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In Dire Straits Do I Raid the 401K?

Okay guys, this is a help-a-reader request.  As always, when we do this, please be gentle.  This is a real person with a real problem.  They would like your help and input into their situation.  Names are changed to protect the debt-laden but the e-mail and story is very real.  Please do not comment if you can not give constructive advice.  Let’s hear “Amy’s” story. Here goes.

 I came across your financial blog while Googling something weird (don’t ask) and I’m fortunate I did because I need a normal, financially savvy person’s suggestion on what I might do about my 401K.
A little about me:
I’m a 32 year old woman from LA. I was recently fired from my legal industry job of 7 years in May 2012. I’ve been receiving unemployment benefits since then—so it’s been about 6 months now. And of course, I’ve been looking for employment but have gotten nowhere. Since I wasn’t getting any results in my job search, I concluded that I needed to make myself more marketable, thus, employable and earn a much higher income. So, I decided to enroll in a paralegal certificate training program in order to make myself more marketable in the legal industry (the semester begins late January 2013). The setback is that my application is on hold because I don’t have the $250 certification fee needed to complete my enrollment.
 
My dilemma:
As of now I have completely depleted my savings and my sole source of income is unemployment. I have debt:
-School loan #1: $10,300
-School loan #2: $2,200
-Credit card debt: $7,100
-Car note: $6,700
-Debt owed to friends: $2,080
Total debt: $28,380
 
And of course there are those recurring miscellaneous items like car insurance, rent, mobile bill, etc.
 
Now, currently I have a little over $2 in my checking account. Yes. Two. And about $20 left in credit to spend on my card. Having been on unemployment for 6 months, I’m now waiting for the extension to kick in and I don’t know how long that will take because I have to be “eligible” for it, which I’m pretty sure I am, as nothing in my financial life has changed since I became unemployed. In any case, the $1,800 monthly maximum in benefits I receive would still only be just enough to simply survive off of (unfortunately, not enough to put away for a rainy day and only enough to pay the minimum on my debt, excluding my school loans which I’ve had to defer). As a result, sometimes I go hungry and I don’t mind since I’m single with no dependents.
How financially responsible am I?
 
I have never, EVER, been late on a bill or rent in my entire life…even on unemployment. I’m obviously proud of this fact. I’ve always done what was needed in order to avoid not only late payment penalties but a negative report on my credit history and score. I’ve always only had one credit card and I’m not frivolous with money at all and only purchase essentials (groceries, toiletries, gas). I also know that should I be fortunate enough to pay off my debt, particularly my credit card, I WILL NOT start spending like there’s no tomorrow and put myself back in the hole; I’ve never been that type anyway so it won’t be a difficult task.
 
The possible solution???
I have a 401K account still sitting with my former employer in the amount of roughly over $21,000. I have read and read at length, about the nasty penalties and tax repercussions I’d suffer if I withdraw before I’m 59 1/2 years old. But right now, I don’t even have money to buy tampons. I mean it’s really gotten so bad for me that even if I landed a job interview, I wouldn’t have the money to get gas (or take public transport) in order to go to the damn thing. I’m not trying to pour it on thick with some sob story, I’m only trying to get you to see things in perspective and know just how literal I’m being in terms of how dire my financial straits are. I feel that using my entire 401K is the only solution because other than my school loans, I wouldn’t have any more of that nagging debt draped around my shoulders. Thus, I would have more money freed up to start saving again each month, even with unemployment, instead of living hand to mouth.
For me, I wouldn’t be borrowing from my 401K. It’s not an option because I’m not in a situation where I’m able to pay that money back, so completely withdrawing with a steep penalty is pretty much my only option in order to prevent myself from becoming homeless.
 

My advice:

Amy is in a serious financial situation that many millions of people are in.  According to Bureau of Labor Statistics more than about 5 million people have been unemployed for 27 weeks or more.  They make up a little more than 40% of the total amount of unemployed individuals.  Even with a six month emergency fund, individuals facing long-term unemployment will eventually run out of cash.

