I Want to Borrow From My 401K to Pay Off My Credit Cards. – Carmen

“Dear Steve,

I’ve been a subscriber for a couple of years. I don’t remember how I first found you.

I have $26,000 in credit card debt. There are four cards, the lowest interest rate is 9.9%, the highest is 24.24%. I’d like to take a 401k loan to pay them off. I have ~$60k in my 401k. I would take a 401k loan and pay it off in three years. I am 53 years old. My other debt is my first mortgage (underwater) and car loan.

Balance Rate
9,196.28 14.24%
6,453.99 24.24%
7,034.90 15.99%
3,875.23 9.90%

Should I take a 401k loan to pay off credit cards?


Dear Carmen,

Thanks for being a loyal reader and subscriber. Awesome to have you here.

In general I’m not a fan of the approach. I understand the feeling that it’s your money sitting there ready to use but it’s really earmarked for a later date.

So let’s say you took the money out now. The repayment of that money would hamper your ability to keep on saving and possibly even getting matching funds from your current employer.

I understand the argument that it’s your debt and you have a responsibility to repay it. I really, really do. But at the same time you are 53 years old without much in your 401(k) for retirement. We don’t know how long you will be able to work and save and there if sufficient social security will be available for you when you need it most.

Essentially what you would be doing is playing Russian Roulette with your finances to solve part of the issue. So let’s say you paid off the debt in full and robbed your future to do it. If you feel compelled to pay something on the debt then why not consider a debt settlement approach. Or if the house is that far underwater with the mortgage maybe it’s time to hand the house back and maybe file bankruptcy to get out from under all of that debt.

See also  Is It Dumb to Take a Loan From My 403(b) Retirement Account to Pay Off Debt? - Maura

You may have reservations about filing bankruptcy because it might not feel like a responsible thing to do but is setting yourself up for a future financial disaster in your old age when you can’t work or earn a more responsible thing? I don’t think so.

Before you raid the retirement money that is protected from creditors I’d suggest considering a debt consolidation loan and talking to a local bankruptcy attorney. You can learn more about available options by using the online How to Get Out of Debt Calculator.

Please post your responses and follow-up messages to me on this in the comments section below.


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Damon Day - Pro Debt Coach

Steve Rhode

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