valuation has mostly been stagnant for the last 4 years. What I have in it is primarily from my contributions and employer matching

Spy has grown 80% over the past 5 years.
25% over the past 1 year. Update your 401k contribution to whatever large index fund you have available.

SilvosForever posted...

At the very least pay off all the high-interest cards.

i can 100% agree with this. the interest is what kills us.

my uncle had to do a debt consolidation. and he never gotten those paid off before he died.
it's not so good having a credit card if don't know how to use it.