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Author: grim1988 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 308478  
Subject: Cash out 401K to pay debt?? Date: 6/4/2001 4:17 PM
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I haven't worked at my current job for long. I only have $6,000 in my 401K. Should I cash it out to pay off my $4,000 worth of debt I've acquired?

I do have a current loan against my 401K which has a pay off of $500.

Should I borrow the $500 from my CC and pay off the 401K loan so I can in turn get a new loan against my 401K for the full amount of my debt?

I can't have 2 loans on my 401K at one time.

Or, should I get a hardship loan off my 401K to pay off my debt. Instead of paying myself back with 10% interest, use that money towards paying my car and house off?

I would still keep putting %6 into my 401K to take advantage of the
3% the company matches.

grim
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Author: LuluB Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74411 of 308478
Subject: Re: Cash out 401K to pay debt?? Date: 6/4/2001 4:47 PM
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Do not touch the 401K!
Think of other ways to pay off the $4000.

Can you get a 2nd job?
Can you sell stuff?
Do you have a budget?
Do you still charge to CC's?
Take your lunch to work

Try the Living Below Your Means board and the Budgeting board for help also.

Louise



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Author: sibyl One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74413 of 308478
Subject: Re: Cash out 401K to pay debt?? Date: 6/4/2001 4:55 PM
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Cash out 401K to pay debt??


No
No
No
No
No!!!!

Do the math... look at how much you will lose over time for this "quick fix."

Pay back the first loan when you can and ignore the fact that you even HAVE that 401k, except to contribute to gain the benefits of matching funds.

This money is for your future. It is for your retirement. It is not available to you. Really, it is NOT AVAILABLE to cover current expenses.

Dig into the debt repayment using any other means but this. Really.



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Author: cable666 Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74421 of 308478
Subject: Re: Cash out 401K to pay debt?? Date: 6/4/2001 5:15 PM
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Stupid idea.

Don't liquidate it. Don't borrow from it. Continue to contribute to it.

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Author: TMFCheeze Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74429 of 308478
Subject: Re: Cash out 401K to pay debt?? Date: 6/4/2001 5:35 PM
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I haven't worked at my current job for long. I only have $6,000 in my 401K. Should I cash it out to pay off my $4,000 worth of debt I've acquired?


As someone who has a 401(k) loan, I don't recommend it. With focused effort, you'll probably find that $4000 is easier to pay off than you expected, and then you'll regret the fact that your retirement account isn't as high as it might have been.

Or, put another way, a quick fix is usually neither.

FWIW,
Cheeze

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Author: WalStMonky Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74434 of 308478
Subject: Re: Cash out 401K to pay debt?? Date: 6/4/2001 5:44 PM
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I disagree completely with the thought that a 401k (retirement plan) should never be touched. I would much rather pay interest to myself than to someone else. If I have a choice between paying 8 1/4% to myself or 6% to someone else, it's a no brainer choice to me. It's also untrue that you end up with less if you take a loan. Quite the opposite since you pay the interest on top of your contribution.

I think that one needs to be willing to use every tool in the tool kit if it's the appropriate tool at the time. I'm not sure why people here are totally against home equity loans, 401k loans, and the like. But just because I banged my thumb with the hammer once doesn't mean I'm going to swear off using the hammer.


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Author: morgaine1 Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74437 of 308478
Subject: Re: Cash out 401K to pay debt?? Date: 6/4/2001 5:53 PM
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I'm not sure why people here are totally against home equity loans, 401k loans, and the like.

+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

Because it doesn't solve the underlying problem. You get a loan, pay off the cards, then run the cards up again. If you pay off debt from having to spend less, the lesson is reinforced.

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Author: TMF2Aruba Big funky green star, 20000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74445 of 308478
Subject: Re: Cash out 401K to pay debt?? Date: 6/4/2001 6:10 PM
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Never cash out any retirement loan early.

Doing so will cost you hefty penalties and taxes which will undo any good those accounts have done for you, as well as forfeit all the future compounding the accounts would enjoy.

Grim, you invested for retirement. Forget the money is there and address your debts without resorting to raiding your future.

Good luck!

Tony
...but I still am...

