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Dimitry K., Esq.
Dimitry K., Esq. , Attorney
Category: Finance
Satisfied Customers: 41220
Experience:  NASD Licensed Rep, 1997-2001, Business Attorney
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We have a $11,000 VISA credit card account with an interest

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We have a $11,000 VISA credit card account with an interest rate of 7.92%. The minimum pmt each month is around $240. We usually pay $300 or more. We have an IRA that is making about 10% per year. Should we pay off the VISA bill with a portion of our IRA money, or just keep making the payments which may get the bill paid off in 4+ years as long as we do not use that card during that period.
Submitted: 3 years ago.
Category: Finance
Expert:  Dimitry K., Esq. replied 3 years ago.
Thank you for your question. Please permit me to assist you with your concerns.

If I may ask, what is your current age at this time? My answer would depend on that information. Thank you!
Customer: replied 3 years ago.

We are 66.

Expert:  Dimitry K., Esq. replied 3 years ago.

Thank you for your follow-up, Robert.

The reason I asked is over the concern of a potential penalty if you were 59 1/2 or less in age. That is no longer an issue. To answer your issue directly, estimate your tax basis for the funds that you would receive from the IRA. If you are singly under $36,250 or jointly under $72,500, then your tax rate is at 15%, and therefore it would make sense to pay down the higher interest as the funds you would be removing would be under amount you'd be covering for interest. However above those thresholds the rate jumps to 25%, making the funds too 'expensive' to remove, and then the rate you are paying for the interest is actually lower than the value of the funds that you would have on-hand. In that case paying the funds down as you are currently doing would make more fiscal sense.

Hope that helps.

Customer: replied 3 years ago.

Our income is under the 76K number and we pay taxes as we take the funds out of the 401K. So does it still make sense to reduce the 401K by 12K?

Expert:  Dimitry K., Esq. replied 3 years ago.

Robert,

It would make sense if you have substantial savings since if you pay down the debt quicker, your income (rather your savings) will increase as you will be spending less on interest going forward, and you would therefore be able to earn and amass more savings in the long term.

Hope that helps.

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