Q. I am three years away from retiring (active-duty military officer) and have some credit card debt I would like to pay off before leaving active duty. I am not eligible for a TSP hardship withdrawal because of my income. What would happen if I take out a TSP loan and intentionally not pay it back? I understand I would be responsible for it becoming a taxable distribution and a 10 percent early withdrawal fee, but would there be any other negative effects against me or my credit? Would it even be ethical?
A. There are no negative effects on your credit rating for not repaying a TSP loan, and I don’t see anything unethical about not repaying a loan to yourself. It’s a costly strategy, however, so it should be considered a last resort.
Default on TSP loan
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