Off2Aruba

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Author: saruchi One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74448 of 308478
Subject: Re: Cash out 401K to pay debt?? Date: 6/4/2001 6:12 PM
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This is good advice. I, too, had considered dipping into my 401K, but have long since decided against it. That's the only "security" I have. No cat food for ME when I'm old!

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Author: lisab500 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74457 of 308478
Subject: Re: Cash out 401K to pay debt?? Date: 6/4/2001 6:45 PM
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I think that one needs to be willing to use every tool in the tool kit if it's the appropriate tool at the time. I'm not sure why people here are totally against home equity loans, 401k loans, and the like.

Once burned, twice shy? There's a very human tendency to be over-optimistic about repayment schedules, ability, the unforseen, etc. Look at the stats on 125% equity loans - the 125 lenders actually PLAN for a frighteningly high default rate. People are engaging in hopeful borrowing and then get creamed when something comes along like medical emergencies, a job transfer necessitating home sale, etc.

A lot of 401K borrowers never pay back, due to job change and it all "coming due" (with big old penalties), or their living costs increasing to match their $ available...it just happens so often.

I'd compare the "tools" you mention to a nail gun, as opposed to a hammer. We're talking about tools that can REALLY hurt you, not just give your thumb an "ow-ie". Doesn't mean that they should be done away with, but the user had better know *exactly* what s/he is doing, and what the risks are.

There are always exceptions to rules, but the screwed-up thinking, self-deception, rationalizing, denial, wishful-hoping and just *not* thinking about $/the future in this country is at an all time high. Been there, done that, holding up the big orange warning sign...

So at the risk of being inflexible and dogmatic, I'd say, "DON'T TOUCH YOUR TAX-ADVANTAGED APPRECIATING INVESTMENTS UNLESS IT IS TRULY, LITERALLY, AND ABSOLUTELY A MATTER OF LIFE AND DEATH, FOOL!!!!"

LisaB


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Author: WalStMonky Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74464 of 308478
Subject: Re: Cash out 401K to pay debt?? Date: 6/4/2001 7:09 PM
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"Because it doesn't solve the underlying problem. You get a loan, pay off the cards, then run the cards up again"

That may be what you would do, but not all. It is silly to generalize like that.

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Author: Michaelzehr Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74495 of 308478
Subject: Re: Cash out 401K to pay debt?? Date: 6/4/2001 9:34 PM
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Do the math and you'll find that if your CC debt has a high interest rate (>20% after all attempts to lower it) and the 401k amount will save you at least a year in paying off the debt, and the withdrawal won't cause you to have a wait period before saving into the 401k again, and your employer has at least some matching, then you're better off if you take the withdrawal, pay down the credit cards quickly, and then put that money towards the 401k after the credit cards are paid off.

I ran some 401k withdrawl scenarios and reported on them in message 72762 of this board. "Don't touch the 401k" is a great rule of thumb and it's true most of the time, but not all the time.


However if you're not absolutely certain you won't just run the credit card debt up again, don't take the 401k loan. Psychology often plays at least as important a role in finacial decisions as the numbers themselves.


-Michael


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Author: cable666 Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74569 of 308478
Subject: Re: Cash out 401K to pay debt?? Date: 6/5/2001 10:44 AM
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We need list of commandments for this board. Commandment #1 apples here.

I. You can not borrow your way out of debt.
II. Learn your credit history rights under the law (FCRA).
III. If delinquent, learn your debtor rights (FDCPA).
IV. If deliquent, never beleive a CA unless it is in writing.
V. You must get your budget and expenses under control before you can get your debts under control.
VI. Learn to use BT's and demand rate reductions to minimize your interest expenses.
VII. Paying for and having lots of available credit is foolish.
VIII. If delinquent, educate yourself about the pitfalls of bankruptcy , especially the long term, before rushing into it.
IX. You toucha your 401k, we breaka your legs.
X. In the long run, no one cares about your FICO score.



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Author: Leviathan Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74576 of 308478
Subject: Re: Cash out 401K to pay debt?? Date: 6/5/2001 11:35 AM
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I think that one needs to be willing to use every tool in the tool kit if it's the appropriate tool at the time. I'm not sure why people here are totally against home equity loans, 401k loans, and the like. But just because I banged my thumb with the hammer once doesn't mean I'm going to swear off using the hammer.

