| Using 401k to pay off debt |
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jesserush
First Time Poster
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Joined: 13 Jul 2010
Location: Falls Church
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| Using 401k to pay off debt |
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I'm 28 years old, and I have an active 401k account with $30,000+ in it. I also have about $12,000 in credit/personal loan debt. I have been thinking about taking a loan out of my 401k to pay this debt off. I understand there is some risk involved, but I'm not sure exactly how much. I've been with my company for about 7 years and I don't plan on going anywhere soon. And i also am a lonnng way from retiring so I figure I could put this money to use now.
If I do decide to borrow this money from my 401k, does that show up as debt on my credit report? The idea would be to eliminate debt, and increase my credit availability ratio.
Thank you
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Tue Jul 13, 2010 12:58 pm |
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Credit Money & Life
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Joined: 18 Jun 2010
Location: Dallas, TX
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The idea of pulling a loan from your 401k is not a wise one. I understand that you have been with the company for a while and dont plan on going anywhere. What you need to put in to factor is that the company or a job could dissapear for a variable of reasons. If for any reason you do not have that job anymore then that loan you took out now becomes an income to you and then you would have to pay the taxes. There are several different options out there for you that you can explore. You can even find a calculator on websites that will help you do that, and you can use them free. If you can still afford the payment now I would suggest using a calculator and pay the cards off in 3 years. If you can give me the details on each of the card (Balance, Interest Rate, Minimum payment) and the total you can afford to pay each month, then I can get the plan for you and just post the numbers on how you can pay it off quickly.
Its all about allocating the money to the right cards and keeping the amount the same until all cards are paid off.
99% of Debt Settlement companies offer no Attorney Representation in the event you get sued.
Prime Debt Services is the 1% that offers Attorney Representation if you are sued and is an actual Law Firm.
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Tue Jul 13, 2010 6:15 pm |
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C9Consulting
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The taxes and early withdrawal penalties could be substantial if you choose to withdraw a large amount out of your 401(k). But if you want to get rid of all of your current debts and liabilities, I can't say I disagree with your idea.
Are you sure you don't want save up and discontinue your contributions to your 401(k)?
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Tue Jul 13, 2010 7:46 pm |
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avidaccountant
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Joined: 13 Jul 2010
Location: Miami, FL
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I would weigh the amount you would be paying in taxes and withdrawal penalties if you were to withdraw from your 401k versus the interest you are paying on your current debt.
In the long run, it generally is a bad idea to withdraw from your 401k, since you have to consider the time value of money and the fact that you are losing interest on the amount you withdraw. No, the amount you withdraw on your 401k would not show up as debt on your credit report, since it is retirement savings (the deferred income tax on this amount, however, is another story).
A wiser move would be to take out a home equity loan if you can (if you own a house). With interest rates at record lows, you should save yourself some interest payments.
-Riesa Lewis, B.B.A., Accounting
Check out my blog:
http://avidaccountant.blogspot.com/
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Tue Jul 13, 2010 10:41 pm |
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Credit Money & Life
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Joined: 18 Jun 2010
Location: Dallas, TX
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I would not pull either 401K cause of the repercussions listed previously. I would also not tie unsecured debts to your mortgage as if you get in trouble in the future it will now affect your house.
99% of Debt Settlement companies offer no Attorney Representation in the event you get sued.
Prime Debt Services is the 1% that offers Attorney Representation if you are sued and is an actual Law Firm.
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Tue Jul 13, 2010 11:04 pm |
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