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Question by ememkay25: Should I withdraw from my teacher’s retirement?
I am 26 and I spent 3 years substitute teaching full-time- thus paying into teacher’s retirement. I have a little bit of outstanding debt that I would really like to wipe out. I have a $ 2500 balance on a credit line with high interest, about $ 600 in store credit that is already in collections, and about $ 300 in utilities that is very late. My retirement balance is about $ 5500 and if I withdrew from it, I would get close to $ 4000.
I am no longer teaching and at the moment, I do not see myself going back to it. I know most people will say don’t touch my retirement but I feel that wiping the slate clean would relieve a lot of stress.
My current expenses are not what is the problem, I work full-time and make enough to pay rent, utilities, my small credit card balance, car payment, student loan payment- it’s the past debt that I wracked up that I just can’t seem to get a ahold on. I feel like being out of debt now, is more important than saving for retirement. I also want to start fixing my credit and I can’t do that until I wipe out the things I am struggling to pay.
Any thoughts would be great.
I understand what you are saying- the thing is that I can’t really get another job- I already work full-time. And I can’t transfer the credit balance because it is line of credit, not a credit card. I can’t transfer it and I can’t set up a payment plan. My minimum payment is only paying the interest on the damn thing. I know how much I would lose if I withdrew, I am okay with that because then I could actually save extra money each month rather than using almost every penny to pay off old debt.
Best answer:
Answer by Lauren F
No – don’t do it. You will get hit with taxes and penalties that will take close to half of your balance. Your total outstanding debt is less than $ 3,000. Try to apply for assistance with the utility bill (see the LIHEAP program for your state) or ask them to go on a payment plan. Look for a second part time job and use that to pay down the debt, starting with the high interest credit card.
Also, see if you can transfer the high interest debt to a lower interest credit card. I like one offered by the humane society of america via Bank of America. It has a 0% interest for 12 month rate. I also like one at Pentagon Federal Credit Union at 4.99% for up to 2 years.
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i reall think you already know what do do!
Just remember, if you withdraw that money, you will have that much less growing for retirement. You’re better off changing your spending habits now, and generating additional income somehow (part-time job, giving up nonessential expenses, etc.) to pay off your debt.
Please don’t withdraw from your retirement. You will have to pay a penalty and taxes on your withdrawal. It averages to about 40%. Even though they say that you will get about $ 4000, after Income Taxes you would be lucky to get about $ 3000. So you will only receive about 60% of the money. This does not take into account the lost earnings on that $ 5500 over the next 40 years. That small amount, growing at only an average of 6% per year, would be worth over $ 50K at your retirement age. What keeps most people in debt is the fact that they keep spending more money than they make. They look at the “monthly payments” instead of the total debt loan that they are carrying. People need to stop spending now and concentrate on becoming debt free. Please do not consolidate or use a debt reduction company . It is not free, they will lower your payments by increasing the length of time until you are debt free, and you will take a hit on your credit score. Or they negotiate your debt down after telling you not to pay for awhile adding another hit to your credit score. Student loans are the only debt that can garnish your wages for non payment without taking you to court first. Just list them out on a piece of paper or a spreadsheet and follow the plan. If you work the plan, the plan will work for you.
A. Have a garage sale and sell anything that you no longer need or want.
B.Get a temporary part time job, if you have one, get another.
Here is a plan that can help you. If you work the plan, the plan will work for you:
1. Make a budget. Make the budget a week before you get paid. A budget is not a punishment! It is a tool which will free you from ever having to worry about money again. Put everything in your budget. Especially those annual, biannual, or quarterly bills like car registration, insurance, etc. Give every dollar you are going to bring home the name of where it is going. Add an “emergency fund” category to your budget for 25 dollars and save up until you have 1000-1250 dollars. Your emergency fund will help keep you from getting into new debt because of an emergency. If you can, set up a direct transfer to a savings account for your emergency fund. That way it moves automatically and you don’t even have to worry about it. You must cut your spending and live on less than you make.
2.First get current on all of you debts and make no more late payments. Stop using your credit cards immediately. Do not take on any more debt. Credit cards are like quicksand only the death is much slower. Make a list of all of your debts in order of highest interest rate to lowest interest. Use cash only for your spending from now on.
3.Pay the minimum due on all of your debts and then put your extra money towards paying off the highest interest one first. After you get that one paid off, you put the money you were paying on debt #1 (the minimum payment and the extra payment) towards debt #2. That will pay debt #2 off faster. When that is paid off, you put all three payments towards card #3 and that one will be paid off pretty quickly. As an example:
To start :
Debt #1 (highest interest): minimum payment+ extra payment
Debt #2 (middle interest): minimum payment
Debt #3(lowest interest): minimum payment
Debt #1: paid off
Debt #2: minimum payment from Debt #1+ Minimum payment from Debt #2 +extra payment
Debt #3: minimum payment
Debt #1: paid off
Debt #2: paid off
Debt #3:Minimum payment from card #1+ minimum payment from Debt #2+ minimum payment from Debt #3+ extra payment.
That way, you will get them all paid off, on time, and pay the least interest. It will also help towards rebuilding your credit since you will no longer have any late payments. This works no matter how many different debts you may have.
4. After you get all of your debts paid off, add to your emergency fund until you have 6-12 months of income saved up. Put that emergency fund money into a liquid money market fund or into a Bank of America no-risk CD so that if you need the money you can take it out without penalty.
5a. When you have your emergency fund in place, add a category for “fun” to your budget. Save for a holiday, a vacation, a big screen, or dinners out, whatever goal you want. Remember to enjoy your life.
5b. When you have your emergency fund in place, start saving for your retirement. Join the 401(k) plan at work and contribute the maximum. Your employer probably matches at least part of your contribution so why give up free money? Open a Roth IRA and contribute the maximum on a monthly basis. If you start saving for your retirement now, you will probably retire a millionaire.
5c. When you have your emergency fund in place, start saving for your next car. Only buy cars, or other things that depreciate, with cash. Save up for a nicer car. That way you get the interest instead of paying the interest.
You can do it and it isn’t as hard as you think. Just follow the plan
I would not touch the retirement. first of all, I doubt that you would be able to net $ 4000 from the sales of those assets. When you withdraw a retirement account, but pay a 10% penalty and then tax on the whole amount. You would lose about 40% of the money. So cashing out the account will not solve the problem. Plus, you lose the benefit of this money going forward. this is money that should be working for you and added to on a regular basis. If you take it out, you not only lose the principal, but you lose 40 years of interest. This $ 5500 could be $ 80,000 in 40 years at 7%.
Basically, $ 3,000 changes your life. Have you thought about a second job. Working a second job for only three months, could give you much more than $ 3,000 to cover debt. Not only that, but you will have the satisfaction of having made a plan and won. Taking the retirement is the easy way. Dig in a bit and work your way out of it. You’ll be better for it.
Hi,
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