ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Can You Withdraw 401(k) Retirement Money to Pay Off Credit Cards?

Updated on August 19, 2010

Outstanding credit card debt can quickly leave you in a desperate position, Threatening letters and persistent calls from debt collectors quickly wear down many consumers who decide to dip into their 401(k) retirement funds early rather then endure the weight of their unpaid credit card debt on their shoulders any longer. Unfortunately, just because you want to access your 401(k) retirement funds early, there is no guarantee that your employer will grant you the privilege 


Hardship Guidelines for Early 401(k) Withdrawals

If you choose to withdraw money from your 401(k) early just to pay off your steadily increasing credit card debts, you’re likely to face a brick wall when you make the attempt. That’s because, even if your employer wanted to give you access to your retirement money, employers are limited by federal laws regulating who is and is not eligible to cash out their retirement investments before retirement.

In general, you can use a “hardship” excuse to access your money early in the following situations:

  • If you’re buying a home. You can put money you withdrew from your 401(k) into the purchase of your first home as a down payment or closing costs. If you plan to use the money for another purpose that is directly related to your new mortgage acquisition, ask your 401(k) administrator before doing so. 
  • Medical expenses. Only your medical expenses and those of your spouse and children qualify. 
  • To repair damage to your home. In most cases, the damage must be significant enough to render the property uninhabitable.
  • As college tuition for you, your spouse or your children
  • To prevent foreclosure of your primary residence. In otherwords, you can’t get a 401(k) early withdrawal if the bank is closing in on rental or vacation property you own. 



No Provisions Exist to Cash Out a 401(k) for Credit Card Debt

As you can see, the rules regarding what you can and cannot access your 401(k) funds early for do not include liquidating retirement assets merely to pay off overdue credit card debt. If the overdue credit card debt results in the credit card company sending your account to a collection agency which subsequently sues you, places a lien on your home and then uses the judgment lien to initiate foreclosure, THEN you would be able to withdraw your retirement money early. 


A 401(k) Loan May Be the Answer

While you can’t claim an early withdrawal to access the money stored away in your 401(k), you can borrow against it – provided you haven’t yet reached your borrowing limit. Interest rates on 401(k) loans are typically low. Remember, however, that low interest isn’t necessarily a good thing, since you’re paying the interest back to yourself rather than a traditional lender. This could cost you more in the long run.


Ultimately, taking the time to calculate how much money you’d lose in retirement by taking a 401(k) loan rather than an early withdrawal should tell you if it’s a wiser financial decision to just pay off your credit card bills with the loan money or let the credit card company do its worst. Regardless of which decision you make, make sure to pay the credit card company rather than a collection agency. Paying collection agencies rarely does anyone any good, and it doesn’t improve your credit score!


Comments

Submit a Comment

No comments yet.

working

This website uses cookies

As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://hubpages.com/privacy-policy#gdpr

Show Details
Necessary
HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
LoginThis is necessary to sign in to the HubPages Service.
Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
AkismetThis is used to detect comment spam. (Privacy Policy)
HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
Features
Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
MavenThis supports the Maven widget and search functionality. (Privacy Policy)
Marketing
Google AdSenseThis is an ad network. (Privacy Policy)
Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
Index ExchangeThis is an ad network. (Privacy Policy)
SovrnThis is an ad network. (Privacy Policy)
Facebook AdsThis is an ad network. (Privacy Policy)
Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
AppNexusThis is an ad network. (Privacy Policy)
OpenxThis is an ad network. (Privacy Policy)
Rubicon ProjectThis is an ad network. (Privacy Policy)
TripleLiftThis is an ad network. (Privacy Policy)
Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
Statistics
Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)