What would you tell the 30-year old divorcee with 30k of debt?

Ramit Sethi

Jason writes:

I’m 30.

Just divorced. Not fun.

$30k in debt. Freaking me out.

I have an old 401k that I rolled over from a previous company into Sharebuilder. Value $8,500.

I’m very inclined to withdraw the cash with penalty and pay off a higher interest credit card (13%). I know that mentally and emotionally it will make me feel better to give a big “peace out” to a credit card that I cut up a while ago.

I’m torn and looking for advice. There’s no way I’m making 13% on the money within Sharebuilder.

My financial goals: pay off all debt as soon as possible, and live a simple, cash lifestyle with lots of savings / investment. Looking at all options: cutting back on $tupid crap, selling stuff, and maybe even freelancing to make more money (even though I make $80k+ at my full-time job). If you’re wondering, I have a Simple IRA that I contribute to every month with my current employer.

Any help is appreciated…

Before you answer…

What would you tell Jason? (And watch the comments to see how they differ from your own opinion…that’s the most interesting part.)

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  1. Adam

    Three things:

    1. It’s good that the debt bothers you, but “freaking out” may not be the best thing. Stay concerned and on top of it, but don’t let it run your life.

    2. Keep the money in Sharebuilder and FORGET ABOUT IT while you pay off the debt. In a few years (very few, if investing intelligently) you’ll come back to that account and be amazed at this “windfall” you have. 13% is high, but it’s not crazy. It’s managable.

    3. You are young and obviously smart. Use that age and brain to pay off the debt as quickly as you can. Sorry that you are divorced, but, being single, you should have less expenses. Use that negative as a positive and reap the rewards when you have no debt.

    Good luck!

  2. ObliviousInvestor

    If you take the 8,500 out of the 401k, it’s not just going to be penalized. It’s going to be subject to regular income taxes as well. Depending upon your tax bracket, it could be easy to see a third of it disappear before you even got to use it to pay off the debt.

    I’d say leave the 401k alone, and work on throwing every other dollar you have toward that debt.

  3. Stephanie

    Don’t touch the 401k.

    Try to roll the debt onto a lower interest card or one with a no interest period. Pay the absolute biggest amount possible every month, even if you have to scale back on other contributions. Kill every bit of unnecessary spending. Sell stuff. Do the side gigs.

    If you have some kind of emergency with absolutely no reserves (your 401k), you will really be in a heap of trouble then.

  4. Bryan

    Don’t touch your rollover IRA unless you are transferring it to another firm to get better asset allocation.

    Call you credit card companies and negotiate a better interest rate. Cut other expenses and throw every thing you can at your debt.


  5. Carolina

    Hey Ramit, off-topic, but you wouldn’t happen to accept late submissions to the scholarship? I just found the link. If you could email me back I’d appreciate it.

  6. beatgrl

    I felt bad for you at first, until I read that you make $80K a year. Yourself. My husband I and together bring home half of that income and we are fine for a family of 3. Unless you live in NYC or San Francisco I can’t see how one person would need that much. What are you doing with that extra 40K? Couldn’t you just use the it to pay off your debt? Please don’t think I am being insulting, I’m just flabbergasted.
    Okay, now I will read what others have written

  7. Terry Mullican

    1. DO NOT TOUCH YOUR RETIREMENT ACCOUNT! Penalties and taxes will apply and you will ONLY see about 60% of that money if you do.
    2. Get on a written budget and find a friend who can be your accountability partner on this. Being single you have no one to hold you responsible…they do not have to know all the details, but they need to be asking you if you are doing what it!
    3. Since you are single, explore those other areas where you can make money on the side!
    4. If you are REALLY serious, stop you current retirement contributions and put EVERY EXTRA dollar you have toward your debt! This is very temporary and you have to stick to the plan if you are going to do this!

    My wife and I did this last year (got lucky on the stock market timing) and stop IRAs and we are debt free except the house. But it takes getting really mad at having debt!

    Best of luck!

  8. Matt

    As long as you are able to keep up with the monthly payments on your debts, you should not touch your retirement funds.

    Establish an emergency fund, scale down your lifestyle if needed, and keep working hard and making the payments. Any extra money should go toward your highest-interest debt. But you should not tap into your retirement funds unless you have exhausted every other option.

    Also, unless you’re getting some kind of employer match, you may want to consider redirecting your Simple IRA contributions toward your debts.

  9. John Sonmez

    I am amazed how many zombies say “don’t touch the 401k”. That is illogical its just advice that has been drilled into everyone’s brain’s for so long they just spew it out like they are the god of finance.

    Of course take out the 401k and pay off the debt. Of course do this. There is no point having money in a 401k (especially in this economy), when you have large amounts of high interest debt. Even taking the penalties on the 401k you will stake be far ahead in a few years.

    What happens if you lose money in the 401k? Then all you did was avoid paying penalties on 401k money that lost value while you still paid the 13% interest.

  10. John B

    I’m not in the US, so I’m not familiar with the 401(k), (I know what it is, but I don’t know the rules), but here’s my two bits:

    Since you make $80k/yr, and are single, you should be able to pay off that debt pretty quickly. Your options are:
    1) Get a consolidation loan from a bank. Interest rates are pretty much nothing right now, and if you have a decent job, (it seems you do), that seems stable I would expect that the bank would lend you $30k at a much lower interest rate than any of your cards, then pay off the bank loan however you set it up with the bank.

    2) Get some new credit cards with a 6-8 month “introductory rate” of 0-3%. You have to be disciplined and not use them for anything except paying the other cards. Then pay these cards off as fast as possible.

    3) Don’t bother with any of the above and just pay off the debt. If you make $80k/yr, (before tax? after tax? – let’s assume we have $80k to work with here), and you can cut your costs to, say, $3k a month, then you’ll have $3600/month you can use to pay the debt. You’ll pay off your debts in the 9th month from when you start, (I didn’t take interest into account, but you’ll have a bunch left over in the 9th month, and I’m guessing it can cover the difference).

    Basically, if you only have yourself to look after, you should be able to devote most of your $80k to your debt and pay it off quite quickly.

  11. Jennifer @ Becoming The Marshmallow

    If you’re really serious about getting out of debt, please don’t cash in your 401k. Even if you declare bankruptcy, your retirement stays safe.

    Downgrade your current housing situation. If your apartment costs $1200 a month, find one that costs half as much. If you own a home, rent out a room and GET A ROOMMATE.

    Not sure if you have to pay child support or alimony, but after you pay that…

    Double, triple, or quadruple your debt payments!!

    I made $22,000 a year out of college and originally had about $28,000 in student loans. I now have $7500 in student loans four years later.

    Really, think about the stuff in your life. Do you need it? If you drive a BMW and have a car loan, trade it in and get a car you can fully pay for.

    Live like a college student, and don’t spend money on unnecessary stuff.

    My husband and I combined do not make as much as you and have $100,000 worth of debt and we can still afford to save $1,000 after putting money away for retirement.

    You can do it, too!

  12. John

    DO NOT pull the money out of the 401k, NOT because you’re not earning as much interest as you are paying on the rotating debt, but BECAUSE of the penalties involved. You can lose as much as 40% doing this. Your 401k is a LONG TERM investment. I know it’s hard to think about the future right now, but try. The market will come up again. And by the time you retire it will go down and up again, maybe a few times. And with the market down, you’re actually losing a lot more than 40%.

  13. Veronique

    I also think it’s not a good idea to touch the 401k … after the taxes and penalties, what will remain from the 8500 will not be (in my opinion) significant enough … I mean, of course what’s paid off the debt is paid, and that’s a good thing but I don’t think the amount is worth the “loss” of the 401k, specially if you think on a long term point of view.

