Have more credit card debt than what you’re comfortable with? You may have considered all your options, including pulling from your 401K or Roth IRA. Since you contribute to it regularly, you should make it back in no time flat, right? While many people end up going through with this option, most of them quickly regret it later. Before you go through with anything, let the professionals at Maggi Tax teach you the consequences of paying your credit card debt with retirement funds.
What Happens When You Pull From Your 401K Early
The consequences of pulling from your 401K before you reach the age of 59 ½ can have long-term effects on your financial health and retirement. This is because taking withdrawals while you’re any younger than the required age will likely result in fees of 10% subtracted from the total amount that you’re wanting to take out. Oftentimes, the fee itself is so high that it’s not worth the extra cost. Since your contributions compound over time, it’s best to keep your savings at the highest amount possible. Taking out so much as a few hundred dollars can result in thousands of lost savings over time. But what else can you do to pay your credit card debt while still planning for your retirement?
Alternative Methods For A Happier Retirement
Withdrawing from your retirement fund should only be seen as a last resort, and oftentimes, there are many other solutions available so you shouldn’t even need to tap into that final option anyway. Take a look at these alternative ways to decrease your credit card debt in a way that won’t be nearly as harmful to your future funds.
Take Out A Loan From Your 401K
Most people don’t realize this, but you can actually borrow from your 401K without facing withdrawal fees. As long as you pay it back within 5 years, borrowing from your 401K won’t affect your credit score because no credit check is required. You can tap into your retirement funds while circumventing the 10% fee, and the interest will likely be much lower than receiving a loan from most other lenders.
Temporarily Halt Your Contributions
Another trick that many employees aren’t aware of is that you can choose to temporarily stop your contributions so you can receive those funds in your paycheck to use however you wish. Choosing this method and using the money that would have gone towards your 401K contributions or Roth IRA to pay off your credit card debt faster can prove to be an easier and safer solution. Of course, you can go back to your regular contributions whenever you’re ready to do so.
Before Anything, Speak With A Financial Advisor
Even if any of these alternative solutions sounds ideal to you, it may still be in your best interest to meet with a qualified financial advisor. Since it’s in their profession, they may be able to see an even better solution that you haven’t yet considered. Your advisor could even evaluate your income to devise a strategic plan in helping you meet your goal with the way things are now. Sometimes, all it takes is a different mindset or point of view from a professional! For long-term goals, you can meet with your trusted advisor on a regular basis to ensure that you’re on the right track, even if it’s just an annual visit.
Let Maggi Tax Help You With Your Financial Goals!
If you would like to seek assistance from a qualified financial advisor, schedule a consultation with a professional from Maggi Tax today by calling (727) 799-1701! We will gladly help you in any way we can to help you find the best path for paying off your credit card debt while securing your retirement fund.