You’ll hear everyone tell you that you should never touch your 401K.  Financial Samurai just wrote a post stating that you just borrow from your 401K only if you are a “petulant fool”.  From my window seat in HR where I administer our 401K plan and can see all of the loan activity for our company, I would agree that many people treat their 401K accounts as a virtual piggy bank.  Many individuals will end a loan one week and enter a request for a new loan the following week, never giving their money the chance to work for them. But that situation does not apply here.

What we have is an individual about to fall over the cliff into virtual poverty seemingly with little to no resources.  But, I’ve realized that sometimes we think that we have no resources when we do have some available to us.

First, I would do the following:

  1. Food is a major priority.  I would visit local food banks and churches for food giveaways.  Second, I would apply for the SNAP program.  Even though you are getting unemployment, you may still be taking home too much money to qualify, but it doesn’t hurt to try. Edit: Check out this article on how to eat like you’re on SNAP even if you aren’t.
  2. Shelter is the second priority.  If you have the ability to downsize do it now.  If that means sharing an apartment with someone or taking in a roommate (as your lease allows) then now is the time to do so.  Housing is often the most important bill that we all have.  Cutting that down to size will help significantly.
  3. Sign up for any FREE job training programs.  Since you are unemployed, your local employment office will have a list of these resources available.  If not, the internet is a beautiful thing.  If you can avoid having to pay out of pocket, now is the time to do so.
  4. Continue getting hardship deferrals on the student loans.  Even bankruptcy doesn’t wipe these suckers out, so defer, defer, defer.
  5. Consider getting an internship within your chosen field.  Even unpaid internships can get your foot in the door to a paying job.  It ain’t pretty, but it’s something.
  6. How about a seasonal job?  Plenty of places are hiring just for this season.  Yes, this will take you off of unemployment, but when the season closes, you will be able to go back on unemployment if needed.  I have a list of places hiring for Christmasthat you can look into.
  7. If not seasonal, how about one day gigs? Try looking at Craigslist for your area for those one day things.  They often pay cashola at the end of the day.   There are some other ways to make extra money listed in the article that I linked to.

Now, on to your main question of the 401K.  The thing is, you can take a hardship withdrawal in very specific cases.  Here they are:

  • To purchase a primary residence
  • To make a payment that would prevent eviction or foreclosure of your primary residence
  • To make repairs certain repairs to your primary residence
  • For funeral expenses
  • To pay medical expenses for you, your spouse, or dependents.
  • To pay for college expenses for you, your spouse, dependents or children who are not dependents

With that list in mind, the only way that I see that you can even qualify for a hardship withdrawal is if you were facing an eviction.  I’ve had the joy of processing a few of these requests.  You would have to submit documentation from your landlord or mortgage company which specifically states that you are in arrears when that action is pending.  Unless you are in this particular situation, you probably will not qualify for a hardship withdrawal.  You can read more about hardship withdrawals when you have time.

Now we have to ask ourselves, what’s left? You shouldn’t use your credit card.  You can not access your 401K. You have no money.

Readers, any suggestions?

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31 thoughts on “In Dire Straits Do I Raid the 401K?

  • This may not be the best advice and I think I would do everything Sandy has advocated first.

    This is obviously a case of genuine hardship. All I can tell you is what I think I would do in this situation. It is obvious based upon her synopsis of the situation that she has been extremely responsible up to this point and I am exactly the same way. This is perhaps the point where responsibility to anything other than your own welfare needs to take a back burner.

    You need to get a job and for that you need retraining, you definitely need gas for your car and you need to be able to support yourself. Blood cannot be drawn from a stone and frankly, I wouldn’t be concerned about either the taxes or the penalties if I was in your position. I’d withdraw some portion of the money and take the risk that I could land a decent job before I have to file my taxes in 2013 for 2012. The hit will be taxes and the 10% penalty.

    I know. Its not the typical advice for withdrawing from a 401k but its not a typical time (recession)and its not a typical situation if everthing stated is accurate.

  • This may not be the best advice and I think I would do everything Sandy has advocated first.

    This is obviously a case of genuine hardship. All I can tell you is what I think I would do in this situation. It is obvious based upon her synopsis of the situation that she has been extremely responsible up to this point and I am exactly the same way. This is perhaps the point where responsibility to anything other than your own welfare needs to take a back burner.

