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Americans plunge into savings accounts to pay current bills

Financial observers have noted an emerging trend: An increasingly large number of consumers are beginning to accumulate debt and dipping into their 401(k) accounts to pay avoid taking on even more debt. A shocking one in four Americans has dipped into a retirement account to pay bills, with many tapping into IRAs and other funds simply to pay credit card bills and avoid personal bankruptcy.

With an increasing number of U.S. residents faltering under massive medical bills, student loan debt and other financial issues, many are facing bankruptcy if they don't have the funds to unload their debt.

Some reports indicate that this revelation could indicate that many households remain in financial distress, despite some signs of economic recovery. If people are unable to pay their bills while they have steady paychecks coming in, it is unlikely that they will find the funds to take care of themselves later in life. Borrowing against retirement money accounts for more than $70 billion in annual withdrawals nationwide.

Withdrawals from retirement accounts often come with large penalties when tax time arrives; taxes can be levied on earnings and principal, depending upon the type of retirement account involved. This can derail even the most modest retirement savings plan, according to experts, because the losses directly affect future earnings.

In addition, older people are carrying more debt than ever, with those over 50 holding nearly $8,300 in credit card debt, compared to just over $6,200 carried by younger consumers. That significant debt increases the likelihood of borrowing against retirement accounts.

If you find yourself in a financial situation that requires you to borrow against your retirement savings, it may be a wise long-term decision to consider pursuing personal bankruptcy. Chapter 7 and 13 bankruptcy options can provide financial relief that can get you back on track toward your savings goals without depleting the valuable resources you have saved for your future. Considering other options before tapping into retirement accounts can help ensure that your golden years are spent in security and comfort.

Source: NBC News, "More Americans raiding 401(k)s to pay the bills," Chris Jansing, Jan. 16, 2013

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