I declared bankruptcy about 6 years ago and have posted here before about trying to work with Chase to reaffirm my (5.8%) mortgage debt at a lower interest.
That's not possible, so my next step was to look at a refinance. It looks like I can get a lower interest rate by refinancing, but it's going to cost about $4,000 in fees. It seems like I could also accomplish almost a 4.5% interest rate by paying about $100 extra a month to my mortgage on my own, turning my remaing 23 years into a 15 year loan. And doing this would avoid $4000 in fees.
I pay all of my bills each month, but my income is low and I'm not really making much progress at 20% interest on the $12k or so of debt that I owe.
I have a 401k worth about $10k (vested) and I realize if I cash it in, I can expect the Government to steal 30%-40% of it in taxes. however, that would still leave about $6k to pay off debt and tip the tables enough so that I can dig out from under the interest on the cards.
$10k earning a few percent each year in my 401K isn't going to do anything for my future, but if I could use $6k now to pay off 20% interest credit cards, I could eventually start saving money.
I realize it'll cost me $4k, but so would a refinance on the house.
And once I've got the debt down to $6k or so, I can manage it at a lower interest rate (by carrying it on a lower interest card). And when the credit cards are done, I can pay more towards prinicipal on the house.
The flippant answer is always, "don't raid your 401K to pay off credit cards." But it really seems to make an awful lot of sense in this case and as long as I set aside $4k for the tax bill, it really seems like paying 40% to the government now is better than paying 20% compounded year after year to the credit card companies.
Should I do this?