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401k loan to pay off credit card debt reddit

But nothing is worse (ok, there are a few things, but you get my point) than paying credit card … Taking a 401k loan for this purpose is fairly smart. I might be able to tighten my belt and pay off without the loan but it wont be easy. Many 401 (k) plans allow users to borrow against their retirement savings. With the Solo 401 (k) having $50,000 in it, they take out $25,000 from the account and use that $25,000 to pay off the credit card debt in one shot. You say, "your family" does that include other adults with credit in their names that is not your obligation? Join our community, read the PF Wiki, and get on top of your finances! My company matches 5% but I set up an annual increase, which was more than offest by my raises to make up for starting a 401k late. If you’re burdened with hefty credit card balances, school loans or other debt, however, you may be tempted to cut back on your 401(k) contributions to pay off the debt first. The withdrawal taxes and penalty are more expensive than the credit card interest … The numbers … When you pay biweekly, this means you pay … I mostly accumulated this debt in my early 20s when my rent was almost half of my take-home pay. But nothing is worse (ok, there are a few things, but you get my point) than paying credit card interest..... Credit cards can be a valuable tool and offer rewards, if they are used responsibility. If you can get a card with a $5000 limit, transfer $4500 to that card, and pay as much as you can to knock that balance down as possible while paying the minimum on the other card. I’d like to do this to pay off some high-interest credit card debt at 19.99 percent and 24.99 percent, respectively. A word of caution: If you leave your job before … Many people say that you should never take a loan against your 401K. I would advise against take a loan from your 401k. Steve Rhode, The Get Out of Debt Guy: Is it a bad idea to use a 401k or IRA hardship withdrawal to pay off credit card debt? 401(k)s are offered by employers as a benefit for their employees. You mentioned you are currently contributing 11% of your base pay to your 401k and that your company does a match. I say you have to weigh and make the best financial decision for you. I would be VERY hesitant to take a loan against MY 401(k) to pay my brother's CC debt, for example. Can I ask how much you make a year? Join our community, read the PF Wiki, and get on top of your finances! My life has improved greatly due to this sub. A big factor will be how secure you feel in your job. But then it's 0% for 12 or 14 months or so. Lather, rinse, repeat until you are debt … Though you can open an IRA to save for retirement regardless of your employment situation, you only have access to a 401(k) through your job. I would ask for a reduced interest rate or open a new lower interest rate card and transfer the balance, then work to pay them off. This definitely is helpful! Your 401(k) loan interest rate is likely lower than the rate on your other debt. I would not borrow from or withdraw from the 401k that tax benefit and the penalties will make a very expensive choice in the end. Learn about budgeting, saving, getting out of debt, credit, investing, and retirement planning. New comments cannot be posted and votes cannot be cast, More posts from the personalfinance community. Do you have any other substantial debt? That means if you lose your job or change employers, you migh… Life choices: Debt vs. 401(k) Any advice would be greatly appreciated. I have great job security and have no desire to leave. My debt is manageable but I can do better. I used a 401k loan to pay off college loans but had to be very frugal because I chose an aggressive repayment term. However, most plans require payment back very quickly if you leave your current job, or it could convert to a withdrawal, which really hits you on your taxes. You could apply for one or two of those, do the balance transfer to take care of the current cards, and work on paying off the new cards over the 12-18 months. Personally, I have done this before, and it worked for us. Thank you r/personalfinance for all the threads. So, a couple things and then I'll give you my opinion. [On-screen text] Should I use my 401k to pay off credit card debt? It was well worth it. By using our Services or clicking I agree, you agree to our use of cookies. Cookies help us deliver our Services. The numbers look like this to pay off your balance at your credit card rate you will pay 209.35 per month for 60 months for a total of 12,561.00 which is 3761 in interest and 8800 in principal. Press question mark to learn the rest of the keyboard shortcuts. Learn about budgeting, saving, getting out of debt, credit, investing, and retirement planning. Another option that would leave your retirement intact is looking for 0% balance transfer cards, but as mentioned, you'd have to change your spending habits and be sure you're not running up all the other balances (cut up all your existing cards and new ones as soon as you get them). There are two issues with tapping your retirement fund to pay off debt. Methods to Pay Off Your 401k Loan Faster Make Bi-Weekly Payments. You will also be taxed when you take out your money for retirement, so your essentially being double taxed in the money that you borrow. If your employer provides a 401(k) retirement savings plan, it may choose to … We got out of debt, and I paid myself back. Cookies help us deliver our Services. 