It might be a good idea, but only if they don’t run their credit cards right back to $25,000 again.

hmmmm. I personally would not dip into my 401K to pay off the credit cards. If the house is almost paid for, then allocating what they would have spent monthly on the mortgage is what should be paid towards the credit cards until they are paid off.

The thing is, they need to be really committed to paying them off, else, they will just keep that revolving debt. They have to really want to be debt free, you know?

A very clever man once told me, ‘paying an extra 13% (in their case) for the privilege of using credit, it just stupid.’ What item is so important that we should be willing to tack on an extra 13% just to pay for it?

I am personally a huge fan of American Express. Using it is good because it keeps you honest about what you really can afford. And, they have amazing customer service. I am consistently impressed with their organization.

Your relatives have quite a bit of debt that will only grow if they do not get a handle on it. Whatever you can do to help them would be good. You may have to have the conversation with them a few times.

I believe that anyone with a little debt going into this next recession is really going to pay for it. Credit card companies are increasingly becoming more sophisticated and aggressive, and they have figured out how to grow the balances of card holders very easily. You can imagine if consumer spending slows, the card companies will still be looking for income, and increasing fees, interest, and service charges will only grow in the next few years.

Does anyone else have any ideas?

I’m thinking that by paying the cards off with the 401k they will get a fresh start and I can also get them started on paying their cards off monthly. I agree with you guys that the key thing here is that they don’t continue to rack up balances. What sense does it make to pay the cards off only to charge them back up again, right? They are my parents, so I have alot of leeway with regard to following up with them on this and making sure they are indeed paying these cards off monthly, in a respectful way of course:) The HELOCs and paying via the former mortgage payment next year are great ideas I will look into. For some reason, though, I really want them to see that zero balance, feel good about it, and then focus on keeping it that way at the end of every month. Do American Express cards have to be paid back every month? How do they differ from Visa cards?

Here is another idea. If it does not fit you, please ignore it. If you
have that amount of money, you can help them to pay the balance off and
ask them to pay you the 25k plus 7% or 8% interest monthly.(Of course
your parents need to keep their promise.) It is like they owe you the
debt, not the credit card company.In this case, you can help them to
avoid paying 13% (high) interest, but get 7 or 8% interest yourself. At
least they are paying the 8% interest to their son or daughter, not the
credit card company.

Book recommendation :

Downsize Your Debt: How to Take Control of Your Personal Finances – by Andrew Feinberg

I bought this when I was finishing college with 40K in debt and it helped immensely. Looking at the book now the strategies seem obvious, but they didn’t at the time.

That’s why American Express is so great, you have to pay it off each month. (Although now they do offer a rotating balance card, but you don’t want that kind for them.)

The key is to pay down the debt each month, and then cut them up.

Use the Amex for plane tickets or other purchases that REQUIRE credit cards, but nothing.

You might consider talking to Rich (Prof. Piggington) about the 401K issue… He can best advise on those sort of things.

I used to keep around 3-5k on my credit cards (embarassing to admit on this forum) but after I paid them off the feeling of accomplishment and the stress of having that weight of my shoulders changed me forever.

A few years later, I’m on a site like this because I’ve become very conscious of my money. You might be surprised on the way they react to being credit card debt free also.

I did it by finding no interest cards. Put the cash there and pay on it as much as possible. I would keep track of when they expire. If I couldn’t pay it off in time, apply for another card and move it there. If they see money can be transferred, those no interest deals will usually say yes.

See if their bank accounts have auto payment ability over the web or something like that. Set it up for them to pay automatically so it’s always on time. If they aren’t computer savvy, you can put in your calendar reminders of when the 0%is going to expire.

I don’t think dipping into the 401k is a good thing. If the house is almost paid off, they can put all that cash that used to go to that payment onto their cards. If you transfer their balances to cards that have no interest, it makes a big difference.

Sorry for the long post. I’m a big advocate of not touching 401ks, especially if you can transfer the balances to 0% credit and still get interest from the 401k