Should I use an early IRA distribution to pay off my credit card balance?
Does it make sense to withdraw approximately $10,000 from my IRA and suffer the 10% tax hit on the amount in order to pay off $10,000 of credit card debt that's subject to 16% APR?
If you have good credit there are some credit card companies that offer 0% interest for 6 or 12 months for transferred credit card balances. That would be ideal in this circumstance. Also if this is a traditional IRA, you will also incur a tax bill for the $10,000. So you may need to crunch those numbers before making your decision.
Also it is hard to answer your question confidently without knowing how much you have in your IRA and your complete financial situation.
Definitely not. If you get into the habit of using retirement accounts to pay off your expenses where you are living above your means, then you will remain behind for the rest of your life. Instead, concentrate on reducing your living expenses and possibly working overtime so that you can gradually pay off your credit-card debt. That way you will establish prudent habits which you can retain permanently.
No, no, no.
You would not take just a 10% hit. You would have to pay full-rate income tax on anything you took out, PLUS a 10% penalty. I see there are a lot of other answers so I am guessing you are getting the point right about now.
Instead, try a new game. Live like a pauper. Cut back on everything other than basic food, shelter and utilities. Forego meals out, entertainment, new clothes, other indulgences. Take all of your savings and send them to your friendly credit-card company until you no longer owe them anything. Then, going forward, pay your credit card bill in full and on time every month. You will gain the $1,600 per year you are now paying in interest, but more than that, you may gain a new sense of what you need to spend money on and what you can forego. Then, remember to "pay yourself" every month at the same time as you pay your bills. Put money into savings. You don't say how long you have until retirement but believe me it's sooner than you think. You need to have 20 times your living needs in liquid savings, or you risk running out of money when you are old. Good luck.
All great answers from my colleagues. You really don't provide enough information to justify a firm yes or no answer. Are you single or married? What's your current tax bracket? What is your total household income? Do you have other employer sponsored retirement savings?
In general it wouldn't make sense unless you (and your spouse, if any) might be in a zero tax bracket the year you make the IRA withdrawal. Then you would only incur the 10% penalty. It might also make sense if you split the withdrawal between two tax years and would remain in a low or zero tax bracket. Otherwise you'll incur a permanent and hefty reduction in your retirement savings.
Rather than risk treating only your symptom ($10k in credit card debt) why not visit Consumer Credit Counseling to see if you have a budgeting problem? It's heartbreaking to liquidate savings to bail yourself out of consumer debt only to find yourself back in the same situation . . . except without any savings! Plus, they may have tips on negotiating down the interest rate or even the balance.
Without knowing the specifics of your situation, I feel pretty comfortable saying no, absolutely not.
Use your income to pay down the debt overtime. Pay as much as you can each month. If your income isn't enough to cover paying these debts over time along with your other expenses, you are on an unsustainable course. Something will need to change. If that is the case, you will likely end up in the same situation down the road, only you will have less money in savings and a healthy tax bill to show for it.
If you can afford to pay the debt, and you are not adding to it, stay the course. Work to pay off the debt and let your retirement savings work for you.