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The thought occured to me....

D

DisgruntledVirus

Lifer
That with the economy down, if I take a loan from my 401k @3.25% interest and repay it while the economy is in the tank I come out ahead.

Yes I realize that hurts my stocks that I buy with that money, so I don't have it getting stock. Am I missing something, or would it make sense to pull money out to pay off a $125/mo loan and use that to put towards other debts? I don't want to take from my retirement, but paying off a loan and other debts is really appealing to me.
 
is it not possible to pay the loan down conventionally? Have you added an extra payment that goes specifically to your principle? Do you have enough extra after paying all other obligations to make an extra payment every month?
 
You haven't provided enough information. The loan you want to pay off - what is its amount, and what is the interest rate? Also, when you pull money from a 401(k) early, don't you get hit with some big penalty fees?
 
How high is the interest rate on the loan? I'm usually pretty adverse to touching my 401k money. I want to retire early and want a lot in there. If your really young, you should be adding to your 401k, not subtracting.
 
Originally posted by: rasczak
is it not possible to pay the loan down conventionally? Have you added an extra payment that goes specifically to your principle? Do you have enough extra after paying all other obligations to make an extra payment every month?
Click to expand...

I can pay it conventionally, but one goal this year is to get out of all debt except student loans (and maybe my car depending on how the year goes financially). I have thrown extra money at it to help get it to the point where paying it off is in sight. Right now I am not able to throw extra money at it each month (which is mainly my fault).
 
Originally posted by: Adam8281
You haven't provided enough information. The loan you want to pay off - what is its amount, and what is the interest rate? Also, when you pull money from a 401(k) early, don't you get hit with some big penalty fees?
Click to expand...

Loan balance is around $1700ish @ 7% interest rate
401k would be paying it off, at a 3.25% interest rate (which I pay to myself, so essentially I am making 3.25% on my money which is more than I am making in the market right now)


I would not get hit with a penalty because it's a loan against the 401k. I am able to take out up to 50% out for a general purpose loan or house loan without taking a penalty.

Originally posted by: Dark Jedi
How high is the interest rate on the loan? I'm usually pretty adverse to touching my 401k money. I want to retire early and want a lot in there. If your really young, you should be adding to your 401k, not subtracting.
Click to expand...

I am generally with you, don't touch it. Right now though I have a negative return on my 401k, and this would give me a 3.25% return on my money. So I would be earning a little money in it, but I wouldn't be getting stock on the balance of the loan which could potentially hurt when the market goes back up.
 
Originally posted by: DisgruntledVirus
Originally posted by: rasczak
is it not possible to pay the loan down conventionally? Have you added an extra payment that goes specifically to your principle? Do you have enough extra after paying all other obligations to make an extra payment every month?
Click to expand...

I can pay it conventionally, but one goal this year is to get out of all debt except student loans (and maybe my car depending on how the year goes financially). I have thrown extra money at it to help get it to the point where paying it off is in sight. Right now I am not able to throw extra money at it each month (which is mainly my fault).
Click to expand...

If you aren't able to pay extra for only a short while, then it probably would be in your best interests not to take a loan out from your 401k. I've been told and read, that you usually wnat to stay far away from borrow against it, due to tax implications. (something about 10% getting taxed and other penalties) imo it's not worth it. Just stay disciplined and stick to your goal. I've been doing the same (thinking about pulling out from 401k) and I'm glad i haven't since I last got advice from here, and applied it, i've started to see some nice gains in getting my debt down. it's going to be a while, but if you are patient and disciplined, you'll meet your goals.

It's really a personal preference at this point and you're going to get a lot of good advice from the finance geeks here. (i'm not one of them 🙂)

**edit** just read your lastest post. If you're in the clear for the tax penalties, then by all means take out the loan and pay it off. just bee sure to pay that 401k loan off as quickly as possible (maybe increase your contributions by 1 - 2 % per paycheck to cover it?)
 
Originally posted by: rasczak
Originally posted by: DisgruntledVirus
Originally posted by: rasczak
is it not possible to pay the loan down conventionally? Have you added an extra payment that goes specifically to your principle? Do you have enough extra after paying all other obligations to make an extra payment every month?
Click to expand...

