# 401k Loan to Pay Off Credit Card? **URL:** \ **Category:** Factual Questions\ **Created:** [March 14, 2007, 9:07pm UTC](https://boards.straightdope.com/t/401k-loan-to-pay-off-credit-card/395941 "2007-03-14T21:07:33Z")\ **Posts on this page:** 10\ **Page:** 2
**Author:** ![Keeve](https://avatars.discourse-cdn.com/v4/letter/k/f07891/32.png) [@Keeve](https://boards.straightdope.com/u/Keeve)\ **Post date:** [March 15, 2007, 12:28pm UTC](https://boards.straightdope.com/t/401k-loan-to-pay-off-credit-card/395941/21 "2007-03-15T12:28:34Z")
[QUOTE=ratatoskK] The first couple of responses you got t your OP were from people who seemed not to understand that the interest on the 401K loan is being paid to **yourself.** [/QUOTE] That’s not how I see it. As I see it, the 401K is being paid to your **future** self. That’s an important distinction. I agree that the long-term picture would be that the 401K is better because at some point in the future the interest will be back in your own pocket. But in the short term, the higher interest rate means that the payments will be higher (unless you’re stretching them out longer). [QUOTE=ratatoskK, in the OP] we can really only afford the minimum payments at this time. [/QUOTE] Now tell me, if you can only afford minimum payments on the lower-rate credit card, how are you going to afford higher payments on the 401K? The fact that the interest will end up in your own pocket tomorrow isn’t going to help you make the payments today. ---
**Author:** ![Harmonious\_Discord](https://avatars.discourse-cdn.com/v4/letter/h/74df32/32.png) [@Harmonious\_Discord](https://boards.straightdope.com/u/Harmonious_Discord)\ **Post date:** [March 15, 2007, 1:17pm UTC](https://boards.straightdope.com/t/401k-loan-to-pay-off-credit-card/395941/22 "2007-03-15T13:17:22Z")
Consider the question of will the stopping of contributions while she is unemployeed to insure payments are met. Now if the employer is adding a 50% contribution, it will cost you much twowards the 401K in loss. It won’t if the company adds nothing to begin with. Do you lose the company matching contributions when the loan is being paid off. Whatever is lost in matching contributions is a loss forever like the credit card interest. The people that do this sort of thing can answer the questions I brought up, because they are questions I don’t know the answers too. I think they’re valid and relevent to your decesion. ---
**Author:** ![commasense](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/commasense/32/3017_2.png) [@commasense](https://boards.straightdope.com/u/commasense)\ **Post date:** [March 15, 2007, 3:00pm UTC](https://boards.straightdope.com/t/401k-loan-to-pay-off-credit-card/395941/23 "2007-03-15T15:00:20Z")
[QUOTE=IAmNotSpartacus] **commasense** You may have problems if you try to get a mortgage, as it sounds like you do not keep cards open for more than a couple of years. [/quote] Actually, that hasn’t been a problem, either. Although I took out my current home mortgage before I had any significant 0% balances, last year I got a six-figure home equity line of credit (larger than my mortgage) with no trouble. I’m using less than 20% of its capacity right now, but I still get several new 0% offers every month. > [@](#): > > Carrying a big balance comes with its risks, and the companies are just waiting for people in your situation to miss a payment so they can jack up the rate. It’s good you keep them on their toes. Beware of Universal Default clauses in your agreement, though I absolutely agree. This is not a game for someone living paycheck to paycheck. Although I think that a good credit rating may keep creditors from jacking up all their rates if you miss a single payment (I did miss one once by accident, and nothing happened), there are risks. If I really, _really_ had to, I could probably pay off all my CC debt, although it would be a pain, and would probably require some family help. But I’m satisfied that my financial situation makes that fairly unlikely. However, my point stands: if the OP can qualify for lower-interest cards, it might be possible to save some of the money now going to CC interest without screwing around with the retirement account. ---
**Author:** ![Duckster](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/duckster/32/1244_2.png) [@Duckster](https://boards.straightdope.com/u/Duckster)\ **Post date:** [March 15, 2007, 7:33pm UTC](https://boards.straightdope.com/t/401k-loan-to-pay-off-credit-card/395941/24 "2007-03-15T19:33:41Z")
[QUOTE=Bobalude] for what its worth, if you or your wife has contributed to a roth IRA (or possibly roth 401k contributions), you can pull out contributions to a roth IRA penalty free, tax free anytime. [/QUOTE] [You are incorrect](http://www.fool.com/money/allaboutiras/allaboutiras07.htm). ---
