It can be tempting to use funds from a 401(k) plan to pay debts. But first, it’s important to make sure it’s worth it.Usually, you can only withdraw elective-deferral contributions you made. The contributions your employer made are not eligible, because your employer contributed that money to save for your retirement. So your account may not have as much to offer as you think. Some plans do allow for withdrawals due to a layoff, major medical expenses, home purchases or repairs, to avoid foreclosure or eviction, or to cover college tuition and fees. But early withdrawals from a 401(k) are subject to ordinary income tax plus a 10% penalty. The withdrawal can also propel you into a higher tax bracket for the year, increasing your taxes even more. Using your 401(k) to pay off loans or credit cards with interest rates between 18 and 20 percent is a good idea in some cases. But the taxes and penalties may be large enough to make you reconsider. And remember – those taxes are charged all at once. Other ways to reduce debt include negotiating interest rates with the credit card company, or making extra payments to reduce interest charges and loan lengths. You can transfer balances from one credit card to another with a lower rate. Other options include consolidating student loans, or acquiring a 401(k) loan instead of merely withdrawing the money.