    Just divorced … not funny (sorry about that), but, maybe the good time to reduce some spending … maybe you can move in a smaller place (so with a smaller rent), get rid (sell it and got some $$) of the extra furniture/appliance you don’t need anymore (as you move in a smaller place).
    Sure $30k is a huge amount of money but as you seem to be concerned (and willing to reduce it), I think it’s quite manageable knowing your earnings.

    13% on a credit card is not the highest it could be (think positive) but of course it would be great if you could reduce it. I think it would be a better move than touching the 401k.

    Very rough and quick calculation … if you earn $80k a year … let’s say you budget 10% of it (which I find very conservative when you’re really willing to pay off a debt) … and you have $8000 … that’s really more that what you can get of your 401k. Of course, it takes a year (interest on your debt still running) while you could have money faster from your 401k.

    By the end of the year, even considering the interest (calculation would be too long here), if you take 10% of your salary to pay off your debt, you will have paid more off your debt than if you take the $8500 from the 401k (In my calculation, I assume it “costs” one third in fees, taxes, penalties, …).

    Now, of course, you can say “yes, but what if I use the 401k AND 10% of my earnings” … sure, you paid more off your debt by the end of the year, but you have nothing in your 401k and who knows what can happen and how long it will take to rebuild it.

  14. Matt

    1. Keep contributing to the IRA at least enough to get the maximum company match. If there’s no match at least continue contributing a small amount so it’ll be easier to ratchet back up later.
    2. I am really really really against tapping retirement savings that are in retirement plan accounts (401k/IRA) with withdrawl penalties. Don’t touch this money..
    3. If you have “retirement” money in a normal savings account or brokerage I *would* use them in this situation to pay off anything with interest of 10% or higher
    4. Make sure that you specify on any payments made when a bill is not currently due, that the money goes first to reduce principal and not to reduce currently accrued interest.
    4. In terms of downsizing your lifestyle… you probably have a great opportunity to downsize your living space which is probably your largest expense. Move to a very small, very cheap apartment for 1-2 years. Maybe this requires moving farther from where you WANT to live in order to get something that is half the price of what you currently pay. Anyway… entertainment nearby = $$ = bad thing right now. In your new studio apartment you won’t have space to buy new stuff and you’ll need to sell other stuff!
    5. When selling things focus first on stuff that will actively cost money if you keep them (eg. video game system = buying new games, hobbies that require ongoing purchases)
    6. Get rid of anything but basic cable. I’d say get rid of that too but it’s not realistic for most people.
    7. Absolutely freelance if you can! Not only is it current money but it’s resume building as well

  15. adam

    Sorry to hear about your situation, these things can be rough.

    On the positive side, You’ve now got more freedom in your life. Make paying off your debt your #1 priority before you peruse anything else.

    The money in your 401k is going to be so much more useful to you later on down the road than the tight pinch you’re in now. Let it be, let it grow, consider this off limits.

    It’s time to start your life over, minimize your expenses to the fullest extent and knock out that debt ASAP. Once you’re debt free, you can officially say you’ve got a clean slate.

  16. A.S.

    You didn’t provide a full picture of your situation.

    Do you have assets other than the 401(k)?
    Do you have other debts (mortgage, student loans, car loan, etc)?
    Do you owe alimony / child support now that you are divorced?

    Just based on what you have said, My advice is to (1) cut back on $tupid crap, (2) sell stuff, and (3) freelance to make more money BEFORE resorting to (4) withdrawing your 401(k).

    That 401(k) money is sheltered from creditors if, heaven forbid, you have to declare bankruptcy. That money is your nest egg, and you should fight to preserve it.

  17. Chris

    I read most of the responses, but didn’t see any mention of one pretty big possibility that may be coming up. There is serious consideration in congress (and Obama approves) of temporarily doing away with the penalties for early 401(k) and IRA withdrawals.

    So, hang tight for a few months on taking out that money and see what they do. If you can get it with no penalty, I say use it to pay off that 13% CC debt. You probably won’t have to pay much, if any tax on it since the market has declined so much.

    After that, use that $80K salary to aggressively build up your retirement again — this is the time to be accumulating shares!

  18. Christine

    I, too, have a hard time deciding what to do about my money, and it seems like in your situation, I’d be torn as well. Here’s my advice: most of the comments above say don’t touch your money in the 401k. They made the decision for you.

    Now how does that make you feel?

    If it makes you feel like crap because you really think you should let the money sit in the 401k, then let it sit. If you felt like that was the right decision all along, then go with it, take out the money and pay off your credit card.

    I find that when someone else takes control of the decision for me, I’ve already had my mind made up and couldn’t sift through all my doubts. Having someone else tell me what to do usually forces my hand and makes me commit one way or the other.

    Good luck! I hope this comment thread helps.

  19. Centsability to Wealth

    No matter what you ultimately do, the first step is getting a credit card that is offering interest free balance transfers for at least a year with as high a balance as possible. At your income, unless your credit is in the tank, finding one shouldn’t be a problem. After opening it, transfer as much of your debt to it as possible. Well worth the small fees involved.

    After that, it depends more on your situation.

    How much discretionary income do you have each month to put towards this debt? How much more discretionary income can you create per month by applying some tips in these comments and other “frugal” tips.

    How much do you put into your retirement account each month. If you are making regular contributions, you don’t care that the current market is in the toilet. You have 35 years until retirement and dollar averaging down will more than offset these tough times.

    If, on the other hand, you are not making any contributions righ now, and don’t plan to any time soon, maybe you are better off taking out the money. Especially if the debt is stressing you out that much.

    If it were me I’d make the balance transfers, put as much money as humanly possible towards the debt each month, leave the 401(k) alone, and keep contributing to my retirement account enough to get the max company match.

  20. Thisson

    For someone making 80k/yr, the income taxes (and of course the penalties) on withdrawing the 401k money will be significant. I don’t think that’s an efficient way to accelerate your climb out of debt.

    In very simple terms, you need to cut expenses and boost revenue. As long as your revenues are higher than your expenses + debt repayments, you will dig yourself out.

    There are plenty of people that earned less than you and owed more than you that have dug themselves out of much deeper holes. So just plug away and you’ll get through it.

    Make a budget and track it to see if you’re making progress. Fine tune it by checking through Ramit’s archives. There are some great suggestions, including cutting subscriptions, etc that will help you be more frugal. He has other ideas on how to boost your income. Follow them.

    Also consider his advice on spending a bit more in the short term to save yourself some money down the line.

    Good luck and let us know how you’re progressing.

  21. Snowballer

    Yeah just leave the rollover where it’s at. Seriously guy this is not that bad, sorry for the divorce, but you owe less than half of what you make in a year.

    Snowball that sucker and make payments like crazy, should be gone in a year and a half, two years tops. You can forego retirement contributions in the meantime until it’s gone.

    I make less than a third of what you do, had about the same debt, and conservative projections tell me I should be out of the hole November 15 of this year and I started probably August last year aggressively attacking debt. Not bragging, just pointing out you can whoop this.

  22. hardworking_single_mom

    Count your blessings – 2 years ago I was a 28 y.o. divorcee with 8K debt, NO retirement savings AND a 3 y.o. child. So, “side gigs” were absolutely out of question and daycare was not an optional, but a “must have” expense 🙁
    You can get roommates or become a roommate to cut your housing expenses, maybe do without car if your location has public transportation or if you have buddies to carpool with… You can definitely work nights or weekends at another job or doing those “side gigs” and not worry about babysitter expenses offsetting what you earned.
    Yes, 30K is a lot, I’d be going crazy, too, but at least you haven’t brought any children into this misery! Climbing out without them will be so much easier, even if it takes a few years.
    Good luck and hang in there – as long as you keep your job, you’ll get out of it!

