Over $100,000 In Debt, Cash Out My 401(k)?

Summary

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Podcast Summary: The Ramsey Show Highlights

Episode: Over $100,000 In Debt, Cash Out My 401(k)?
Date: January 24, 2026
Hosts: Dave Ramsey & Jade Warshaw
Caller: Anonymous

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Episode Overview

This episode tackles a familiar and urgent question from a caller facing over $100,000 in debt. She’s considering cashing out part of her 401(k) to address a $15,000 retirement loan and looking for advice on managing a mix of consumer, auto, student, and medical debts. Hosts Dave Ramsey and Jade Warshaw take a deep dive into strategies for debt elimination, emphasizing sacrifice and disciplined planning over quick-fix solutions like draining retirement accounts.

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Key Discussion Points & Insights

1. 401(k) Loan Dilemma

• Caller’s Situation: $30,000 in 401(k), $15,000 401(k) loan, option to cash out the remainder for a net $11,000 after paying off the loan.
• Dave’s Immediate Advice:
  • “You don't want to do that.” (00:37, Dave Ramsey)
• Jade’s Explanation:
  • Cashing out incurs a 10% penalty, taxes, and halts investment growth.
  • Repeating the mistake compounds financial losses: “Let’s not turn around and do the same thing again and unplug the rest of the investment just to get $11,000 back. Let's solve the problem that we made on accident and let's solve it on purpose.” (00:48, Jade)
  • Recommendation: Pay the 401(k) loan back directly to avoid further penalties and risk.

2. The Debt Breakdown

• Types of Debt:
  • $15,000 401(k) loan
  • $15,000 credit card (fertility treatments)
  • $20,000 in car loans ($10,000 each for two cars)
  • $45,000 student loans (monthly payment: $800)
• Household Income: $140,000 (combined)

3. Strategizing the Debt Payoff

• Order of Attack:

  • Prioritize the 401(k) loan and credit card due to their impact and risks.
  • Discuss which debts to hit first (“In the Ramseyverse, things like IRS debt and 401(k) loans go to the top.” (03:40, Jade))
  • Assessing car loans and possible asset sales.

• Equity in Cars:

  • Both cars have estimated $5,000 equity each.
  • Dave suggests considering selling cars to free up cash and drastically reduce or eliminate payments:
    • “If we can sell one of the cars, get a hooptie for a short season…I would want to put that $15K back in there.” (04:45, Dave)

4. Budgeting & Creating Margin

• Current Margin: About $1,000/month
• Jade's Challenge:
  • “If I do it like this, it's going to take me five years… I'd reverse engineer that and say I want to be done with this in like two years, no more than two years.” (06:27, Jade)
  • Advise caller to calculate the monthly payment required to be debt-free in two years and find ways (budget cuts, extra income) to bridge the gap.

5. Sacrifice and “Scorched Earth” Approaches

• Dave’s Radical Suggestion:
  • Sell both cars and buy two $5,000 cars with the equity, minimizing payments and intensifying the focus on freedom from debt:
    • “That propels you into the intensity that I think you need to have … I know it's an extreme situation.” (07:28, Dave)
• Jade’s Personal Example:
  • “When Sam and I were getting out of debt, we did three very extreme things… We moved in with roommates, sold a car, and even sold all our furniture and slept on an air mattress. Very, very extreme. But it's a short term sacrifice for a long term gain.” (08:26, Jade)
  • Emphasizes the necessity of drastic temporary measures for rapid transformation.

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Notable Quotes & Memorable Moments

• “You don't want to do that.”
  — Dave Ramsey, shutting down the idea of cashing out a 401(k) (00:37)

• “Let's not turn around and do the same thing again and unplug the rest of the investment just to get $11,000 back.”
  — Jade, on learning from past mistakes (00:48)

• “In the Ramseyverse, there's certain things that we move to the top of the list…a 401k loan, I'd probably move that right up there because of the implications.”
  — Jade (03:39)

• “It's a short term sacrifice for a long term gain and it's up to you how bad you want to get out of it and how long you want that sacrifice to last. You gotta go extreme if you want to get out of it quick.”
  — Jade (09:09)

• “Scorched earth.”
  — Dave Ramsey, summarizing the intensity needed (09:26)

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Key Timestamps

• 401(k) Loan Issue & Advice – 00:09–01:48
• Debt Inventory – 02:03–03:12
• Prioritization & Ramsey Approach – 03:39–04:45
• Car Equity Discussion – 04:06–04:44
• Budgeting for Two-Year Payoff – 06:03–06:27
• Selling Cars/Going Extreme – 07:28–08:26
• Jade’s Extreme Debt-Free Story – 08:26–09:26

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Tone & Style

• Supportive, pragmatic, and sometimes tough-love—the hosts combine empathy for the caller’s situation with a no-nonsense approach to financial decision-making.
• Momentum is built around urgency and the virtues of disciplined, even “extreme” sacrifice to get out of debt fast.

