$276.88. That is what a $15,000 card balance costs in the first month alone at 22.15 percent, the average rate on accounts assessed interest in Q2 2026 per the Federal Reserve G.19 release. Not the payment. The interest. And your retirement account sits right there, with a loan feature three clicks into the plan website.
How much does a 401(k) loan to pay off credit card debt actually cost?
On $15,000, a five year plan loan at 7.75 percent costs $3,141.26 in interest, and that interest goes into your own account rather than a bank's.
Your plan document sets the rate, not the market. The common convention is prime plus 1 percentage point. Prime was 6.75 percent on August 27, 2026 in the Federal Reserve H.15 release, putting a typical plan loan at 7.75 percent. Yours may price it differently.
At that rate, $15,000 over 60 months is a payment of $302.35 and total repayment of $18,141.26. Now hold that payment constant and send it to the card instead.
| Path on $15,000 | Rate | Monthly payment | Months | Interest | Total paid |
|---|---|---|---|---|---|
| Card, minimum only | 22.15 percent | Declining | 307 | $26,188.83 | $41,188.83 |
| Card at $302.35 a month | 22.15 percent | $302.35 | 136 | $25,893.97 | $40,893.97 |
| 401(k) loan | 7.75 percent | $302.35 | 60 | $3,141.26 | $18,141.26 |
The interest gap on $15,000 between the card and the 401(k) loan at the same $302.35 payment. Same money leaving your checking account. One route ends in 60 months, the other in 136.
That is the case for the loan. The rest of this page is the case against it, because most of what you will read argues the wrong point.
How much can you borrow from a 401(k), and for how long?
The IRS caps a plan loan at the lesser of $50,000, or the greater of $10,000 or 50 percent of your vested balance, repaid within five years.
Definitions. A 401(k) loan is money borrowed from your own vested plan balance and repaid to that same account with interest, usually by payroll deduction. It is not a withdrawal and is not taxed when taken. A plan loan offset is what happens when you leave a job owing a balance: the unpaid amount is subtracted from your account and treated as a distribution. A qualified plan loan offset is the narrower case caused solely by plan termination or severance, and it has a longer window to fix.
Per IRS Retirement Topics, Plan Loans, repayment must be within five years unless the loan buys a primary residence, in substantially level payments made at least quarterly. Plans need not offer loans at all, and yours may charge an origination fee.
Do you really lose market growth by borrowing from your 401(k)?
Far less than you have been told. The borrowed money is credited back at the loan rate, so you only give up the difference between that rate and the market.
This is the argument every other article leads with, and it is almost always stated wrong. The claim: pull $15,000 out and you forfeit the market return on it for five years. That would be true if the money vanished. It does not. It comes back in 60 level payments, each reinvested, earning 7.75 percent while it is out.
The honest comparison is a month by month simulation across a range of assumed annual returns. Assumptions, not promises.
| Assumed annual return | Leave it invested | Borrow and repay | Difference | Which wins |
|---|---|---|---|---|
| 4 percent | $18,314.95 | $20,045.79 | $1,730.84 | Borrowing |
| 6 percent | $20,232.75 | $21,095.28 | $862.52 | Borrowing |
| 7 percent | $21,264.38 | $21,646.43 | $382.05 | Borrowing |
| 7.75 percent | Break-even | Break-even | None | Neither |
| 8 percent | $22,347.69 | $22,216.05 | $131.64 | Leaving it |
| 10 percent | $24,679.63 | $23,413.44 | $1,266.19 | Leaving it |
The break-even assumed return is exactly the loan rate. Below it, borrowing leaves you with more. Above it, less. At an assumed 7 percent the entire opportunity cost is $382.05, and it points the other way.
Read that again. At a 7 percent assumption the opportunity cost argument is worth $382.05 and it favours the loan. It turns against you only above 7.75 percent, and even at an assumed 10 percent it costs $1,266.19 against a card costing $22,752.70. The wider trade-off is worked on paying off student loans early versus investing.
Price every option before you touch retirement money
The Debt Freedom Blueprint walks your full picture: what you owe, what each route costs, and the payment that actually ends it. Worksheets included.
Is 401(k) loan interest really taxed twice?
Yes, but only the interest, and the amount is small. On $3,141.26 of interest the double tax is $691.08 at a 22 percent marginal rate.
