A letter from a young widow

Dear Pete,

I came across your website while doing a search on Google for help. My question is, Is it ok to stop contributing to your 401k for 2 years to pay off credit card debt? Before you answer, let me tell you my situation.

My husband died in 2004. Me and my beautiful 8 year old were left behind. At that time, I did pay off all my credit card debt and then I went through a phase and ran myself in the ground with credit card debt. In 2004 I did start contributing to my 401k. As the years went by I started confiding in a friend at work, who's knowledgable when it comes to these things, and he convinced me to work myself up to the 6%. Our company matches .25 up to 6%. So I worked myself to that point, recently I increased my contribution to 10%. I currently have about $30,000 in my 401k. Being a single parent, I wasn't able to save so much money, so I figured this was a sure way to have money for my son to go to college. I myself just graduated with an Associate's and know how expensive it is.

This is the big problem. After my husband passed, I started receiving checks from SS as a benefit to my son. I've used that money to pay bills/mortgage for years and now the age of 18 is quickly approaching. These benefits will end 2/2014 and I will then only have my salary to survive on. Well my shopping sprees that have put me in so much debt (unfortunately, my way of dealing) has left me with about $25,000 of credit card debt. I know at this point I have enough money in my 401k to take a loan when it comes time for my son to start college.

I've already started paying down what I can on credit cards and have done my best not to use them. If I do have to use it, I hop online right away and pay it. Is it ok to stop contributing for the next 2 years and pay off the credit card debt? I need a solution or I will not be able to survive financially when it comes time for the SS benefits to end. I'd also like to be in a position where I can start saving some of that money for my son. If managed to save some of it, but not as much as I'd like to. Please help!

-B

B,

Thanks for reaching out. There are a number of things that you need to consider.

1. I understand how hard it is to be a single working parent. You have a TON of financial responsibilities. On top of providing for your son, you have had to take time and grieve the passing of your husband. This clearly was not a "blip on the radar screen". This was a major event in your life. "Retail therapy" is often dismissed as funny or harmless, but it is neither. As you know, you DO need some outlet for your grief and feelings, but I urge you not to choose an outlet that affects you so negatively from a financial perspective.

1. It does not appear that you have changed your habits. That's either tough to hear, or it's really tough to hear. You clearly have felt some of the pain that comes with poor financial decision-making. I hope that it has been enough to change your behavior. Making a cash-flow change (stopping 401k contributions) without changing your spending and financial decision-making habits would be a mistake.

1. Borrowing from your 401k for college is not a good idea. You can finance a college education (get loans), but you can't finance retirement.

1. You need to make sure that you have a strict spending budget. I would not stop your 401k contributions for 2 years unless you hold yourself accountable to your spending. Otherwise you risk having less retirements savings, more debt, and still no money saved for your son.

I hope this helps. Please let me know if you have any other follow up questions. I'd be glad to help.

Pete the Planner