Using a 401(k) loan to pay off credit cards
It usually saves a lot of interest. On $10,000 of card debt at 21.19% APR, the Federal Reserve’s average for all card accounts in its August 2026 survey, paying it off in 36 monthly payments costs $3,598 in interest. A 401(k) loan at 8% over the same three years costs $1,281, and that interest goes back into your own account.
| $10,000 repaid in 36 monthly payments | Monthly payment | Interest | Where the interest goes |
|---|---|---|---|
| Credit cards at 21.19% APR | $377.73 | $3,598 | The card issuer |
| Personal loan at 11.90% APR, no fee | $331.67 | $1,940 | The lender |
| 401(k) loan at 8% | $313.36 | $1,281 | Your 401(k) |
Both rates are averages from the Federal Reserve’s G.19 release of October 7, 2026 (August 2026 survey): the APR across all bank card accounts, and the average APR banks charged on 24-month personal loans. This is arithmetic at those averages, not an offer of credit from us or anyone else; your own rate, fees and term come from the lender. A 401(k) plan loan generally isn’t covered by the Truth in Lending rules (12 CFR 1026.3(g)), and its rate is set by your plan.
The two ways this goes wrong
The usual failure is that the cards fill back up. Then you have the card debt again plus a 401(k) loan, with your retirement money tied up in the plan that didn’t work.
The other is a job change. Your card balance doesn’t come due when you leave a job; a 401(k) loan usually does. If you can’t cover it by your tax filing deadline, the unpaid part is taxed, and on $8,000 still owed in the 22% bracket that’s $2,560 before state tax, more than the interest you saved. The leaving-your-job page has the full rules.
Unsecured card debt can be negotiated or, in the worst case, discharged in bankruptcy, while retirement accounts are generally protected from creditors. Moving the debt into your 401(k) gives up some of that protection. A nonprofit credit counselor or a bankruptcy attorney can tell you whether that matters in your case.
When a personal loan is the better trade
On the numbers above, the personal loan costs $659 more in interest than the 401(k) loan over three years. If you might leave your job in that time, think of that $659 as the price of not having a tax bill hanging over the move.
Put both side by side with your own numbers in the comparison tool, or check a personal loan rate to plug in a real number.
Questions people ask
Is it smart to use a 401(k) loan to pay off credit card debt?
It can cut your interest sharply. It goes wrong if the cards fill back up or you leave the job before the loan is repaid, and either can cost more than the card debt did.
What happens to the credit card debt if I default on the 401(k) loan?
The card debt is already gone, but the unpaid 401(k) loan balance becomes taxable income, plus the 10% additional tax if you're under 59½. You'd have traded a debt you could negotiate or discharge for a tax bill.