- No credit check required.
- Borrow from your own retirement savings.
- Low interest rates, which you pay back to yourself.
- May face an early withdrawal penalty and tax obligations.
- If you lose your job, you may have to repay the loan in 90 days.
- Not all 401(k) plan servicers allow this.
Best for: People with robust retirement savings and the ability to repay the loan.
Borrowing against your retirement savings using a 401(k) loan is one way to pay off credit card debt. 401(k) loans allow you to borrow up to $50,000 or half the vested amount, whichever is less. You’ll have up to five years to repay the loan, and you must make payments at least quarterly.
Assuming you are confident you will be able to repay the loan, there are a handful of benefits to borrowing from your 401(k) to pay off credit card debt. You’re borrowing from yourself, so it will be fairly quick and easy to access the loan. Plus, your credit score will not be checked, and the loan will not show up on your credit report. Interest rates are low, and you’re paying interest back to yourself.
It can be tempting to borrow against your 401(k), but you shouldn’t make this decision lightly since you’re dipping into your retirement nest egg. Plus, if you lose your job, you’ll be forced to repay the 401(k) loan within 90 days. Otherwise, you’ll have to pay an early withdrawal penalty if you’re younger than 59 ½ as well as taxes on the loan.