**Author:** ![Dag\_Otto](https://avatars.discourse-cdn.com/v4/letter/d/439d5e/32.png) [@Dag\_Otto](https://boards.straightdope.com/u/Dag_Otto)\ **Post date:** [March 15, 2007, 11:34pm UTC](https://boards.straightdope.com/t/401k-loan-to-pay-off-credit-card/395941/25 "2007-03-15T23:34:57Z")
[QUOTE=Duckster] [You are incorrect](http://www.fool.com/money/allaboutiras/allaboutiras07.htm). [/QUOTE] Are you sure about that? From that same [site](http://www.fool.com/money/allaboutiras/allaboutiras09.htm) : > [@](#): > > 1. I intend to retire at age 50. When I do, I’ll need income. Can I take money from my Roth IRA without paying any taxes or penalties? ---
**Author:** ![Duckster](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/duckster/32/1244_2.png) [@Duckster](https://boards.straightdope.com/u/Duckster)\ **Post date:** [March 16, 2007, 3:31am UTC](https://boards.straightdope.com/t/401k-loan-to-pay-off-credit-card/395941/26 "2007-03-16T03:31:56Z")
But you will still be liable for the tax. And **Bobalude** stated tax-free and penalty free. ---
**Author:** ![Gangster\_Octopus](https://avatars.discourse-cdn.com/v4/letter/g/a8b319/32.png) [@Gangster\_Octopus](https://boards.straightdope.com/u/Gangster_Octopus)\ **Post date:** [March 16, 2007, 3:40am UTC](https://boards.straightdope.com/t/401k-loan-to-pay-off-credit-card/395941/27 "2007-03-16T03:40:34Z")
Well, it isn’t a issue anymore, as she got a job today. Not a great one, but not bad and now we can get on some accelerated payment plan of our own. Thanks for all the advice. ---
**Author:** ![Sparklo](https://avatars.discourse-cdn.com/v4/letter/s/f17d59/32.png) [@Sparklo](https://boards.straightdope.com/u/Sparklo)\ **Post date:** [March 16, 2007, 3:42am UTC](https://boards.straightdope.com/t/401k-loan-to-pay-off-credit-card/395941/28 "2007-03-16T03:42:21Z")
[QUOTE=Duckster] But you will still be liable for the tax. And **Bobalude** stated tax-free and penalty free. [/QUOTE] Just to clarify, you can withdraw your contributions (not the earnings) from a Roth IRA at any time without taxes or penalties. See [http://www.americanfunds.com/retirement/ira/roth.htm#rules](http://www.americanfunds.com/retirement/ira/roth.htm#rules). Conversions are treated differently though. ---
**Author:** ![BobLibDem](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/boblibdem/32/3149_2.png) [@BobLibDem](https://boards.straightdope.com/u/BobLibDem)\ **Post date:** [March 16, 2007, 1:47pm UTC](https://boards.straightdope.com/t/401k-loan-to-pay-off-credit-card/395941/29 "2007-03-16T13:47:29Z")
A lot depends on what kind of return that you’ve been getting on the 401(k). If you were getting 15%, then that’s effectively what interest you’re paying (by paying, I mean denying yourself from earning). Unless you are quite conservative in your investing, you should be able to earn much more by keeping the 401(k) intact and paying off the card slowly. The other factor to consider is how guaranteed is your credit card rate? A lot of them have wonderful teaser rates, but then there is fine print like if they ever find out that you were late with any payment to any creditor, your interest rate goes to 24%. ---
**Author:** ![IAmNotSpartacus](https://avatars.discourse-cdn.com/v4/letter/i/cc9497/32.png) [@IAmNotSpartacus](https://boards.straightdope.com/u/IAmNotSpartacus)\ **Post date:** [March 16, 2007, 5:22pm UTC](https://boards.straightdope.com/t/401k-loan-to-pay-off-credit-card/395941/30 "2007-03-16T17:22:00Z")
[QUOTE=Sparklo] Just to clarify, you can withdraw your contributions (not the earnings) from a Roth IRA at any time without taxes or penalties. See [http://www.americanfunds.com/retirement/ira/roth.htm#rules](http://www.americanfunds.com/retirement/ira/roth.htm#rules). Conversions are treated differently though. [/QUOTE] This is correct, you have already paid taxes on _contributions_ to a Roth IRA, so indeed you are free to withdraw your principal at any time penalty and tax free. Withdrawing capital gains will incur fees, taxes, and penalties, no doubt. It would appear that **Duckster** is confused about what a Roth IRA is. At the end of the day, there are very, very few situations in which it is advantageous to pay loan interest to a third party instead of yourself. Of course, it’s always best to not pay any loan interest at all, but that is irrelevant to the matter at hand… [Previous page](https://boards.straightdope.com/t/401k-loan-to-pay-off-credit-card/395941.md?page=1)