# Want to pay off credit cards, does this strategy make sense? **URL:** \ **Category:** In My Humble Opinion\ **Created:** [January 17, 2015, 6:32pm UTC](https://boards.straightdope.com/t/want-to-pay-off-credit-cards-does-this-strategy-make-sense/710083 "2015-01-17T18:32:50Z")\ **Posts on this page:** 20\ **Page:** 2
**Author:** ![Fear\_Itself](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/fear_itself/32/19637_2.png) [@Fear\_Itself](https://boards.straightdope.com/u/Fear_Itself)\ **Post date:** [January 17, 2015, 8:47pm UTC](https://boards.straightdope.com/t/want-to-pay-off-credit-cards-does-this-strategy-make-sense/710083/21 "2015-01-17T20:47:44Z")
> [@Labrador\_Deceiver](#): > > You aren’t doing the math correctly. Which is why there is nobody anywhere who agrees with you. That’s easy to say, if you don’t show your work. ---
**Author:** ![Quartz](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/quartz/32/267_2.png) [@Quartz](https://boards.straightdope.com/u/Quartz)\ **Post date:** [January 17, 2015, 8:48pm UTC](https://boards.straightdope.com/t/want-to-pay-off-credit-cards-does-this-strategy-make-sense/710083/22 "2015-01-17T20:48:29Z")
Could you secure a bank loan to pay off the card on your IRA? Presumably the bank loan would have a rate around 5%. ---
**Author:** ![Fear\_Itself](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/fear_itself/32/19637_2.png) [@Fear\_Itself](https://boards.straightdope.com/u/Fear_Itself)\ **Post date:** [January 17, 2015, 8:50pm UTC](https://boards.straightdope.com/t/want-to-pay-off-credit-cards-does-this-strategy-make-sense/710083/23 "2015-01-17T20:50:09Z")
> [@Jonathan\_Chance](#): > > I do this all day every day practically. People often make the commitment to pay themselves back and rarely do so. It’s just not worth the risk. That is a different issue though. Most people can’t stick to paying an extra $100 month on their credit card either. That doesn’t mean it isn’t a good idea. ---
**Author:** ![Labrador\_Deceiver](https://avatars.discourse-cdn.com/v4/letter/l/7c8e57/32.png) [@Labrador\_Deceiver](https://boards.straightdope.com/u/Labrador_Deceiver)\ **Post date:** [January 17, 2015, 8:51pm UTC](https://boards.straightdope.com/t/want-to-pay-off-credit-cards-does-this-strategy-make-sense/710083/24 "2015-01-17T20:51:23Z")
> [@Fear\_Itself](#): > > That’s easy to say, if you don’t show your work. Which you have yet to do. ---
**Author:** ![Jonathan\_Chance](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/jonathan_chance/32/701_2.png) [@Jonathan\_Chance](https://boards.straightdope.com/u/Jonathan_Chance)\ **Post date:** [January 18, 2015, 4:29am UTC](https://boards.straightdope.com/t/want-to-pay-off-credit-cards-does-this-strategy-make-sense/710083/25 "2015-01-18T04:29:42Z")
> [@Fear\_Itself](#): > > That is a different issue though. Most people can’t stick to paying an extra $100 month on their credit card either. That doesn’t mean it isn’t a good idea. Doesn’t matter. Real world examples lead me to believe that IRAs - on pay back (might be different with a 401k as the rules vary) - are much more infrequently paid back than credit cards are paid off. It’s a really unusual thing. ---
**Author:** ![usedtobe](https://avatars.discourse-cdn.com/v4/letter/u/ec9cab/32.png) [@usedtobe](https://boards.straightdope.com/u/usedtobe)\ **Post date:** [January 18, 2015, 6:15am UTC](https://boards.straightdope.com/t/want-to-pay-off-credit-cards-does-this-strategy-make-sense/710083/26 "2015-01-18T06:15:53Z")
You’re 24 and have a nice nest egg already. I once thought I could raid the piggybank and live it up. I ended up in Chap 7. Don’t you even think of touching that. Grilled cheese, mac & cheese, ramen… You really don’t need TV (mine hasn’t been on since 2010) - drop the cable. That phone you’re carrying around - what is that per month? Really need all the bells and whistles? ---
**Author:** ![Hampshire](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/hampshire/32/4887_2.png) [@Hampshire](https://boards.straightdope.com/u/Hampshire)\ **Post date:** [January 18, 2015, 3:26pm UTC](https://boards.straightdope.com/t/want-to-pay-off-credit-cards-does-this-strategy-make-sense/710083/27 "2015-01-18T15:26:52Z")
If your mortgage is $40K, what is your home worth? If you have enough equity in your home you may want to look into an equity line of credit. Low rates and you just use what you need. ---
