I'm very recently divorced and have accumulated the following credit card debt, both during my marriage and during my separation, when I struggled to get by while paying both a mortgage and rent on my apartment:
- Card #1: $20,000 balance, at 7.24%
- Card #2: $2,500 balance, at 18.99%
- Card #3: $2,500 balance, at 19.24%
I have four retirement accounts:
- $60,000 in an annuity - This used to be an IRA but my financial "advisor" suggested I change it to an annuity a few years ago--I suspect this was mostly motivated by her commission rather than what was best for me. I didn't scrutinize this enough and went along with it.
- $4,500 in a SIMPLE IRA at my current employer, to which I contribute $250/month.
- $7,000 in a 401k from my previous employer
- $1,800 in a 401k from another previous employer
I make $100,000 a year but was extremely generous with my divorce settlement so I don't have a lot of extra money to pay down my debt. I'm looking for a second job to do that, but that will take some time because I need something that will fit in with my current full-time job. (That is, I need something I can ideally do at night or on weekends from home.) I'm not accruing new credit card debt, but I haven't been able to chip away at it much either.
My question is this: Should I bite the bullet and withdraw $25,000 from my annuity and completely clear out my credit card debt? I know this will incur a 10% IRS penalty, as well as (most likely) an additional surrender fee--I'm still checking with the annuity people to see if there is one.
I know that digging in to retirement is generally frowned upon--but on the other hand, carrying a hefty CC balance is bad. Also, at some point in the next few years, I'll be looking to buy a house with my new partner (who also has a full time job and income), so I'll be a more attractive borrower without CC debt. And then there is the peace of mind knowing that this debt is not weighing me down.
I welcome advice on whether this seems like a good move, given my situation, as well as other factors or options I might not be considering. Thanks.
EDIT: Monthly income/expenses:
- Monthly net income is $6000 (post IRA contrib., health ins, etc.)
- Rent: $1250
- Alimony/child support: $2500 (ex pays mortgage with part of this)
- Groceries: $500 (three teenage boys)
- Car payment: $237
- Utilities, home supplies, gas for car: $400
- Medical copays, gifts, entertainment: $175
- Kid expenses (music lessons, karate): $275
That leaves about $600, but I've left all kinds of small things off, and this doesn't include large one-time expenses (car repairs, broken dishwasher), nor is there any room for any kind of savings. So basically, I have no wiggle room at all, which is why I realize I need to get a second job. Also, there is very little room to cut in the expenses listed above. "Entertainment" is often $20 a month or less, and is basically my boys renting movies online or buying the occasional $1.99 app. (very, very rarely do they go out to the movies, which is much more expensive).