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URL:  https://boards.fool.com/we-are-thinking-of-borrowing-from-my-401khas-a-30947893.aspx

Subject:  Re: Thinking Of Borrowing??? Date:  10/29/2013  11:04 PM
Author:  aj485 Number:  307435 of 313006

We are thinking of borrowing from my 401k(has a balance of ~$165k) to pay off about $10k in debt which has an average interest of 18%.

First of all, a 401(k) loan is NOT paying off your debt. It's moving it from one loan to another.

Now, I have more questions than Nancy.....

- Have you stopped using the credit cards completely?
- Have you resolved the spending issues that resulted in the debt?
- Will you be able to continue contributing to the 401(k) plan if you borrow against it?
- How long will you get the loan for?
- How long will it take you to pay off the debt if you don't get the 401(k) loan?
- How much are you putting toward the credit card debt/month now?
- Are you paying more than the minimum payments?
- What would the payments on the 401(k) loan be?
- Have you tried cutting back to pay off the debt?
- Have you asked your credit card companies for lower rates?
- Have you looked at balance transfers for the debt?

At your $160k (combined) income level, $10k is not that much, even though it's at 18%. Your minimum payments are probably in the $200/month range, right? If you could double that payment to $400, you could pay off the debt in 32 months. If you could pay $500/month toward the debt, you could pay it off in 24 months. If you could pay $1000/month toward the debt, you will have it paid off in 12 months. And just to put it in perspective, $1000 is only 7.5% of your gross income - a little less than you & your wife pay in SS/Medicare (7.65% combined). Since you probably are approaching, or just reached, the SS limit on your pay, you should have some extra money in your paycheck for the rest of the year to put toward paying down the debt.

I would strongly suggest that you look at other options for actually paying off this debt before you borrow from your 401(k), especially if you are still using the credit cards and/or have not resolved the spending issues that resulted in the debt. Paying off credit cards with a 401(k) loan if you can't answer 'yes' to the first 2 questions I asked will just free up more credit for you to charge up again.

AJ
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