They don't solve the main problem, which is that the person in debt is spending more than they make. Shifting the debt load to a house or a 401K does not magically keep the person from spending more than they make. More often than not, people who shift debt loads to their home do not cut up the credit cards and end up running them back up again. Also, 401K loans are not a good idea because of the fact that if you leave the job the loan will be called and if not paid back, will be considered an early distribution by the IRS and be socked with penalties and taxes.

Leviathan


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Author: WalStMonky Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74584 of 308478
Subject: Re: Cash out 401K to pay debt?? Date: 6/5/2001 11:57 AM
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"They don't solve the main problem, which is that the person in debt is spending more than they make. Shifting the debt load to a house or a 401K does not magically keep the person from spending more than they make."

This is true. It is also not a reason for a blanket disparagement of 401k loans.

"More often than not, people who shift debt loads to their home do not cut up the credit cards and end up running them back up again.

This is an argument from the general to the specific, and also no reason for never getting such a loan. If the person is taking appropriate steps to pay down his debt, it may be appropriate to consider.

"401K loans are not a good idea because of the fact that if you leave the job the loan will be called and if not paid back, will be considered an early distribution by the IRS and be socked with penalties and taxes."

This may be the best argument that's been presented for deciding not to use the tool, but some people stay in their jobs for a long, long time. Again, it's circumstances that dictate what is appropriate and what is not.

There are a lot of things to consider before taking such a loan, but the fact remains that it is at times an appropriate tool and should be used in those situations.

One of the best reasons I can present for why a 401k loan can be very useful is because it does not appear on your credit report. If you take the loan it clears all of your debts and a person who was not eligible for BT's because of high debt ratios will suddenly be a good risk in the eyes of the issuer sending out 1.9% offers. Yes, it is inappropriate for someone who has just decided to pay off their debt. But for someone who has applied a plan of debt reduction and has proven that they are serious it is wrong to say never.





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Author: Leviathan Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74589 of 308478
Subject: Re: Cash out 401K to pay debt?? Date: 6/5/2001 12:21 PM
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This is an argument from the general to the specific, and also no reason for never getting such a loan. If the person is taking appropriate steps to pay down his debt, it may be appropriate to consider.

Fine. How about this reason : should you lose your job or become disabled, then putting more debt on the house is the last thing that you want to do. The worst that happen with credit cards is that you can get sued and have wages garnished (or maybe even have furniture picked up). Defaulting on your house means that you are out on the street. This is your house you're talking about.

This may be the best argument that's been presented for deciding not to use the tool, but some people stay in their jobs for a long, long time. Again, it's circumstances that dictate what is appropriate and what is not.

Some people get better job offers. Some people get fired. Some people even die.

Leviathan



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Author: WalStMonky Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74599 of 308478
Subject: Re: Cash out 401K to pay debt?? Date: 6/5/2001 12:45 PM
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"How about this reason : should you lose your job or become disabled, then putting more debt on the house is the last thing that you want to do. The worst that happen with credit cards is that you can get sued and have wages garnished (or maybe even have furniture picked up). Defaulting on your house means that you are out on the street. This is your house you're talking about."

Actually, I was talking about 401k's. But ok, let's include mortgages, because there are appropriate times to use that tool as well. First to the disability point...does it apply to people with disability insurance? So that doesn't hold water as a reason to never pick up the tool. Now let's consider losing the job. If you lose your job and have a substantial obligation on the house, you may lose your house. I'm not sure how having a LTV of 80% vs 90% will make a difference in that situation. Yes, something to consider in the overall equation, but not a reason to say never. It is probably appropriate to insure that you can return the debt to unsecured status if either situation is likely.

"Some people get better job offers. Some people get fired. Some people even die."

I doubt that a person who dies will be bothered by not having a 401k. If there are dependents involved there is a need for life insurance. The possibility of getting a better job offer or being fired is something to be considered, but still not a reason to say never.

I am unaware of any logical reason to eliminate the potential use of either a 401k loan or a home equity loan from your box of tools to get out of debt. A blanket prohibition against using these tools for any reason, at any time is nothing more than emotional nonsense. Yes, there are serious potrential risks and costs to be considered. But in the appropriate circumstance, using the tool is the right thing to do.

