Is it a good idea to borrow from my 401k retirement account to pay off my credit cards?
While it might be tempting to pay off your credit card debt by borrowing against your 401k, you might want to re-think that strategy.
Not only will it reduce the money you have invested for your retirement, but you will be giving up long-term investment returns and be paying taxes, penalties and interest. Practically every plan will allow you to borrow the money for a point or two above the prime rate. The most you can borrow is usually less than 50% of the account balance, or $50,000, whichever is less. You will have to pay that money back within fifteen years if you used it for a mortgage, and five years for any other purpose. There are also fees charged to borrow the money that will amount to another one hundred dollars or so. If something happens and you can't pay it back within these set periods, and you are less than 59 ½ years old, you will have to pay income tax on the amount, plus an early withdrawal penalty of 10%.
If you do borrow against your retirement plan, you better have job security, because if you are fired, quit, or are laid off, you will have to pay off the loan within 90 days, and if you are younger than 59 ½, you will have to pay the additional penalties and income tax as well. That extra income you borrow could also cause you to go to the next higher tax bracket, costing you even more in taxes.
Unless you are so desperate that it's your last resort, borrowing against your 401(k) to pay off your debt is not a good idea. If the debt is so overwhelming and you can't cant keep up with your payments, you may qualify for a debt settlement program. A properly structured debt settlement plan will be able to settle your debts for a fraction of what you owe and get you out from under the debt in typically 36-48 months. Contact us today for a free consultation to find out your available options.
Q: Who is qualified for a Debt Consolidation and Settlement Program?
Q: How soon will my accounts be settled?
Q: How does debt consolidation and negotiation compare to bankruptcy?
Q: Will debt settlement hurt my credit?
Q: What is the difference between debt settlement and consumer credit counseling?
Q: Do I have to include all my accounts in a debt consolidation and settlement program?
Q: What if my creditors won't settle?
Q: How long does a debt negotiation or debt settlement program take to complete?
Q: What kind of accounts qualify for a debt consolidation and settlement program?
Q: What are the possible tax consequences for a debt that has been settled?
Q: Will I continue to get calls and correspondence from debt collectors?
Q: Will interest and late charges accrue on my accounts while I am in debt settlement?
Q: Can I settle my accounts on my own?
Q: Is it a good idea to borrow from my 401k retirement plan to pay off my credit cards?
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| Our Program | Debt Consolidation Loan | Credit Counseling | Minimum Payments |
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| Total Unsecured Debt | $30,000 | $30,000 | $30,000 | $30,000 |
| Months To Pay Off | 46 | 60 | 60 | 433 |
| Interest Paid | None | 12% | Variable | 18.99% |
| Monthly Payment | $498 | $667 | $855 | $900 |
| Total Est. Cost | $22,950 | $40,040 | $51,300 | $80,619 |
* The above numbers are an example of past performance and are not intended to be a guarantee of any future settlement results.
