Retirement funds for credit card bills: No way

Gerri answers readers questions about paying down credit cards, first time homebuyers credit and employers' credit checks.

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By Gerri Willis, CNN personal finance editor

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For more information on managing your largest investment, check out Gerri Willis' 'Home Rich,' now in bookstores.

NEW YORK (CNN) -- QUESTION 1: I was recently laid off. I am 60 years old. I have a credit card balance on one card of $19,000. I can take money out of my 401(k), but I don't want to take money out to pay on this credit card. What are your thoughts? -- Gwen

It's never a good idea to take money out of your 401(k), for any other reason but your retirement. This is especially since you are close to retirement.

Since it's obvious you have suffered a hardship by losing your job, your best bet is to contact your credit card issuer and see if you can work out a payment plan. You may be able to negotiate a lower interest rate. In some cases, you may be able to get a portion of that debt forgiven. Make sure you document your hardship.

QUESTION 2: What is the process of getting the $8,000 first time home buyers tax credit? How can I get or use the money toward my down payment or closing? -- Anonymous

Buyers have to sign purchase agreements for the home before May 1 and close before July 1. To get the tax credit, claim it on your federal income tax return.

To get the rules about how to qualify for the tax credit, go to federalhousingtaxcredit.com. Attach a copy of your HUD-1 settlement form (closing statement) to Form 5405 as proof of the completed home purchase.

If you want to use the tax credit money toward down payment or closing, reduce your income tax withholding up to the amount of the credit. This will allow you to take home more money in your paycheck. That money can be applied to the down payment or closing costs.

If you would like more info on tax withholding, you can check out IRS Publication 919 that contains rules and guidelines for income tax withholding

QUESTION 3: I have been laid off since Oct 2008 and have not made payments on my credit card. I have had to pay my rent, electricity, water and food bills. Most employers do credit and background checks. Several people have been turned down for jobs because of this. Is there any way to avoid this? -- Natalie

First off, you have to authorize your employer or prospective employer to pull your credit for employment screening. You do not have to allow them to do so. But, they certainly don't have to hire you, says John Ulzheimer at Credit.com.

Not all employers will pull your credit reports. IF they do bring up the subject, it's best to be honest and mention the credit card issue up front. They're going to see it anyway so this way you are the one who is bringing it up and can explain the item versus leaving it open for their interpretation, according to Ulzheimer.

-- CNN's Jen Haley contributed to this article. To top of page

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