**Author:** ![chappachula](https://avatars.discourse-cdn.com/v4/letter/c/d2c977/32.png) [@chappachula](https://boards.straightdope.com/u/chappachula)\ **Post date:** [January 18, 2015, 4:44pm UTC](https://boards.straightdope.com/t/want-to-pay-off-credit-cards-does-this-strategy-make-sense/710083/28 "2015-01-18T16:44:29Z")
I assume you own a car. Can’t you sell it, buy an older model car for $4000 less, and then pay off the credit cards next week? Driving an old car ain’t the end of the world, and is no change to your lifestyle. Easier than eating ramen every day, or doing without your favorite TV shows. Or am I missing something? ---
**Author:** ![Quercus](https://avatars.discourse-cdn.com/v4/letter/q/7ab992/32.png) [@Quercus](https://boards.straightdope.com/u/Quercus)\ **Post date:** [January 18, 2015, 4:59pm UTC](https://boards.straightdope.com/t/want-to-pay-off-credit-cards-does-this-strategy-make-sense/710083/29 "2015-01-18T16:59:53Z")
> [@Quartz](#): > > Could you secure a bank loan to pay off the card on your IRA? Presumably the bank loan would have a rate around 5%. THIS! I completely second the idea of finding a Credit Union you can join. Probably not a bad idea even to get a credit card from them, so you have a card (which is often massively useful, as long as you make sure to pay it off every month). But don’t transfer the balance of your current cards to it, instead just get a straight personal loan (or if possible a home equity loan). Use the loan (at maybe 5-10%) to pay off the old credit cards. You may want to be able to show that you haven’t touched the cards in six months, have steady income, etc. But the sooner you can be paying 7% instead of 22%, the better. I think that’s a far better option than the IRA. Purely mathmatically, it may make sense (the IRA interest is compounding, but so is the CC interest, at a much higher rate). But it’s psychologically much much hard to eat Ramen to repay a IRA than it is to eat Ramen in order to pay off a loan (again, you should turn the CC debt into any other kind of loan ASAP). ---
**Author:** ![The\_Holdsworth\_Effect](https://avatars.discourse-cdn.com/v4/letter/t/848f3c/32.png) [@The\_Holdsworth\_Effect](https://boards.straightdope.com/u/The_Holdsworth_Effect)\ **Post date:** [January 18, 2015, 5:36pm UTC](https://boards.straightdope.com/t/want-to-pay-off-credit-cards-does-this-strategy-make-sense/710083/30 "2015-01-18T17:36:12Z")
> [@Labrador\_Deceiver](#): > > Don’t take anything out of your IRA to pay off your card. Just pay off the $4500 as quick as you can, but try to get your rate lowered, or find a card with a lower rate & transfer the balance. > . This. Plus the no cable/eating out advice. (I am far older and have more debt than you- but it’ll be gone in 3 years, and I’ve regretted the time we took money out of an IRA- but like your use of cards, do or die situation) ---
**Author:** ![Duckster](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/duckster/32/1244_2.png) [@Duckster](https://boards.straightdope.com/u/Duckster)\ **Post date:** [January 18, 2015, 6:08pm UTC](https://boards.straightdope.com/t/want-to-pay-off-credit-cards-does-this-strategy-make-sense/710083/31 "2015-01-18T18:08:52Z")
Don’t cut off your nose in spite of your face. Change what you are and how you act in the present, but leave your future alone. ---
**Author:** ![Gatopescado](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/gatopescado/32/5711_2.png) [@Gatopescado](https://boards.straightdope.com/u/Gatopescado)\ **Post date:** [January 18, 2015, 6:12pm UTC](https://boards.straightdope.com/t/want-to-pay-off-credit-cards-does-this-strategy-make-sense/710083/32 "2015-01-18T18:12:43Z")
> [@Labrador\_Deceiver](#): > > You aren’t doing the math correctly. Which is why there is nobody anywhere who agrees with you. Actually, I agree with him. I don’t show my work, either, because it is intuitive. Too many of the other answers are assuming variables not mentioned in the OP. The guy doesn’t mention cable TV and eating out, selling his car and negotiations with the card companies. **Fear Itself** answers the question that was asked, in my opinion and I agree. Edit: Threating to close a card account is not a good idea. If they don’t lower the rate and you do close the account, you _still_ need to pay the debt, but now you have damaged your credit rating by having a closed account. That will often negatively effect your credit score. ---
