• Skip to main content
  • Skip to secondary menu
  • Skip to footer

  • Personal Loans
    • Signature Loans
    • Debt Consolidation Loans
    • Wedding Loans
    • Home Improvement Loans
    • Signature Loans
    • Medical Loans
      • Dental Loans
  • Business
    • Business Loans
      • High-Risk Business Loans
    • Business Credit
  • Home Loans
    • Home Equity Loans
    • Home Equity Line of Credit
    • Bad Credit Home Loans
    • First Time Home Buyer Loans
  • Bad Credit Loans
    • Tribal Loans
    • Installment Loans
    • Payday Loans
    • Car Title Loans
    • No Credit Check Loans
    • Emergency Loans
    • Same Day Loans
    • Short Term Loans
  • Auto Loans
    • Bad Credit Car Loans
  • Student Loans
    • Private Student Loans
  • Financial Help
    • Free Credit Score
    • Loan Sharks
    • Debt Relief
      • Debt Management Plan
      • Credit Counseling
    • Credit Repair
      • Credit Repair Companies
    • Calculators
      • Car Title Loan Calculator
      • Motorcycle Loan Calculator
    • Credit Monitoring Services
  • Reviews
    • Lenders
      • Bad Credit
        • Tribal Lenders
Home » Blog » Personal Loans » 401k Loans » Should I Use My 401(k) To Pay Off Debt?

Should I Use My 401(k) To Pay Off Debt?

May 17, 2020 by Brian Allen

tax penalties on 401k withdrawal

25% of people between the ages of 24-35 have taken money out of their 401(k) retirement plan to pay down debt – and taking some money from your retirement savings to pay off your debt may seem like a good idea if you’re not sure how else to get out of debt.

But is it really a good idea to use a 401(k) to pay off debt? In this article, we’ll explain everything you need to know.

Never Use Your 401(k) To Pay Off Debt – The Cost Is Just Too High

In almost every case, using your 401(k) to pay off debt is a bad idea. You’re raiding your retirement fund to pay for your immediate expenses – and you may be paying more to do so than you think.

First of all, there is a 10% tax penalty on all early 401(k) withdrawals – and the money is also taxed as ordinary income on your yearly tax returns, which could knock you into a higher tax bracket for the year.

But that’s not the worst part. Raiding your 401(k) could cost you hundreds of thousands of dollars in the long term. Read on to find out how.


Section 184 Lender Participation List May 2020

Huge List of HUD Section 184 Lenders (2021)

Brian Allen
February 14, 2021
Here’s the Latest List of Section 184 Housing Lenders In this article, we give you one of the largest list of HUD Section 184 lenders. If you qualify, a tribal lender can approve you once you meet all of the requirements. The section 184 loan is available in all counties for the following states: AKAZCACOFLHIIDINKS […]
best motorcycle loans online

Motorcycle Loans: How to Find the Best Lenders Online

Brian Allen
February 8, 2021
How a Motorcycle Loan Works Typically, when you take out a motorcycle loan, the collateral is the motorcycle itself. That means the lender retains the title to the motorcycle. If you don’t make the payments or fail to comply with the other terms of the loan (such as maintaining insurance on the bike), the lender […]
how to find bad credit business loans

A No BS Guide to Find Bad Credit Business Loans

Brian Allen
February 6, 2021

Finding a bad credit business loan shouldn’t have to be difficult. If good credit was required to finance a business, many business owners would never have opened their doors. The truth is that you can acquire funding even if you have bad credit, provided that you go to the right institutions to get it.

Review of Box Home Loans and Mortgages

Box Home Loans Review: Here’s What You Should Know

Brian Allen
February 4, 2021
There are so many different types of home loans and loan programs out there today that it can be hard for the average consumer to keep up. Fortunately, it’s not all as complicated as it seems. If you take a little time to learn the basics, you’ll be much better prepared for whatever type of […]

You’re Losing Out On Future Returns From Your 401(k), Too

Let’s say you’re 30 years old, and you withdraw $20,000 from your 401(k) to pay off a lot of high-interest debt. How much would that $20,000 be worth in 35 years, when you’d be ready to retire?

Adjusted for inflation, the average yearly return in the US stock market is about 7%, but we’ll use an even more conservative 5% yearly return. How much will it be worth?

The answer is $110,320.31. By withdrawing $20,000 to pay for your debt, you’ve essentially “lost” more than $90,000 in future returns – in addition to the tax penalties you have to pay.

Yes, you can mitigate this by contributing more to your 401(k) in the next few years – but it’s not always easy to do that, and the fact remains that taking money out of your retirement account at any time will harm your future returns.

Taking Money Out Of Your Retirement Accounts Should Always Be Your Last Resort

If you are in debt, don’t start thinking about raiding your nest egg yet. As you can see from the above examples, using a 401(k) to pay your debt down will result in high tax penalties and loss of investment returns.

So unless you have no other choice, do not take early distributions from your 401(k) to get out of debt. Instead, consider other options – like budgeting and paying down debt, reducing your monthly payments with a debt consolidation loan, or credit counseling. Consider your options, and you’re sure to make the right choice.


debt consolidation options for bad credit

Debt Consolidation Tips for Borrowers With Bad Credit

Brian Allen
February 14, 2020
In Debt Up To Your Ears? Here’s How to Get Out of Debt, Even if You Have Bad Credit. Acquiring and trying to pay off debts can seem like a game of whack-a-mole. Just when you think you’re about to pay one off, others pop up in its place. It’s an emotionally and physically exhausting […]
dental loans and financing

Dental Loans: The Ultimate Financing Guide

Brian Allen
February 26, 2019

When Dental Insurance Doesn’t Cover Procedures, You Might Need a Dentals Loan. Read These Tips Before You Apply for Dental Loans.


Brian Allen Financial Writer

Brian Allen

Editor-in-Chief

Brian Allen has been helping people make smarter financial decisions for over 10 years. As the Editor-in-Chief for Goloans, Brian writes about sage financial advice, “how to” articles, and reviews about lenders and creditors.

  • Twitter
  • Facebook
  • Pinterest
  • YouTube
  • LinkedIn

Filed Under: 401k Loans, Personal Loans Tagged With: 401k loans

Reader Interactions

Leave a Reply Cancel reply

Your email address will not be published.

Footer

Address

GoLoans
980 N. Federal Hwy
Suite 110,
Boca Raton, Florida 33432
Phone: +1 (561) 962-0091
URL: https://goloans.co/

Advertiser Discoslure

GoLoans is reader-supported. When you buy through links on our site, we may earn an affiliate commission

© 2018–2021 · GoLoans | About | Contact | Terms of Use | Privacy Policy