Question

Austin and kayla have $35,000 in debt (student loan, credit cards, car loan) but have cut up all of their credit cards and started their debt snowball. austin just got a substantial raise and their household income is now $125,000 ($3,500 more per month, net). should he cash out his 401(k), which has about $25,000, pay off his debt, and start again from square one

Answer 1

The answer is a definite NO. No one should EVER cash in their 401(k) to pay off debt. You will never be able to recover from the loss of compounding interest if you take out money from your retirement account. This money should be saved for retirement or EXTREME emergencies.

Im this case, Austin should take the amount of his raise and use that to start paying down his debt FASTER.