Should I Cash Out My 401k to Pay Off My Credit Card Debt? – Chad

“Dear Steve,

I have 30K in credit card debt, and I own a house. My property taxes went up 2k this year, and I can no longer put money in the credit card to pay down the payment. All my available income goes towards house payment and insurance, and taxes. I can make mimimum payment on credit cards. Should I cash out my 401k, which has 17k in it.?


Dear Chad,

You should only do this if you want to lose a **** load of money from your retirement fund.

It does not make any sense, no sense, not a lick of sense, for you to tap funds, which are protected from your creditors to pay off credit card debt. You need to leave that money in there and let it grow again, and it will.

Let’s say you didn’t listen to me and made a really silly move and cleared out your 401K. Not only will you have an early withdrawal penalty to pay, but the only way it will retire your debt would be if you decided to do a lump sum debt settlement. But I am not convinced that the clear funds after nuking your 401k are going to be enough to settle.

You’d be much better off looking to see if a debt management plan provides you with any relief, and if not, consider a Chapter 13 bankruptcy so you can keep your house and slash a bunch off that credit card debt off and pay what you can really afford.

While clearing out the 401(k) account seems like a good idea – it’s not. Bankruptcy might not seem like a good idea – but it is. Seriously Chad, got get a free bankruptcy consultation with a local bankruptcy attorney and then weight your options.

If the attorney does not hit you upside your head for wanting to clear out the 401k, come back here and I’ll give you a good whack.


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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.
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