NEW CASTLE —
Dear Dave: Is it a good idea for a married couple in their early thirties, who have a lot of student loan debt, to cash out one of their 401(k)s to pay it off? Marcy
Dear Marcy: No way. You never cash out a 401(k) or IRA to pay off debt, unless it’s to avoid a foreclosure or bankruptcy. Let’s say you take $50,000 out of your 401(k). Do you know what happens next? They’re going to charge you a 10 percent penalty, plus your tax rate. If you make $75,000 a year, that puts you in a 25 percent tax rate, plus the penalty. That’s a 35 percent hit, and that’s how much of your money is going straight down the toilet. Look at it this way. You wouldn’t ask me if it’s OK to borrow money at a 35 percent interest rate to pay off your school loans, right? That would be ridiculous, and this is just as dumb. There are no shortcuts when it comes to getting out of debt, Marcy. Roll up your sleeves and get on a beans and rice budget where every dollar has a name. This will enable you to save money and pay off that debt. — Dave
Dear Dave: My wife and I have our fully funded emergency fund in place, and we’re debt-free, except for the house. She wants to return to school to get a master’s degree and change careers. She’ll be reimbursed up to $7,000 a year. Can we use some of our emergency fund to get things started? — Kevin
Dear Kevin: I’ve got a better idea. Save up the money. You guys are in great shape already. And to me, this opportunity seems like a small investment with a fabulous return. I really like the idea. But you have to be careful when it comes to things like this. You don’t want to get into the habit of calling things emergencies when they’re not emergencies. It’s a great thing, but it’s nowhere near an emergency. I know she’s excited about the possibilities, but I’d just roll up my sleeves, save a little extra for a while and cash flow the classes. She’ll probably get reimbursed for the first classes right after she gets her grades, then you can use the reimbursement check to pay for the next classes, and the next check the next classes. Make sense? I love the school idea, and I’m glad your wife has such a great opportunity. But I don’t want you to take a chance on messing up the progress you’ve made in taking control of your finances. Just take your time and save for those first classes. You’ll be glad you did. — Dave
(Follow Dave on Twitter at @DaveRamsey and on the web at daveramsey.com.)
All About You ...
Related Photos
-
For years Dave Ramsey has been the host of the popular ‘Dave Ramsey Show’ on radio stations across the nation. Now, his financial advice column is carried by more than 300 publications. It will appear each Friday on The News website.
Discussion
Dave Ramsey: Why you shouldn’t cash out on your 401(k)
- All About You ...
-
-
Your Tax Money: Four districts undecided on vo-tech budget
Four school districts are still deciding whether to support the Lawrence County Career and Technical Center’s 2013-14 budget. The New Castle, Wilmington, Mohawk and Ellwood City school boards are waiting until June to vote on the proposed spending plan as they contemplate a growing debt the center owes to six of its eight member school districts.
-
Making a Difference: Volunteers put up home for young mother, son in three days
The Blitz was on this weekend in New Castle. Habitat for Humanity had a “Blitz Build” for its latest Lawrence County house at the corner of Newell and Madison avenues in Mahoningtown. Over Thursday, Friday and Saturday, concrete block was laid for the basement, the ground floor was constructed, the roof was built and walls went up.
-
Culinary Conversation: A day in France— or close to it
Here’s some advice: If your spouse packs your lunch, never complain about the contents. I wasn’t actually griping. I just noted that it lacked excitement. The response from spouse was — our kitchen isn’t the Ritz Carlton.
-
Dave Ramsey: Avoid college loans if you can
“Dave Says" is a weekly column featuring financial advice from nationally syndicated radio host Dave Ramsey. His column is filled with timely, relevant questions and answers taken from actual letters and calls on Ramsey's radio program, “The Dave Ramsey Show.”
-
Lori Brothers: Be ready to stay healthy during storms
At any time during the spring and summer, we may get a signal from our local officials that there is inclement weather that can turn threatening. It is always important to pay attention during alerts to assure that your family, including your pets, are safe in the event of an emergency such as tornado, flood or power outage.
-
Sarah Stright-Hartley: Looking for stylish way to pack your possessions? It’s in the bag
One of the most personal things a woman buys is a handbag. It holds all of her prized possessions. So when shopping for a new bag, there are a lot of things to consider. Size, color, quality, fabric and length of use. Is she looking for something to use year round, or something that can be changed each season?
-
Kali Davies-Anderson: I’m now a year older — and a lot wiser
On May 7, I turned 28 years old. I understand this is still considered “young,” but I feel as though I have lived many lives in my 28 years. And in those many “lives” I have learned vast and various lessons.
-
Making a Difference: Custodian makes clean sweep of kids’ hearts
When Croton Pre-Kindergarten Center students recess for summer vacation next month, “Mr. Pete” will walk out the door with them. And it will be for the last time.
-
Culinary Conversation: 25 easy treats to make for Mom on Mother’s Day
The sweetest person you know deserves something equally sugary on Sunday. That would be your mother and the occasion is Mother’s Day. A luxurious brunch and a vase full of tulips are perfectly acceptable, and so is breakfast in bed, especially when big hands help little hands and someone (not her!) cleans the kitchen.
-
Dave Ramsey: How do mutual funds work?
“Dave Says" is a weekly column featuring financial advice from nationally syndicated radio host Dave Ramsey. His column is filled with timely, relevant questions and answers taken from actual letters and calls on Ramsey's radio program, “The Dave Ramsey Show.”
- More All About You ... Headlines
-
