Equifax Warns Against Using Retirement Funds to Pay Off Debt

November 25, 2014

retirement planAfter years of saving, many older Americans have built up a nice retirement fund. For those who also have debt, it can be tempting to use that nest egg to pay off high interest accounts, such as credit cards. According to the Federal Reserve, the average American household has more than $15,000 in debt, while more than 77 million Americans have debt in collections.

With these staggering numbers, it’s no surprise that people may choose to dip into their retirement savings. However, according to the article, “

Should I Use Retirement Savings to Pay Off Credit Card Debt?” on the Equifax Finance Blog, tapping into this money could be harmful in a variety of ways.

When you remove money from your retirement account before you are 59.5 years old, you are subject to a 10 percent tax penalty in addition to the standard income tax. Removing this money can also cause you to bump up to the next tax bracket, which could mean as much as a 40 percent tax rate increase. Finally, removing a portion of your retirement means that you’ll miss out on the benefit of compounding interest on that sum.

There are a variety of ways to pay off high-interest debt without removing money from your retirement accounts. First, determine if it’s possible to pay off your credit accounts with your current income. While budgeting may be more difficult than just paying the balance off with money from your retirement account, it will save you more money in the long run.

For more information on ways to pay off high-interest credit card debt, finish reading the full blog post from the experts at the Equifax Finance Blog.

Categories: Education, Featured

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Courtney Rogers

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