How to Become Debt Free Without Sacrificing Your Retirement

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You’ve worked hard all your life and have managed to save up some retirement money in your 401(k). But now you find yourself with a mountain of debt, and you don’t know how you’re going to pay your monthly bills. With so many credit card bills, even the minimum payments seem to suck up your entire paycheck. You experience anxiety when you try to budget, sometimes even waking up at 2:00 a.m. with a gasp and a flush of panic. You are worried about paying off your debt, and you start to wonder if using your retirement money could make it all go away.

Before you bust open that retirement plan, and especially before you use it to pay off your debts, here are some things that you need to know:

  1. Retirement Plans are SACRED.

Both the State of Texas and the Federal Government have learned that retirement plans are extremely important. That’s how we prevent people from having to get on welfare when we grow older and can no longer work. Texas and Federal laws respect the sacred nature of retirement plans and even give special protection so that you may protect them from your creditors in the event you cannot afford to pay your debts. Not only that, the laws may allow your retirement plans to grow tax free to make it easier for you to build up that retirement plan to a healthy level.

  1. These laws may protect retirement accounts from almost all creditors, no matter how many times you get sued.

Keep the Big Picture in your mind. DON’T THROW OUT THE BABY WITH THE BATH WATER. If you’re having difficulty paying your bills, realize that retirement time will eventually come, and if you don’t have money invested in a retirement account, it will be more difficult than ever to pay your bills when that time comes.

So, how do you get your debts behind you without busting that retirement plan?

Some ways include:

  1. Paying off your debt by using a debt snowball strategy.
  2. Calling your creditors and negotiate a settlement or payout plan.
  3. Working with a Debt Management company (a/k/a consumer credit counseling service).
  4. Working with a Debt Settlement company to negotiate a settlement for you.
  5. Filing Bankruptcy, and finally, although I don’t recommend it,
  6. You can cross your fingers and wait for the Statute of Limitations to pass.

There are pros and cons to each of these strategies, and sometimes even risks. We will discuss them in future posts to this series.