Taking out a 401k loan to pay down debt

[PistolBob]

Easy, my average rate over the last two years is 12% per year.

Take a look back for 10 years

 

[Hoosier8]

Take a look back for 10 years

It goes up or down but the average that people use is 8% over time.

 

[Adamz04]

Do it. My company has that and I've used it twice and it has worked wonders for me. My payments are payroll deducted weekly and you quickly learn to adjust because you never had the money in your check to begin with. I was able to pay off around 10k in debt in 3yrs using this and with almost no lifestyle change other than not using the credit card anymore. It forced me to pay them off faster because I never had enough discipline to do it by myself.

 

[d.kaufman]

If the shtf who cares. You're credit card and your 401k are going to be useless.

 

[Shibby575]

As part of my preps, I need to get out of financial debt.

So, a "friend" has some significant credit card debt. This friend can pay off this credit card debt by taking out a loan against his 401 plan. What this means is that the friend will have to pay back into his 401 to pay off the 401 loan. The interest paid on the 401 loan goes back into the 401 as well.

What's the down side here? The interest on the 401 loan is much lower than interest on credit card. The interest paid on the 401 loan goes to my own 401, not to the banks as in credit card interest.

All of my 401 is tied up in paper instruments (stock). If the market crashes, much of that value would be lost anyway, and if I didn't take out the loan, would still have the credit card debt.

My job is very secure.

Should I or shouldn't I?

No, You are also missing out on the growth potential you're losing on your withdrawal. Also if you're living outside your means, this loan doesn't fix that. Fix the problem. Pay off the card. Live with in your means. Your 401k is your retirement lifestyle and you shouldn't touch it until the time of retirement. (unless to increase contribution, or realign investments with goals)

 

[seamonster]

+1...taking a loan against your retirement or your residence are basic investing no-no's.

 

[PistolBob]

stock market is hitting the skids....Ruskies just dumped the dollar...get your money out of your 401K and pay off your house with it...at least then you know where it is and what it's worth.

When the mid terms are done, it'll be Katie bar the door.

 

[swany11]

It goes up or down but the average that people use is 8% over time.

Correct. I sometimes use 7% with my older clients to also account for the more conservative allocations when they are nearing retirement.

 

[swany11]

stock market is hitting the skids....Ruskies just dumped the dollar...get your money out of your 401K and pay off your house with it...at least then you know where it is and what it's worth.

When the mid terms are done, it'll be Katie bar the door.

stock market isn't going anywhere. Will we see more big dips like in 2008, 2009? Absolutely. Market is cyclical.
But don't sacrifice the liquidity of a 401k just to pay off a house. If all of your equity is in your house, what do you do for income?
And too many people think owning a home is an instant money maker. Absolutely not. No guarantees.

 

[PistolBob]

stock market isn't going anywhere. Will we see more big dips like in 2008, 2009? Absolutely. Market is cyclical.
But don't sacrifice the liquidity of a 401k just to pay off a house. If all of your equity is in your house, what do you do for income?
And too many people think owning a home is an instant money maker. Absolutely not. No guarantees.

Owning a home means you have someplace to live. That's it. Kind of a important thing to be able to count on. When the financial markets are all trashed for whatever reason, the odds are good your real estate won't be worth much either...ask anyone that got caught up in the mortgage loan scams of the last decade. But you'll have somewhere to live. That gives you options you may not otherwise have.

If you're buying your home as anything more than a reliable place to live, then you really don't understand.