Liquidating Assets

You may want to consider liquidating any assets you have and using that money to help pay down your debts. The basic definition of an asset is anything that can be sold or converted into cash. Assets include large items such as a house, car or recreational vehicle, but also can include things like: jewelry, antiques, collectibles, stocks, bonds, or a 401K. Also don’t rule out clothes, baby items, CD’s, video games and small electronics.

The good news is that there are many easy ways to sell items of value these days. You can hold a garage sale with a few friends or family or take out an ad in local paper for larger items. Selling items in a consignment shop is another option. Keep in mind you will have to pay a small fee for the convenience of using their space and items usually must be current and in good condition. With websites such as Craigslist or eBay, it is very easy to sell small and large items alike and you can reach a wider audience. If you are considering selling antiques or collectibles you can also consider local auctions houses or selling them to a reputable dealer. If selling to a dealer or storefront, you may want to shop around to make sure you are getting the best price.

If you have a 401K, you have a couple of options. If you have a true hardship, such as a prolonged period of unemployment or a medical issue that results in a pending foreclosure, you may be able to take a hardship withdrawal. With this option you will have immediate access to funds and there is usually no repayment needed. Keep in mind, you will have to pay a penalty of about 10% on the money withdrawn and you will be using critical funds intended for your retirement. A loan against your 401K is another option and can be used for any purpose. The loan payment may be smaller than the monthly payment toward the debt and be at a lower interest rate.

However, if you leave your job for any reason, your loan may either become due immediately or be treated as a withdrawal and subject to penalty. Also, during the loan period you will have the loss of potential growth on your retirement funds. Keep in mind that most 401K proceeds are protected assets if you end up having to file for bankruptcy so you want to consider these options carefully.

Withdrawals may also be taken from a Roth IRA, which is funded with after tax dollars. With this type of account, you can use the funds to pay off debt with no repayment needed. While there is usually no penalty for withdrawals taken on your contributed funds, if the account has been opened for five years, there may be a penalty if taking out capital gains. This can be a good option if you are paying a much higher interest rate on your debt than you are making on your IRA investments. Just as with the 401K options, these funds may be protected if you do need to file bankruptcy and you will lose any potential growth on the money that was withdrawn.

In general, using retirement funds to pay off debt is not a desirable option. Don't sacrifice your long-term retirement savings without first seeking legal advice.