401(k) loan vs. debt relief: Which is better for getting rid of credit card debt now?

A 401(k) loan and debt relief solve the same problem through very different means, and at very different costs. /iStockphoto Credit card interest rates haven't budged much recently, and that's hardly an oversight on the part of credit card issuers. When the Federal Reserve started hiking its benchmark rate in early 2022 to combat inflation, credit card rates went up in tandem , and at one point even hit a new record-high. But as the rate environment has eased, particularly over the last year, some borrowing rates have declined, but card rates have remained stuck at above 21% on average instead. That has left credit card balances accruing interest at very high rates, and the minimum payments are now barely making a dent for most credit card users. That dynamic is forcing more people to reconsider their repayment strategies — and quickly. In turn, borrowers' retirement accounts have become an increasingly tempting source to draw from for relief. For those with a 401(k), the ability to borrow from their own retirement savings, pay off their credit card debt and then pay themselves back, generally at lower interest rates than their credit cards, can look like a straightforward solution. But tapping long-term investments to solve short-term debt isn't always as ideal of a route as it appears. Debt relief programs , meanwhile, offer a very different path. Instead of borrowing more, they aim to reduce what's owed, often through negotiated settlements with creditors. …