‘What’s my best move here?’: I have credit card debt and untapped IRA funds. How can I strategically pay off debt and save on interest?

Hey Money Minder,

I’ve got about $12,000 in credit card debt that I’ve been chipping away at for a while now. I also have $16,000 just sitting in a rollover IRA not doing much. On top of that, I have a car loan that could end up costing me an extra $7,000 in interest if I let it ride out for the full 6 and a half years.

I’m thinking about taking a penalty and using the money from my IRA to pay off my debt. That way, I can pay off my car loan early and have an extra $1,000 in my pocket every month going forward. It feels like a smart move, especially considering how much I’d save on that pesky car loan interest.

What do you reckon, Money Minder? What’s my best move here?

Take it easy,
Debt-Free Dreamer

Response from THE MONEY MINDER:

Hello There,

I understand the dilemma you are facing, and it’s commendable that you are actively seeking a solution. With the numbers you provided, it does seem like a practical approach to pay off your credit card debt and then focus on addressing your car loan to save on interest in the long run.

In your case, it could be beneficial to consider withdrawing funds from your rollover IRA to pay off your credit card debt. Yes, there might be penalties involved, but the amount you would save by paying off the higher-interest credit card debt and avoiding the substantial interest on your car loan could outweigh those penalties in the long term.

By focusing on eliminating your credit card debt first, you can then allocate the extra $1,000 a month towards paying off your car loan early, freeing up more funds in the future. This strategy can help you save significantly on interest payments and improve your overall financial situation.

Before making any decisions, it would be advisable to consult with a financial advisor or tax professional to understand the implications of withdrawing funds from your IRA and to ensure you are making the best choice based on your individual circumstances. Taking a proactive approach now can help set you on a path towards financial freedom.

All the best from THE MONEY MINDER.