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Author: LuluB Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74606 of 308478
Subject: Re: Cash out 401K to pay debt?? Date: 6/5/2001 1:01 PM
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for someone who has applied a plan of debt reduction and has proven that they are serious it is wrong to say never.<i/>

I agree. This particular poster does not have much in his 401K, so how could it compound enough to ensure a decent amount for retirement? Also, he is young and only owes $4000 (as opposed to others here, myself included, who owe more than that).

That is why I recommended that "he" not touch it. He could get a second job for a short time, do without stuff, etc. He has time to get rid of this debt and I think there are better alternatives "for this poster" than tapping into his 401K.

I took out a 401K loan for the downpayment on my house. I would do that again should I ever need to. However, that money is for my retirement, and although I am paying the loan off, I could have made better interest had I just left it alone. It was something I knew at the time, but I needed my house downpayment.

Also, he could be laid off from his job and have a 401K loan to pay off in one lump sum. Nothing is guaranteed. Which means there's just one more factor to evaluate.

Also, cashing it out would mean he is subject to taxes and penalties, which I beleive would cost him more in the long run than the $4000 he owes.

JMHO

Louise



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Author: WalStMonky Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74617 of 308478
Subject: Re: Cash out 401K to pay debt?? Date: 6/5/2001 1:25 PM
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"I took out a 401K loan for the downpayment on my house. I would do that again should I ever need to. However, that money is for my retirement, and although I am paying the loan off, I could have made better interest had I just left it alone. "

Another good use of 401k money. Are you really sure that you "woulda" made more? You've locked in a payment for the term of the loan. Make sure to take into account any increase in market rents into you're return. My monthly payment is 30% below what it would cost to rent my place. To me, that's a return. That's an after tax return too. Then there's appreciation on the asset that will likely be tax free when you sell the house. The return in a 401k would be taxed as ordinary income when withdrawn in retirement. Then of course the "interest" you pay on the loan is allowed to grow tax deferred until retirement. I know the Fool Bros don't believe in diversification, but it's tried and true. You can truly think of your house as being one of your investments in your 401k.

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Author: LuluB Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74626 of 308478
Subject: Re: Cash out 401K to pay debt?? Date: 6/5/2001 1:39 PM
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Yes, my house is actually worth more than my 401K. I figured it would be, plus we needed somewhere we could all fit. We had a 1-bedroom apt. and one child, ugh! We kept the condo because we would have lost a bundle if we sold it and bought the house. So I figured the 401K was the perfect "tool" for me. It did work out as I figured it would, but I realize that I could have lost my job and been stuck having to pay it off in one lump sum.

I think it's a matter of evaluating the situation before deciding the best course of action.

The 401K was great for me also because it did not show up on my credit report. The 401K payment is taken directly from my paycheck, so that's a no-brainer. I can't spend what I don't see.

Another thing to consider is other debt. I did not have much CC debt at the time I took out the loan. That certainly helped.

Louise



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Author: Leviathan Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74707 of 308478
Subject: Re: Cash out 401K to pay debt?? Date: 6/5/2001 5:00 PM
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Actually, I was talking about 401k's. But ok, let's include mortgages, because there are appropriate times to use that tool as well. First to the disability point...does it apply to people with disability insurance? So that doesn't hold water as a reason to never pick up the tool. Now let's consider losing the job. If you lose your job and have a substantial obligation on the house, you may lose your house. I'm not sure how having a LTV of 80% vs 90% will make a difference in that situation. Yes, something to consider in the overall equation, but not a reason to say never. It is probably appropriate to insure that you can return the debt to unsecured status if either situation is likely.

I guess we're just going to have to agree to disagree. You think that putting more risk upon yourself is a good idea and I don't. I'm not going to put more debt and more risk onto one of my most important assets (the house). Given the choice of losing the house or risking being sued, I'll go with that second choice.

I am unaware of any logical reason to eliminate the potential use of either a 401k loan or a home equity loan from your box of tools to get out of debt. A blanket prohibition against using these tools for any reason, at any time is nothing more than emotional nonsense. Yes, there are serious potrential risks and costs to be considered. But in the appropriate circumstance, using the tool is the right thing to do.

