retirement savings

Should You Use Retirement Savings to Pay Off Debt?

Q. I am a 61, single parent, and can’t seem to come up with a strategy to get out of debt. Is it ok to take a loan from a pension fund?  Also, a debt solutions company advised me to cut up all credit cards.  Considering I have a child, it seems like eliminating all credit cards would be a bad idea and could ruin my credit further. Any thoughts about this?

A. I wouldn’t recommend you take a loan from your pension fund. It’s just too risky. What if you lose your job or get sick? It would be a great hardship to repay that loan, and if you couldn’t immediately repay it, you’d have to pay taxes on the amount withdrawn. Plus, since you are 61 years old, I assume you are thinking about retirement at some point in the next decade or so. You’ll need that money to keep earning interest and to help you when you stop working.

So don’t touch your pension assets. It’s better to try other strategies.

Read my advice about how to become debt-free, 5 bad habits that keep people in debt, as well as the 4 dumbest things to do if you’re deep in debt.

I also wouldn’t recommend cutting up your credit cards, although it wouldn’t be a good idea to lay off the credit cards and start using cash. Cutting up the cards alone won’t damage your credit rating, but actually closing those credit card accounts could serious hurt your credit score.

Social Security Overpayment

Q. I had been receiving Social Security benefits on behalf of my daughter in 2008; her dad, who I am divorced from, since 2005 and have NO CONTACT with, went on disability and Social Security contacted me and offered the benefit on her behalf, since she was a minor and I her guardian. In 2012, Social Security notified me that we were overpaid for approximately 3 years and owe $28k. Will this affect my credit rating? (I was persuaded by SS to make payments; in 2014 I applied for a fair hearing.  I still receive monthly notices asking for entire amount to be paid.)

A. Your main question seems to be whether an outstanding debt owed to Social Security can impact your credit rating. The short answer is: Social Security overpayments are not put on your credit report, so no, this shouldn’t affect your credit score.

In general, when Social Security overpays you, they can take up to 10% of your SSI check to get repaid. The Social Security Administration usually tries to get back overpayments within three years, but under certain circumstances, the repayment period can last longer. Regardless, Social Security can’t take more than 10% of your SSI, even if your repayment period exceeds three years.

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