How to Withdraw From Your Pension to Pay Off Credit Cards

Written by john hewitt
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Withdrawing money from a pension before you turn 59 1/2 or at an amount higher than would otherwise be allowed to pay credit card bills incurs significant fees and tax penalties. It should only be done in a financial emergency. In some cases, such as job loss, fees and penalties for early pension withdrawal may be waived. Examine your pension agreement for details on exceptions.

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    Determine whether you are eligible for an exception from tax penalties and other fees for early pension withdrawal. AARP states that you may be eligible for exceptions if you become permanently disabled, die, withdraw as part of a periodic life payment plan or take the money out as part of a retirement plan after you reach 55 years old.

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    Request that the money be withdrawn and pay all relevant penalties and fees. If you withdraw the money to pay for credit cards and can't pay the fees, you may end up worse off on your credit report if the bills end up in collection.

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    Calculate if you will save money on interest payments from your credit cards if you use your pension money to pay down the balance. The 10 per cent penalty and taxes on the money can make it less worthwhile to use this method.

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    Consider withdrawing from the pension plan by setting up periodic withdrawals rather than requesting a lump sum to pay your credit card bills. It may not enable you to pay off the balances all at once, but the periodic withdrawals can be used to make regular payments that will keep the cards from defaulting. This method usually negates most penalties.

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