Again, it doesn't get you out of debt. All it does is move the debt from one place to another. I don't see any circumstance in which it's a good idea but you obviously must. Just because a produc exists on the market, that doesn't mean it's a good idea for anyone to use it.

Leviathan

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Author: KarenFool1 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74772 of 308478
Subject: Re: Cash out 401K to pay debt?? Date: 6/5/2001 9:34 PM
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From the girl who kept robbing Peter to pay Paul.....

If you do not have your spending in control, and cannot be ABSOLUTELY sure you will borrow from the 401K, payoff the credit cards, and STOP using them, then don't do it.

I tried this little game several times, and now have 3 loans against my 401K-like Profit sharing account at work, plus massive credit card debt.

Granted, I have incurred no new debt in 2 full years and am making progress.

But trust me....if you do not have your spending in control, you will live to become me, with 5 digit ccard debt, and 5 digit debt on the profit sharing.

And digging out of this hole is a hellish experience every single day.

Best of luck on your decision.
Karen

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Author: WalStMonky Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74778 of 308478
Subject: Re: Cash out 401K to pay debt?? Date: 6/6/2001 12:42 AM
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"You think that putting more risk upon yourself is a good idea and I don't"

No, that's not it at all. Obviously, you missed my point.

"Given the choice of losing the house or risking being sued, I'll go with that second choice."

There's the crux of the biscuit, it's a choice. It should be considered.

"it doesn't get you out of debt.

Neither does not considering it on some silly criteria, so what's the point of saying that?

"All it does is move the debt from one place to another."

Yes, from a place that has a higher interest rate to a place that has a lower interest rate. Which can get you out of debt much faster.

"Just because a produc exists on the market, that doesn't mean it's a good idea for anyone to use it.

And just because you don't like the idea doesn't mean it's not the appropriate tool in the right circumstance.



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Author: krazi911babe Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74811 of 308478
Subject: Re: Cash out 401K to pay debt?? Date: 6/6/2001 9:57 AM
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I printed the Commandments and posted 'em on my desk....thanks cable :)

Jenn

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Author: krazi911babe Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74820 of 308478
Subject: Re: Cash out 401K to pay debt?? Date: 6/6/2001 10:27 AM
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I agree completely with what Leviathan said...since I'm dealing with a similar situation. After refinancing our house to pay off medical bills and CC debt incurred with a chronically ill child, my husband became ill and is unable to work. We're living on his disability insurance (less than half his regular pay) and my income, which, according to the state is below poverty level. We can't afford the higher mortgage payment and are selling our house to get out from under the payment. And again, we have medical bills (things our health insurance didn't cover).

I don't say this for sympathy, only to point out that no one knows what cards life might deal one. We'll make it, of that I'm sure, we just have to start over again.

Jenn

p.s. we had an emergency fund...that was drained with various medical expenses before we started using the credit cards again.

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Author: krazi911babe Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74826 of 308478
Subject: Re: Cash out 401K to pay debt?? Date: 6/6/2001 10:39 AM
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"Actually, I was talking about 401k's. But ok, let's include mortgages, because there are appropriate times to use that tool as well. First to the disability point...does it apply to people with disability insurance?"

As I said in my reply to Leviathan...my husband has disability insurance thru his employer...with his policy, after 3 months of being sick he went to less than half his regular net pay. So if one becomes ill enough to be out of work for that long (assuming their insurance is the same as my husband's), one does run the risk of losing one's house if a loan has been taken out on it.

Jenn

p.s. even being on disability payments, we still have the regular deductions out of his gross pay, health insurance, dental insurance, and, yes, disability insurance payments.

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Author: Leviathan Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74836 of 308478
Subject: Re: Cash out 401K to pay debt?? Date: 6/6/2001 11:40 AM
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No, that's not it at all. Obviously, you missed my point.

I guess I did. Please elaborate on the point for me. All I've heard is that I shouldn't reject a choice out-of-hand on "silly criteria" and that they can be good choices in "appropriate circumstances".

I don't recommend shifting unsecured (credit card, medical, student loan) debt to a home equity line/second mortgage because it puts additional risk upon the person doing it in that it adds to the debt payments on the house which increases its likelihood of being foreclosed upon (due to the higher payments needed to keep it out of foreclosure). In an area of falling real estate prices or in the case of overborrowing a person might end up having to write a check to be able to afford to sell that house.

