Bill, I have a credit card question: Last year, my husband and I proactively moved to a different state with new jobs to avoid a strong possibility that he would become unemployed, which would have been financially devastating to us. This was a smart move, however moving costs amounted to about 7K which is all on a previously 0 balance credit card (5.9% fixed rate). We are 37 years old making 120K/year and are both saving for retirement. I would really like to pay off the 7K as this is our only debt besides mortgage and cars. We have several old 401k accounts from old jobs, totalling 40K. I would like to take the 7K from one of them prematurely to pay off this moving debt. Don't you think we have enough time to recover for retirement and the psychological benefit is worth the penalty?
This is really a relative return question... but most likely you are best off not touching your 401k.
You'll be better off refinancing your mortgage or getting a home equity line of credit to get the $7,000 to pay off your credit card debt. You really want to avoid touching your 401K balance. Although it may be harder in the short term to deal with the $7K credit card debt, you'll be in a much better position long term if you allow your 401K balance to continue to grow with all of its tax advantages.
If you refinance your home, you will be swapping high interest credit card debt for lower interest mortgage debt -- and the interest is tax deductible, so the effective rate is MUCH lower.
Now, if you are under the qualifying age (not in retirement) and you liquidate your 401k - you will have a huge penalty, and pay a large penalty in taxes... so the effective cost of that capital is really high.
BUT - you could take out a loan secured by your 401k at a really low rate. That would be better than the penalty taxes of taking money from your 401k.
I hope that helps.