Consumers Turn To 401(k)s To Pay Down Credit Cards: 'Life Is Expensive'

Consumers are turning more frequently to their 401(k) accounts to pay down their credit cards as they face higher prices for essentials such as food, gas and electricity, according to a financial planner.

Total credit-card debt in the U.S. reached $1.34 trillion as of June, Federal Reserve data showed. In May, credit card balances for consumers between 43 and 58 years old averaged $9,123.

“People are facing rising prices and while the rate of inflation has decreased, there is still inflation,” said Bobbi Rebell, a certified financial planner and finance expert at CardRates.com.

“Therefore, prices are still high, even though they're not going up as quickly. Life is expensive! People are struggling because they're paying more for everyday expenses like groceries.”

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Turning to 401(k)s to pay those balances has also risen because the government has made it easier to access some money from a 401(k) without penalties, she said.

“Also, that's where the money is! Because many employers have auto enrollment and employees must opt out, people have more money in their 401(k) account,” she said.

“At least with a 401(k) you are paying yourself interest and the rate is usually more affordable than the interest rate of a credit card.”

Major drawbacks to using a 401(k) to pay down credit cards is that consumers must pay back what they take out before leaving the job that gave them the 401(k). They are also using funds that are meant to be spent in retirement, she said.

“You are borrowing money from your future.”

Price Action: Credit card companies fell slightly on Friday.

• Visa Inc. V slipped 0.16% to $284.77.
• Mastercard Incorporated MA dropped 0.05% to $493.30.
• Discover Financial Services DFS fell 0.99% to $142.49
• Capital One Financial Corporation COF declined 0.52% to $152.25.

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