How to Use TSP Funds to Pay Off Credit Cards

How to Use TSP Funds to Pay Off Credit Cards
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The Thrift Savings Plan is a qualified retirement plan. The TSP covers civilian employees of the U.S. government. Members of uniformed services are also eligible to participate in the TSP. There are several options for accessing TSP funds. Available options depend on whether participants have separated from service and whether they are experiencing financial hardship. Options are limited and withdrawals from the TSP are generally subject to income tax.

Determine if you are eligible for a TSP loan. TSP participants who have not separated from service may take a loan from their TSP. A general purpose loan would be used to pay off credit cards. General purpose loans can have a repayment period of one to five years. You can have only one general purpose loan outstanding at a time. Loan repayment is made through payroll deduction. TSP loans are not taxable; generally a loan is favorable to a withdrawal.

Apply for a loan to pay off your credit cards online or request a loan application. According to the TSP website, loans are generally processed within several weeks.

Consider an in-service withdrawal if you are not eligible for a loan. In-service withdrawals are available for TSP participants over age 59 1/2 and those experiencing financial hardship. One TSP definition of financial hardship is that the member is experiencing negative monthly cash flow. If credit card debt is causing negative cash flow then an in-service withdrawal may be a viable option. Financial hardship withdrawals are limited to the amount of your financial need. Apply online or request in-service withdrawal forms from TSP.

Request a partial redemption to pay off your credit cards if you are separated from service. Those separated from service may not take a loan or make an in-service withdrawal. A partial redemption is allowed if you did not take an in-service redemption while employed.


  • Withdrawals made before age 59 1/2 are subject to the IRS early distribution penalty in addition to income tax. Taking a loan is not a taxable event; if you separate from service with an outstanding loan balance, however, the loan may be treated as a taxable distribution.