Q: I am a 39 year old IT professional with 4 children, the oldest will be a senior in high school this coming year. I have $15K in credit card debt, $40K in student loan debt, a mortgage on a house that was built in 2008, and a 2009 SUV that I owe $15k on. I make $100K a year and I recently changed jobs after 6 years. I participated in the 401K at my previous job and now I have an option to cash out my 401K, $40K, or roll it over. I am participating in the 401K at my new job and I was curious if I should: 1. cash out, with tax penalty, and pay off my credit cards and what I can of student loans, 2. cash out some and pay off credit card debt and roll the rest into an IRA, 3. roll it all into an IRA and continue to budget and pay down my debt?
A: Debt can be a difficult topic to tackle because not all debt is bad and carrying some manageable debt can be a good thing. Credit card debt can be the most dangerous with the high APRs and additional fees that the credit card companies sneak in on us but again, it all depends on whether or not it is manageable and what the interest rates are. Have you considered a balance transfer to a different credit card with a low introductory rate?
Without a more in-depth look into your situation it is difficult to make specific recommendations but at first glance I would hesitate to tell you to cash out your 401(k) and pay the tax bill. You’ve obviously done a good job to save into the 401(k) so “un-doing” that good decision doesn’t always make the most sense. We would normally lean towards rolling into an IRA.
If you’d like to set up a free phone consultation, I’d be happy to discuss your situation further.