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Takeaway

The key lesson: Do not sacrifice long-term security (like your 401(k)) for short-term debt relief. Instead, get radical with your lifestyle changes, create a concrete plan, and attack debt with unwavering focus and intensity. Sacrifice now so you can live free later.

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Transcript

[Dave Ramsey]

If your private student loans are in default, you're not out of options. Go to yrefi.com Ramsey I have a.

[Caller]

401K loan and I'm not sure how to proceed. Just given some different options. I just learned that I do have a cash out option. So, for example, the 401k is about 30,000. The loan is 15,000. Like, after all the math and everything, if I were to walk away from it and cash out my 401k, I would walk away with that loan being paid and they would cut me a check for $11,000.

[Dave Ramsey]

You don't want to do that.

[Caller]

Jade will make a smart decision.

[Dave Ramsey]

Well, that's. I'll start there. Yeah, I literally cut you off because I'll let Jade explain why. But you do not want to take this option.

[Jade]

Well, number one, you've. You've made. You've made a mistake, which is. Okay. We all make mistakes, especially when we don't know better. When you took that loan pre retirement, obviously you were hit with a 10% penalty and it's going to affect your income taxes. And you unplugged the investment, right? You unplugged the growth that has been accumulating. Knowing that. Let's not turn around and do the same thing again and unplug the rest of the, the investment just to get $11,000 back. Okay, let's solve the problem that we made on accident and let's solve it on purpose. So if I were you, the $15,000 loan, I just pay it back. I'd pay it back. Because the thing with 401k loans is obviously they're tied to your employer. And if for some reason you are fired, that loan becomes due. And it's got a time period on at that point. Sometimes it's a year, sometimes it's more. So that's why I don't like these hanging around. And if you knew that, that might be why you're considering this. But I would not unplug the rest of my growth to get out of this faster. I'm sure there's some other fees around that. So let's look at your income and let's look at what we can actually do to get this thing knocked out.

[Caller]

Sure.

[Jade]

So what is your income?

[Caller]

140 household.

[Jade]

Okay. And is this 401k loan? I'm guessing it's not your only debt. It sounds like you got up against it. So tell me about your other debts.

[Caller]

Yeah, so we do have some consumer debt. It's due to. It was due to Fertility treatments. Okay, so just racked up really quickly and we have baby. So that's great. But racked up really quickly. So we have some consumer debt. We're looking at about. So 15k for the 401k loan. About 15k in credit cards. That's putting the medical stuff on it. We both have a car. Payment total on the cars is 20.

[Jade]

Tell me broke. Break them down for me. The two.

[Caller]

Yeah, we. We both owe about 10 on each of our cars.

[Jade]

Okay. And that's it.

[Caller]

Other than that student loan debt, we're looking at about 800amonth. What's the total balance on that? I think we're. We're at 45, if I recall correctly.

[Jade]

Okay. And is that it or is there more?

[Caller]

That's it.

[Jade]

Okay. The 140k. Is that just you or that's you and your husband combined?

[Caller]

Combined.

[Jade]

Okay. Yeah. Congratulations on the baby. We've got to get. Get through this. And I think with the cars. Yeah, you're likely. It's best to just keep those and knock them out quickly. But I would. You've got the 15, 000 on the 401k and 15, 000. Or the credit. Are the credit cards. Is it one credit card or is it multiples?

[Caller]

It's one.

[Jade]

Okay. Yeah, I'm gonna. I would probably. I'm thinking about Ramsey Verse, and I know that in the Ramsey Verse, there's certain things that we move to the top of the list. Things like IRS debt and a 401k loan. I'd probably move that right up there because of the implications on it. If you're in the chats and you disagree with me, you can let me know later. But I'd probably get into that pretty quickly.

[Dave Ramsey]

Do you have any equity on the cars?

[Caller]

Yeah, we do.

[Dave Ramsey]

How much equity? Each car?

[Caller]

Yeah, the last list, the last thing we got from, like, Carvana or something. I can go to Kelly Blue Book later. But my car is worth about 15. There's about 10 left on it. And then. And that's why. Because we were working on the cars first, and I was like, we might need to recircle. 15, and my loan is about 10,000, and then his is. It's right about the same. 14. 15, and there's about 10 left on it.