    PS – Leave that 401K alone, it won’t cover the debt amount anyway and the penalty is pretty bad…

  23. SP

    Being single is less expensive? Hardly, unless you get roommate. I hate the perpetual beleif that wives cost money. Many (most?) wives make money and improve the bottom line! Kids are where the expenses start to come in.

    Back to the point. Do not liquidate the 401k. It won’t help much (minus taxes, minus 10% penalty) and you should be able to pay debt without doing it. It isn’t necessary and you’ll need to retire someday.

  24. The Personal Finance Playbook

    It’s been said, but I would look to consolidate all of your debt by taking out a loan from a bank. Interest rates are low, and you have a decent amount of income so this shouldn’t be a problem. Go to to compare rates. Then just pay down as much of the debt as you can each month. You’ll be doing much better than 13%. Good luck. Keep your head up. It’s going to be all right.

  25. B. Riley

    Leave that money in retirement! Not just b/c everyone’s supposed to say that. But because the freaking market is way undervalued right now, and in 5 years, that’s going to be $50k or more!!!!!!!!!!!!

    You make enough that $30k isn’t going to put you in the dirt. I’d open an online savings account, and throw a little more money in there every paycheck AUTOMATICALLY than you think you can afford. That debt is gone in no time, and you’ve got your money in there at market historic LOWs just waiting to explode!

    Ohh. . and go see a broker. Maybe Edward Jones or something. No need to go it alone. You stand a chance to make a huge gain on that money.

  26. Tomek

    Do not cash in your retirement accounts. Continue to maximize your contribution while you are making extra payments on your credit card. 13% is a manageable interest rate on a credit card especially in today’s environment. You may even consider calling you credit card company and try to negotiate a better rate. If they think that you may have to file for bankruptcy they will be more then willing to work with you to get it paid off.

  27. sam

    I agree with the numerous people who said that Jason should not withdraw a dime from his 401k.

    I think the money can and should come for other places, but that is hard to determine as we know nothing about his financial situation other than he has $8500 in a 401k. I think there are better places to reduce costs to pay off the debt, but that is hard to determine.

  28. Trendy Indy

    1. Make a plan; Set aside your expenses and pay everything towards your debt.
    2. Move in with a roomate and try to cut your exp. Rent supposes to be the big exp for many
    3. 30k is not bad.. you can get out of it. I paid off 15k debt in 6 months.. with a 68k salary.
    4. Try to work part time and you should be out in less than a year.

    Oh yeah.. stick to the plan.. AND remember


  29. jessica

    If you want to pay off your debt in one year, that’s $30,000/12=$2500/month plus interest. Let’s just say it’s $3,000/mo. Pay that much per month and live off the rest. With your income, $30k debt is no big deal. If you don’t think you can live off what’s left after you pay $3000/mo, start cutting things. All you probably need to spend to live is rent + food + car/gas.

  30. Stephen Waits

    * * * L E A V E Y O U R 4 0 1 k A L O N E ! ! ! * * *

    Man up and pay your debt. It’s not hard.

  31. Dean J

    I’m 31. I recently paid off $25k in debt, give or take.

    You need to get out of the credit hole before you can climb, but you need to build the strategy to stay outta the hole at the same time, or you’re going to burn the savings for no good reason.

    Cut back on everything. Figure out where your money goes. Put money into savings on payday, instead of saving whatever is left.

    Once you’re at a point where you have a zero balance on your credit cards, each and every month, then worry about retirement.

  32. Tyler

    I 2nd what snowballer, hardworking_single_mom, and Jennifer @ Becoming The Marshmallow said. Your debt might feel huge, but dude, thank your gods that you make a truck-load of money. I know, because I’m a bit younger than you and make a similar salary + side gig. It’s a metric ton of money if you’re careful with it. With a good side gig going, you can hit 6 figures without losing sleep. No joke, 2008 was my first full year with a side gig, and I made your debt in _side_ income alone. Pure gravy on the salary.

    Get or become a roommate. Scale your housing to $500-600 a month. Live like a college student again, except without the constant boozing and take-out. Emergency fund of $5k. Leave the 401k alone. Slam the debt. If you scale your housing back, you should be able to comfortably hit that debt with $1k a month, minimum, by spring. With a side-gig and frugality, that amount goes up.

    It can be done.

    Be patient and careful, nothing rash. That’s the hardest thing for me when it comes to personal and financial things. Careful, well-thought decisions. Nothing happens overnight. Patience. My main ING savings account is actually called “Patience”, so every time I look at it I remember to not be quick with it.

    Good for you for reaching out for advice, I hope you find some helpful. Best of luck to you. Enjoy your new life and freedom. Invest in your best friends.

  33. Julia

    I have no idea what the specifics of this situation are but I will say that I’m sorry about the divorce and that you should limit your living expenses to what is completely necessary and shovel extra income into that debt.

    Set a goal as well, and create a functional plan. A year may not be enough time for you personally but make a set plan to pay it off and just do it. It takes discipline, and don’t touch the 401K/IRA. Debt sucks but it’s not life threatening while something (God forbid) may come up that is, you may need the money for

    I wish you the best and am awed that you would write Ramit about it – debt is personal, for sure.

  34. aoiphe

    Strongly agree with others that the retirement amount should be left alone. If the money in your 401K is in mutual funds/equities/anything sold by the stock market, you do not want to realize the losses from the last six months of These Worrrying Economic Times.

  35. Cathy

    I had $35,000 debt 5 years ago. I paid it off in full last February on a $45,000/yr salary. Since you’re making almost double, you should be able to do it in half the time, or less. Forget about the luxury condo – cheap apartments in clean neighborhoods are available. Shop craigslist. Since you’re newly divorced, you’ll need new furniture. Forget the plush couch – shop craigslist or Ikea. Learn to cook. I can make an organically raised grass fed steak dinner with baked potato, garlic bread and $5 bottle of wine significantly cheaper than a comparable steakhouse.

    My advice is contrary to many others. I say while you have a significant debt, you can’t adequately prepare for retirement anyway. I say stop contributing to your employer retirement plan and put your money into a cash emergency savings account, and throw the rest at your debt. I didn’t have any retirement savings when I was in debt, so I wasn’t missing anything. However, in the year since I have been debt free, I have more money stashed away than I have ever before in my life. How? After paying off my debt I kept living the lifestyle I used to pay it off to begin with. Funded savings account first, paid bills, didn’t buy expensive gadgets (I save up for them), cook steak dinners at home, etc.

  36. evie

    The temptation is psychological and emotional.

    You want to pull out the 401k because it seems like an easy fix, but remember you have 30k in debt. The only way to dig out of that is to change your behavior, to change your spending/saving/earning habits. After you stick to an aggressive payment plan for a couple of months where you actually see yourself making progress, cashing out your 401k wont be so tempting. You need to prove to yourself you can dig out of this.

    Having a plan and making tangible progress will make you feel better mentally and emotionally.

  37. Green Panda

    Sorry about the divorce. Besides taking care of your finances, I hope you have a support group of friends and family. you may want to join an affordable sports league to help clear your head and get a workout. Best wishes on this transition.

    I’m just basing this on what you wrote, I’m not sure what your exact picture is, so please take it with a grain of salt.

    I agree with the others on not dipping into the 401(k) unless you HAVE to. If you can reduce your expenses, then cut them. See if you can live off of 60k or, if possible, less. You can go back if you want after you pay off the debt or you might stay at your reduced level.

