Question for the Money Doctors
Question submitted on Apr 9, 2012.
Questionshould i borrow from my 401-k account to pay down my substantial credit card debt
Before you borrow your retirement savings, try and cut back on things you don''t "need". When I say "need," I mean: you need to eat, you need to pay the rent, you need to keep the lights on, you need to have reliable transportation to work. But, don't need a smartphone, you don't need a $5 coffee, you don't need to go out for dinner, you don't need cable TV, or you don't need a car payment (reliable, inexpensive used cars are available). These are "wants."
Unless you incurred the CC debt because of some emergency (i.e. medical), you should address the reason why you have credit card debt in the first place. Cut back on the "wants" in life and use that extra cash to AGGRESSIVELY pay off the CC balance. Be truthful with yourself and you bill have that CC paid off in no time.
The there are 2 other practical reasons why to not borrow from your 401k to pay off CC bills:
1) CC debt is unsecured debt. Your 401k balance is legally protected from creditors. The CC company can sue you and you cannot be legally compelled to pay the balance with your 401k money.
2) If you leave your job without paying back the 401k Plan loan, you will have to pay taxes and penalties on the unpaid balance. That could costs you up to 40% of the loan just in taxes.
You can do this! Good Luck!
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