Use My Kid's College Fund To Pay Off My Debt?

Summary of Use My Kid's College Fund To Pay Off My Debt?

by Ramsey Network

8m•December 5, 2025
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Overview of Use My Kid's College Fund To Pay Off My Debt?

This Ramsey Network episode features a caller (George) who has reduced $90,000+ of consumer debt to roughly $65,500 in 10 months using the debt snowball. He asks whether he should withdraw money from two 529 accounts (about $11,500 total) to accelerate debt payoff, given his vehicles are the largest remaining balances. Hosts push back and give concrete alternatives.

Caller situation (summary)

  • Original debt: ~ $90,000 (10 credit cards + 2 vehicle loans).
  • Current debt: ~$65,500 after 10 months of progress; cut up 7 of 10 cards; 3 cards still have balances.
  • Vehicles:
    • Wife: 2022 Hyundai with ~$15,000 remaining on loan.
    • Caller: 2024 Toyota truck — purchased for ~$54,000 (out the door), currently owes ~$30,000.
  • 529 accounts: about $11,500 combined (one for a 19-year-old stepson who dropped out of community college and one for a 9-year-old). Caller was told he could roll the 19‑year‑old’s 529 into the younger child’s account.
  • Income: Caller after-tax ~ $72,000/year; combined household pre-tax roughly $120,000/year (~$7,000–7,500/month).

Hosts’ advice / main recommendations

  • Do NOT take taxable, penalty-bearing distributions from the 529 to pay consumer debt.
    • A non-qualified 529 withdrawal triggers income tax on earnings plus a 10% penalty — the hosts estimate the $11,500 could shrink to about $7,000 net after taxes/penalty and lost future tax-free growth.
    • Keep the 529 invested for the younger child (about 8–9 years until college) — it will likely grow considerably by then.
  • Sell the depreciating asset (the 2024 truck) instead of using the kid’s college money.
    • The truck was bought pre-FPU and is framed as an emotional purchase; selling it would free up principal and reduce monthly payments.
    • Consider selling other vehicles if needed (or downsizing) to eliminate vehicle debt.
  • Continue and accelerate the debt snowball strategy: throw extra income toward smallest debts and maintain progress.
  • Work extra, sacrifice short-term lifestyle choices rather than tapping college savings.

Why the hosts recommend this (rationale)

  • Tax and penalty hit plus lost tax-free compounding on 529 funds make early withdrawals costly.
  • Vehicles are depreciating assets; selling them converts a sinking value into cash to eliminate loan principal.
  • The caller’s truck purchase was considered emotional and counterproductive to debt reduction; correcting that choice is preferable to sacrificing the child’s future.
  • Behavioral finance: preserving the 529 preserves motivation and long-term goals while debt reduction can be achieved by cutting other expenses and selling assets.

Quick numbers & estimates

  • 529 balance: ~$11,500 → after taxes and 10% penalty and loss of growth, net might be only ~ $7,000 (hosts’ rough estimate).
  • Truck loan: owes ~$30,000 on a vehicle bought for ~$54,000 — selling could significantly reduce debt load if sale proceeds cover principal.

Action plan (recommended steps)

  1. Do not withdraw from the 529 for debt payoff. Keep funds invested for the younger child.
  2. Sell the 2024 truck (primary recommendation). Apply sale proceeds to eliminate or reduce the truck loan.
  3. If needed, consider selling the wife’s 2022 Hyundai or downsizing vehicles to free additional cash.
  4. Continue the debt snowball: apply extra income, bonuses, and side‑work to payoff order.
  5. Rebuild 529 contributions after debt is under control and continue prioritizing long-term wealth building.
  6. Maintain financial habits learned in FPU (Financial Peace University) and keep communication with spouse about finances.

Notable quotes / soundbites

  • “I would not crack open my child's piggy bank to essentially make my truck payment.”
  • “Sell the truck, work extra. I would not touch the 529.”
  • Hosts framed the truck purchase as emotional spending made before learning FPU principles.

Final takeaway

Using 529 money to pay consumer debt is costly (taxes + penalty + lost tax-free growth) and not recommended. Sell depreciating vehicle(s) and continue the debt snowball and short-term sacrifices to finish baby step 2 — then rebuild college savings.