Would it be a good idea to borrow against my 401K to pay off credit card debt?
Sunday, November 1st, 2009 at
2:28 am
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Tagged with: 401k • credit card companies • credit card debt • Credit Debt • credit rating • credit score • General Purpose • Purpose Loan
Filed under: Free Money Saving Tips Debt Relief
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You are right, there are no penalties caught up in borrowing from your 401k. But there are disadvantages.
If your 401k is doing well, you lose that interest. For example, if it’s making 10% a year, you are really paying 18% interest to borrow it.
This is really nothing but a consolidation loan, so I’ll just give you some information. If you do this, you must STOP using your credit cards until the loan is paid. I’ve seen too many people take out consolidation loans to pay off credit card debt, then turn around and run up those now-empty cards all over again. Now they are double the amount in debt and can’t get out of the hole they’ve dug. The end up filing for bankruptcy.
So if you go this route, take my information and place your cards away. Budget yourself.