Does it make sense to "cash-out" my 401K to pay off and close high debt credit cards?

The tax penalty may be a lot higher than the interest rate on the cards.

You may be better off paying the cards off at a faster rate than the bare minimum monthly payment.

It makes about as much sense as performing brain surgery on yourself.

Just taking the funds out of the account will result in a penalty of 20% or so. If you are not fully vested in your 401(k) then you will also lose any company matching funds. Then anything you take out will be taxed as income. Basically, you are looking at losing around 40% of what you take out.

Do this instead.
1. Call you credit card companies. Talk to them about your situation. Believe it or not, they will work with you. They may reduce interest, waive fees, or whatever. It is cheaper for them to reduce your interest then to send your account to collections.
2. Start paying off the highest interest card. Then concentrate on paying the next highest interest card. As you pay them off, put them away or cancel them.
3. Did I mention, STOP USING THE CREDIT CARDS!

And, most importantly, CUT the fat out of your spending.

Start writing down everything you spend money on every day for at least a month. (I would recommend three, but one will do to start.) Be honest, do not sneak in any 'treats'. At the end of each month total up what you spend your money on, and exactly how much you spend on those things.

Do you get an espressachinlatte every day to the tune of $4? That's $120 a month. Dedicate that to paying off your highest interest rate card every month instead, and you will have it paid off in no time.
What about your cell phone service? How much is that? $49? $69? Do you really need all those minutes? Do you really need a monthly plan? At $49 a month, that's $600 a year that could otherwise be used for paying credit cards.
"But, I need the cell phone in case of emergency." Get a pre-paid one. Virgin Mobile has about the best deal in pre-pay out there. It will cost you around $100 per year if you do not blabber away unneccessarilly. The caller ID works just fine on their phones, call them back from a land line.

What about Cable and Internet access? Do you really need all those movie channels, and on-demand? Scrap it. Rent a movie, or borrow from friends and coworkers. And, STOP buying DVDs, especially the boxes series sets. I mean with Seinfeld on 29+ times a day, do you really believe that you are going to take the DVDs out of the box? As to the internet, well if you cannot afford to pay your credit cards, well you cannot afford high speed. Get NetZero, PeoplePC, whatever. Dedicate the $40 you save a month to paying off your cards.

Do you go out for lunch every day at work? Take lunch with you two days a week or more. On average, lunch costs about $10 a day. Cutting that out two days a week will result in about $500 a year that you can use to pay off your debt.

It is not the big bills (car payment, mortgage) that hurt. It is the little stuff that eats away at your net income that really hurts.

Do yourself a HUGE favor. Leave your retirement alone.

No. Leave the 401K alone & get a second job to pay off debt, then quit.

The ONLY time cashing out a 401(k) for anything other than retirement even comes close to making sense is if the only option is losing your house. I would look at bankruptcy before cashing a 401(k).

well you'll be throwing away probably 30% of the money for taxes and penalty. How about just stopping contributions for now and using that money to pay extra on your credit cards. You'll actually be making whatever percent you pay on those cards. If card charges 18%, by paying it down faster, you're really making 18% on your money

If you are a home-owner, maybe take out a home equity loan to consolidate.

AS for the 401k, take out a loan against your 401k. Most 401ks allow this and the money is taken right out of your bank account. any interest you pay is actually paid to yourself. Call human rescources and ask them if this is available to you.

Once you payoff your loan that you made to yourself, you need to continue to contribute a bunch to your 401k to make up for the time lost on the money not in your retirement accruing interest.

no lets say you are in the 25%tax bracket to add that to the 10% early withdrawal fee and lets say you were only drawing 5.5 on your investments -- do you get the picture. downsize keep putting money in the 401 and pay off those high credit cards.

I'd rather have bad credit than ruin my retirement.

Absolutely not. That's your retirement money, if you run out later in life, you are stuck!

do not cash-out your 401k, you are earning interest on it all the time and the larger it is the more interest you will earn over time. to lower your credit card debt call the company first let them know you have an offer to consolidate your credit card debt and due to their high interest rate you are considering it, see if they will lower your interest rate to keep you (most of the time they will). Next look at your bills, see if you can pay extra towards the smallest bill, once you pay that off you can split the little extra between the other bills and keep doing this until they are all payed off. and before you impulse buy something (remember this is what makes money for credit cards) ask yourself ......do you really want it......will you really use it......and do you really need it. by the time you really think about these three questions most likely you will either not get it or save your money until you can buy it with cash.

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