I also don't recommend borrowing from a 401k because of the additional risk that a person takes on in doing so. If the person leaves that job for any reason, that loan becomes due in full and if not paid can subject them to an additional tax burden, which will probably be difficult to pay since we already know that the person is in debt. Sure, many people stay at the same job for a while, but that doesn't mean a person can't get fired or get a better job offer.

Also, shifting debt around does not fix the problem of spending but only makes the checks go to a different place.

Now, I would like to know which of these reasons are "silly" and what you feel are the "appropriate circumstances" for using either of these methods.

Leviathan

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Author: Leviathan Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74839 of 308478
Subject: Re: Cash out 401K to pay debt?? Date: 6/6/2001 11:48 AM
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After refinancing our house to pay off medical bills and CC debt incurred with a chronically ill child, my husband became ill and is unable to work. We're living on his disability insurance (less than half his regular pay) and my income, which, according to the state is below poverty level. We can't afford the higher mortgage payment and are selling our house to get out from under the payment. And again, we have medical bills (things our health insurance didn't cover).

I don't say this for sympathy, only to point out that no one knows what cards life might deal one. We'll make it, of that I'm sure, we just have to start over again.


Jenn -

You didn't give the details of your situation, but I wanted to respond anyway because I had a couple of thoughts (and not just b/c you agreed with me ;-). I don't know what you do, but can you pick up extra work or at least more skills to raise up your income. I don't know the details of your husband's disability, but assuming he doesn't need constant care you can try and work your way out by blood and sweat.

Also, (again depending on his disability) you might see if he'd be willing to be a sitter for neighborhood kids. I imagine that he's pretty much homebound, but he might be able to pick up some income watching babies for moms who need a "day off" or something similar, or in doing a resume-writing business for people that he can do on a home computer. At the very least, it might keep him from sitting around and feeling sorry for himself if he can keep active and feel like he's making a contribution to the household. Just some thoughts...

Leviathan

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Author: Michaelzehr Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74874 of 308478
Subject: Re: Cash out 401K to pay debt?? Date: 6/6/2001 2:30 PM
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Can we extend the argument against 401k loans or withdrawals and HELs to balance transfers? There are a lot of reasons against doing a BT from a 20% card to a new 1.9% offer:

-you risk running up the balance on the old one
-if you close an old account when you open a new one you reduce the average age of your accounts, hurting your credit rating
-you'll get used to paying the lower minimums on the new card and then when the deal expires you'll be that much worse off
-if you lose your job you'll be talking to a company at which you don't have a long payment history -- they'll be much less likely to work with you than if you've been a long term customer

Or should we agree that there are risks and benefits of shifting money around, that the person doing it should understand and evaluate those risks and benefits, and individual situations will change which choice is the absolute best strategy?

-Michael



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Author: aja91 Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74912 of 308478
Subject: Re: Cash out 401K to pay debt?? Date: 6/6/2001 4:17 PM
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Can we extend the argument against 401k loans or withdrawals and HELs to balance transfers? There are a lot of reasons against doing a BT from a 20% card to a new 1.9% offer:

-you risk running up the balance on the old one
-if you close an old account when you open a new one you reduce the average age of your accounts, hurting your credit rating
-you'll get used to paying the lower minimums on the new card and then when the deal expires you'll be that much worse off
-if you lose your job you'll be talking to a company at which you don't have a long payment history -- they'll be much less likely to work with you than if you've been a long term customer

Or should we agree that there are risks and benefits of shifting money around, that the person doing it should understand and evaluate those risks and benefits, and individual situations will change which choice is the absolute best strategy?


My hope is that once someone is dedicated enough to paying off credit card debt that they will avoid the temptation of running up new balances.

However, if the time to pay off the debt is, say, over 1 year, it's tough financially to justify paying the additional interest over time.

My suggestion: call every three months on the new card and ask them to lower your credit limit. In that manner you're prevented from running up significant new debt (at least on that new card). And once the old card shows that the balance has been paid off via the transfer, immediately cancel it. You're back to one card, with a gradually declining credit limit.

As to the other issues -- I think those are risks you have to accept, especially losing the job.