**Author:** ![Labrador\_Deceiver](https://avatars.discourse-cdn.com/v4/letter/l/7c8e57/32.png) [@Labrador\_Deceiver](https://boards.straightdope.com/u/Labrador_Deceiver)\ **Post date:** [January 18, 2015, 6:34pm UTC](https://boards.straightdope.com/t/want-to-pay-off-credit-cards-does-this-strategy-make-sense/710083/33 "2015-01-18T18:34:03Z")
> [@Gatopescado](#): > > Actually, I agree with him. I don’t show my work, either, because it is intuitive. No it isn’t. He is saying that you don’t count the taxes that will be paid on the withdrawal “because they will be paid later anyway”. What he is failing to include in his calculations is the lost compound interned that would have been earned by that money over the next 30-40 years. Therefore, it must be included in the current analysis. ---
**Author:** ![Gatopescado](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/gatopescado/32/5711_2.png) [@Gatopescado](https://boards.straightdope.com/u/Gatopescado)\ **Post date:** [January 18, 2015, 7:11pm UTC](https://boards.straightdope.com/t/want-to-pay-off-credit-cards-does-this-strategy-make-sense/710083/34 "2015-01-18T19:11:52Z")
> [@Labrador\_Deceiver](#): > > No it isn’t. > > What he is failing to include in his calculations is the lost compound interned that would have been earned by that money over the next 30-40 years. Therefore, it must be included in the current analysis. It is to me. It seems your not including the interest accumulating at a much higher rate _right now_. Retirement savings are great, and I would certainly encourage **Mrdeal** to save, and we all agree that there are better ways to pay down credit card debt. But that’s not what the OP is asking. The easiest way for me to think about it is that the IRA is a loan\* he can make to himself\*, and pretty near zero interest (if his return is anything like mine!) Take the money, pay off the cards, eliminate the interest paid to Citibank or whoever, which adds zero value to any of the goods or services that were charged on those cards. The 22% is just a sucker payment in my opinion. Now, if **Mrdeal** wants to live like a monk, and pay the maximum he can, after the mortgage and living expenses, back into his IRA instead of the credit card company, that is like paying that interest to himself, to his sole benefit. To me, its intuitive he can pay himself back, replenishing his IRA faster than he can pay Citibank at 22%. And that is what he asked. He didn’t ask for life advice and if he should skip going out or ditching cable or selling his car or fighting with the card companies or going to a credit union. I would consider the IRS a personal credit union. The new season of Portlandia sucks, by the way. ---
**Author:** ![Labrador\_Deceiver](https://avatars.discourse-cdn.com/v4/letter/l/7c8e57/32.png) [@Labrador\_Deceiver](https://boards.straightdope.com/u/Labrador_Deceiver)\ **Post date:** [January 18, 2015, 7:17pm UTC](https://boards.straightdope.com/t/want-to-pay-off-credit-cards-does-this-strategy-make-sense/710083/35 "2015-01-18T19:17:43Z")
> [@Gatopescado](#): > > It is to me. It seems your not including the interest accumulating at a much higher rate _right now_. > > Retirement savings are great, and I would certainly encourage **Mrdeal** to save, and we all agree that there are better ways to pay down credit card debt. But that’s not what the OP is asking. > > The easiest way for me to think about it is that the IRA is a loan\* he can make to himself\*, and pretty near zero interest (if his return is anything like mine!) Take the money, pay off the cards, eliminate the interest paid to Citibank or whoever, which adds zero value to any of the goods or services that were charged on those cards. The 22% is just a sucker payment in my opinion. > > Now, if **Mrdeal** wants to live like a monk, and pay the maximum he can, after the mortgage and living expenses, back into his IRA instead of the credit card company, that is like paying that interest to himself, to his sole benefit. > > To me, its intuitive he can pay himself back, replenishing his IRA faster than he can pay Citibank at 22%. > > And that is what he asked. He didn’t ask for life advice and if he should skip going out or ditching cable or selling his car or fighting with the card companies or going to a credit union. I would consider the IRS a personal credit union. > > The new season of Portlandia sucks, by the way. He can do it your way, but he’d be leaving money on the table. ---
