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Knipfty t1_jegdr3w wrote

No on the 401k loan.

Get on a tight written budget.

Stop using CCs.

Use debt snowball methos to prioritize paying them off.

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Rave-Unicorn-Votive t1_jegecp2 wrote

Not enough info.

Income? Budget? Other savings? 401k balance? Have the causes of $30k CC debt been addressed?

In general, no, it's not a good idea unless you're reaching the "rationing insulin" point. OTOH, if your 401k balance is $875k then raiding $30k is still a bad idea, but a less bad one.

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UKnowWhoToo t1_jegflx3 wrote

How long has it been since you’ve stopped adding to balance owed on the cards?

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Sampson2003 t1_jeh47v2 wrote

People tell you no because of long term compound loss. Imo short term 401k loans with job stability that can clear mental health from stress are fine. Especially in a questionable market that could very well trade sideways or decline. Though, if the credit card debt was induced by spending problems vs life issues then that needs fixed first.

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Upbeat-Ad2878 t1_jegdw9n wrote

I think a 401k loan is a bad idea for the majority of people. I would recommend getting a loan from a bank instead. If you can get a loan from the bank you’re going to save a ton compared to the interest you’d pay otherwise

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85-900t t1_jegvdft wrote

So bank loans charge interest, let's say 10%. The bank gets it.

A 401k loan charges interest to the owner, but goes back to the account. 401k loans are charging 9-10% right now versus paying out to the bank.

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Upbeat-Ad2878 t1_jegwsug wrote

You raise good points, but really I think it depends on the terms of the 401k loan. You’d have to read the plan document to see what it says about the interest. I was more so saying don’t do a 401k loan because of potential penalties if you don’t repay it back in a certain amount of time, mandatory holding periods must be reached or there’s required 20% withholding, etc.

I was thinking of other factors too like building / rebuilding credit, how much of an account balance is in there vs how much is in credit card debt

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Full_Prune7491 t1_jeh44uu wrote

People never read the terms. Then they get laid off and blame the IRS for huge tax bill.

Not a good idea to take from 401k

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Upbeat-Ad2878 t1_jeh4erf wrote

I agree. People don’t take the time to understand the rules then get pissed when they do something not knowing what the consequences will be

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spaceflower890 t1_jegtxoh wrote

How is your credit? Can you apply for a balance transfer card or even a few so you can be paying a chunk off with no interest? This is not a free pass, this gives you a certain period of time to pay it off before you have interest again, but to be paying completely to the principle balance can cut down on interest paid and total cost paid.

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ghostboytt t1_jegxdpy wrote

401k is protected in bankruptcy.

So, no, never do it under any reason.

If you earn enough to pay off the cards within the next year or so, then tighten your budget and pay it off.

If you don't make enough to pay it off in a year get the debt reduced or consolidated under a lower interest loan and then tighten your budget and pay it off.

If you won't be able to pay it, at all. Take the L and file for bankruptcy. Start over.

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joshhazel1 t1_jeh15jl wrote

I hear folks giving you probably the best financial advice (i.e. allowing your 401k to grow and compound). However, there is a personal decision here to make as well and that is how much stress you have and if you can stop spending on your CC. Typically when you take a loan from 401k the interest paid back will go into your 401k (and not to a bank). You may get peace and less stress by taking that approach.

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TipToeTurrency t1_jeh3iuf wrote

If you’re sure you’ll be employed for the duration of the 401K loan, then it’s a smart move. Otherwise you’ll be forced to pay back the loan in full if you lose your job.

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Upbeat-Ad2878 t1_jeh4iq7 wrote

You can also call the company or companies you have the cards with and ask for a lower interest rate

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tre630 t1_jeh4tmq wrote

How about doing a balance transfer to lower or zero interest card and maximize your payments on the balance transfer card. I got myself out debt this way a few years back.

There are CCs that will give you Zero interest for a year on balance transfers and you can maximize your payments to quickly pay down your balance.

Or if you don't want to open a new line or credit for a balance transfer card, you can maybe check with your bank or CC and see if they offer very low interest rate on balance transfers.

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Otowner98 t1_jeggyuo wrote

What is your monthly income, and monthly expenses (including minimum payments)?

Balance on each card?

Any non-retirement savings?

Any other debts?

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85-900t t1_jegyzzq wrote

A 401k loan isn't a cash out. You're basically taking money out of your target fund or whatever, and loaning it to yourself. Right now 401k loans are charging you 8-10% (prime plus 0-2%). That interest is put back into your 401k account. Make sure your 401k provider does loans, not all do. Are you sure $30k is available as a loan? Maximum amount is 50% of vested balance (or $50k). If you take/qualify for a personal loan, you'll likely be paying the bank probably around 6-12%.

If you leave your job while the loan is active, you'll have a short period to pay it off or you will have to claim it as a 401k disbursement with a 10% penalty plus normal income taxes. What are the chances your job changes in the next few years?

What are your minimum payments? What's the expected pay back period? You can do up to 60 months. A 3 year loan payment is ~$975.

I personally feel that is an idea that you should entertain. If your budget can't properly support paying the debt back in a reasonable amount of time, paying thousands of dollars in interest per year. That seems dumb to me. As mentioned, the reasons for accruing this debt needs to be addressed or you'll likely end up in the same situation. There are solid amounts of speculation that the market is flat overall for the next 2-3 years. It's not the end of the world to pay in 9-10% on the money not active in the market while the loan is active.

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oswbdo t1_jeh56vl wrote

How did you get into that debt? How much can you pay off each month? Have you tried to make a deal with the CC and set up a payment plan?

Regardless of your answers, I can't think of a single reason why you should take your $ out of a 401k to pay off some debt you (likely) got buying stuff you didn't need.

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k00pal00p t1_jeh3div wrote

No. Definitely do not take a loan out of your 401k.

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