    You need to get a job and for that you need retraining, you definitely need gas for your car and you need to be able to support yourself. Blood cannot be drawn from a stone and frankly, I wouldn’t be concerned about either the taxes or the penalties if I was in your position. I’d withdraw some portion of the money and take the risk that I could land a decent job before I have to file my taxes in 2013 for 2012. The hit will be taxes and the 10% penalty.

    I know. Its not the typical advice for withdrawing from a 401k but its not a typical time (recession)and its not a typical situation if everthing stated is accurate.

    • In your situation it is okay to liquidate, I have helped clients get through exactly what you are facing. I’ll give you the advice I give them.

      You are not liquidating for a new addition on your home or a vacation.
      You truly need the money. At 32, you have time to continue to save for retirement once you get on your feet.

      It will still take about 3 weeks to get the check so follow all the advice given until then.

      – Great advice to look on Craigslist for odd jobs
      – Can you cook/clean? – I used to do both for disabled or seniors or simply busy people – you can start relatively quickly to get some cash in your pocket. Charge $50 per 1000 sq feet of home, meals $6 per person, look for families.

      – Can you tutor?

      – Once you get the money – be very careful and look even more aggressively for a job after you take the class. Also continue to look for side gigs in the meantime.

      I’m not sure what State you are in, but in some you can still get a small amount of unemployment if you are ‘underemployed’. Check into that, but once you receive your 401k distribution you will be taken off.

      Keep your head up, I know how you feel and also know that this too shall pass. Wishing you the best – a big virtual hug to you.

      – Dorethia
      http://www.connercoaching.com
      http://www.themoneychat.com

  • An additional note: This individual definitely does not fit into the demographic of people described in Financial Samurai’s article. There’s a huge difference between necessities required to survive versus borrowing from a 401k for things we “want” 🙂

  • An additional note: This individual definitely does not fit into the demographic of people described in Financial Samurai’s article. There’s a huge difference between necessities required to survive versus borrowing from a 401k for things we “want” 🙂

  • Touching the 401K isn’t absolutely off the table. But, here’s the thing. It’s only a band aid. It takes care of stuff for a few months, but at the end of the 21k, you’ve got to be in a better situation than you were. And with taxes right around the corner, that’s gonna hit hard. With student loans in deferment, the rest of the debt listed is pretty minimal. Total payments on that can’t be more than say $800. It doesn’t leave much, but paying it off might not be enough to get you back in the black. It’s the monthly stuff that’s hurting. Sandy’s tips are excellent. Try to reduce any monthly expense you have. Find a seasonal job if you can’t find a permanent one. Anything (legal) to get the income flowing. It’s not pretty, but you can recover and there is hope. Good luck!

  • Touching the 401K isn’t absolutely off the table. But, here’s the thing. It’s only a band aid. It takes care of stuff for a few months, but at the end of the 21k, you’ve got to be in a better situation than you were. And with taxes right around the corner, that’s gonna hit hard. With student loans in deferment, the rest of the debt listed is pretty minimal. Total payments on that can’t be more than say $800. It doesn’t leave much, but paying it off might not be enough to get you back in the black. It’s the monthly stuff that’s hurting. Sandy’s tips are excellent. Try to reduce any monthly expense you have. Find a seasonal job if you can’t find a permanent one. Anything (legal) to get the income flowing. It’s not pretty, but you can recover and there is hope. Good luck!

  • Now that the weather is getting cold, gas bills are going to get higher. Hang blankets up to the windows, especially patio doors (yes it looks tacky, but yes it does make a big difference). Wear warm socks, layers of long sleeved shirts, a hat even when inside. It will keep you warmer so you can turn down the thermostat. Pile blankets high on the bed. If you really need to warm up, go to the library for awhile. You can turn down the thermostat to 55 while you are gone to save a lot on the heat, but can stay warm while reading or using the internet at the library. In the summer, I do this so I don’t have to run the air conditioner.

    Can a family member take you in for a little while? I know that is not ideal, but if it is possible it will save a lot of money. If you don’t have money to contribute to rent, see if you can work out an arrangement for room and board in exchange for work: shovel snow, clean house, cook, run errands, mend clothing, whatever they need.