[Jade]

Yeah.

[Dave Ramsey]

And the reason I asked those questions is because if we can sell one of the cars, you know, get a hooptie for a. For a short season. I'm with Jade because of the precarious nature of this 401k loan, I would want to put that 15k back in there. I really would.

[Jade]

I would probably. Since you have the. Since you have 15,000 on the credit cards and 15,000 on the 401k, I'd kind of view those as interchangeable. I mean, technically, you should do smallest to largest. How. I don't even want to ask you how stable your job is, but the point is.

[Caller]

Oh, let's.

[Jade]

Let's just say the point is it is stable.

[Dave Ramsey]

Okay, great.

[Jade]

Then let's do it.

[Caller]

And I know the answer to the question not to cut you off there. So if I were to leave, the payments would actually just come with me. It's not due immediately, so I have vetted some of those questions.

[Jade]

Good.

[Caller]

So it would just continue on. Right. Which isn't great, but, like. Good to know.

[Jade]

Yeah, it is good to know. But the goal here is for you to knock this out as quickly as possible. And that's going to. That's going to take some sacrifice on you guys. In 401k, loan aside, the debt in total is a problem. And so I'd be looking at ways that you can cut back your income. Have you guys gotten on a budget yet?

[Caller]

Yeah, we're in every dollar.

[Jade]

Okay, great.

[Dave Ramsey]

What are those car payments?

[Caller]

Car payments are. His is about 350. We look at my notes, and mine is 1, 182.

[Jade]

Yeah. Yeah. I'd be looking in there and saying, okay, what's our margin? Since you're in it, do you know off the top of your head what your margin is?

[Caller]

About a thousand a month.

[Jade]

Okay. So the way I would look at this is I'd look at a thousand dollars a month, and I go, oh, my gosh, if I do it like this, it's going to take me five years. Right. It's going to take me forever. So I'd work. I'd reverse engineer that, and I do the math on that and say, I want to be done with this in, like, two years. Like, no more than two years. And then I would figure out with your husband, how. How much do we need to pay on this every single month in order for us to be done with the entire amount of debt in two years? And then the equation becomes, if it's 20, you know, $2,000 or $2,500, you have to then say, okay, how do we then go get this money? I feel like that's a better way to attack this. That way, everything's on your terms. Based on it just kind of happening to you. You get to have real skin in the game and make, make a plan for what you want to happen and then go out and make that happen.

[Caller]

Yeah, absolutely.

[Jade]

Fair enough. So that's what I would do and I definitely would not take any of the options that you mentioned earlier that involve you clearing out the remainder of the 401k.

[Dave Ramsey]

Yeah, no, this is very doable now. It's not going to be fun. And I'm hinting around on the cars. I don't know if you're catching my hints with all these questions, but in. You guys are in, in a pretty rare situation when we get calls where people actually have some equity. And at this stage of the game, I wonder if it's not worth both of you selling your cars and buying two $5,000 cars. If that's the equity situation, if you can pay it off, if they're both worth that, that'd be something I would look at because that's going to free up some monthly money and that gives you that urgency to go, okay, I want to get out of this quickly. So you know, if you've got equity in the cars and I would double triple check all that and you can get out of there and get to walk away with some cash and pay cash for two cars. That's a. Listen that propels you and Jade, you could speak to this. That propels you into the intensity that I think you need to have to kind of go, oh, I don't love the fact that we just got rid of our car. And I know it's an extreme situation.

[Jade]

It's. You know what, you get to be extreme as you want to be. And you know, I'll push people towards the extreme because at the end of the day you're going to get stuff done faster. I was writing an article today for one of these outlets and I was saying how when Sam and I were getting out of debt, we did three very extreme things. Very extreme. We moved out of our, our apartment, moved into a townhouse and got roommates. It took our rent from $1,200 a month to $600 a month. We sold off. We are a two car family. We sold one, it was a 35, $34,000 H3 $435 a month payment freed up $435 and we didn't get a beater. Instead we just became a one car family. And. And then we sold off all of the furniture that was part of our rooms to go loan and instead we bought an air mattress and slept on that. So very, very extreme. But it's a short term sacrifice for a long term gain and it's up to you how how bad you want to get out of it and how long you want that sacrifice to last. You gotta go extreme if you want to get out of it quick.

[Dave Ramsey]

Scorched earth why refi Refinances Defaulted private student loans for struggling borrowers. Learn [e-mail] Ramsey.