Should I take money from my retirement to clear debt… bad idea?

Seeking Advice
1

I have about $28k in credit card debt and another $8.5k in loans. I’m 31, and my credit score is 682. Last year, I lost my job and had to take a lower-paying one. Right now, I’m just making minimum payments, but the interest rates on these cards are brutal.

I’m working with Money Management International to set up a debt relief plan, which should help with my credit cards, but I still have loans stacking up interest fast.

I’ve been thinking about pulling $10k from my retirement account to clear my loans and start saving for a move later. I know I’ll pay taxes on it, but the idea of getting out of high-interest debt now feels worth it.

Is this a terrible idea? I hate where I’m at, and I really want to be done with this debt. I feel like I’m taking from my future self, but my current self needs the help.

2

Yeah, bad idea. You’ll get hit with taxes and penalties on top of losing future growth.

3

Most people say no, but honestly, I’d do it.

4

Mars said:
Most people say no, but honestly, I’d do it.

Since you already have six figures in retirement, it’s not the worst move. Losing $10k won’t wreck you.

5

Mars said:
Most people say no, but honestly, I’d do it.

That’s the tricky part… $10k now could be worth way more in the future if I leave it alone.

6

Caiden said:

Mars said:
Most people say no, but honestly, I’d do it.

That’s the tricky part… $10k now could be worth way more in the future if I leave it alone.

This is exactly why it’s usually a bad move.

7

Have you looked into taking a 401k loan instead of withdrawing?

8

Zariah said:
Have you looked into taking a 401k loan instead of withdrawing?

This. A loan wouldn’t trigger taxes, and you’d be paying yourself back. Most plans let you borrow up to $50k or half your vested balance.

9

@Vail
Yeah, at least the interest goes back into your account instead of to a bank.

10

Zariah said:
Have you looked into taking a 401k loan instead of withdrawing?

401k loans only work if you’re still with the company that holds your plan. Since this is from an old job, it won’t be an option.

11

If you haven’t signed anything yet, stay away from for-profit debt relief companies. They’re out to make money off you. Check out the National Foundation for Credit Counseling (nfcc.org). They’re nonprofit and actually help.

As for taking money from your retirement, you’ll owe taxes and penalties unless it’s from a Roth. It might not be the worst idea, but I’d talk to a financial advisor before making a move.

12

@Oswin
Thanks! I looked into MMI, and they’re a nonprofit with solid reviews. Definitely didn’t want to mess with any shady for-profit places.

13

Caiden said:
@Oswin
Thanks! I looked into MMI, and they’re a nonprofit with solid reviews. Definitely didn’t want to mess with any shady for-profit places.

That’s good to hear. Wishing you the best with it!

14

Caiden said:
@Oswin
Thanks! I looked into MMI, and they’re a nonprofit with solid reviews. Definitely didn’t want to mess with any shady for-profit places.

You could borrow from your 401k instead. That way, you’re paying yourself back and not losing retirement savings.

15

@Arun
Exactly. It’s basically an interest-free loan to yourself.

16

Caiden said:
@Oswin
Thanks! I looked into MMI, and they’re a nonprofit with solid reviews. Definitely didn’t want to mess with any shady for-profit places.

I used MMI to clear $75k of debt by the time I was 33. It was great.

As for pulling retirement money, most people will say don’t, but if your only other option is bankruptcy, it might be worth considering.

17

Honestly, this could make sense, but it’s probably not the best option.

Taxes and penalties could end up costing you as much as your credit card interest in the long run. You’d need to compare how much interest you’d pay over time versus what you’d lose in penalties and lost growth.

Debt can also affect your credit score, which could make it harder to get loans later, like a mortgage. But pulling from retirement could put you in an even worse spot financially down the road.

It’s not just a math problem though. The stress of carrying debt is real. If paying it off gives you some peace of mind, that’s something to consider too.

Personally, I’d look into borrowing against your retirement instead of withdrawing outright. That way, you pay less interest without losing your savings for good.

18

Never pull from an asset to pay off a liability unless you’re in survival mode.

19

I did it, and I can finally breathe.

My retirement plan let me take a loan and pay it back automatically through my paycheck. No penalties or taxes, and it worked out great for me. You should check if that’s an option for you.

20

Try for an unsecured loan to pay off the cards. If your credit score isn’t high enough, get a co-signer. And once you clear it, don’t carry a balance again.