  • Now that the weather is getting cold, gas bills are going to get higher. Hang blankets up to the windows, especially patio doors (yes it looks tacky, but yes it does make a big difference). Wear warm socks, layers of long sleeved shirts, a hat even when inside. It will keep you warmer so you can turn down the thermostat. Pile blankets high on the bed. If you really need to warm up, go to the library for awhile. You can turn down the thermostat to 55 while you are gone to save a lot on the heat, but can stay warm while reading or using the internet at the library. In the summer, I do this so I don’t have to run the air conditioner.

    Can a family member take you in for a little while? I know that is not ideal, but if it is possible it will save a lot of money. If you don’t have money to contribute to rent, see if you can work out an arrangement for room and board in exchange for work: shovel snow, clean house, cook, run errands, mend clothing, whatever they need.

  • Hi Amy,

    Sorry to hear about your situation. If it’s been a matter of survival, then bleed your 401K dry and survive! However, after taxes and the 10% penalty, you’re going to have roughly $15,000. How much is $15,000 going to last if you’ve gone through your entire savings in 6 months while receiving $1,800 a month in unemployment benefits?

    If you say you can survive off $1,800 a month, then how about just continue surviving off $1,800/month until something comes up? If you went through all your liquid savings does that mean you had barely any liquid savings? This is actually better than having lots of savings and going through it all in six months ironically.

    I’m pretty sure you will get unemployment extension by the Feds in 2013. It’s all about Big Government for the next four years, so I would rest easier. If you can live off $1,800 a month, then do your best to stick to living off $1,800 a month while you hunt and do not touch your 401K. Once you touch your 401K, by your admission, it’s game over.

    Do not give in to the temptation to spend your 401K unless you actually can’t live off $1,800 as you’ve written.

    Sam

  • If I were Amy, I wouldn’t touch the 401(k). I’d consider stoping payments on all the debts–if necessary– except the car, because I’d likely need the car to work. Check if a deferral is possible for the school loans. Phone the credit card companies and explain the situation. They may reduce the minimum payment and/or interest rate. If both of these fail, then stop making payments on the fewest debts possible. (In other words, stop the biggest payment first, then go down the debt list until budget is balanced.) I’d take any job I could get that pays money, and keep looking for the job I want. Consider relocating if job prospects are better. Can she move in with a relative for a while until employed?

    Yes, credit rating is going to take a big hit with my suggestions. As I tell clients, there’s no magic wand to remedy the situation. Pain is inevitable, unfortunately, when there’s a job loss in this challenging job market. Once Amy is fully employed again, she should make an appointment with a credit counselor at a nonprofit agency to get help to create a plan to get back on track with debts and restore her credit over time.

    Good luck Amy!

  • I wouldn’t touch the 401K either at least until it became a very last resort. Then I would still ask myself a million questions and double check to see if I had exhausted every other possible option.

    For me, one go-to solution would be simple.

    Walk around your house/apartment and find items that wouldn’t be considered a need and that could bring in some extra money. People laugh at this but let me tell you it helped my wife and I dig ourselves out of debt.

    In the process we learned a very valuable skill. How to sell on eBay and Craigslist. Now we buy items from yard sales, estate sales, local consignments, auctions (little more risk), and sometimes find items worth selling from thrift stores.

    This takes a little practice to develop the skills and research needed to make this work. I would definitely attempt to go this route before touching your 401K.

    Now my wife is a power seller on eBay and during some months (especially around Christmas) she has made more than $2,000 in one month. Again she didn’t start out knowing much but now is really good at finding items people want to buy. (vintage, name brand, collectables etc.) If you have a smart phone researching on eBay to see how items have sold is VERY helpful.

    This article I wrote back in 2008 may help you get started: http://www.enemyofdebt.com/2008/05/selling-on-ebay-is-as-easy-as-1-2-3/

    Other things I would do is RADICALLY cut my budget down to ONLY necessities. (not saying you haven’t already done this but from my experience that people aren’t as radical as they need to be considering their circumstances) I’m even talking about selling your car. Not the easiest of decisions but in your situation you might have to be extreme to keep from losing so much by using your 401K as a crutch.

