Question by  DavidBBoone (23)

Is it a good idea to cash out a 401k to pay down a credit card debt?

I know it's bad to pull money out of your 401k but, credit card debt is bad too. Which is worse?


Answer by  HawaiianGirl (6906)

No, it's not a good idea to take your money out of your 401k. Put any extra money you may have towards your debt and cut up your credit cards!


Answer by  timeismoney (994)

Pulling money from a 401K is a greater mistake than owing credit card debt. The tax consequences of taking money from a 401K are an tax on the amount you withdraw equivalent to your tax bracket and a loss of future income from 401K assets.


Answer by  richmiller3214 (138)

I would not reccommend cashing out a 401K to pay down credit card debt. The potential for earnings are greater in the 401K than the cost of the credit card debt. Only cash out a 401K in a severe emergency because you may miss out on larger financial opportunities that arise.


Answer by  Jennk (388)

It's never a good idea to take money out of your 401K, however if your interest rate on the credit card is high enough, go for it.


Answer by  cabby (49)

Financial advisors advise against touching the 401K due to the heavy tax penalties that occur. Plus it is money that is used to invest and make more money.


Answer by  sm (34)

Since a premature cash out fee is applied; cashing money out of a 401K hurts ones wallet by reducing the magic of compound interest on capital. Their are other ways to eliminate credit card debt besides pulling from the sacred pool of retirement savings.


Answer by  Daigle83 (66)

It's far better to leave your 401K alone and continue to pay down your credit with the means you currently have. Cashing out your 401K robs the account of its time to accrue and there is a penalty with cashing it out.

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