Using IRA funds to pay off credit card debt will save interest costs

DEAR BRUCE: My husband and I have an IRA for $50,000 and have $10,000 in credit card debt. We are both retired, and our home and cars are paid off. Due to these income limitations, we are able to make only minimal payments, sometimes a little extra each month, trying to retire this debt, but it seems insurmountable. We both have physical limitations that make getting a part-time job not possible. What is the best way to retire this debt? — J.M., via email

DEAR J.M.: You say you have an IRA with $50,000 stashed away and credit card debt of $10,000. The reality is that the money in the IRA is likely granting a modest fraction of the interest that you are paying on your credit cards. You would be far better off withdrawing the $10,000 from your IRA (assuming you are over 591/2 and can do so without penalty), paying the taxes, if any, and retiring the credit card debt. This is not going to leave you any extra money for fun stuff, but you are paying a great deal more in interest than necessary.

DEAR BRUCE: I am trying to figure out what constitutes an estate. My wife has a credit card and she is in poor health.

If she were to die, am I responsible for the balance? Is that paid by her estate? We own our home and have some money saved. Would her expenses fall on me or the estate to liquidate to pay off? — Reader, via email

DEAR READER: If there are liabilities when someone passes away, the assets (the estate) must be distributed under the appropriate laws to the creditors. You mentioned a home. If the home has been titled "tenants by the entirety," which is available only to husband and wife and not in every state, then the house would be outside of your wife's estate. On the other hand, if it is in both of your names, the court may very well decide that her half of the estate would have to go to settle her debts. In most, if not all cases, they cannot force a sale as long as you are alive. Other assets such as bank accounts are another matter. Whatever interest she has makes up "her estate," and if she left behind debts, those monies would have to be used to settle those debts.

Send your questions to Smart Money, P.O. Box 2095, Elfers, Fla. 34680. E-mail to Questions of general interest will be answered in future columns. Owing to the volume of mail, personal replies cannot be provided.

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