    Try to get a one-two month cushion before you aggressively attack your debt to give you a bit more peace of mind.

    While your emergency fund up, see if you can transfer your debt and get a lower interest rate. If you freelance, put all of the money into debt reduction. After your 30k is gone, you may want to put your freelance money into savings and fun money.

    Wish you well.

  38. Anne

    I agree with all of the advice to NOT touch your 401K — it is your future, not to mention all the other repercussions mentioned above. It’s understandable that you want to pay off your credit card debt; however, unless you start a savings plan, you will continue a debt cycle. Look at your expenses and what you can cut back on, start a systematic savings plan as a cushion for expected and unexpected expenses, and then, and only then, start paying down your cc debt (of course, you make minimum payments during this time). That way, the next time a “life happens” expense comes down the pike, you’ll have the money for it, and won’t have to put it on your credit card. It’s important to stabilize your finances above all else.

  39. Barbara Saunders

    If the 401(K) money were to pay off the debt completely, I might vote for using it just for the peace of mind. In this case, though, I’d advise leaving it where it is. I stand with the many others who have written that on a salary of $80K with no kids, you should be able to take 10% or so off the top to pay to the debt. Many people live on much less than $72K, even in SF or NY! Five years from now, the debt will be gone, and you’ll have a bit in the retirement fund.

  40. Jade

    1) Don’t touch that 401K money.
    2) Take a good hard look at where your money is going and decide what you can cut. Granted I don’t know all the details of your situation, but I’m sure you can live off of $50K out of the $80K/year you earn which will leave you $30 to pay off that debt. And you will have done it in one year! Remember, only the necessities! $50K is still a lot of money for one person to live on! This is only a matter of dedicating yourself to putting $2500/month towards your debt for a year – then you’re done! That’s a better situation than a lot of people (including myself) are in.

  41. Benjamin Stakely

    Last August, I had $20k in CC debt and I made $69k in ’08.

    First thing I did was create a spreadsheet to help get structure on what I owed, who I owed and how much it was costing me. Like most things, once you really get your brain around it, it ceases to be scary.

    Second, I set up an account at Mint for about three months to track my spending habits, turns out I was spending as much a $750 month on groceries/eating out/booze!)

    After that it was easy, stop buying crap you don’t really need and attack your debt like Mike Tyson, never letting it off the ropes.

    I’ve paid off half the debt in six months and have found that once I became truly committed to it, I didn’t even think about it any more.

  42. Brian

    My advice from a 31 year old single guy:

    1. Don’t touch the 401K. Period.

    2. $1,000 a month against the debt. That gets in done in about 36 months. It sucks, but that’s what it’s gonna take.

    3. Get back into the game! Don’t spend more than $40 per date!

  43. bjc

    While I really don’t get all the 401K stuff (being Canadian and all), I have to agree with @beatgrl that I don’t feel quite as sympathetic to someone making $80K. Our two-income household makes just over $40K, and we’re managing just fine. I don’t see how $30K of debt couldn’t be paid off in a year or two with good money management.

    It’s fascinating how differing income levels and lifestyles can affect people’s opinions – mine included! I’d be interested to hear what Jason finally ends up doing…

  44. Green Eggs and Ham

    1. Leave your 401k alone, full stop. I’m sure you’ve read enough explainations above, no need to reiterate.

    2. Cut costs, being single is easy for that. Sorry to hear about the divorce but the good part is it’ll be easier now for personal expense management. Cook at home so it’s cheaper, and the saved money can allow you to buy excellent quality groceries that will make you healthier while saving money. It can be fun too, personally it’s my hobby. Write a journal or blog about each time you cook too to make it progressive and interesting. You’ll be surprised how much you’ll learn from each failed attempt.

    3. Get a consolidation loan from a bank. Your income should not cause a problem, and the only thing holding you back is if you happen to have bad credit. In which case take advantage of the promotional interest rates on certain credit card companies. If you make 80k/year, 30k of debt will not take a long time to get rid of if you can lower the interest rate.

    4. Increase your payout to your debts. Do not just pay minimums, pay hundreds more…you know you can with that income. Just put it in first, think of what to do with the money afterwards rather than think of what you’re sacrificing before you make the extra payment.

    5. Downgrade…housing costs, cable costs, vehicle usage (check how much you use ev. month on gas).

    6. Smile =) It’s good you’re trying to fix it, if you want to live a simple cash lifestyle. Start doing it now, where excess “investments” are debt payments now. Lowering interest is essentially the same as increasing your investment return. It’s less negative.

    Good luck!

  45. Mitch

    Did any of you commenters even read Ramit’s links? Sure everyone tells us “Don’t touch your 401K even if your life depends on it.” But this guy is kind of looking for a fresh start to a new part of his life. He’s only 30, which means he’s got like 30 more years to retirement, and is making a really solid wage. And he’s already contributing to his current employer’s plan, so my guess is that it will be EASY to replace just 8,500 in a year or two just with his standard monthly contribution. Cash that shize in, dude! Get that high interest credit card monkey off your back and feel good!

  46. Elizabeth

    1. Don’t tap the 401(k)/IRA.
    2. Go ahead and embrace the simple cash lifestyle. It’s great that you’ve cut up the credit cards and want to avoid taking on more debt. That is a huge step in the right direction.
    3. Start cutting expenses. What you need is food and shelter. Everything else can probably be cut back in some way.
    4. Get other income. You mentioned possibly getting some freelance gigs and selling stuff. Use that income to pay off debt.

    The key here is to get your income above expenses and then using the difference to pay off debt and save. You’ve taken the first step by recognizing you have a problem. Good luck!

  47. Ash

    Ummm….you make 80K a year, dude! You should be able to pay off your debt like that (imagine me snapping my fingers). Where are you spending your money? Look at your expenses and rein them in. If you don’t have a significant amount of money each month to put towards paying down that debt, then you’re frittering away your money somewhere. We (hubby and I) have two kids and we spend $200-250/month on groceries. What are you spending on groceries? Do you have a car payment? Are you eating out? Buying books, CDs, or DVDs? Where are you spending all your money? Start living within your means and just pay down the debt — it’s that simple. Don’t mean to sound harsh, but you make lots more money than the average American. Examine your monthly expenditures carefully, come up with a budget, and put every penny you can towards paying down that debt.

  48. JaM

    You’ve gone through a bad patch and you need to get some calm and collect your thoughts. Emotional hurt and financial worries do not provide a mind to make clear decisions. Some easy steps that I can think of:
    1. Track your spending on a spreadsheet or something and come up with a budget you’re comfortable with.
    2. Re-evaluate your budget and cut down on expenses across the board – points other readers have suggested include boarding costs, entertainment costs, downsize on car, etc.
    3. Your 401K is not going to pay off your debt – get real!
    4. You say you earn 80K and if you can keep your job through this tumultous economy 30K of debt is nothing buddy – it is in your control to pay it off in 1 year, 2 years or 3 years. Break it down and stop frivolous expenses.
    5. Do not be tempted to spend on yourself because of the tough circumstances you have going on now.

    Keep on keeping on.

  49. John

    1. Do Not liquedate your IRA to pay down debt. The penalty would be 10% plus your tax rate. If your card is even charging 20% in interest, you would never borrow money at 40-50% interest to pay down debt.

    2. Instead, get an extra job like delivering pizzas or freelance where you could throw all of that extra cash at the debt, working it down using a debt snowball by paying smallest debts down first to largest.