**Author:** ![Gatopescado](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/gatopescado/32/5711_2.png) [@Gatopescado](https://boards.straightdope.com/u/Gatopescado)\ **Post date:** [January 18, 2015, 7:29pm UTC](https://boards.straightdope.com/t/want-to-pay-off-credit-cards-does-this-strategy-make-sense/710083/36 "2015-01-18T19:29:32Z")
**Mrdea** l, at 24, educated, employed, business owner with $5k _saved already_ is obviously a lot smarter than me, and I bet he’ll figure out what to do. 😃 ---
**Author:** ![kanicbird](https://avatars.discourse-cdn.com/v4/letter/k/5f8ce5/32.png) [@kanicbird](https://boards.straightdope.com/u/kanicbird)\ **Post date:** [January 18, 2015, 7:37pm UTC](https://boards.straightdope.com/t/want-to-pay-off-credit-cards-does-this-strategy-make-sense/710083/37 "2015-01-18T19:37:32Z")
Going back to the line of the IRA is a loan he can make to himself, and taking it a bit further then expressed. IIRC You can withdraw $ from a IRA and have a certain time to pay it back with out penalty. ---
**Author:** ![Labrador\_Deceiver](https://avatars.discourse-cdn.com/v4/letter/l/7c8e57/32.png) [@Labrador\_Deceiver](https://boards.straightdope.com/u/Labrador_Deceiver)\ **Post date:** [January 18, 2015, 7:49pm UTC](https://boards.straightdope.com/t/want-to-pay-off-credit-cards-does-this-strategy-make-sense/710083/38 "2015-01-18T19:49:23Z")
> [@Gatopescado](#): > > **Mrdea** l, at 24, educated, employed, business owner with $5k _saved already_ is obviously a lot smarter than me, and I bet he’ll figure out what to do. 😃 You’re right, and the amount of money saved or lost is small enough that the math isn’t particularly important. > [@kanicbird](#): > > Going back to the line of the IRA is a loan he can make to himself, and taking it a bit further then expressed. IIRC You can withdraw $ from a IRA and have a certain time to pay it back with out penalty. 60 days. ---
**Author:** ![kanicbird](https://avatars.discourse-cdn.com/v4/letter/k/5f8ce5/32.png) [@kanicbird](https://boards.straightdope.com/u/kanicbird)\ **Post date:** [January 18, 2015, 10:36pm UTC](https://boards.straightdope.com/t/want-to-pay-off-credit-cards-does-this-strategy-make-sense/710083/39 "2015-01-18T22:36:20Z")
With the above post by **Labrador Deceiver** you could take money out of your IRA for 2 months (60 days) in the amount you could reasonably pay back to yourself in 60 days (and avoid a penalty). If you took that amount you expect to be able to pay back and applied it all towards paying down your CC you would be paying less in interest for these 2 months, more towards principle. If for some reason you don’t have the $$$ to pay yourself back you then can fall back and take the penalty and go forward with the lower CC balance and less interest. ---
**Author:** ![HelenGawn](https://avatars.discourse-cdn.com/v4/letter/h/a88e4f/32.png) [@HelenGawn](https://boards.straightdope.com/u/HelenGawn)\ **Post date:** [January 19, 2015, 5:49am UTC](https://boards.straightdope.com/t/want-to-pay-off-credit-cards-does-this-strategy-make-sense/710083/40 "2015-01-19T05:49:33Z")
I’d like to add that, while you sound like a very financially responsible young person, withdrawing from your IRA now would be a dangerous precedent. You’ll (well, I would) be more likely to do so again later on. Folks here have mentioned a lot of other options from painless to self-flagellating that should get you brainstorming your options. **Labrador Deceiver,** about how much lower is a typical retiree’s tax bracket? [Previous page](https://boards.straightdope.com/t/want-to-pay-off-credit-cards-does-this-strategy-make-sense/710083.md?page=1) [Next page](https://boards.straightdope.com/t/want-to-pay-off-credit-cards-does-this-strategy-make-sense/710083.md?page=3)