Four Ways Out of Card Debt, Priced:
what each one costs on $16,000

Four routes, rarely compared

Someone carrying card debt is offered four things: a debt settlement company, a consolidation or personal loan, a balance transfer card, or a withdrawal from a retirement account. Each is usually explained on its own, by someone who sells that one.

This chapter prices all four on the same balance — $16,000 — so they can be read against each other.

First, the rate that makes it urgent. The average APR on interest-bearing card accounts is about 21%, and card balances stand at roughly $1.084 trillion.¹ Also worth knowing before the moralizing starts: 55% of US adults report using cards primarily for necessities — groceries, rent, utilities.¹

Route 1: a personal or consolidation loan

The average personal loan rate is about 12.04% at a 700 credit score, against 21% on cards — a gap of about nine points.¹

There is a detail here worth more than the headline. Card APRs have stayed above 20% since January 2023 through significant Federal Reserve rate cuts, while personal loan rates did fall with the funds rate.¹ One product passed the cuts on. The other did not.

The condition attached: consolidation only works if you stop using the cards you just cleared. Otherwise it is not a route out, it is a second debt.

Route 2: a balance transfer

A promotional rate near zero, for a fixed window, usually with a transfer fee.

It is the cheapest option on this page if the balance is gone before the promotional period ends. If it is not, the rate reverts to a double-digit APR on whatever remains.² So the test is arithmetic, not intention: divide the balance by the number of promotional months and ask whether that payment fits your FLOW: the 3 states every window of money ends in. If it does not, this is a deferral rather than a solution.

Route 3: debt settlement

Debt settlement companies charge 15% to 25% of the debt.²

On $16,000, that is $2,400 to $4,000 in fees — before considering that settled debt can be taxable as income, and that the process typically requires missing payments, which damages credit while it runs.

That figure is rarely given prominence in the marketing, and it changes what the product is. At 15–25%, settlement is one option among several rather than relief.

Route 4: cashing out a retirement account

This is the one where the arithmetic is furthest from the intuition, because you cannot withdraw $16,000 and receive $16,000.

To net $16,000 from a 401(k) before retirement age you must withdraw about $25,500:³

Depending on bracket and state, the loss runs 30% to 40%.³

Then the part that does not appear on any statement. For someone aged 38, with 27 years to a typical retirement age, that $25,500 left invested at 8% would be worth about $200,000.³ The cost of clearing $16,000 of debt this way is the $9,435 taken up front plus the $200,000 not arriving later.

And one fact that reverses the usual advice. Retirement accounts are generally exempt from bankruptcy proceedings.³ So cashing one out to avoid bankruptcy spends a protected asset to pay an unprotected debt. If bankruptcy is genuinely on the table, this is the worst of the four, not the responsible one.

The four, side by side

Read in that order, the routes usually rank the way they are listed. The two that get marketed hardest are the two at the bottom.

The fifth option is the one nobody sells, because there is no fee in it: keep paying, in the order set out in The 3 Ways to Order Your Debts, and What Each One Optimizes, and put the The First $1,000 Does the Most Work: how much buffer you actually need floor in place first so the next surprise does not go back onto the card.

The short version

Card APRs sit near 21% and have stayed above 20% through Federal Reserve cuts that personal loan rates did follow, so a personal loan near 12% is roughly nine points cheaper — provided the cleared cards stay cleared. A balance transfer is cheapest of all if the balance clears before the promotional window closes, and a deferral if it does not. Debt settlement costs 15% to 25% of the debt: $2,400 to $4,000 on a $16,000 balance. Cashing out a 401(k) requires withdrawing about $25,500 to receive $16,000, costs about $9,435 immediately, forgoes roughly $200,000 over 27 years, and spends an asset that bankruptcy could not have touched. All four are sold as relief. Only the arithmetic separates them.