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Author: Quiltingfool One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 308519  
Subject: Re: Use PPA's to pay off debt? Date: 6/10/2002 8:00 PM
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Hi Tammy and welcome! You've come to the right place!

As one newbie to another, I can definitely relate to what you are contemplating doing. From what I've learned on this discussion board, it usually isn't a good idea to pay off credit card debt with retirement funds.

I'm not sure of your age, but I'll assume that you are below retirement age. If you take an early withdrawal, there are taxes and penalties to be paid. The IRS takes 10% of the amount withdrawn, and the withdrawal amount is added to your income at the end of year, so you have to pay federal and state taxes on it.

If you borrow against a retirement fund, even though you're paying it back with interest that goes right back to your own account, either way you lose something very valuable = compounded interest. Your net balance at retirement, even if you continue your contributions as they are now, will be lower if you borrow money from it and pay it back, than if you never touched the money in the first place.

I've been learning the hard way that sometimes the quick fixes aren't always the best. In the long run, paying off the debt by setting up a budget, cinching your belt and living below your means will be more valuable to you because it will have helped you to learn better money management. I'm definitely not an expert in that field yet, just wanted to share my two cents worth! There are many knowledgeable participants on this board that will share their valuable advice with you and help guide you on how to proceed from here.

I have found get advice and encouragement here, and I know you will too! Good luck to you!

Lyn
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