There's been much said about debt consolidation, but no real "best" option. I've got $26,000 in credit card debt that I want to consolidate. Is the best option a home equity loan (I only have $12k in equity) or to borrow from a 401k ($22k available) that I rolled over to other accounts when I changed jobs 13 months ago? What are the rules about borrowing your own (former) 401K funds now invested in other areas?
As I understand the rules to be... Atleast for 401Kloans and I put a little diclaimer that these couldbe incorrect. Some are dependant of the company.As for you your 401k, each year or quarter, thecompany/401k fund managers set what the intrestrate will be on loans from your 401k. Generally,about 2pts+Prime. Alot better than 18/19% CCs.Also any loan from a 401K gets paid directly fromautomatic deductions from your paycheck, before youeven touch it. The best part is the intrest youare charged is going back to you during yourretirement. on the flip-side rather than haveyou retirement money in a mutual fund (depending)on the investing funds available earning the marketreturns your only gonna earn that 2 pts+prime rate.But in the long run best to do that and get rid of those 18/19% credit cards.One word of caution on a 401K loan is that some companys might force you to pay off the loan ifyou leave the company durning the term of the loan/whatever the unpaid principle is. That is incase you change jobs again. Better look into yourcompany's 401K loan options before you set the loan up. Its a good thing if you can do the following:1. Pay all the credit card debit.2. ensure there wont be any ballon payment if u leave3. Dont have to take 2 loans to pay all the CC debt (Kinda defeats the purpose of a Consolidation loan)One other thing is to find out how to make additionalpayments. One aspect of Consolidation loans are "billed" is a way to have only one low payment. Andthat is not to be able to afford to borrow more really it would be best to pay additional on theprinciple. Need to make sure you can make paymentsto a 401K loan directly.You might want to wait to do the consildation untillone loan can pay it off looks like its only 4K away.One other option would be to get a credit card (NOT IDEAL) with a 25K limit and one of the promotionalintrest rates of about 5.9% or so for 6mons then 12-15% after that. There are some out there. If youhave any credit problems this might not be available,further this is only good if you have alot of smallercredit card debts. Again that way its only onepayment and not 5 minimum payments.My knowledge of Home Equity Loans is limited. Onlylooked into them once and noticed that you couldnt borrow against the full value of your house, only80%. But that was looking at only one credit unionsHome Equity loan program. Good Luck....Am in the same boat you are but a little worse. Bottlesps. Dont think there is a "Best" option just one That will work for you given your situation.
>>There's been much said about debt consolidation, but no real "best" option.<< Everyone's situation is different so everyones solution may differ. >>I've got $26,000 in credit card debt...<< OUCH! Your best solution is to do anything but leave this debt on high interest credit cards!This is my opinion: Due everything you possibly can so you do NOT borrow from your 401k plan. This is for your retirement; it compounds; don't touch.Are you still using your cards? If so stop, stop, stop. Do everything you can to stop spending. Yes it might hurt in the short term but you'll feel a hell of a lot better in the long run. Are you still investing in your 401k? If you are, I suggest you stop as soon as possible and put this monney towards your debt.Contact local banks, credit unions, ect. and tell them you want to consolidate your CC debt into a lower interest loans. Show them you have equity in your home; show them you have money in your 401k; and show them that you've stopped using your credit cards. Beg and plead (just kidding). :) Anyway, Sorry if I was rough but if you don't help yourself, who will?Best of Luck! AJE
<<Is the best option a home equity loan (I only have $12k in equity)>>You may want to contact a lender anyway. I am constantly hearing about 125% loans on your equity, so this may work out for you. Especially while interest rates are still low.David (But I'm not) Boring
<<You may want to contact a lender anyway. I am constantly hearing about 125% loans on yourequity, so this may work out for you. Especially while interest rates are still low.>>You need to be careful. Many of these offers (i.e. Money Store, First Plus) charge loan origination fees which can add to your debt. It is enticing to reduce your payments but look at the cost. Also, mortgage interest is only deductible up to your equity and the rates are pretty high. Go with a combination loan.
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