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Should I Use My Retirement Plan To Pay Off Credit Card Debt?

Oh that credit card debt is hanging over your head and the collectors may be calling, “Should I use my retirement plan to pay off credit card debt?

You may be wondering how you are going to get a handle on your credit card debt. It seems like the payments are never ending, and you feel hopeless that you will ever be able to pay them off. You may even be asking, “Should I use my retirement plan to pay off credit card debt?

Should I use my retirement plan to pay off credit card debt?

Paying off credit card debt may be a simple solution if you have that amount in your retirement fund but you really should think about it awhile before you make that leap of faith. Although it may seem like the right thing to do at the time, with a little thought you may change your mind.

What happens when I cash out my retirement fund to pay off debt?

It is a noble aspiration to want to pay off debt, but you need to know what happens to your hard earned savings once you cash in your 401k. When you contribute to a retirement plan such as a 401k you are placing your money into an account that is sheltered from taxes. You have probably placed this money into the account through payroll deductions with pretax income, and that will be due at the time of withdrawal as well as a penalty.

What is the penalty for early withdrawal?

The penalty for early withdrawal from a retirement account is 10%. That amount will be deducted from your payout as well as taxes due before you receive your funds. That will greatly reduce the amount you will have to pay off those credit cards.