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Should I Payoff My Credit Cards With a HELOC or a 401(k) Loan? – David

“Dear Steve,

I have 2 high interest credit cards I want to eliminate quickly.I am considering obtaining a HELOC at 4.25% vs borrowing from one of my 401-k and repaying it at 6.25%. Do you have advice on which should be the preferred solution or do you have a better idea?


Dear David,

Leave the 401(k) alone. The interest you pay to borrow your own money is low but the loss in value you will experience by not having that money in there as the market grows will be huge.

The home equity line of credit (HELOC) is an option but I hate to see you secure more debt against the house, especially as housing values are still uncertain. If you were unable to make the new HELOC payment for some reason, you could lose the house.

My fist inclination would be to see what rate you could get with a debt consolidation loan from It is a peer-to-peer lending network that matches small lenders up with people that need a loan. I happen to be one of the many lenders that participates. LendingClub simply cuts the banks out of the loop and thus offers much better rates than a borrower can get elsewhere.

A debt consolidation loan from is not secured against the house and does not rob you of the future value of your investments in your 401(k). The LendingClub option would be my first choice, followed by the HELOC.

Remember, even if the debt consolidation loan may be at a slightly higher interest rate, that cost buys you the security of knowing you can’t lose your house if something happens and you can’t make the loan payments. There is a value to you in that.

Please update me on your progress by posting updates here in the comments section of your question. I’m very interested in how this works out for you.

P.S. Be sure to read ‘The Secret of Surviving Through Difficult Economic Times. What I Learned On My Journey‘.

About the author

Steve Rhode

Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.

1 Comment

  • Dave, I’m on the fence.
    A HELOC is deductible so compared to ‘high interest’ rate cards, virtually eliminates the interest debt. If your spending is truly under control, and payoff short, I’d not be so quick to rule it out.

    Yet, I’ve offered this advice and watched a person pay the cards with the HELOC, then charge them back up again, and snowball the debt into a lost house. Will a HELOC kill the debt or open Pandora’s box?
    .-= JoeTaxpayer´s last blog ..Frugal Friday Week 28 =-.

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