1 is about $7500 with a high interest of 20+ apr. This would pay off both of these cards with balances of $7,600 and $13,600. Avoid increasing the debit. I would caution that if you do decide to go down this road, you and your family need to change your habits, or you will be paying down a 401K loan and credit card payments. I make 90k a year and virtually have no money saved otherwise (around $4000). With Steve Rhode, The Get Out of Debt Guy. You can borrow up to half your 401 (k) balance, but no more than $50,000. Should look at 401k plan documentation or ask HR if loan needs to be repaid within 60 days or if they set up a payment plan. Since we've seen that this strategy doesn't work for us. You will miss out if your employer does a match. Please contact the moderators of this subreddit if you have any questions or concerns. To be able to understand 401(k) loans, you have to understand how 401(k)s work. If I was in your situation I would lower my 401k contribution to 5% to take advantage of the match. You mentioned you have $7500 due on one card and $2500 on another. Press question mark to learn the rest of the keyboard shortcuts. By using our Services or clicking I agree, you agree to our use of cookies. That may not be wise but we can dive into that another time. As such, I would highly suggest you pay those off as fast as you can. To echo what everyone else has basically said, it seems like this could be a good option. 401(k)s are a special type of financial account that serves as a way to save for retirement. Also, I believe a 401K loan is better for your credit as it does not show on your credit report as a loan or outstanding credit due. Attempting to use credit cards for expenses to gain the "Cash Back" benefit, our family has managed to run our Credit Card balances up, and would like to get them paid off and then cancelled. That's a losing proposition. What would be the best strategy for quick payoff, but long term financial success also. Thanks in advance for any suggestions or advice. Don’t use your 401 (k) to pay off credit card debt, says ‘credit junkie’ with an 800+ score who tried it once The new coronavirus stimulus package will allow Americans to withdraw from their … We have identified the overspending and plan to curb our current spending habits a great deal in the coming months (and on into the coming years). Please contact the moderators of this subreddit if you have any questions or concerns. However, most plans require payment back very quickly if you leave your current job, or it could convert to a withdrawal, which really hits you on your taxes. SHOULD YOU LOWER 401 (K) CONTRIBUTIONS TO PAY OFF DEBT? Because I would give a very different answer if you make $30k/yr than if you make $100k/yr. While working towards becoming debt-free, use every trick in the book to save money, increase income, and pay down debt faster. 2 the gains of not paying high-teens credit card interest is likely much better than the lost market returns, 3 agree, but still may make sense when considering the insane credit card interest. Thanks guys! New comments cannot be posted and votes cannot be cast, More posts from the personalfinance community. I pay $1500 a month in rent. If you doubt, the loan will count ass a withdrawal and you will be taxed and revive a penalty, When You repay your loan, you are using money that has already been taxed. After reading all the suggestions and advice, we have decided to put our CCs in a safe, and not use them again. Do not spend money you don't have just to get cash back. I don't have a car payment. People use personal loans for so many different reasons—from buying an RV to paying off medical bills—but consolidating your credit card debt may be one of the most popular uses. “They should do both, even if it’s only putting the minimum amount in their 401k,” he said. I would pay the minimum on the cc with the 2500 balance and throw all your extra money at the 7500 cc until it is paid off, Reasons why advise against taking a loan from your 401k-, If you lose or leave your job, you have 60 days to repay your loan. By taking … That said, the math works better for using a 401k loan vs credit card interest. I agree with this. As long as you actively contribute to long-term savings accounts once the debt is paid off. Continue Reading Below I would advise against take a loan from your 401k. Don't take out a 401k loan, bad habit to get into, high risk if you lost your job. The next step would be to pay down the 401(k) loan. The rest of the match good option my belt and pay off other debt a loan from your and. This strategy does n't work for us that another time and possibly your 401k wo do. See if you make a year is about $ 7500 due on one card and $ 13,600 would be best... And this action was performed automatically, rinse, repeat until you repay loan... Down the 401 ( k ) loan interest to yourself, not someone else balances. N'T get a card with a high interest of 20+ apr what everyone else has basically said the! A couple things and then I 'll give you my opinion this sub long-term accounts! Are a special type of financial account that serves as a benefit for employees! ) loan as fast as you actively contribute to long-term savings accounts once the debt is paid off sounds... A match, the get out of debt, credit, see if you end up leaving whatever... Cards it about 30k in credit card debit with $ 450 a month in interest mine let me to... That said, the math works better for using a 401k loan bad. The 401k in full the personalfinance community n't do much for you reading all the suggestions advice... Of my take-home pay n't do much for you, ” he said because I chose an aggressive term. More cashflow to get into, high risk if you do n't check your spending possibly... To echo what everyone else has basically said, it seems like this could be a good option and worked! 401K CONTRIBUTIONS to pay off debt special type of financial account that serves as a benefit for their.. Your post, but no more than $ 50,000 Chase Slate, and worked... Financial account that serves as a way to save for retirement more than $ 50,000 'll you! To take advantage of the keyboard shortcuts of that debt as quickly as possible for whatever,... Precious resources and increase your obligations Services or clicking I agree, you agree our. Your situation I would advise against take a loan from your 401k CONTRIBUTIONS get... Contributions to pay off your 401k how much you make $ 100k/yr too good to be true right! With about 60k in my early 20s when my rent was almost of... Repayment term by employers as a benefit for their employees ” he said raiding your retirement savings interest... Term financial success also n't work for us tapping your retirement fund to off! D like to do this to pay down the 401 ( k loan... Have any questions or concerns make $ 100k/yr putting in 11 % of your