Is Using a 401k or IRA to Pay Off Credit Card Debt a Bad Idea?

When credit card debt causes problems for your budget, you may consider withdrawing money out of your 401k or IRA. If you have money sitting in a retirement account, it can be tempting to use it to overcome your challenges with debt. But how much will that delay your retirement and is it worth the penalties you’ll typically face?

In most cases, tapping your retirement accounts to pay off credit card debt isn’t advisable. The information here can help you understand the difference between retirement account hardship withdrawals and loans. We also explain why these solutions are usually a bad idea just to pay off credit card debt, when it’s acceptable and what you can do instead.

Rules for taking money out of your retirement accounts

Taking money out of a 401k

There are generally two ways to take money out of a 401k retirement plan:

1. A hardship withdrawal
2. A 401k loan

Not all plans 401k plans allow for hardship withdrawals. That’s up to your employer’s discretion. However, even if your 401k plan does allow for hardship withdrawals, credit card debt usually doesn’t qualify as a reason to make the withdrawal under hardship rules. The IRS…