Is it a good idea to pay off credit card debt by taking a withdraw from a 401k account?

Recently divorced, had to use credit card to buy furniture, household items, etc. I bought a house, but had to use the equity to purchase a new furnace this past winter and replace the windows. I have about $10000 in credit card debt, and I have $84000 in my 401k.
Is it a good idea to pay off credit card debt by taking a withdraw from a 401k account?
Well...no not really. You will pay approximately 25% of your withdrawal in penalties and taxes. Unless you "loan" the money to yourself. Some 401k's allow this.
Reply:Not really. Not if you can afford the payments and a little extra. Focus on the smallest card first and as soon as its paid, snowball that amount into the next smallest card.





A 401K withdrawl involves income tax and penalties.... a minimum of about 30% in fees. That's HEFTY. For 10K in card debt you lose over $3000.





A 401K loan is not much better. Yes, you are "paying yourself interest" but then on top of that you're not EARNING the interest you would have gotten, so its costing you twice as much as you think it is.





Btw-- furniture and windows, unless the windows were broken, aren't necessities. I have old school aluminum single pane windows and will be replacing them one at a time as I have the funds.
Reply:I would let the Credit card debt go into collections if they havent yet and then settle them for 50% or as low as you can get.. Just pretend you don't have the money and offer half....you'll save alot of money.. Leave your 401K alone, the credit card companies don't need it that bad just settle with them...
Reply:I think it is an excellent way to borrow.


The interest rate is much lower than your credit cards and you will be paying the loan back. The way I see it if you can't afford to live today it doesn't really matter about tomorrow....there may not be a tomorrow.
Reply:Absolutely! I had to do this, too. You end up repaying yourself with interest. The credit card companies don't need your money.


You can only do one at a time, though. Plan ahead.
Reply:I would say no because the taxes that you will pay in you withdrawal will be the same if not more that the interest that you are going to pay on the credit cards, I would look into trying to find credit cards that have lower interest rates or ones with 0% for a limited time transfer the balances and then pay what you can every month when the 0% period is over than look for another card that you can transfer balance for 0% until you can get them paid down, remember to look and make sure that credit offer clearly stats 0% on balance transfers, if you would like help finding these cards than look at my profile for a site that will lead you in the right direction! Best of Luck I hope that this helped you !
Reply:It matters how old you are. If you're young, you could do what I did, I took a loan out of my 401K. This was not just taking the money, because I would have paid a penalty, but I borrowed it as a loan, and I am paying it back out of each paycheck. I had to buy a car, and the one I wanted was just a little more than what I had available to me, and what that plus my trade in would get. I chose to get the newer model, thus I had to borrow some. Rather than pay all the interest to the car company, I got the 401K loan, and sent the car loan company the full balance, and now I'm paying back the remaining balance to my 401K. In the end I will have paid myself more than what I borrowed. I am only 31, so I figure it's okay, it's not going to hurt my 401K in the long run. But then, I have a small loan. I took out $2,100 and am paying it back over 2 years. I worked it out so that I only took away what my raise was last fall, so I still have what I made prior to that, and I can still live just fine. When I get my property tax refund, I will pay some of that towards my 401K loan, so that I can pay it off quicker than 2 years.





Now, for your situation, I'd say never take out money just taking it out, you'd pay a penalty. I would look into seeing if you could afford to take a loan from your 401K. If you're within 10 years of retirement, I'd say, don't do it, since the amount you would owe back to yourself is a lot, but if you're young, and could afford a rate to pay that back to yourself within 5 years or so, then I'd go for it. Why pay the interest rate to the credit card company, when you can pay it to yourself??? Good luck with it.
Reply:You will pay tax and early withdraw penalties if you do that. Your probably better off paying the card off by making more than the min payment if the interest is low enough on your card. you can negotiate a better interest rate with the card co.
Reply:I heard if you do that you have to put that money right back in your 401k account. I dont know how you would do that!