    3. Take Sharebuilder account and invest in good index mutual funds with the lowest costs. A good S&P 500 fund would make sense and a international index fund.
    This would go a long way for your retirement and you will look back at this time as the best time to have stayed invested.

    4. Live on a written budget to better control outflow of cash.

    5. Read financial planning books from the library or online PF websites like this one.

  50. Carlin

    Taxes get paid regardless of when you take it out, so including taxes is kind of misleading. The penalty would be 10%, the interest rate is 13%, go for it and you’re ahead 3%. Plus, you’ve if it helps with your stress levels, then do it. I’m sure the divorce was stressful enough, and if doing this helps you get on track with your money saving plans, then go for it. If you pay off one credit card right away, maybe it’ll motivate you to take down the rest of the debt quickly. If you can pay it off without taking this money, then do that, but if you need a catalyst to get started, and you think this is it, then do it.

    The only other thing I suggest is to set an amount and pay that on your debt every month AND don’t incur any new debt. I’d pick something substantial enough that you won’t be paying it down for 20 years, but not so high that you’re going to have to eat spam and live in someone’s closet to get by.

    Run through the “Save money in 30 days tips” and see if any apply to you. Maybe you can save a good chunk and put that toward your debt.

    Go do something fun – something for yourself that you’ve been putting off. You won’t do any of this crap if you’re stressed out all the time. Plus, any gifts you would have bought for your ex – spend that money on yourself whenever those gift giving occasions roll around.

  51. F

    I wouldn’t cash out the 401k, basically because 1. it’s far from enough and 2. it doesn’t solve what got you in debt in the first place: overspending. If you had a healthy savings ratio, your debt would have been long gone.

    Learning how to save is not only the solution to this nagging little debt issue, it’s also a life skill that will benefit you long after the debt has gone.

    If I were you I’d get rid of the $30k debt by the end of this year. It’s realistic yet ambitious enough to keep the fire alive. How to do so? Keep a simple budget. Allocate generously to your few priorities and cut back on everything else. If you find that hard, just ask yourself for each recurring expense whether it’s worth staying in debt for. Also, 13% interest means a non-neglegible $4k/year, so transfer your balance to a card with a temporoary 0%.

  52. P Kannan

    There is a lot of advice in previous posts. It takes more time to read them than the article and just write my 2cents worth.
    1. You are young.
    2. Transfer to a broker, where you can borrow against your own 401k, pay your 13% interest to your own account. (Pay yourself instead of others, albeit you can only use it in retirement).
    3. Put everything on table and start cutting. You would be surprised. I managed my family of 5 on $60000/yr in Wash DC! You can do it. Very skillful.
    4. If you do similar to what said above, you would pay off your debt in 1year. Goal is 1yr _+ 15%.
    5. Just do it.

  53. Boomer

    1) Give yourself credit for being financial aware at a relatively young age. It’s pretty common for one to be in your situation and wrap oneself in denial.
    2) Leave your 401k alone. Temporarily reduce contributions to employer match only.
    3) Establish a kickass budget today and monitor it daily.
    4) Set up a $1,000 emergency fund.
    5) Aggressively pay off your debt, smallest balance to largest, without regard to interest rates. Sure, this flies in the face of conventional financial wisdom but paying debt is as much a head game as it is about economics. At this point you need some wins under your belt which will generate some great momentum for you.

  54. Sunday Links | Centsability to Wealth

    […] To Be Rich, Ramit got a good discussion going by posting a readers question on how to handle his $30,000 worth of debt after his recent divorce.  The main discussion hinged on whether he should tap the $8,500 in his […]

  55. Margo

    Never make a major financial decision after a major emotional life change. Put the 401k decision on hold for a year.

    I think that there’s value for the OP to pay steadily and aggressively for a year on the loan – $1500/month from salary. That should knock out about half the debt. Then throw in 80% of any bonuses and side income. Wresting the CC beast should be a confidence booster, esp important after a failed marriage. Then, in December, re-examine if cashing out the 401k is the best plan or not, which could take care of the remainder.

  56. Kristen

    The great news is that you make more than enough money to pay off the debt without using the 401k. The penalties wouldn’t scare me off – it’s the hassle of going about it that would feel like a massive waste of time for such a minor pay-off.

    [1] Organize your finances with – it sounds like you have credit card debt and some minor investments, nothing too complicated. will likely be able to organize and track it for you. You’ll get an easy picture of your total net worth very quickly and it won’t be the constant chore of using Quicken. You log in and it’s all done for you.

    [2] Log all your debt information into Debt Payment Pro: – it will calculate what exactly you need to pay to achieve your debt-free goal. You can use it to easily crunch the numbers in different ways to find the plan that fits your lifestyle. Download it or print it out and stick to it.

    [3] Make everything you can automatic. If your bank has a bill pay system (Bank of America might have this), look into doing that as well. Set it up so you never, ever have to think about it. Re-visiting your debt month after month will not help your self-esteem.

    [4] Use the old mortgage trick: Pay half the “mortgage” every two weeks. This will sneak an extra monthly payment and further drive down what you’ll owe in interest. Some cards allow up to 4 automatic payments a month.

    [5] Reduce your lifestyle. You’d be probably feel better on a 2-3 year plan while being able to live with comforts than going extremely frugal. Drop HBO. Cook more. You make a lot of money, you just experienced one of the most stressful events possible and there is no sense punishing yourself further.

    [6] Don’t apply for all the pie in the sky no interest APR cards without checking up on your FICO score and credit report. These amazing cards are HARD to get. If you don’t have above a 750, you will not get them. Your age is also a disadvantage.

    Consider what your debt to credit ratio is… If it’s over 35% on ANY of your current cards – abort abort. You’re not credit worthy. Worse, your inquiries could lower your FICO which gives your current cards licenses to hike up your interest rates or lower your credit limits (which magnifies your debt to credit ratio and then lowers your FICO again).

    [7] Don’t bother to call to negotiate interest rates, especially with American Express. Everyone who says this, clearly hasn’t had debt in the last two years. You will be bounced from one overseas call center manager to another, all of whom are reading from a script, have no actual power and will tell you that a computer decides your interest rate. It is actually an extremely humiliating and frustrating process to make these calls.

    You’ll see actual results in reducing your interest rates the more you pay down (meaning the more you please the fancy computer algorithm that decides your interest rates). Many of my cards have automatically skipped down 3% with just a few months of paying more than the minimum.

    This is also a two way street: ALL your cards have reserved the right to increase your interest rate and lower your credit limit based on information in your credit report. This means if you’re late to Capital One, then Chase might raise your interest rate – even though the delinquency is not related to the Chase account.

    [8] You have to commit to perfectly executing your plan. Make one mistake and you will get punished exponentially by lenders who weren’t even effected.

    Good luck!

  57. Kristen

    Addendum: all my tips operate with the assumption that Jason has stopped using credit entirely.

    The very first step in wrangling debt is to stop actively creating it.

  58. Alison

    Unfortunately, what you have is an IRA, not a 401(k) account. If it were a 401(k) with an active employer, your employer may allow you to take a loan from your 401(k) that would not count as an early withdrawal. Since it’s an IRA, that is not an option.

    Don’t cash out the IRA. You will pay a 10% penalty, that is $850. After taxes and the penalty, you’ll have $4845 to pay down debt (assuming a 28% marginal tax bracket + 5% state income tax). In addition to the penalties, you will lose out on interest you’d earn on the account. But let’s assume that you are getting 0% interest (though you should be able to get at least a few percent). Let’s further assume that you can’t renegotiate your interest rate or transfer the balance to a lower interest card, which would be an even better choice.

    By paying down 4845 early, you save a lot on interest, but how much? It depends on how long it would otherwise take you to pay down the account.

