Throwaway for obvious reasons.
I’m 33 and have about $25,000 in credit card debt. I’m trying to decide the best way to eliminate it. My fiancé and I plan to have a child within the next year, and I’d like to be debt-free before then. Right now, the credit card payments make it very difficult to build any savings.
Current situation:
- Credit card interest: ~$550/month
- My payments: ~$1,100/month
- At current balances and rates, payoff is ~2 years 3 months with ~$8,400 in interest
Retirement accounts:
- $136k pre-tax 401(k)
- $9k Roth IRA
- $42k outstanding 401(k) loan
- I recently changed jobs, so the 401(k) and loan are currently sitting with my former employer
- I plan to let the 401(k) loan lapse, so that balance will be absorbed by the account
My question:
Before rolling this 401(k) into my new employer’s plan, does it make sense to take a distribution to wipe out the credit card debt, despite the taxes and penalties? I understand the long-term cost to retirement, but I also have time to rebuild contributions.
My concern is that once we have a child, I may only be able to afford minimum payments due to childcare costs, which would significantly extend the debt.
Common clarifications:
- I understand a 401(k) distribution would be subject to income tax + 10% penalty
- I am not eligible for a hardship withdrawal under current rules
- Balance transfer cards would be an option but I have one from less than 2 years ago, and I cannot get approval for more at this time, I have tried.
- Personal loans may be an option, but from what I’ve seen the interest rates are similar to the credit card, would only be good for consolidation.
- Budget cuts alone won’t meaningfully accelerate payoff beyond current payments
- This is not about lifestyle spending — it’s about choosing between a known interest cost now vs. a known retirement hit
Is using the 401(k) a viable option here, or is this a short-term emotional decision that will cause disproportionate long-term harm?
Appreciate any objective advice — trying to make the least bad decision.