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My Husband Died and Left Me With Debt. I Want to Use My IRA to Pay It Off

A woman's hands place flowers by a gravestone.
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Dear Penny,

I'm in my late 50s. I married a darling lovely man who ended up permanently disabled just five years into our marriage. We later went through bankruptcy due to his medical bills.

When my husband died, he left me with a tiny life insurance policy, credit card debt of over $25,000, student loans that had ballooned to over $55,000, and a job that was pretty low-paying — I had to take something that allowed me a lot of time for all his medical appointments.

Since his death, I have been the Queen of Frugal. I negotiated raises to the tune of almost 20 percent in two years. I work from home, so I spend almost nothing on clothes, makeup, gas, car insurance, etc. I do most of my cooking from scratch, and my grocery bills are really low. I spend a little money on my hair, but that's about my only vice.

As a result, I have the credit card debt down to about $11,000 and have it all transferred to cards with no interest for 18 months. Next month, I will have the student loans down to under $30,000. However, my rate of paying down debt has slowed because I’ve had to shell out several thousand dollars for my own medical and dental bills.

In two years, I am thinking of paying off the remaining student loan balance with an old IRA that has just been sitting there for about seven years. I would wait until I am 59 ½, so I would not have to pay a penalty.

Many people seem to think this is a bad idea, but no one can really explain why. What do you think?

-S.

Dear S.,

No, no, no, no, no. Like all the others, I will tell you not to do this.

But you want to know why? I can tell you that, too.

I’m sure you feel like wiping out those student loans quickly would relieve some of the weight on your shoulders. But what happens if you hit age 65 and don’t have any retirement savings left?

If you can let that IRA grow as long as possible, it will continue to earn, even while you take distributions when you hit the minimum age. It will provide necessary income when you retire, or in the event that you can’t work anymore before your ideal retirement age.

I want you to consider a couple factors about your husband’s student loans, if you haven’t already.

First, make sure they aren’t federal direct student loans, which are typically discharged if the borrower dies. Second, if they’re private loans, consider contacting the lender for what’s called a “compassionate review,” which in some cases will result in a loan being discharged if the lender deems you unable to pay.

It sounds like you’re on the right track paying down credit cards during a no-interest period, even if you’re dealing with new bills right now. Your debt is not insurmountable. But when it’s finally paid off, you need to make sure your future is secure.

Consider meeting with a debt counselor who can take an objective look at your situation. To find someone near you who’s qualified, visit the online directories of the Financial Counseling Organization of America or the National Foundation for Credit Counseling. Brief debt counseling would have been part of your bankruptcy process, but it’s often just a cursory session; what you need now is someone to tell you if there’s a way you haven’t considered to ease your debt burden without putting your future financial security at risk.

Are you dealing with difficult financial choices made by someone close to you? Write to Dear Penny at https://www.thepennyhoarder.com/dear-penny/

Lisa Rowan is a personal finance expert and senior writer at The Penny Hoarder, and the voice behind Dear Penny. For more practical money tips, visit www.thepennyhoarder.com.

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