Comments on: Reader Question: 401(k) Loan to Pay Off Credit Card?

By: Bobby

Bobby — Thu, 23 Feb 2012 04:53:34 +0000

@Stephanie
A loan against your 401K is really a distribution but you pay it back into your plan. You actually are selling shares of stocks/mutual funds for this loan and when you make your regular payroll payments to pay this back, you buy back shares based on your plans current investment direction. At least thats the way my plan works. If i take a 5K loan on my 401K plan, it sells shares of all my mutual funds based on the allocations of each, and then puts it into a new “fund” for 5K. As I pay this back, it lowers the balance on the “new loan fund” and buys shares back into my plan based on investement direction.

By: Mike Jones

Mike Jones — Tue, 14 Feb 2012 13:17:59 +0000

personal loans do have compounded interest, you idiot.

By: Mike Jones

Mike Jones — Tue, 14 Feb 2012 13:17:02 +0000

The dumbest financial mistake is to carry a credit card debt. However, if you are looking at bankruptcy, it is a great place to get easy cash. If you go bankrupt, it is worth it.

The only thing that is wrong is that the retirement plan rules doesn’t allow for loans from IRAs. Why should a 401(k) be the only place to be able to borrow?

Additionally, you cannot take a loan and use your IRA or Social Security benefits as collateral. What a stupid government.

By: Mike Jones

Mike Jones — Tue, 14 Feb 2012 13:09:07 +0000

If you can pay off your credit cards that are 25% and pay the loan back to your 401(k) and pay off your credit cards every month, you would be stupid not to do it.

Pay the minimum back to your 401(k) loan, but build up an emergency fund so that if you lose your job, paying off the loan is not a hardship.

By: Will

Will — Tue, 16 Aug 2011 13:40:59 +0000

I took a loan out of my 401k about a year ago to pay off some credit card debt and it was the greatest thing I could have done. I wiped out two high balance cards each with a 22% interest rate. I saved hundreds, probably thousands of dollars I would have paid in interest on those cards. My 401k loan payment is deducted from my paycheck semimonthly and the rate is only about 7%….If you are secure in your job and have high interest rate cards with high balances and live somewhat paycheck to paycheck, then this is a no brainer….

By: Hai Schebler

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By: Shawn Harstad

Shawn Harstad — Wed, 30 Jun 2010 17:34:48 +0000

Just found this googling. A lot of good info here. I have a whole lot of credit card debt and am thinking about using the 401k loan to pay most of it off. Can someone tell me how it gets paid back? Do your current pre tax contributions continue? Does your employer matching contributions continue with it? Can you back the loan monthly and make lump sum payments to pay it down? Thanks this is very helpful.

By: Dave

Dave — Sat, 26 Jun 2010 00:11:09 +0000

Question: We are in late 40s. We had a business loss about 5 yrs ago that cost us nearly 100k. I have 40k in 401k, but am thinking about taking loan out to pay off our our debts we have, so we can refi house. I have dramatically decreased contribution in 401k, as we have been investing successfully elsewhere, even in this horrible economy. If I didnt have 401k, with other investments, with returns receiving now(in bad economy), if economy remains horrible, I can still retire VERY comfortbaly at 62. What drawbacks am I missing? as I am not going to leave my job, been there 24 yrs now (continued working while having business).

By: John

John — Wed, 09 Jun 2010 16:30:55 +0000

My wife and I are 50 years old. We have roughly 200k in our 401k and have credit card debt of 15k. While we don’t have problems making the monthly payments (minimum + $200 or $300) it irritates me to see how much in interest we are throwing away while my 401k sits there earning zero in todays market. We could pay off the loan in 3 years. I am interested in hearing comments about this strategy. (yes we have stopped using credit cards)

By: Michelle @ Merchant Advance

Michelle @ Merchant Advance — Tue, 04 May 2010 01:03:07 +0000

I have to agree, getting the 401K is definitely risky. I also do agree with cutting up the cards until you have paid off all your debts, If you have trouble paying your debts in the first place, even resorting to borrowing money to pay off your debts-then it would be a good idea to actually stay away from them and learn to spend within your means. Otherwise, everything will just pile up and bury you someday.