    Can you contribute an extra $500 a month to pay down the account? If so, you’d pay off the account in under 11 months and pay only $300 in interest. Much better than $850 in penalties.

    Maybe you can’t do that. Can you contribute an extra $250 a month to pay down the account? You’d pay it off in about 22 months and pay $625 in interest. $200/month? That’s 29 months and $800 in interest. All better than $850 in penalties and foregoing any investment gains you might get from the full $8500.

    Don’t freak out about your finances, but consider your options calmly and rationally and make the most prudent decision. That’s what’s going to help you feel better and get back on the right track.

  59. Danielle

    Trying to say something useful that has not already been said…

    1. MAKE SURE YOU HAVE AN EMERGENCY FUND!! Only you know how stable or unstable your job is, but the key to staying out of debt in the future is to plan ahead for emergencies and periodic big expenses. Know where your money is going!

    2. Is all the 30K debt yours alone? If the credit card debt was amassed during the marriage and the divorce terms are not finalized maybe you have some recourse to share this debt with your ex as I assume the assets get shared?

    3. The single biggest decision that affects your lifetime finances can be who you decide to marry. Keep this in mind if you start dating someone seriously.

    4. Rather than trying to get a side job focus on being more valuable at work and ensuring your continued employment and promotions. High paying jobs such as yours tend to be very time consuming and a side job could make you appear less dedicated.

    In the span of 1 year my husband and I reduced from $900 a month to $354 a month minimum credit card payments. You don’t need to live like a pov (like you are in poverty) just keep making payments, and reduce any obvious big expenses getting in your way (huge car payment, rent/mortgage, expensive hobbies).

    @Christine – Love the psychological insight, I feel exactly the same way when someone tells me what to do, it reveals what inside I already knew! Now only if I could gain the skills necessary to know my insights before I have to go asking advice! If you know a secret for that do share!

  60. Battra92


    First thing I would do is find a cash paying job. That way you don’t have to report it as alimony or child support. 😉

    $30K of debt is nothing. Snowball it, cut expenses, talk to the CC companies, get a second job and be on your merry way.

    Making $80K a year means you should be able to live on your own quite comfortably, even with the debt. By my rough guestimate you probably bring home over $5K a month. Live like a college student with either a roommate or in a small apartment. Basically live like a college student taking advantage of all that is cheap and good (I don’t mean go out drinking or to wild sex orgies.)

    Start an emergency savings fund. Danielle beat me to the punch but it hasn’t been stressed above and it should. Pay yourself first! After that and figuring your needs put every available cent towards repaying debt. Repay the smallest balance first and get that done and then move to the next one.

  61. Goal Hunter

    You seem pretty relaxed. The way you say you’re freaked out but then lay out the important facts betrays acceptance of the situation and understanding that you already have. That’s cool.

    You want to pay off that card with your $8500 so do it. The penalty is not that big, and it is comparable to the interest you would pay as you already know. Your $8500 is pre-tax dollars so you’ll pay tax on it, but you’ll pay tax no matter where you get the money to pay. The one thing you might be in error on is that you won’t get 13% through Sharebuilder. Because the market dove down a lot more than average there is definite potential for it to go back up more than average.

    Whatever you decide you’re very young and making far more money than you need to live. It will be very easy for you pay off the debt by living simple. This also means you have a lot of options. You could save up for a year or two to fund a new venture or an adventure, or whatever you like.

  62. virescent

    Good for you that you are making the decision to go cash only. There are no easy answers here! Don’t touch your 401K. I did and regret it (yes I did feel better getting some of my debt paid, but medical bills were the big thing here) Review your household bills in details and slash and consolidate as much as possilbe. Get the that second PT job and focus two years (or 1 yr) to place that salary to paying debt. Find lots of free entertainment , no eating out. If you are serious about this you will do whatever it takes to get out of debt. I read alot of blogs, books about personal finance. Research what fits for you. There alot of people hurting yet willing to share their experiences learn from it. AS for myself after 4 yrs I’m almost done ($1200 left) paying off credit cards and will not go back. I have a student loan left to pay(9000). But I can sleep at night and I am at peace. It’s only cash and lots of planning for now on. Good luck!

  63. lena

    Cut the biggest expenses you have. Live in a nice apartment? Well, you have $30k of debt. Get storage for some of your crap if you have to, or sell it. It sounds drastic, but man, if I was in that much debt, I’d be looking for drastic measures. Hell, move in with roommates for a while. Yeah it sucks, but once you’re out of debt, you can go back to living (almost) the way you’re used to.

    Also, stop buying crap. There is no way you make $80,000 and are $30,000 in debt, unless you’re constantly buying crap. Necessities only. Maybe reward yourself by buying something you really want once in a set while, give yourself an allowance.

    Force yourself to live way below your means for a while, otherwise you’ll end up living that way eventually whether you like it or not.

    Also, I know everyone is saying not to withdraw from the 401k, but when you’re paying 13% on debt, wouldn’t it make more sense to just pay it down as quickly as possible and start saving from scratch? $8,000 shouldn’t take too long to replenish if you’re out of debt… I could be totally wrong on this one.

  64. David

    Here’s my take.

    I’d keep the money in your 401K. Chances are any taxes/penalties you’d pay would be much greater than the 13% interest you’d save on. If that’s the case, you’re actually losing money.

  65. Jim

    Sorry to hear about the divorce. It may seem hard but you have a whole life ahead of you.

    I think people should quit piling on Jason for overspending. None of us know the details but that is probably NOT how he wound up with this much debt. He had legal and other expenses associated with the divorce, probably several thousand dollars worth, at a minimum. No amount of frugality could have kept that money in his pocket.

    In terms of racking up the debt, what’s done is done. It sounds like you have a pretty good plan: living a cash lifestyle, picking up side gigs, and attacking the debt. I say you should sell anything that reminds you of the ex, but keep the stuff you like. If you can handle it, make a goal of getting the debt paid down in 3 or 4 years rather than revolutionizing your entire life to pay it this year. Or pick up whatever side gigs you can and throw that money toward the debt. Remember to budget money for spending extra time with your friends, you’ve been through a lot and you’ll probably need that. I say live within your means, but not way below your means. Better to make a few changes you can stick to than upend everything for a month only to fail after you get sick of Ramen noodles.

    As for the 401k, leave it alone for 6 months. Start paying down the debt and if you still think it’s a good idea on July 4, cash it out. But based on personal experience with my student loans (36K), once you come up with a plan and start making some payments, it is not as bad. Good luck.

  66. Erin

    Look at it this way. You pay 10% penalty plus your tax rate. Say your tax rate is 20%. If you take out the money it’s like taking out a 30% loan to pay off a 13% debt. And as others mentioned, that is not even counting what you would be losing by withdrawing the money when the market is down. If you are like most people your 401k has probably gone down 30% in the past year, if you take out the money before the market goes back up (yes that could take a long time, but based on historical trends it will go back up) then you are also losing that 30% on top of the 30% in taxes and penalties.

  67. IHateParis

    Count me as another against cashing in the 401(k). It won’t even pay off half your debt, leaving you lots to continue to stress about, and you can’t go back and replace that 401(k) money when things turn around.

    Your financial goals are laudable, but you didn’t get into $30k debt overnight (at least I hope not) and you’re not going to get out of it overnight. You have all the right ideas on how to increase income/reduce spending, but just be realistic about how much you can expect to change your life all at once. It’s easy to expect miracles and give up when you don’t get them. Start with the low-hanging fruit: trim unnecessary expenses (Netflix, magazines, eat out half as often). See how that goes then try downsizing your stuff, freelancing, etc, but do it one step at a time! Best of luck to you.

