Is it good to borrow against my 401K to pay off high interest credit cards?

Question

I have some high interest credit that we can never seem to pay down. We have not added to the balance in over a year though and I am more than willing to cut them up. Should I borrow from my 401K and pay myself back at 8% interest to pay off the cards?

Answer 1

Absolutely Not, unless you are in trouble financially

Answer 2

Withdrawing funds from your 401K not only hurts your future earnings potential in the long run, you will be faced with taxes in addition to an early withdrawal penalty. However, some financial institutions will let you borrow AGAINST your 401K using it as collateral. The interest rate should be more reasonable than the credit cards.

I would first take a look at your current spending habits and how you got there in the first place. Use any additional money after paying living expenses (food, rent, not Cable!) to pay down the credit cards. Look where you can trip expenses. Do you really need cable? Do you need 5,000 premium channels? How about the super speedy monthy internet fee? Is your cell phone plan realistic? Do you leave lights on when you're not in the room? Do you save spare change in a jar? (These are all examples, by the way.)

These are just a few things you can look at and will be amazed at how much extra money each month you can shave off your bills.

Answer 3

No, do not cash in your 401(K). It's absoultly the worst financal decision one person can make. It's like using a credit card that has 40% interest. You will be taxed for cashing out the 401(K) and you will have to pay back the loan at a certain time (usually 5 years) and pay a penalty that's around 10%. Also when and if you put the money back into the 401(K) that you borrowed, when you do retire you'll get taxed again!

Never cash out your 401(K)!

Cut up your credit cards, get on a budget, and start eating at home. List all your credit card debt from smallest to largest. Once you paid for rent / mortgage, utilties, food, pay the minimum on all the credit card bills except the smallest one. Whatever cash you have left avaiable, attack the smallest one until it's completly paid off, then pay the next one and so one.

Answer 4

Bad idea. People who shift credit card debt to loans tend to run the credit cards right back up and end up in an even worse financial situation.

Make a strict budget. Eliminate all the extras -- eating out, new clothes, cell phone, premium cable and internet, etc. Put every penny you can squeeze out of that budget on the highest interest rate credit card, while making minimum on the rest. When the highest interest rate card is paid off, move to the next till they are all paid off.

If you work at it, you can have it all paid off in 2 or 3 years.

Answer 5

Borrowing from your 401K is always a bad idea. Cut up the cards and use extra discretionary money to pay off the cards.

Answer 6

Before you touch your retirement, you should contact the credit card companies and see if they are willing to reduce your interest rate. It may take a couple of calls and requesting to speak to a supervisor.