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Author: aja91 Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 308881  
Subject: Re: Poll: paying off CC Debt Date: 6/14/2001 8:06 AM
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I am leaving my company soon. I have approx. $17,000
in my retirement acct. I know I will lose a great deal if I withdraw early - but I have substantial CC
debt, approx. $11,000. I wouldn't be able to pay it all off - but could take care of a majority of it.
Should I cash out?


In a word - no.

If you withdraw it, you typically take a 10% penalty hit, plus pay taxes. If you are in, say, the 28% federal tax bracket, you'd wind up losing almost 40% of the $17,000 to taxes. In other words, you wouldn't clear enough to clear the debt.

Now, if you leave that $17,000 alone and never add another penny, and earn the "market-average-over-time" return of about 11% per year (tax free!), in 20 years you'd have about $137,000. (For the math crowd, I took 1.11^20*17,000 to get this.)

The $11,000 debt can be paid off over time. If you cash out the retirement account you will never be able to recover the lost capital and earning power that you're giving up.
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