The mechanism: loan payments come out of pay you have already been taxed on, interest included. That interest lands in a pre-tax account, so decades later, at withdrawal, it is taxed as ordinary income again.
| Marginal rate | Loan interest | Cost of the second tax |
|---|---|---|
| 12 percent | $3,141.26 | $376.95 |
| 22 percent | $3,141.26 | $691.08 |
| 24 percent | $3,141.26 | $753.90 |
It is a real cost. It is also, at $691.08, roughly three months of card interest at 22.15 percent. Nobody should decide this on that line.
What happens to a 401(k) loan if you lose your job?
The unpaid balance is offset against your account. You can roll that amount over by your tax filing due date, including extensions, or it becomes taxable.
This is the genuine risk. Say you leave at month 24 with $9,684.28 outstanding, you are under age 59 and a half, and you do not roll it over in time.
| Marginal rate | Offset amount | Income tax | 10 percent penalty | Total hit |
|---|---|---|---|---|
| 12 percent | $9,684.28 | $1,162.11 | $968.43 | $2,130.54 |
| 22 percent | $9,684.28 | $2,130.54 | $968.43 | $3,098.97 |
| 24 percent | $9,684.28 | $2,324.23 | $968.43 | $3,292.66 |
There is an escape hatch, more generous than most people realise. IRS guidance on plan loan offsets says a qualified plan loan offset may be rolled into an eligible retirement plan by your filing due date for the year it is treated as distributed, including extensions. A six month extension moves that deadline too. The catch: you need $9,684.28 in cash, and someone who just lost a job usually does not have it.
What does the loan cost if you stop contributing to pay it?
Far more than the loan itself. Pausing a 6 percent contribution for 60 months forgoes $32,216.81 at an assumed 7 percent return.
Here is the part that stings. Picture someone who did everything right. Earning $60,000, they took the loan rather than run up more card debt. Never missed a payment. Cleared the card in five years exactly as planned. To afford the $302.35 a month, they paused their 401(k) contributions. Just for the five years. They meant to turn them back on.
They had been putting in 6 percent, $300 a month, matched at 50 percent, another $150. Over 60 months at an assumed 7 percent return, that pause costs $21,477.87 of their own contributions and growth plus $10,738.94 of forgone match. $32,216.81 in total. The match alone was $9,000 before any growth, money the employer was handing over free.
The cost of pausing a 6 percent contribution and its 50 percent match for 60 months on a $60,000 salary, at an assumed 7 percent return. The loan's double tax at 22 percent was $691.08. The expensive mistake was not the loan. It was what they stopped doing to pay it.
At an assumed 6 percent the pause costs $31,396.51. At an assumed 8 percent, $33,064.59. Every version lands in the same place: the pause is more than forty-six times the tax argument people spend their energy on.
That is not a story about being bad with money. It is a story about optimising the small number while the large one went unmeasured.
How should you actually decide?
Test the ordinary payoff first, then treat the loan as conditional on two promises you make to yourself and keep.
How to decide on a 401(k) loan in six steps
- Price the card at a payment you can make. Run your real balance and rate through the free credit card payoff calculator. If it clears in three years, stop here.
- Check the cheaper doors. A balance transfer or fixed-rate personal loan may beat 7.75 percent without touching retirement money. See personal loan versus credit card.
- Read your plan document. Prime plus 1 is a convention, not a rule. Confirm the rate, any origination fee, and how many loans are permitted.
- Keep your contribution at the match. This is the whole decision. If the payment only fits by pausing contributions, the loan costs $32,216.81, not $691.08. Borrow less instead.
- Stress test the job. Ask how likely a departure is in five years, and whether you could raise the outstanding balance in cash inside the rollover window.
- Cut the card up. A plan loan that clears a card you then reload leaves you with both. That is the most common way this ends badly.
Steps four and six are where this is won or lost. The interest math was never the hard part. If the answer to step four is no, a straight payoff plan on the card is safer even at 22.15 percent. Weighing this against building savings? See paying off debt or saving money first.
One last thing, plainly. I teach the mathematics. Plan rules vary, tax situations are personal, and a loan offset that turns taxable is a tax matter, not a math one. Talk to a tax professional before that deadline passes.
FAQ: 401(k) loans and credit card debt
Is it a good idea to take a 401(k) loan to pay off credit card debt?