    We sold a 2004 Pontiac Vibe (very reliable car) and bought a 1986 CRX using cash money. (It’s important to know that we had the car checked out by a trusted source and I even delivered pizzas in it for over a year without any problems. You have to be diligent in making sure you are not buying a lemon but it is possible.) Also, if you are currently underwater on your car which we were too, you may have to take out a loan to cover the difference plus the cost for a reliable used car costing no more than $2,000. Unless you’re severely underwater this is a good option because even though you’re getting a loan you are trading larger debt in for a smaller debt. We didn’t have to do that we just paid the $280 difference but it is an option I have known people to use.

    Best decision we ever made because it immediately removed that debt and gave us an extra $300+ each month to add to our budget. Just trying to throw EVERYTHING I can think of out there for ya. 😀

    You aren’t in a situation to start paying off of your debt because you are in survival mode but by learning how to buy and sell on eBay you could eventually make enough extra money each month to start paying it off much quicker.

    Everything I just mentioned to you we did to dig ourselves out of 26,000 of debt in 20 months. If we can do that to get out of debt you can do it to keep your head above water until a job comes through without depleting a very important asset such as your 401K.

    Good luck and keep your head up. You’re going to make it through this. 🙂

  • Do you rent or own your own home? Do you have any other assets in your name?

    One thing to keep in mind is that your 401K is untouchable in bankruptcy. So theoretically, you could try and get more credit extended to you – use as little of it as possible while increasing your credentials and finding a new job – and not touch the 401K.

    If the worst happens and you are still unemployed and bankruptcy is looking like an option, your 401K would still be there when you came out the other side. Not sure what bankruptcy does to employment options in the legal field, however. This would likely be an additional consideration.

    I would also recommend being willing to do anything. During a stint of unemployment, a friend who has a masters, CPA, and CFP took a job under the table cleaning houses. She scrubbed floors and did the dirty work for $15/hour under the table to tide her family over.

    Best of luck! You’ll be in our thoughts!

    • Just want to chime in here about BK while seeking a job in the legal field. It will most certainly almost kill a career. I wouldn’t hire an attorney or CPA who had recent BKs in their history. Sorry.

  • I’m torn. It’s almost never a good idea to touch retirement but if you exhaust other options.. Well you’ve exhausted other options. Iits hard to say exactly because we don’t know if you rent or own. How easily can you get into a smaller place.. Like a room? Also I know people live by their mobile phones but unless it’s prepaid (and you mentioned it as a monthly expense) you really have to be able to get a landline more cheaply. Low income people can get breaks on utilities even phones usually. At the worst hit one of the Xmas sales where they have prepaid phones free after rebate. I know you’d have to scrape together the money but hopefully ten to twenty is doable — ESP once you stop paying a regular cell bill. Still not a long term solution but 40-80 a month could make a huge difference. In the end I’d consider just taking out the funds for the certificate. It gets you to your goal and isn’t really raiding you retirement. Sorry I can’t offer more concrete/ decisive advice.

  • I’m torn. It’s almost never a good idea to touch retirement but if you exhaust other options.. Well you’ve exhausted other options. Iits hard to say exactly because we don’t know if you rent or own. How easily can you get into a smaller place.. Like a room? Also I know people live by their mobile phones but unless it’s prepaid (and you mentioned it as a monthly expense) you really have to be able to get a landline more cheaply. Low income people can get breaks on utilities even phones usually. At the worst hit one of the Xmas sales where they have prepaid phones free after rebate. I know you’d have to scrape together the money but hopefully ten to twenty is doable — ESP once you stop paying a regular cell bill. Still not a long term solution but 40-80 a month could make a huge difference. In the end I’d consider just taking out the funds for the certificate. It gets you to your goal and isn’t really raiding you retirement. Sorry I can’t offer more concrete/ decisive advice.

