Sell Any Unrestricted Investments You Have to Pay Off Credit Card Debt: "As we discussed in Should I Pay Off My Debt Or Invest?, it is almost always a better choice to lower your debt levels if the interest rate you are paying exceeds 10% to 12% and is not tax-deductible.
If you have any investments, you may want to sell them and repay your credit card balances. You want to be careful which ones you sell, though, because there can be some pretty nasty tax consequences if you make a bad choice.
Consider a 401(k) Loan to Repay Credit Card Debt
You can also consider a 401(k) loan because the interest you pay on it will go into your account (you are effectively paying interest to yourself). You can read more about this in Should You Take a 401(k) Loan?, as well as our special on your 401(k) account. The bottom line is that you can avoid the income taxes and 10% early withdrawal penalty that’s piled on top as long as you repay the loan within the time frame allowed by the IRS. In most cases, you would not want to simply sell 401(k) assets, cash out, and pay down your credit card debt.
You Can Take Back Roth IRA Contributions
IRS rules allow you to withdrawal Roth IRA contributions you’ve made into your account, but not the gain earned on the money. In other words, if you’ve deposited $20,000 into a Roth IRA over the past 10 years and have made $10,000 in profit, you can withdrawal up to $20,000 without any adverse tax penalties or consequences (of course, you lose decades of growing your money outside of the reach of Uncle Sam, but that’s far better than drowning in high interest credit card debt).
Brokerage and Other Investment Accounts
Investments you hold in regular brokerage accounts such as stocks and bonds will be subject to regular capital gains tax but the emotional release that will come as you watch a big chunk of your credit card debt should be far less painful than the cut taken by the IRS."