On the interest alone it is hard to argue with. A $15,000 loan at 7.75 percent costs $3,141.26 in interest paid to your own account, against $25,893.97 on a card at 22.15 percent. It stops being a good idea the moment you pause contributions or leave the job.
How much can I borrow from my 401(k)?
The IRS caps a plan loan at the lesser of $50,000, or the greater of $10,000 or 50 percent of your vested account balance. Repayment must be within five years unless the loan buys a primary residence, in substantially level payments made at least quarterly.
What interest rate do 401(k) loans charge?
Your plan document sets it. A common convention is the bank prime loan rate plus 1 percentage point. Prime was 6.75 percent as of August 27, 2026 in the Federal Reserve H.15 release, which puts a typical plan loan near 7.75 percent. Check your own plan document.
Do I pay taxes twice on a 401(k) loan?
Only on the interest. You repay it with after-tax dollars into a pre-tax account, then pay income tax on it again at withdrawal. On $3,141.26 of interest that is $376.95 at a 12 percent marginal rate, $691.08 at 22 percent and $753.90 at 24 percent.
What happens to my 401(k) loan if I quit or get laid off?
The unpaid balance is generally offset against your account. You may roll that amount into an IRA or another plan by your tax filing due date, including extensions. Miss it and $9,684.28 outstanding becomes $3,098.97 in tax and penalty at 22 percent under age 59 and a half.
Should I stop contributing to my 401(k) while repaying the loan?
This is the decision that actually costs money. Pausing a 6 percent contribution on a $60,000 salary for 60 months forgoes $32,216.81 of balance at an assumed 7 percent return, including $10,738.94 of employer match. The loan interest cost about $691.08 by comparison.
Data Sources
- IRS, Retirement Topics, Plan Loans. The maximum plan loan is the lesser of $50,000, or the greater of $10,000 or 50 percent of the vested account balance. Repayment within five years unless the loan is used to buy a primary residence, in substantially level payments made at least quarterly. Checked August 29, 2026. irs.gov
- IRS, Plan loan offsets. A qualified plan loan offset occurs when the offset is solely because the plan terminated or the employee had a severance from employment. The offset amount may be rolled over to an eligible retirement plan by the tax filing due date, including extensions, for the year the offset is treated as distributed. Checked August 29, 2026. irs.gov
- Federal Reserve, H.15 Selected Interest Rates, release dated August 28, 2026. Bank prime loan rate of 6.75 percent as of August 27, 2026, used as the base for the prime plus 1 plan loan rate of 7.75 percent. Prime plus 1 is a common plan convention, not a legal requirement. Checked August 29, 2026. federalreserve.gov
- Federal Reserve, G.19 Consumer Credit, released August 7, 2026. Average APR of 22.15 percent on credit card accounts assessed interest, Q2 2026, used for every card row. Checked August 29, 2026. federalreserve.gov
- Modelling assumptions, stated so you can change them. Every figure here is a month by month amortisation of a $15,000 balance. The plan loan is 60 months at 7.75 percent; the card minimum is that month's interest plus 1 percent of the balance with a $35 floor. The annual returns of 4, 6, 7, 7.75, 8 and 10 percent are assumptions used to bound the answer, not forecasts, and repayments are assumed reinvested at the same assumed rate. The contribution example assumes a $60,000 salary, a 6 percent contribution of $300 a month and an employer match of 50 percent up to 6 percent, which is $150 a month; the salary, contribution rate and match formula are illustrative assumptions, not survey data. Marginal tax rates of 12, 22 and 24 percent are federal only and ignore state tax. The prime plus 1 loan rate is a common plan convention; your plan document controls.
See full Calculator Methodology for how Debt Clarity Tools runs its amortisation.
For educational purposes only. This article is mathematics, not tax advice and not legal advice. Dr. James Frederick Smiling holds a PhD in Mathematics Education and is not an attorney, a certified public accountant, an enrolled agent or a certified financial planner. Retirement plan rules vary by employer and your plan document controls the loan rate, the fees, the number of loans permitted and the repayment terms, so read it before you borrow. The tax treatment of a plan loan offset depends on facts specific to you, including your age, your filing status and your rollover timing, and should be confirmed with a tax professional before a deadline passes. The annual returns shown are assumptions used to bound the answer and are not predictions or promises of any result. IRS rules and published rates change, and the figures here were read on August 29, 2026.