  • Amy,
    First of all, I’m sorry to hear about your situation. Being caught up in long term unemployment can be an emotionally demoralizing experience which can cloud your judgement. You see the 401k as a life line and you do a make a good case for raiding it. I think there has been some excellent advice offered here about things to do first – changing your living situation, selling/downsizing your car, seasonal work. I like the story about the CPA cleaning houses under the table – we do what we have to do. But sometimes, the emotional stuff can get in the way of the clarity of our thinking. I’m glad you reached out to Sandy for some objective advice.
    I suggest you read Dave Ramsey’s book “The Total Money Makeover.” I don’t agree with everything Dave says and his target audience seems to be married Christian couples. But what I do like about his books is how he makes you see options, he gives concrete advice about specific actions you can take to get out of debt. I realize this is not your exact situation, but he really does get you excited and inspired about taking some control over your life.
    Hope this helps and good luck Amy.
    Please let us know what you decide to do.

    • Great advice Lisa! I can lend your thoughts credibility because it was Dave Ramsey and starting our Total Money Makeover that inspired us to look everywhere for income, eliminate ALL of our debt, and change our financial mindset. He inspired us (especially me) to be radical in order to live the life we wanted to live. I would also add that if you are trying to improve as much as you can while you look for a job, it would be worth looking into buying/borrowing 48 Days to the Work You Love by Dan Miller and also QBQ The Question Behind the Question by John G Miller. Those books along with The Total Money Makeover helped me a lot!

      Furthermore, if you find that you like Dave Ramsey then investing somewhere around $100 to go through Financial Peace University (a 13-week crash course about personal finance) is really worth it. Hope this helps! 😀

  • So sorry to hear about your situation.

    I’ll add a few items to keep in mind as you develop your plan of action:

    Looking at free training programs is a great idea as Sandy mentioned; also there are scholarships available from community colleges (which often have paralegal programs), private foundations, and even potential employers

    Even though you may defer a student loan, interest may still mount on the loans; consider the added interest (that is “capitalized” or added to the loan balance) and the interest rate when considering your options

    If you take money out of the 401k, you don’t have to take the entire amount — if you did a rollover from your employer to a brokerage account, then you could possibly withdraw some of those funds but not all of them; if you did take money out, you might consider doing so in a year in which your income was low to save on taxes.

    Finally, unemployment in my state (not sure about yours) is not available to those who have been fired with cause though it is for those who were laid off (the difference can be subtle and depend on the employer’s interpretation).

    Hope you can use everyone’s ideas to get clarity on your next step.

  • So sorry to hear about your situation.

    I’ll add a few items to keep in mind as you develop your plan of action:

    Looking at free training programs is a great idea as Sandy mentioned; also there are scholarships available from community colleges (which often have paralegal programs), private foundations, and even potential employers

    Even though you may defer a student loan, interest may still mount on the loans; consider the added interest (that is “capitalized” or added to the loan balance) and the interest rate when considering your options

    If you take money out of the 401k, you don’t have to take the entire amount — if you did a rollover from your employer to a brokerage account, then you could possibly withdraw some of those funds but not all of them; if you did take money out, you might consider doing so in a year in which your income was low to save on taxes.

    Finally, unemployment in my state (not sure about yours) is not available to those who have been fired with cause though it is for those who were laid off (the difference can be subtle and depend on the employer’s interpretation).

    Hope you can use everyone’s ideas to get clarity on your next step.

  • Here’s a thought experiment. Let’s say you withdraw the money and then you run through it all and you still don’t have a job. What would you do then?

    Whatever the answer is, I recommend doing that now instead of waiting.

    It sounds like what you really need now is some quick cash. Here are some possibilities for that:
    * sell things (at consignment shops, used book stores, E-bay, garage sales, etc.)
    * sell plasma
    * do odd jobs like babysitting, dog walking, running errands, tutoring–you can put up notices on bulletin boards or maybe even ask your friends

