No. of Recommendations: 1
1) A home equity loan that has tax-deductible interest would be my first choice. Even if you don't have much home equity, some lenders will loan more than you homes value. Yes if you default they will take your house after they run up additional late fees, interest and legal fees that you will probably also end up paying.

2) Some 401K plans will not let you make contributions while you have an outstanding loan. If this is the case for yours, in addition to getting behind in retirement savings you may loose an employer match.

3) Some 401k plans have limitations on the number of loans, or how often you can get a loan. So if you take out a relatively small loan then have an emergency where you need a larger loan then you may not be able to easily get another loan. You should also check into how flexibly your plan is on making payments to partially pay off the loan.

4) Big time penalties and taxes if you fail to repay the loan if you leave the company. Even if you feel secure there have been a lot of people surprised when their company was sold or merged.

5) You will end up paying taxes twice on any money that you pay as interest on a 401K loan. For example if you pay $100 in interest you really had to pay earn something like $130 get $100 after taxes. When you take that $100 out of the 401K you pay taxes on it again and only net something like $75 after taxes. If you are still making contributions, above any employer match, then it would reduce your contributions to the employer match and direct all of the money going into the 401k towards paying off the loan.

Greg
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