I have some credit card debt that I would like to pay off. I feel like I am throwing money away on the interest charges each month. I was curious to know if taking a loan from my 401k to pay off my credit cards is a wise thing to do?

Keep in mind this is all very new to me—from what I understand, if I borrow from my retirement account, then I am required to pay back the money I borrow + interest. So say I borrow 1,000 + 5% interest I would have to pay back $1050.

However since I am technically paying back myself, wouldn't it all be going back in to my pocket anyways? Meaning it would be better to take the $1000 from my 401k, pay off my debt (therefore, eliminate the credit card interest each month) and use that money I would be putting towards my credit card interest each month to pay myself back?

Is this a wise thing to do or am I missing something here?



For reference see this article. This article does an okay job of explaining why, but it could be better. To expand on point #4 if you lose your job, you will be forced to repay the loan in 90 days. If do not pay it back in time, you will be hit with your highest marginal tax rate and a 10% penalty. How does borrowing money at 40% interest sound?

Why do you have credit card debt? I'll give you the loving answer: bad behavior. The longer you hold this debt the more indicative it is about out of control behavior.

To remedy this I would recommend the following:

  1. Cut up all credit cards. You will need to be off of them for at least a year after paying off your debt.
  2. Get on a budget. You will stink at it a first, but start the process now.
  3. Get better at budgeting. Plan for things like Christmas and new tires
  4. Cut your lifestyle. No more eating out or vacations. Depending upon your intensity you can really reduce your expenditures for extra money to throw at the debt.
  5. Earn extra. Pick up side work
  6. See help. Use a pro like Dave Ramsey or Mr. Money Mustache. I really like the former. I really like the debt snowball program, it worked for my wife an I.

While you are behaving like most people (normal); most people are broke. Congratulations on having the desire to not be broke. Do you now have the courage to change? Having that courage could mean generational wealth building and freedom from debt.

As a reformed overspender it has meant exactly that for me and my family.

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