    Then you need a way to be able to save up a small emergency fund on your low unemployment salary so you don’t get into this position again. Do some brainstorming on how to reduce your expenses. Write down terrible ideas, too, because they might morph into something less terrible on further thought. For example, here some really scary sounding things you could do to reduce expenses:
    * housing – get a roommate, move in with others, couch surf, move into a trailer, go homeless
    * utilities – turn off your heat (wear coat and hat inside, spend time at libraries, etc.), unplug everything you’re not using, take short, tepid showers (turning off the water while soaping up)
    * food – never eat out, do more of your own processing (cook from scratch instead of TV dinners, grate your own cheese, make your own bread), eat cheaper foods (rice, beans, pasta, tomato sauce, peanut butter, bananas, oranges, frozen veggies), dumpster dive, go to free events with free food
    * fun – cancel cable, cancel the internet (go to the library), cancel either the cell phone or the land line, cancel gym memberships (ASAP, anyway) and exercise on your own, invite folks over for potlucks and games parties and informal recitals and clothing swaps, go on hikes around your neighborhood, look up free activities in your town
    * stuff (like clothes and tools and supplies) – check thrift stores, borrow things, make do without, mix and match things you already have

    Another thought experiment – Think what’s the worst thing that could happen. Is it moving in with your parents? Becoming homeless? Moving out of state? Now look at your list of brainstormed ideas–I bet even some of the scary ones are better than your worst-case scenario, eh?

    Places for loads of ideas on reducing your expenses:
    * No Impact Man web site
    * Early Retirement Extreme web site
    * Tightwad Gazette book (check your library)

    And remember, none of these changes have to be permanent. You can re-buy things you’ve sold and go back to doing things the way you are now, though you may find that you end up liking some of your changes. Meanwhile, you can generate some interesting stories to threaten your future grandchildren with!

  • Here’s a thought experiment. Let’s say you withdraw the money and then you run through it all and you still don’t have a job. What would you do then?

    Whatever the answer is, I recommend doing that now instead of waiting.

    It sounds like what you really need now is some quick cash. Here are some possibilities for that:
    * sell things (at consignment shops, used book stores, E-bay, garage sales, etc.)
    * sell plasma
    * do odd jobs like babysitting, dog walking, running errands, tutoring–you can put up notices on bulletin boards or maybe even ask your friends

    Then you need a way to be able to save up a small emergency fund on your low unemployment salary so you don’t get into this position again. Do some brainstorming on how to reduce your expenses. Write down terrible ideas, too, because they might morph into something less terrible on further thought. For example, here some really scary sounding things you could do to reduce expenses:
    * housing – get a roommate, move in with others, couch surf, move into a trailer, go homeless
    * utilities – turn off your heat (wear coat and hat inside, spend time at libraries, etc.), unplug everything you’re not using, take short, tepid showers (turning off the water while soaping up)
    * food – never eat out, do more of your own processing (cook from scratch instead of TV dinners, grate your own cheese, make your own bread), eat cheaper foods (rice, beans, pasta, tomato sauce, peanut butter, bananas, oranges, frozen veggies), dumpster dive, go to free events with free food
    * fun – cancel cable, cancel the internet (go to the library), cancel either the cell phone or the land line, cancel gym memberships (ASAP, anyway) and exercise on your own, invite folks over for potlucks and games parties and informal recitals and clothing swaps, go on hikes around your neighborhood, look up free activities in your town
    * stuff (like clothes and tools and supplies) – check thrift stores, borrow things, make do without, mix and match things you already have

    Another thought experiment – Think what’s the worst thing that could happen. Is it moving in with your parents? Becoming homeless? Moving out of state? Now look at your list of brainstormed ideas–I bet even some of the scary ones are better than your worst-case scenario, eh?

    Places for loads of ideas on reducing your expenses:
    * No Impact Man web site
    * Early Retirement Extreme web site
    * Tightwad Gazette book (check your library)

    And remember, none of these changes have to be permanent. You can re-buy things you’ve sold and go back to doing things the way you are now, though you may find that you end up liking some of your changes. Meanwhile, you can generate some interesting stories to threaten your future grandchildren with!

  • You already received some great suggestions, so here’s my quick 2 cents.

    Cashing out your 401k with penalties won’t help much in the long-run, but maybe you can do it and keep that cash these for minimum payments and $250 cert fees and whatnot while you build up cash in ways people mentioned. I personally made extra money babysitting, petsitting, and staff writing online.

    I do also highly suggest getting a roommate or downgrading your housing. We rent out a spare bedroom of our house…it is annoying to share space, but it can half your expenses overnight and their deposit would be enough to get your certificate and pay for gas for an interview.

    Good luck!

