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When the gas tank is empty, the mortgage is due, or your spouse’s job has just been cut, it’s natural to search everywhere for the cash to keep up financially. That’s when tapping into your retirement nest egg can become increasingly tempting—especially when it’s as easy as swiping a card at the cash register. And that’s exactly what the 401(k) debit card will let you do.

But not without some controversy.

In recent weeks, financial industry overseers have warned consumers that using the debit card can result in paying excessive fees, spending retirement savings on unnecessary expenses, and draining accounts intended to be a retirement safety net. The U.S. Senate Special Committee on Aging has also discussed the issue in hearings, and two senators have introduced legislation to prohibit employers from offering the cards to employees who have 401(k) accounts.

But why such a strong reaction against this particular way of borrowing against your 401(k) funds at a time when the economy is in turmoil, banks are tightening credit, and your home equity is rapidly deflating? 

“It’s a way of jeopardizing your retirement,” says Roberto Baerga, president of Consumer Credit Counseling Service of Puerto Rico. “I don’t agree with [using] a card that will allow you to take out money any time you want to.”

Pros and Cons of the 401(k) Debit Card Pros:  Spend the amount you want, when you want or need it You’re allowed to pay back more than the minimum owed each month Limits to the amount that can be borrowed may control your spending  More flexible withdrawal and payment options for seasonal and union workers than with traditional 401(k) loan Cons:  Any 401(k) withdrawal reduces the amount you’ll have for retirement due to fees and service charges, and the loss of compounding interest or dividends Easy access through debit card may lead to overuse and/or unwise spending  Extra fees and higher interest rate may mean higher borrowing costs If you leave your job, or lose it, you may have to pay back the entire loan soon, typically within 90 days Failure to make the minimum required payments can lead to default, and all the money you still owe would be considered a withdrawal subject to income tax Instead of automatic payroll deductions, as with a traditional loan, you must make payments yourself No grace period. Interest starts to accrue as soon as you spend the money.

And Yanira Cruz, president and CEO of the National Hispanic Council on Aging, says that some Hispanics may be misled about the long-term effects of using the card. “It’s very tempting for a 40-year-old to take money out of a 401(k) to address an immediate need, not thinking of the consequences 10 years from now, or 15, 20 years from now.”

Pam and Steve Villarreal of Plano, Texas, know this all too well. The couple, now in their 40s, took out a two-year $6,000 loan from their 401(k) account for a down payment on a home some 15 years ago. Now, looking back on their decision, they wish they’d “waited a couple of years and saved up the money instead of borrowing,” says Pam.

They realize that while they were paying back the loan, they lost the benefit of both the investment returns on the borrowed amount, and, because their plan did not allow them to contribute to their account during the payoff period, the tax deferral of normal 401(k) contributions. Plus, “if you have the match [from your employer], you have the potential to lose more,” Pam says. “Your employer is not going to match your loan payment.”

Nearly 90 percent of 401(k) plans allow employees to take loans from their plans, according to the Profit-Sharing Council of America. Traditionally, the loans must be paid back to the account, with interest, in five years and by payroll deduction. The maximum the employee can borrow is $50,000 or half of the savings vested in the 401(k) account, whichever is lower. The employer may restrict use of the funds to, for example, emergencies such as a medical crisis or to avoid eviction.

The 401(k) debit cards, introduced in 2003, provide an easier alternative to traditional 401(k) loans. The Reserve, the New York-based company that issues the ReservePlus debit card, developed it as a more efficient way for employers to “automate” 401(k) loans to their employees. “With a traditional 401(k) loan, [plan participants] have to take out one lump sum. Typically people use the entire amount, and they typically take out more than they need,” says The Reserve President Bruce Bent II. The Reserve would not release information on how many employers offer the cards in their 401(k) plans or how many people have cards now.

Once the debit card program is set up, the employee requests a specific amount—say, $5,000—to be available from the account. Based on the plan’s written loan policy, which determines what sources of funds are available for loans and the order in which investment funds are liquidated, the company’s plan administrator shifts the money from other investments into a money market fund, where it remains until the employee uses the debit card for an ATM withdrawal or a purchase.

Easy enough. But convenience comes with a price. Fees associated with the debit card include a set-up fee of $75, a service fee that averages 2.9 percent, and interest, which is usually at the prime rate (currently 4 percent) plus 1 percent. ATM withdrawals incur a $2 fee for each transaction.

Christian Weller and Virginia Graves, researchers at the nonprofit Center for American Progress in Washington, D.C., calculate that, because of the higher fees, a $5,000 debit card loan paid back over five years “costs about $425 more in the long run than a conventional 401(k) loan.”

Beyond the immediate costs, however, experts agree that people hurting for cash need to keep in mind why they have a 401(k)—to save for retirement.