Jon6464 asked:
This action would totally eliminate my credit card debt.
http://1mortgagecalculator.info
This action would totally eliminate my credit card debt.
http://1mortgagecalculator.info
You would need to do a little background work to see exactly how your 401k works. If you have been in long enough not to pay penalites or taxes for an early withdrawal and your paynig your self back on the intrest of the loan then yes it would be . Just find out who the provider of your 401k is and they should do all the math for you thats how they get paid to manage your money.
It depends.
For this action to be beneficial, 3 things have to happen:
1. Credit cards are to be cut in small pieces and never used again. If you rack up credit card debt again, you’ll be screwed.
2. You borrow against 401k, not cash it. You’ll have to repay the money back to 401k with interest. The difference is paying interest to yourself instead of some bank.
3. You stay on the job long enough to repay 401k, otherwise you’d have to come up with the balance owed right away.
I wouldn’t use a 401K plan to get out of debt unless it’s a last resort. You will be paying 20% to the IRS to pay for some of the taxes that you should have been paid on the income (you could still owe more at year end) and if you are not of legal age, will have to pay another 10% as a penalty for early withdrawal. Only YOU can do the math on this. That 401K may look like your way out of debt but when you need the money at retirement it won’t be there. By leaving it you at least have more interest accumulating which is the power of compound interest. Unless you are really hurting for money, leave the money where it is and make an effort now to set up a plan to get out of debt logically by reducing your expenses or increasing your income. FOCUS. You can always come up with a reason to tap into your 401K plan but don’t do it unless it’s an emergency. Leave it to do what it’s intended for and get out of debt in a financially safe and sane way. I speak from experience that over the years I have cashed out two plans and I now have nothing for retirement. Don’t make that mistake.
taking a loan against 401k isn’t eliminating debt it’s trading one type of debt for another. Problem is that the 401k loan debt has the potential for creating ADDITIONAL debt (taxes) even if you pay it on time. If you change jobs and aren’t able to roll over the loan then it will become immediately due and taxable.
What you need to do is create a spreadsheet to determine how much you need to pay on your credit card to pay it off in 5 years. Then stick to that plan….you turn it into the same thing as your 401k loan but you aren’t tied to your job and the debt payment plan can continue if you switch jobs.
No. Bad idea. Your are likely to net only 60 cents per dollar withdrawn after penalty and taxes. Quite swiping the plastic and start paying off out of your salary.
This is not a good idea. You will face a 10% from the IRS plus your 401k money will be fully taxable. Talk to your 401k Plan Administrator first.