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Author: krazi911babe Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 75006 of 308478
Subject: Re: Cash out 401K to pay debt?? Date: 6/7/2001 8:31 AM
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Thanks very much for your input. Basically, I work 2 jobs right now and go to school part time. Both jobs are the same industry different agencies, I'm a 911 dispatcher. My husband is a firefighter when he's working, and after his dr's appointment yesterday we're hoping he'll be able to go back to work in July. Right now he does childcare in a way, we got rid of the sitter (saving 450 a month) and he watches our 4 kids. He's not really able to do any work other than that because part of his illness is anemia and he's too tired to do much else. Plus the doc says he can't lift over 10 lbs.

As I said in my earlier post, I don't want or need sympathy. I just wanted to point out that sometimes life happens, no matter what one plans. My husband and I are in our 30's and certainly never counted on any of this happenning, but that's life. We'll get through it and maybe if we're lucky we'll even learn something :)

Jenn

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Author: WalStMonky Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 75014 of 308478
Subject: Re: Cash out 401K to pay debt?? Date: 6/7/2001 9:46 AM
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"after 3 months of being sick he went to less than half his regular net pay. So if one becomes ill enough to be out of work for that long (assuming their insurance is the same as my husband's), one does run the risk of losing one's house if a loan has been taken out on it."

I think you're assuming that all disability policies are the same. My policy will pay me 2/3 of my gross. Supplemental disability insurance is available for those who don't have any provided through work.

Once again, my point was that one size fits all advice is poor advice on this consideration.

Also, you have to be willing to screw your unsecured creditors while maintaining assets for any of this to matter. Some people don't mind doing that, others have ethics. Again, one size doesn't fit all.

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Author: WalStMonky Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 75020 of 308478
Subject: Re: Cash out 401K to pay debt?? Date: 6/7/2001 10:01 AM
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"I don't recommend shifting unsecured (credit card, medical, student loan) debt to a home equity line/second mortgage because it puts additional risk "

Of course the cosideration is how much it increases the risk. Since it lowers the cost of credit and takes pressure off, it also lowers the risk of default.

"I also don't recommend borrowing from a 401k because of the additional risk that a person takes on in doing so"

Same thing, risks can be mitigated. My 401k loan benefitted me, and it was very much the right thing for me to do under my circumstance. Getting into my car and driving on the highway greatly increases the risk that I'll be in a fatal car accident. That alone would be a silly reason not to get into a car.

"shifting debt around does not fix the problem of spending but only makes the checks go to a different place."

You keep repeating that as if it means something. I've never presented either as a way to fix the problem, but as a tool to use in fixing it.

", I would like to know which of these reasons are "silly" and what you feel are the "appropriate circumstances" for using either of these methods."

All of the reasons you listed are silly reasons to completely throw the possible use of these tools out of your tool box. Considered within the whole context of a person's circumstance they may be perfectly logical for deciding that it's not the right thing to do. I've already given several examples of appropriate circumstances. Click back if you need to read them again.

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Author: krazi911babe Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 75154 of 308478
Subject: Re: Cash out 401K to pay debt?? Date: 6/7/2001 5:40 PM
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I'm going to assume that you were not accusing me of being without ethics and "screwing unsecured creditors". I figure no one could be that self-righteous as to think they can judge another without all the facts. I work very hard to pay my bills, both secured and unsecured, without taking out more loans, which IMHO is robbing Peter to pay Paul in a situation like mine; which, if you'll read my original postings, was the ONLY situation I was commenting on.

Jenn

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Author: WalStMonky Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 75273 of 308478
Subject: Re: Cash out 401K to pay debt?? Date: 6/8/2001 1:02 PM
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"I'm going to assume that you were not accusing me of being without ethics "

I was speaking to the plural you, not you specifically.

". I work very hard to pay my bills, both secured and unsecured, without taking out more loans, which IMHO is robbing Peter to pay Paul in a situation like mine;"

Everyone's situation is different, although all have things in common. Only you know your situation. But this conversation started because I disagree with the one size fits all advice some give with regards to 401k and home equity loans.

I do disagree that taking out a loan at better terms is "robbing" Peter to pay Paul. That is unless you (again, not you specifically) intend to not pay Peter back. In that case, it's much easier to just stiff Paul.


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