By Scott Burns

Q. Here's my situation. I am single (divorced) and turned 61 in December. I have a decent paying job, but plan to work only about 3 to 5 more years, tops. I have only saved about $150,000 in my 401(k) account. I have a small pension (about $400 a month) with a prior retirement plan.

Here's my problem: Over time, I have stupidly and carelessly maxed out three high-interest credit cards. I have a combined credit card debt of about $40,000. I have a monthly mortgage of $1,850. I have a 2004 model car that's paid for, but I have no emergency savings at all. Although I clear about $5,200 a month at my job, I find that I routinely pay minimum payments on my credit cards. This is causing me enormous stress and worry–to the point where my health is suffering for being this much in debt.

Can I, and should I, take $40,000 from my 401(k) balance to pay off these credit cards so that I can start building up my savings again? What are the penalties and tax implications?

With my finances as they are, I am unable to save anything more than my monthly payroll deduction for my 401(k). With the interest that I'm paying each month on the credit card balances, I am not making any progress in paying the balances owed.

I am embarrassed about being in this financial position and, due to that, I have been unable to talk to friends or family about my situation. It is a big, dark cloud hanging over me. —S.S., Sachse, Texas

A. Since you are older than 59 1/2 there will be no penalties for making withdrawals from your 401(k) plan. You will, however, have to pay income taxes on any amount withdrawn. Since the withdrawn amount will be added to your ongoing taxable income, you may be paying taxes at a high rate. For 2012 the top of the 15 percent tax bracket is $35,350 and the top of the 25 percent tax bracket is $85,650. (These figures are for your taxable income— your income after deductions, exemptions, and qualified plan contributions.) As a single person you are definitely in the 25 or 28 percent income tax bracket. That means you would have to withdraw at least $53,333 to have the $40,000 in cash that you need to pay off the credit cards.

After you pay the cards off you can save an additional $800 a month— about what the minimum payment on $40,000 of credit card debt is. At that rate it will take you about five and a half years to replace the withdrawn money— but you will be earning a return, not the credit card company. You may be able to replace it faster, while lowering your taxes, by increasing your 401(k) contribution.

Fortunately, you may be able to borrow the money from your 401(k) plan rather than removing it and paying taxes. Such loans, according to the 401(k) help center website, are limited to 50 percent of your account balance or $50,000. They must be paid back while you are still working. This would reduce the time needed to restore the $40,000 quite a bit. So check with your HR department about borrowing.

Whatever you do, you need to cut up your credit cards and live an "I-pay-cash" life. The lesson most people are slowest to learn is that saving isn’t what’s left at the end of the month. What you save is the amount to put aside before any spending. Once you make that shift, you’ll be in control of your life rather than letting it happen to you. Another reward is the certainty that every step you take toward getting control of your debt and spending is a step toward a more secure life now and when you eventually retire.