Steps to pay down debt credit card faster
News from AZ Central.com:

Jun. 24, 2012 01:04 PM
USA Today

Q: I am 27, married and about to have my first child. I have $ 10,000 sitting in a 401(k) plan at a previous job. I owe $ 20,000 in credit card debt, with a 9.5% interest rate that is killing me. Should I take out some or all of my 401(k) saving to pay off my debt?

A: I generally would not recommend withdrawing money from your 401(k) savings plan to pay off your credit card debt.

First, there is a steep immediate cost: You will have to pay ordinary income taxes on the 401(k) withdrawal, plus a 10% penalty. This will likely reduce your balance by at least 25%, turning your $ 10,000 into $ 7,500 or less. Using this money to pay down your credit card would still leave you with a balance of $ 12,500 and if you have no other retirement account you will have zero retirement savings.

Second, there is a much larger long-term cost. By withdrawing the money now, you will not be able to take advantage of the long-term growth of your 401(k). For example, say your $ 10,000 was to grow at an average rate of 6% per year for 35 years. At the end of the 35 years your 401(k) would be worth $ 76,861.

So for every $ 1,000 you withdra…………… continues on AZ Central.com

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Related News:

Worst Case Scenario For Credit Card Debt
News from San Francisco Chronicle:

According to The Christian Science Monitor, the average American household has about $ 14,500 in credit card debt. That’s actually down compared to the high of $ 18,000 in 2006. This may seem like a lot of money, and it is, but some people have much more than this and end up struggling to pay back the debt they’ve accumulated.

In the old days, you may have faced debtors prison as your worst-case scenario, these days you’re going to face the law too, just in a different way.

Garnished Wages and Seized Assets
After you’ve stopped paying your credit card payments for more than three months, your credit card company may contract with a debt-collecting agency to get their money. If the debt-collector doesn’t receive pay…………… continues on San Francisco Chronicle

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