Should I Dip Into My 401K to Pay Off Debt?
By admin ~ December 23rd, 2009. Filed under: General.
I always find it very difficult to advise people to dip into their 401Ks or any other long-term investments to pay off existing debt. This is for two reasons:
- Your investments (including your 401K) provide you with a financial security blanket. This is probably one of the most important things in obtaining long-term financial success.
- It is only a temporary measure, and like all temporary measures and quick fixes, you are not addressing the main problem area/s - and therefore it is unlikely that you will find any real long-term relief.
If you are in an extremely desperate situation, then obtaining a consolidation loan (hopefully with a reasonably low interest rate) and pay it off in 3 years, maybe a better strategy at this stage. Being free of money problems requires 2 things:
- Learning how to manage your expenditure and cash outflows.
- Increasing your income level.
I know this may not sound feasible to some people (particularly step 2) or even irksome, but I assure you that EVERYONE has the ability to achieve both when they set their mind to it. Turn this into your main long-term goal - and you will be amazed how successful it can be.
Another more constructive way is to learn how to manage your expenditure, debt and cash flows, regardless of how much you earn. Put away a little savings (a minimum 10%), which most people can find if they stop buying anything wasteful or unnecessary, or find a good financial planner to steer you through any difficult situations.
Ann Marosy is an accountant, author, financial columnist, and consultant. She was formally the Financial Controller of the Fortune 500 Company, Jardine Matheson and Finalist of SA Executive Woman of the Year.
Ann is the author of ‘The Money Program: How to Manage the 6 Stages of Wealth’ and ‘Money Rules: The 7 Simple Rules of Money Management’.
Visit her website at http://www.moneta.com.au
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