Should I pay debt with my IRA? or should I invest the IRA?

12 Replies

Hello ALl! first post here... My name is Adriana Vergara, I´m 35, single, no kids. Journalist background (worked in CNN for 8 years) I Now I have a soccer school in Atlanta GA, and also I became an apprentice in real state thanks to COVID and my boyfriend. 

I´m trying to Strahten the boat, to start buying real estate, I would love to get the opinion from all the gurus out there before taking a decision here. 

So....

- I´m $34,373 in debt on credit cards. (I know.. it just happened and now it's time to make things right).
- At the same time, I have an IRA with a $68,806 net worth.

I have spent the past year helping and learning with my boyfriend who´s a realtor and who 4 years ago started doing flips. I have spent the past months reading, learning, listening to podcasts, youtube channels. etc.. and definitely I know I want to do this, I want to start with something, so one day I can talk about my own rental portfolio.

I have never bought a house before, so I still have that option to buy with a 3 or 3.5% down, but of course, my DTI is just too high...

So... the question is... Should I withdraw part of the IRA to:

  1. A- Pay the total of your debt! 
  2. B- Pay part of the debt (at least leave it in 30%) and use the rest for a downpayment 
  3. C- Don´t use your IRA money to pay the debt! just find the way to use someone else's credit (I have that option as well) you put the down and go 50-50 with that person on the property
  4. D- YOU have no idea what are you talking about, TRY TO DO THIS INSTEAD (please give me some suggestions!!!)

Here´s the  breakdown of my cards: 

  • AMEX - $19,135 (I have an installment plan, at 7.99% APR, they won't close my account when I pay off the card) (credit line 22K)
  • VISA WellsFargo - $6,865 at 21.99% APR (credit line $7,350)
  • DISCOVER - $3.369 at 11.99% APR (credit line 7k)
  • CHASE Freedom - $5,003 at 22.99% APR (credit line $5,500)

I have no more savings. 


About my income:
 I pay myself around 3K a month and I get a 20% commission on every transaction when helping my boyfriend representing sellers and buyers. 

I'm so compromised with this, that I just sold my car (I had a loan for 19k and got 20.5K for it) I know I can deal without a car right now and I want to lower down my monthly expenses to see where else I can put my money. 

So... is it a good idea to use the IRA money to pay debt? or how else can I use it?

PS. I already know about the 10% taxes that I'll get charged if I decide to withdraw from the IRA, I know that I will pay a penalty (not in the first 10K if I use them in a first house). But hey... I'm just trying to find a way to start from 0 or to at least do something.

Thanks all for reading all this way!! In advance, I appreciate all the comments and suggestions. 

Best regards. 
Adriana. 

    hey @Adriana Vergara I have had this conversation with myself many a many a time!  and there really is no "right" or "wrong".  So I'd attack this with the mindset of trying to make your situation better, and how you go about it just depends on your goals, and your situation and your personality and what you are comfortable with.  

    If you otherwise have good credit, and your DTI is the only issue, I'd personally if in your situation, go with knocking off the debt, and buying a property, especially if its a duplex or 4 plex and you're going to house hack it, because then you are literally making money off it so its a good deal all around.

    However, and please do your own research, but from my understanding their is language in the stimulus bills that lets you pull out of your retirement and not pay the penalty...again confirm this form yourself but I do remember seeing that.

    If you are using the money to pay off your credit cards and just go right back to spending on them...thats a different story, but if you are clearing them off to be able to make moves here in Real estate...to me personally it would be worth it...but again thats just me.     

    Get a second job to pay down your debt. Pay the highest interest rate cards off first. 

    Do not withdraw from your IRA to pay down debt. Let it grow.

    Good luck.

    @Adriana Vergara a couple things: 1) don't cash out your IRA to pay off debt as you are effectively borrowing money at 40% interest (10% penalty plus your tax rate). 2) take Financial Peace University which teaches the debt snowball (Google it) 3) Focus on increasing your income 4) Read the book Set For Life by Scott Trench 5) After you are debt free consider house hacking

    No problem Adriana, welcome to BP! You can post in any forum you think appropriate for your topic, but you do not want to post duplicates.

    @Adriana Vergara

    Welcome to BP!

    I would definitely NOT use the IRA to pay off debt. There is a 10% penalty that you have to pay plus taxes depending on if it is Roth or traditional.

    If you are going to pull money out to invest, that is a different story because you can recoup the penalty and taxes over time. You just need to make sure that whatever you use it for makes sense.

    There are ways that you can invest within your IRA to avoid the taxes and penalties, but then all your profits basically have to go back into the IRA. You need to set up a SDIRA self directed IRA. I have little knowledge of exactly how this works, just know it's an option.

    Regardless you may want to talk to a CPA or financial planner to see what’s best for your situation.