Hi Money Minder,
Got a big debt problem here, around $50,000 because of school expenses. Had to use credit cards due to visa status as an immigrant.
Now, my debt is split across five different credit cards with interest rates ranging from 16-29.9%. Calculated that using the avalanche method, it will take me 4 years (being super aggressive) to pay it all off. Can’t wait that long because I’m barely scraping by each month.
Took out half of my 401k ($45,000 in total) to buy a condo recently. The mortgage and HOA costs are cheaper than renting, plus I wanted to keep moving forward financially and build equity without debt holding me back.
So, here are my two options: either take out the rest of my 401k, pay a large chunk off one credit card and consolidate the others (leaving $20,000 with 0% interest for 18 months and around $4,000 on a card with 20% interest) which I think I can pay off in a total of 26 months, or take a personal loan to consolidate everything.
Would really appreciate your advice on this because I’m determined to get rid of this debt as soon as possible. Not too worried about my 401k right now, but wondering if this is a smart move?
Farewell,
Eager Eliminator
Response from THE MONEY MINDER:
Hello There,
I understand the weight of the burden you are carrying with a debt of $50,000 from school expenses due to your visa status. It’s commendable that you are seeking advice and exploring different options. First off, congratulations on being proactive about your financial situation. It’s not easy to face such a large debt, especially when it impacts your day-to-day life.
Considering your circumstances, it seems like you have already analyzed your situation and come up with various strategies to tackle the debt. Taking out the remaining amount of your 401k to pay off the largest credit card balance and consolidating the others seems like a practical approach. By doing so, you will have a clear plan of action with manageable interest rates and a timeline of around 26 months to pay off the consolidated debt. This method can help you focus your efforts on a specific goal and avoid spreading yourself thin across multiple credit card payments.
Alternatively, taking a personal loan to consolidate all of your credit card debts could also be a viable option. However, it’s essential to compare the interest rates, terms, and fees associated with the personal loan against the potential savings and benefits compared to the 401k withdrawal strategy.
While taking money out of your 401k may not be ideal, sometimes it’s necessary to prioritize eliminating high-interest debt and regaining financial stability. Remember, your financial well-being is crucial, and finding a repayment plan that works for you is key.
All the best from THE MONEY MINDER in your journey towards financial freedom and debt repayment. Stay focused and committed to your goal, and you will soon find relief from the burden of debt.
