I am 32, single, recently divorced, rent and currently have a FT, PT job and enrolled in school. I am about 35-40k in debt, making about 50-60k a year. I have about 10k in a 401k still sitting at a former employer. Right now I am just making minimum payments on my debts. My question is should I suffer the penalties now, pay the taxes and pay down the debt? This would allow me to save more into my current 401k and actually put money away in my savings? Any thoughts? :(

I have a couple of thoughts. I think you should focus your thinking on these points.

1. Are you a person who has saved in the past? A retirement account is a long term savings account and if you dispose of it, what is the likelihood you will be able to save that $10,000.00 again..
2. Is the penalty for withdrawing from a retirement account 15%? That is money you "throw away", and in addition, you have to pay taxes on what you withdraw for the income tax year it was received. That could be a substantial amount.

I don't see how you would benefit that much from wiping out your retirement plan. In my opinion it would be better to cancel credit cards and pay down the balances.

Good Luck in the future!

I agree. I would never, never take a retirement account an wipe it out for unsecured debt. At your income level you ma qualify for bankrupt guidelines. Now a days the bank crooks are selling off debt to their brothers, the DCA (debt collection agencies) and these DCA are filing civil suite in an attempt to get the money. Depending on your stat and the laws you might want to look into what options are available if you should not to pay your CC debt or default on your agreement.