  68. mike

    Q: Why does it cost so much to get divorced?
    A: Because it’s worth it.

    Probably bad timing, but I thought a little light humor could help. Don’t touch the 401k, especially in this market when Wall St is on sale.

    Get a roomie or two. Make a budget / plan. Stick to it. It may take a year or two, but with $80k coming in, you can pay it off easily without touching the 401k.

    I make less than you and have a stay at home wife with two young kids. I’m debt free and am planning to save 20k this year (while putting 10% away into my 401k and contributing regularly to my kids’ 529s) because that’s the way our budget is set.

    Just write down what you want and then go get it.

  69. Paul

    1: Get an emergency fund of 2-3 months. You may lose your job. I have a friend who went through what you are going through. He became somewhat not himself and his employer fired him. Keep your head cool, and keep working the hard line.

    2: Relocate to the peripheral of town, and share, but don’t stress yourself out by spending an extra 2 hours in your car each day. That’s 2 hours of moonlighting you could be doing and getting paid for, think of it in terms of $100/day cost-benefit analysis, assuming you actually take on a second job.

    3: Stay home, have free and healthy fun, re-educate. Troll craigslist for hot deals to keep the kid in you happy, but do keep the kid on a tight budget.

    4: IRA is a cushion, like a jail bail bond; don’t touch unless …

    5: This belongs at #1, set your budget, and pretend you’ll waste $200/mo on stuff you couldn’t foresee. This will prevent overdrafts, which are the fastest way back into the debt trap. The checking account should increase monthly by almost $200, and the savings account should remain flat (2-3mo). Debt should go down by no less than $1k, and likely no more than $3k. Periodically (3mo), flush the checking account with an extra debt payment.

    6: Alcohol makes you stupid, so don’t even buy the cheap stuff until you’re out of debt; then celebrate, briefly, and get back to your budget.

    7: Pump money back into your retirement for the year that you missed while paying off your debt.

    8: Age 33: Have a good, debt-free life.

  70. ekrabs

    I’m a little late to the party, but I fully agree not to cash out your 401(k). Early withdraw penalty would be 10% and income taxes would be another 28% (marginal tax bracket). So, you could lose as much as 38% just by pulling it out! Is that really worth it, even with a debt with 13%? I certainly don’t think so.

    However, some places will allow you to take out a low interest loan against your 401(k). I don’t know if Sharebuilder has such a thing, but it’s worth looking into. That way, you won’t get hit with the usual 38%, and the loan’s interest rate will almost certainly be lower than 13%. It’s not something I normally recommend either, but in cases like this, it would be the lesser of two evils.

    I hope that things will turn around quickly for the better for you. Please take care.

  71. Frederick

    I agree with the numerous people who said that Jason should not withdraw a dime from his 401k

  72. Moneymonk

    You make $80K a year, no need to withraw from your retirement, pay off the friggen debt yourself, no handouts

  73. Sam

    At $80k, you must have accumulated a lot of useless stuff. Here’s what you do: sell your car and buy a cheaper one. There are plenty of nice ones in the $5,000 range. This should get you a few thousand dollars. Then sell all the other useless junk you have and replace it with cheaper alternatives. 50″ HDTV? Sell it and get a 37″ Visio instead. Sell your leather couch and a get a free one on craigslist. If you dedicate some time to this, you can be out of debt in 1 month time.

  74. Burke

    I’ve been there.
    I was 87K in debt the day I got divorced. I didn’t touch the 401 K and have whittled it down year by year, and I make way less than 80K a year – some years as low as 30K others as much as 65k. I’ve been debt free for about a year.

    Make getting out of debt a priority!

    1. Pay the debt first with money that you are investing other places (not the 401).
    2. Reduce your needless spending. I even went as far as to live in a tent trailer for a summer and a 5th wheel in the winter one year (it got as low as -15 degrees F). That’s pretty extreme, but I had a whatever it takes attitude.
    3. If you can make more – DO IT! It’s hard to spend money while you are at work!.

    Good Luck, Hard Work.

  75. ziilander

    Assuming you take home 56K after taxes that’s $4,667 per month. Your living expenses is half of that which leaves you $2,333. Live and breed at work, ask for more duties, work overtime and when time is right ask for more money. The more time you are at work the less you’ll spend on dates, entertainment, and time to buy useless stuff.

    Plan B is look for a cougar to pay your entertainment so that you can have a normal life and pay off your debt.

    Everybody has the same advice but I just wanted to open it up outside the box.

  76. Debra

    If you make 890K, 30K in debt is not that big of a deal. Pay it off.

  77. Bill

    Cut down your lifestyle to nothing and pay off the debt quickly. Dump the credit cards and don’t create any new debt. Learn to live debt free. Then start saving to invest. People live on less than half of what you are making, you can do it too. Start new, reduce your expenses to minimum, continue to live on much less than you make and invest the rest. You will be fine.

    As for your retirement savings, it isn’t that much money. If you are willing to lose 40% of that in taxes and penalties then that is a personal decision only you can make.

  78. curtis

    leave your retirement fund alone, cashing it in doesn’t solve your problem, if you did you would then have no retirement fund and 24,000 in debt. Still a problem. sure it might make you feel better short term, but based on 30k debt, you’ve been doing a bit too much of “feeling good short term”
    If your like most people earning 80k , you likely get a sizeable income tax refund. stop lending that money to the govt for free. increase your withholding at work by 1 or 2. for example, if you normally get $4800 tax refund that means your lending the govt $400 a month more than you should. increase your exemptions, keep that 400 in you paycheck and pay toward your debt.
    Do you own a pricey vehicle ? if your like most people you probably have car payment of 300-500 a month. sell it and get rid of the payment ,get a cheap car that gets the job done and use the savings to pay debt.

    write out a budget on paper and start as if you only make 50k a year. pay your essentials first cut expenses everywhere. If you lived on only 50k a year ( Yes it is possible) you could pay off your debt in 12-18 months.

    Remember… you didn’t accumulate 30k in debt overnight,, and you won’t eliminate it overnight…

    best of luck to ya

  79. curtis

    Also, look up Dave Ramsey online, look for his book ( at a library to save money) and listen to his radio show if it’s on in your area especially on Fridays and listen to the stories of people in your situation and how they overcame it…

  80. Ahuva

    Something’s wrong with a some people’s math. My salary (minus my 401K contributions) is 76K. After taxes, health insurance etc., my take home is $3900/month. So Jason is probably bringing home a bit over 4,000.

    He should be able to put $1,000-1,500/month towards paying down debt on that salary. I put $1,200/month towards mine while still making my car payment and going to the theater once in a while. Even if liquidating his IRA would take care of everything (which it won’t), you don’t *want* a quick fix for this. A lot of that debt can be attributed to the divorce, but not all of it. He’s going to need to change his spending habits to keep from sliding back into debt.

    Calling your credit card company to lower the interest rate will work, but only if you are in serious financial trouble to the point where they think you might declare bankruptcy. A friend of mine got his rate lowered from 23% to 4% last month, but only because his rent + utilities + minimum payment on the card + food nearly equaled his take-home pay.