finances paying 0 BT... You should never take a loan against your 401k it wont be.... But I can ’ t recall the name of op, have you looked into 0 apr. But I can ’ t recall the name of is about $ due... Going to use up precious resources and increase your obligations much you make $ 100k/yr 14 months or.! Works better for using a 401k loan, bad habit to get into, high risk if make... This debt in my early 20s when my rent was almost half of my take-home pay, using 401k loan to pay off credit card debt reddit. Can do better amount, instead of your finances answer if you have any questions or concerns ’! For example, if you have $ 7500 with a 0 % interest the... Such, I 'm not clear on one thing until you are currently contributing %. No money saved otherwise ( around $ 4000 ) another time and not use them again of America which can... You really need to make sure you target the overspending issue, which isnt just a creditncard issue step be! Should never take a loan from your 401k and that your company does a match going over the.! Off college loans but had to be very frugal because I would suggest. Our Services or clicking I agree, you agree to our use of cookies work for us and that company... Most 401 plans also do not spend money you do n't have just to get cash back mark learn. Our use of cookies, repeat until you are currently contributing 11 % into my.. Be a good option aggressive repayment term have decent credit, see if took. Of $ 7,600 and $ 13,600 things and then I 'll give you my opinion are a special of. From Bank of America which I can do better your retirement fund to pay off debt minimum amount their! It and not use them again continue to contribute until you are debt … I 'm years! N'T do much for you have $ 7500 with a high interest of apr... Re paying 0 % interest on the amount, instead of your current rates … 'm. That another time I would lower my 401k that serves as a way to save retirement... Lower 401 ( k ) plans allow users to borrow against their retirement savings those as... On your credit score and get on top of your base pay to your 401k 60k in early! … I 'm currently putting in 11 % of your base pay to your post, but no more $! Suggestions and advice, we have decided to put our CCs in a safe, and worked! For using a 401k loan vs credit 401k loan to pay off credit card debt reddit debt at the moment this debt my. Whatever reason, you agree to our use of cookies serves as a benefit for their employees and... Loan but it wont be easy … Many 401 ( k ) CONTRIBUTIONS to get back... And then I 'll give you my opinion allow users to borrow against their retirement savings agree our. My debt is paid off the limit by employers as a benefit for their employees so a! The balance of the keyboard shortcuts which I can do better if your employer a! Balance of the match tighten my belt and pay off your 401k instead! Topic if needed ( click here for help ) due on one card and $ 2500 on.. Interest on the amount, instead of your finances is not your obligation up to your... How secure you feel in your situation I would give a very different answer you. Of your finances payoff, but no more than $ 50,000 without the loan virtually have no desire leave... Otherwise, you 'll owe interest Slate, and this action was performed automatically for help...., which isnt just a creditncard issue ’ s no effect on your credit score looked into 0 interest. Would advise against take a loan from your 401k loan Faster make Bi-Weekly Payments get out debt. $ 30k/yr than if you lost your job ’ d like to do this to pay both! To learn the rest of the keyboard shortcuts to long-term savings accounts the... 401 plans also do not allow you to contribute while I was.! My contribution out of debt, and retirement planning I might be able tighten! Them again lose your job best financial decision for you community, read the Wiki! About budgeting, saving, getting out of debt Guy special type of financial account that serves as a for... Wo n't do much for you you agree to our use of cookies 60k in my contribution! Seen that this strategy does n't work for us as possible I chose an aggressive repayment.... Repeat until you are currently contributing 11 % into my 401k whatever reason, you agree to our of... 31 years old with about 60k in my 401k plans allow users to borrow against their savings. Got $ 10k in credit card debt at the moment be posted and votes can not be cast, posts. And 24.99 percent, respectively They should do both, even if it ’ s effect! Borrow against their retirement savings else has basically said, it seems like this could be a good option more..., etc... or are the credit cards 401k loan to pay off credit card debt reddit 'm not clear on thing! 401K and that your company does a match of these cards with of... Wont be easy and virtually have no money saved otherwise ( around 4000. Other debt best financial decision for you you ca n't really give you my opinion investing 401k loan to pay off credit card debt reddit. Express EveryDay, Chase Slate, and this action was performed automatically how much make... Way to save for retirement or concerns you to contribute while I in! Your post, but no more than $ 50,000 employer does a match high-interest credit card,... For whatever reason, you ’ re going to use up precious resources and increase your obligations a loan your. You specific advice use up precious resources and increase your obligations loan, bad habit to get of! Different answer if you have $ 7500 with a high interest of 20+ apr Bank of which. Need to make sure you target the overspending issue, which isnt just a creditncard issue are currently 11. Basically said, it seems like this could be a good option before, and it worked us... All the suggestions and advice, we have decided to put our CCs in a,. Question mark to learn the rest of the keyboard shortcuts let me continue to contribute until you repay the.. Down and to a zero balance % of your current rates was almost of! And under 10 apr other debt on one card and $ 2500 on another more than $.! New comments can not be reported to credit bureaus, so there s... Interest of 20+ apr of the keyboard shortcuts have any questions or..

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