  • Gee…I also feel sympathy for your situation, but $1800 a month was what we lived on for decades. For four people.
    Certainly there must be some way to bring in more income — like getting a roommate, or as others have suggested, checking out food banks and turning your heat way down. (Do you have cable? How about an expanded cellphone plan? Everything but the bare essentials should be cancelled until your situation improves.)
    Yes, it’s going to be uncomfortable at times. Yes, irritating. You’re going to get tired of it. But you’ll survive.
    I could see taking some of the 401K out…but I’d only take a few thousand. If what you’re saying is true, that should be enough to pay your enrollment fee ($250, just to enroll???), get a few basics and still have some left over for emergencies. (And, I would say, start paying off your friends. You owe them a lot.)
    Go get that job at BK, or a temp job during the holidays. You do NOT have to mention it on your resume. I am a firm believer in any kind of work that’s honest, whether it’s scrubbing toilets or schlepping hamburgers. You need to be working at SOMETHING right now. Have you thought about dog-sitting?
    This too will pass. Don’t give up.

  • I had two possible thoughts:

    1) If the need is really only short-term. I’d looke to see if you could get a forebearance on of her debt. If it’s just a matter of getting $250. Seeing if you can forebear the credit card payment for a month might be enough to cover the application fee.

    2) If the money issues are expected to continue into the long term. Raiding the 401k to pay off the credit card debt would be a good choice. Odds are, interest on the card is far higher than what you are earning in a 401k and probably even more than the early withdrawal penalty. It would also free up money every month by eliminating a bill.

  • Sandy’s advice is spot on. Definitely follow her lead on this one. I’d also add that you probably qualify for a few government programs besides just food stamps. My first stop if I were you would be the Department of Human Services. They can help you find subsidies for housing, bills, food, and sometimes hardship loans. They may even be able to help you with applying for schooling costs. I know it’s difficult to set aside pride, but in hardships like this, it may be necessary. Once you’re back on your feet, you can help others in need.

    Good luck to you in all of your endeavors.

  • I think there is a deeper problem than what is presented. If the student loans are deferred and the only debts, per se, is the one credit card and a car loan, both with presumably low payments based on their balances, then there should be no problem why she can’t live off of $1,800 monthly. But maybe I’m missing something. High-cost of living environment, maybe? There are not enough details for me to make any definite conclusions. Sorry. But I loved reading everyone else’s advice.

  • Well I am sorry to hear of your issue. In the state I live, if it was by fault of your own that you was fired, then you would not qualify for unemployment. I am sorry to hear of that long term unemployment that you are going through. Do what you think is right for you. Read the advise of others and in the end, the ultimate will be up to you. Please consider before withdrawing your retirement, you have to place that money back within a year. Good luck on your job hunt. I have been looking for another job for almost 3 years with no luck and it is hard in today’s job market and yet it pays to stay optimistic. It costs money to retrain into another career, so personally I would take the money out and use it for education and to cover only to pay off debt and expenses. Hope this helps.

  • Well I am sorry to hear of your issue. In the state I live, if it was by fault of your own that you was fired, then you would not qualify for unemployment. I am sorry to hear of that long term unemployment that you are going through. Do what you think is right for you. Read the advise of others and in the end, the ultimate will be up to you. Please consider before withdrawing your retirement, you have to place that money back within a year. Good luck on your job hunt. I have been looking for another job for almost 3 years with no luck and it is hard in today’s job market and yet it pays to stay optimistic. It costs money to retrain into another career, so personally I would take the money out and use it for education and to cover only to pay off debt and expenses. Hope this helps.

  • First I would sell the car asap and get you a thousand dollar beater. (Paying on a depreciating liability is never good) Also, I would be delivering pizzas by nightfall. It sounds as if you just havent found the job you want but anything will do! I would be browsing craigslist daily for gigs. Activity beats inactivity and gives you the opportunity to network. Ask everyone you run across if they know of an income stream you can partake in. Cut up your credit card because u cant dig out the bottom while continue to dig a hole. You have to change the way you view money. After this situation NEVER borrow money for anything EVER!!!! I would seriously look into all of dave ramseys material. He has helped more people get out of debt than anyone else in America!

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