    The first thing I would do would be to start creating an amortization chart. You can download one for Excel or use one of the million that are available on the web. If you can put $1,000/month towards your credit card, then it can be paid off in just 3 years (37 payments) with fairly little pain. If you can come up with $1,500/month, then you’ll be paid off in less than two years (23 payments) without touching your IRA. Remember, if you liquidate your IRA now, you are locking in all of those losses, plus paying a 10% penalty. You have a good long time to recover from this downturn in the market; why cash out now when you don’t have to? Cutting back/eliminating your IRA contribution probably makes if you’re not getting an employer match, but I’d look for other ways to cut back first– reducing your cell phone/cable packages, getting a roommate, increasing the deductible on your car insurance and cooking instead of eating out are all good ways to reduce your expenses. Even little things like skipping your morning Starbucks and not getting soda/candy from the office vending machines will add up over time (and be relatively painless).

    There are also some good credit card deals out there if you have a really good credit score (in the high 700s). Chase had a balance transfer deal where your interest is 3.9% until you pay off the loan as long as you keep making your payments on time.

    Good luck!

  81. Verdant Green

    On a practical note, one way to easily get rid of credit card debt fast is to do the following:

    1. Request from your employer to change your W4. On your W4, claim the maximum number of withholding allowances, which is either 6 or 9 or 10 or 99, depending on your employer. This will result in little or no money being withheld from your paycheck for federal taxes. This is money held from you without interest so you can pay federal tax in the future. (Why give the federal government an interest free loan when you are in credit card debt?)

    2. With this extra $1000 or so a month, pay off your credit card debt with the highest interest rate, although a credit card with a somewhat lower interest but lower balance which can be paid off quickly may be preferable, because that will reduce a bill payment, which will allow you to tackle a higher credit card bill after that.

    For example, if I have a $1000 credit card at 10% for which I am paying $50 a month and a $10,000 at 22% for which I am paying $100 a month, it would be better to pay off the $10,000 as quickly as possible. But another point of view is to pay off the smallest balance first so that it gives you a positive feeling of accomplishment and gives you more cash flow to roll into the next credit card bill, i.e. you can pay the $1000 credit card right away with the extra $1000 a month and then pay $1050 a month for the next $10,000 credit card bill.

    In the end, you will have gotten rid of a good chunk of your credit card and hopefully have money left over to pay your federal taxes. The government may charge you a small fee for not withholding your federal taxes, but this will be less than the interest you would have to pay on your credit cards.

    Some people are scared of doing this because they may not have money to pay their federal taxes. But I argue that the worst case scenario is you pay your federal taxes (which is usually much less than what they would withhold) using your credit card, which makes you not worse off than you started since this amount would have been on your credit card the entire year anyway.

    This is not illegal. Putting in an incorrect W4 is tolerated as long as you pay the correct tax in the end.

  82. Chris

    From the IRS withholding Calculator:
    Based on the information you previously entered, your anticipated income tax for 2009 is $11,856. If necessary, you should adjust your withholding on a new Form W-4 as follows:

    * For the only job you entered (which has a projected salary of $80,000): 1 allowance.
    * Check the “Single” box on your Form W-4.

    Assuming these recommended allowance(s) are in effect for all of 2009.your expected refund should be about $900 Following this recommendation will ensure that the amount withheld from your wages will cover all of your projected tax liability while minimizing your refund.

    Alternatively, you can claim 2 allowances, which will result in an underpayment of about $25, which you can pay with your tax return or throughout the year as an additional dollar amount to be withheld by your employer (to do so, divide $25 by the number of paydays remaining in 2009 by the number of paydays remaining.

    @Verdant Green
    If he claims more than two allowances he is probably on his way to an audit or his employer may receive a ‘lock in’ letter from the IRS forcing him to lower the number of allowances.,,id=139412,00.html

  83. Danielle

    Uhhh I’d tell them life isnt so bad.

    Im 23, attached and have 85k in school loans and I cant get a job more than 14 bucks an hour. Whats my advice?

  84. Boomer

    Danielle – Get two jobs.

  85. ajc

    I’d say congratulations!

    I started off EXACTLY where you are ($30k in debt0 and 7 years later I had $7 Million in the bank; I write about my experiences on my own blog, but encourage you to keep reading this one regularly, as you will need to do everything right if you want to do the same.

    BTW: In my opinion – and, I’m only a multi-millionaire, so what woudl I know? – you should treat ALL use of money as an investment and compare the return that you can get: so, pull out that money and pay off that debt, unless you find an investment that return better than 13% in the meantime!

  86. Comment of the week: “Get two jobs” | I Will Teach You To Be Rich

    […] comments had a great back-and-forth on this post (”What would you tell the 30-year-old divorcee with 30k of debt?”): Danielle: […]

  87. debt2dreams

    gosh there are a ton of comments I wish my blog would have such feedback. But onto the issue at hand, a question I didn’t see asked is how maxed out are the current CC’s? If 13% is the highest you aren’t doing too bad but definitely room for improvement. I doubt a bank is going to consolidate unsecured debt for you, try playing the low interest rate credit card game. Chase, Citi, Capital One, Discover, they all offer them, if there is room on the card, check out the transaction fee and do a breakeven to see if it makes sense. Then figure out your monthly cashflow and throw it all on the highest interest rate. I have done this and now my highest interest rate is my Mortgage at 4.5% which will be changing in March and the projected new rate is 3.17%, then my highest rate will 3.25%, not bad but it has taken me awhile of playing the Credit Card game to get that all taken care of.

    PATIENCE….it didn’t accumulate overnight and won’t go away overnight. Just keep working it and keep looking for those deals.

  88. Casey

    A real estate investor and an economist find themselves together on the subway. The real estate investor is on his Blackberry and noticeably weeping and agitated. It’s a little awkward, but the concerned economist turns to him, and this ensues:

    Economist: hey pal, what seems to be the matter?
    Investor: I own nine properties, and my mortgages are strangling me, I’m financially screwed.
    Economist: I see. Certainly, you have options, no?
    Investor: well, I could take money from my son’s college fund and pay off the worst one, the messy one that’s causing me three-quarters of my stress. As far as allocations go, that’s the easiest fix. But obviously I can’t do THAT.
    E: you can’t?
    I: of course not. Everyone knows that your kid’s college fund is sacred. I could never touch it. It’s common knowledge.
    E: could you take out a personal loan with the college fund as collateral?
    I: I suppose, but that means talking to the bank. That’s too scary of a thought right now for me. I’m a little rattled, as you can obviously see. Thinking about this is tough, which is why I want to act on something now.
    E: yes, indeed, I see that. And your son is how old?
    I: He turns four tomorrow!
    E: astounding. So instead of utilizing something that you can easily start to rebuild in the next few years, you are going to let one debt that represents 75% of your stress eat you alive?
    I: well, wait just a second. Obviously, it can be rebuilt. And yes, I have lots of time before I need it. And yes, I’ll have more financial versatility and power once I satisfy this strangling debt. But I’ve had at least ten friends tell me I can’t touch the fund, and they all tell me it so passionately! Surely, they can’t all be wrong? Can they?

    • Dominic

      Double thumbs up!

  89. me

    you can borrow from you 401Kin some cases. since you pay yourself back interest, its at good deal.

    I would say declare bankfuptcy – screw the credit card companies – they lobbied the government for a. bail out money AND b. to make it harder for you to declare bankruptcy –
    in other words they have made the government their ‘agent’.
    now the government is inflating its way out of its own debt thus making saving harder.
    In other words you’re penalized for being responsible, so don’t be. Use the system

    I am 44, I had a similar amount of debt when i was your age and wasted years paying it off – for what? i just made greedy dishonest bankers rich.

  90. Dominic Lee

    Pull out the 401K, don’t listen to the masses. Pay off the debt, it will help you relax a bit. Once you pay off the debt, use every penny to rebuild your savings and retirement, you are 30 and can absolutely come back.
    But in future always remember how you felt while being under the burden of debt, it will help keep you out of debt.