I Just Turned 26. Should I Liquidate My 401K to Pay My Debt.


“Dear Steve,

Steve, I just turned 26 and currently have $5,700 in a 401K from a job I recently left (for a new one). I make about $38K per year and have $11K in credit card and $3K in car debt. I am getting married in April of next year and will probably add another $10K to my debt at that time. We would also like to buy a house the year after that and will need a down payment. I currently pay about $550 per month toward my debt.

Knowing my future expenses, should I liquidate my 401K to pay off my car and some of the credit cards to get out of debt quicker and begin saving for our future?


Dear Carie,

The only time that you should liquidate your 401K to pay debt is the same day that you set your nose hair on fire for fun. In other words, never.

Your 401K might look tiny now but trust me, you will be amazed how big that will grow in the next 40 years if you add to it, and never drain it.

Is your beloved bringing debt into the marriage? What do your combined incomes look like? Is your spouse going to shoulder some of the additional debt related to the marriage?

Post your responses in the comments section. Let’s talk this through.


You are not alone. I'm here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don't give up.

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6 thoughts on “I Just Turned 26. Should I Liquidate My 401K to Pay My Debt.”

  1. What about borrowing money from your 401K? I’m still putting in money and repaying the amount borrow?

    Do you suggest doing that to pay off debt?

  2. hows your 401 k doing these days steve o you just like the other fat cats on wall street are to put it plain and simple are a crook in a silk tie.
    With the economic turmoil your better off cashing out taking the losses and jumping ship..
    Your ship is sinking and you people instead of fixing holes expect us normal people to get out a bucket and start bailing water…while having morons like yourself try to mend the financial situation with patches of bubblegum while another one of you silk tie morons steer the boat into another reef full of shark infested waters.

  3. My biggest concern is the credit card debt. My interest rates have increased to 24% and that is a crazy amount of interest to pay on $13k. I can’t even afford to move out on my own because I couldn’t afford full rent with paying $600 just on my credit cards.

    The $12k for the wedding is basically just an estimate and knowing the people I am inviting I will make most of my money back that day. I will most likely be spending closer to $8k or less after shopping around. I’ll be able to save the money once my credit cards are paid off but right now it seems even when I pay above the minimum I’m only paying interest.

    Only about 1/2 of my investment in the 401k was my investment, the rest was the match from my previous employer.

    • I’ll stand by my answer but you are free to do whatever you want to. It’s your life.

      Personally, I think cleaning out the 401k is a terrible financial mistake. But I think the temptation to do it is going to be too great for you. The bigger mistake is paying all that money for a wedding at the cost of sacrificing money protected from creditors in a 401K and the free money from the matching funds. If you cash out that plan now, by the time you retire it could be worth $100,000 and that’s what your sacrificing for a short term burning desire.

      It concerns me that you say that only half that investment is yours. Honey, it’s all yours. It is money you invested by direct deposit or through the benefit of having that job and an employer that matched. Expect to see future employers eliminating matching programs. They all ready are.

      If you do cash out the 401K don’t forget you are going to lose 30% to taxes and penalties for early withdrawal. That’s money you are just throwing away.

      Invite some good friends and get married on the beach for free.


  4. I just read this question and my situation is almost exactly the same. I turned 26 last week. I make about $40k per year and I have $13k in credit card debt and $17k in car debt. I am getting married in about a year and a half to two years, which I am paying for on my own so that will probably add another $12K to my debt.

    My fiancé is a full time college student and won’t be graduating for another 2 and a half years. He has no income and there’s no guarantee he’ll be able to contribute right away after graduating.

    I am paying about $1000 per month towards everything. All of my credit cards are maxed out and I have no savings. I have about $3500 in a 401k from a previous employer and was thinking about cashing it out to pay off my cc with 24% interest and put something in my savings so I have a back up.

    I did get a second job for about a month but I’ve had some health issues come up and was forced to quit.

    I automatically have 6% of my income from my current employer deposited into a new 403B, so I will not be touching that. Please help me figure out what to do!

    • Cashing out the 401K to pay off the debt is a plan, but it is simply shifting the current financial worries from today to some point in the future when you might need that money and all that it grew to, to take care of you.

      Let me ask you a very touchy and tender question. I understand that the wedding is an important event but it sounds as if you are investing a lot of money in a one day dream that could instead be used to eliminate your high interest rate credit card debt instead? Wouldn’t it be better to start with less debt than sacrificing your investment and huge penalties for taking the money out?



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