“I have 19k in my 401k and 19k in credit card debt. Should I withdraw and pay off the debt, or wait and rollover?” How to handle 401k with layoff.

Hey Money Minder,

I’m 29 and about to be out of a job by November. I’m on the hunt for a new gig, but I’ve got some concerns about what to do with my 401k – it’s sitting at 19k. On top of that, I’ve got about the same amount in credit card debt thanks to some high vet bills for my pets. I’ve been trying to cut back on spending, but those vet bills really hit hard. I’m thinking about consolidating my debt, but should I dip into my 401k to pay it off all at once or just wait and roll it over?

Catch you in a bit,
Seeking Advice

Response from THE MONEY MINDER:

Hello There,

I’m sorry to hear about your job situation, but I’m glad to see you are actively thinking about what to do next with your finances. Based on your current financial situation, it would be wise to consider a practical approach. With your 401k at $19k and roughly the same amount in credit card debt, it can be tempting to want to withdraw from your retirement savings to pay off the debt. However, it’s important to weigh the consequences.

Withdrawing from your 401k before retirement age can result in penalties and taxes, reducing the amount you have saved for the future. Instead, consolidating your debt and creating a plan to pay it off over time might be a more sustainable solution. Look into options for consolidating your credit card debt with a lower interest rate, such as a personal loan or balance transfer credit card.

It’s understandable that managing vet bills for your pets can make it challenging to pay off your debts, but prioritizing a debt repayment plan will ultimately lead to financial stability. By focusing on paying off your debts and avoiding high-interest charges, you can work towards a stronger financial future.

Ultimately, I recommend waiting and not withdrawing from your 401k. Instead, create a budget, consolidate your debt, and work towards paying it off systematically. This will help you avoid penalties and taxes on early withdrawals while also setting yourself up for financial success in the long run. All the best from THE MONEY MINDER.