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Category: Finance
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Experience:  40+ years experience in taxes and financial planning
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Please help...... I am in credit card debt, my yearly income

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Please help...... I am in credit card debt, my yearly income has dropped around 10% due to economy and being in sales, my credit card interest rates have doubled no fault of mine, I always pay more than minumum and on time. However, I cannot believe that I am up to around 35K in credit card debt. I am able to pay this off quickly in the next two years with modifying my budget and concentrating on doing this, however, I just feel the need to pay off at least one very soon to give me a quicker pay off time for others and save on this high interest monthly. I have approx 135K in my 401K, I am 48 years old, make 75K a year, and will increase as economy recovers, should I take 12K out of my 401K on a loan to pay off this high interest card at 15.99% and help me pay off other cards quicker, I just feel like I need to get down quickly to a smaller pay off amount, I appreciate your feedback or alternate ideas on best way to get out from under this credit card debt once and for all. Thank you

Welcome to Just Answer. I am here to help you resolve your tax and finance concerns. Please feel free to ask anytime you need extra help.


I would approach this in a different way. Since you expect to be able to retire the debt in two years without a withdrawal from your 401(K) which would be subject to tax and an early withdrawal penalty if you are under 59.5 years old, I would hesitate to withdraw from the 401(k). I would, however, be amenable to taking a loan from the 401(K). The loan will not be taxed. This will save when compared to the tax cost of at least 15% to retire a 15.99% credit card. You will need to make payments to the 401(K) but they will be less costly than the withdrawal choice because the interest rate is lower.


After that I would begin paying down the card with the next highest rate until it is paid off. Following that the card with the next highest rate, etc until all the credit card debt is gone.


By taking a 401(K) loan you save the interest rate and, as you make repayments, retain the value of your retirement funds.


If you wish to discuss this further or have any other ideas please feel free to let me know.

Customer: replied 6 years ago.

Hi Charles,


Yes, I was speaking of a 401K loan and not withdrawing the amount, my only concern is missing that 12K in my 401K that would be growing over the loan time not sure if even with the principle and interest that I would be paying back to 401K if I am short changing my retirement, do yoy know if borrowing this amount will effect my final 401K amount? I know I have to bite the bullet somewhere.


Thank you


It should not impact your 401(k) since the account will keep earning while you pay off the loan. For specifics on that you will need to check with the plan administrator since plans do vary.
CGCPA and 2 other Finance Specialists are ready to help you
Customer: replied 6 years ago.
Thank you Charles, I will do that and feel better about making this decision, I appreciate your time and advice.
Always happy to be able to help. Just remember to return if I can help any further. Also remember that while I can help you the decisions are yours to make.