Understanding the Alarming State of Household Debt

In the first quarter of 2026, Americans collectively had a staggering $18.8 trillion in household debt (1). This debt includes credit card balances, which come at an extremely high cost. According to the Federal Reserve Bank of St. Louis (2), the average credit card interest rate as of April 7, 2026, was a staggering 21%.

Carrying credit card debt can be incredibly stressful due to its high cost and the fact that minimum payments are designed to keep individuals trapped in debt forever. Unfortunately, when faced with financial difficulties, some people may consider raiding their retirement accounts to pay off their credit card debt.

The Risks of Raiding Your 401(k) to Pay Off Credit Cards

Let’s consider a hypothetical scenario involving Mason, a 32-year-old who lost his job and owes $25,000 in credit card debt. He’s considering taking money out of his 401(k) to pay off the balance. While this might seem like a viable option, it comes with significant downsides.

Christopher Walsh, a senior advisor with Capital Choice Arizona, emphasizes that taking money out of a 401(k) can be costly.