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IRA Financial Blog

How to Consolidate Your Credit Card Debt with Your IRA/401(k) – Episode 405

Adam Talks

In today’s episode of Adam Talks, Adam Bergman, Esq. discusses strategies for reducing your credit card debt using your IRA or 401(k) plan.

How to Consolidate Your Credit Card Debt with Your IRA or 401(k)

In this week’s episode, IRA Financial’s Adam Bergman discusses strategies for consolidating credit card debt using retirement accounts. He highlights the significant national credit card debt approaching $1 trillion and the high-interest rates associated with it. Bergman emphasizes the importance of finding ways to reduce this debt, especially with rising interest rates.

One strategy suggested is borrowing from a 401(k) plan, either through an employer-sponsored plan or a Solo 401(k) for self-employed individuals. This option allows individuals to borrow up to $50,000 or 50% of their account value, helping them pay off credit card debt and potentially reduce interest rates from 22-25% to around 8.5%.


Another option discussed is taking hardship distributions from retirement accounts. This option can be used by individuals facing financial distress due to medical expenses, disability, or other circumstances. While these distributions are subject to taxation, the usual 10% penalty is exempted, providing some relief.

Bergman also mentions Rule 55, which allows individuals aged 55 or older who have left their job to withdraw funds from their 401(k) without paying the 10% early distribution penalty. However, taxes still need to be paid on the withdrawn amount.

Bergman also mentions options for using Roth IRAs and Roth 401(k)s to pay off debt, highlighting the flexibility and ability to access contributions when needed. However, there are specific rules and restrictions for withdrawals from these accounts.

Overall, Bergman emphasizes the importance of finding ways to consolidate credit card debt and reduce interest rates. By utilizing retirement accounts and exploring options such as borrowing from a 401(k) or taking hardship distributions, individuals can potentially save a significant amount of money and regain control over their debt. It is crucial to consider the specific rules and regulations governing each option before making any decisions.


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