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Should I borrow from my thrift savings plan (TSP) to pay off $45,000 of credit card debt?

I am 58 years old and would like to think about retiring in the near future. I have $45,000 worth of credit card debt that I am only able to make minimum payments on at this point. Should I borrow from my thrift savings plan (TSP) to pay off this debt? I also understand that at age 59.5 I can make a one time withdrawal of 50,000 which would pay it off. I have no money put away for emergencies.

Debt, Retirement
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September 2018

Yes, I would tell you to take a TSP loan and pay off the debt.

You can process it through tsp.gov, but if you're married you'll need to print and have your spouse sign in front of a notary. When you fill out the application, I would advise you to take the 5 year option to pay it off. This means you'll have the smallest payment but you can still pay off early if you would like. If you decide to retire before your TSP loan is paid in full, don't worry! Because it is a loan from yourself, it is totally forgiveable! All you will need to do is file the form that TSP will send you 30 days after retiring in order to claim the unpaid portion on that years taxes.

The reason it makes sense to take the loan is that you are most likely currently paying very high interest rates. For example: Assuming 16% rates, you're paying $7,200 a year in interest alone. Which means if you're paying the minimum monthly payment of $650, only $50 is going toward principle.  Further, TSP loans are currently around 3% and all the interest you pay is going into your account. So you're paying yourself the interest- that's a lot better than the bank.

The last step would be to take the money you were paying the bank and set up an allotment to send half the money to a savings account for emergencies and send the other half to TSP. 

I hope this helps. If you have any questions, don't hesitate to ask me to clarify.

September 2018
September 2018
September 2018
September 2018