I can pay it conventionally, but one goal this year is to get out of all debt except student loans (and maybe my car depending on how the year goes financially). I have thrown extra money at it to help get it to the point where paying it off is in sight. Right now I am not able to throw extra money at it each month (which is mainly my fault).
Click to expand...

If you aren't able to pay extra for only a short while, then it probably would be in your best interests not to take a loan out from your 401k. I've been told and read, that you usually wnat to stay far away from borrow against it, due to tax implications. (something about 10% getting taxed and other penalties) imo it's not worth it. Just stay disciplined and stick to your goal. I've been doing the same (thinking about pulling out from 401k) and I'm glad i haven't since I last got advice from here, and applied it, i've started to see some nice gains in getting my debt down. it's going to be a while, but if you are patient and disciplined, you'll meet your goals.

It's really a personal preference at this point and you're going to get a lot of good advice from the finance geeks here. (i'm not one of them 🙂)

**edit** just read your lastest post. If you're in the clear for the tax penalties, then by all means take out the loan and pay it off. just bee sure to pay that 401k loan off as quickly as possible (maybe increase your contributions by 1 - 2 % per paycheck to cover it?)
Click to expand...

The other thing as well, is that I can use that to pay other debts. Outside of car and student loans, I only have about $3500 in total debt. With car it's about $6500. If I pay off that loan, it cuts my debts (outside of car) in half. Then throw that money towards the remaining amounts, and have that paid off around summertime. Then take anything left and put towards my car, or can take it and put it towards the 401k loan (or a combination of the two).
 
Edit missed your last post.

for $1700 you are probably going to pay much more in future loss...if the rate was 20% plus it'd be more a no brainer....why not just knock it out fast track?
 
Originally posted by: DisgruntledVirus
Originally posted by: MikeyIs4Dcats
just suspend contributions until you pay off the 1700.
Click to expand...

I don't get 3.25% return on that money then. Also it's easier to spend that money in other ways.
Click to expand...

set up an auto-pay in the amount of your contributions (minimum).

It's better than NOT paying your debt off faster.
 
Originally posted by: MikeyIs4Dcats
Originally posted by: DisgruntledVirus
Originally posted by: MikeyIs4Dcats
just suspend contributions until you pay off the 1700.
Click to expand...

I don't get 3.25% return on that money then. Also it's easier to spend that money in other ways.
Click to expand...

set up an auto-pay in the amount of your contributions (minimum).

It's better than NOT paying your debt off faster.
Click to expand...

Then wouldn't it be better to take the money out of 401k, earn 3.25% on it and have it taken pretax?
 
Originally posted by: DisgruntledVirus
Originally posted by: MikeyIs4Dcats
Originally posted by: DisgruntledVirus
Originally posted by: MikeyIs4Dcats
just suspend contributions until you pay off the 1700.
Click to expand...

I don't get 3.25% return on that money then. Also it's easier to spend that money in other ways.
Click to expand...

set up an auto-pay in the amount of your contributions (minimum).

It's better than NOT paying your debt off faster.
Click to expand...

Then wouldn't it be better to take the money out of 401k, earn 3.25% on it and have it taken pretax?
Click to expand...

not if the market rebounds...
 
Originally posted by: DisgruntledVirus
Originally posted by: MikeyIs4Dcats
Originally posted by: DisgruntledVirus
Originally posted by: MikeyIs4Dcats
just suspend contributions until you pay off the 1700.
Click to expand...

I don't get 3.25% return on that money then. Also it's easier to spend that money in other ways.
Click to expand...

set up an auto-pay in the amount of your contributions (minimum).

It's better than NOT paying your debt off faster.
Click to expand...

Then wouldn't it be better to take the money out of 401k, earn 3.25% on it and have it taken pretax?
Click to expand...

A loan repay is not pretax.

All you're doing is paying off one loan with another. Yes, the interested goes into your account, but you don't earn anything unless at the time of your retirement the value of your investments are greater than the value at which you repayed the loan. Can you guarantee that is going to happen? No!

Suspend your contributions, budget every dollar for each paycheck, pay off your god dang loans as fast as you can, reinvest when you've paid them off, THEN CUT UP THOSE DAMN CARDS!

 
It can be costly- only do it if it's an emergency. When you take a loan, I think you have to drop out of the 401K program for 6 months, and with stocks at rock bottom prices, you're going to miss a lot of buying/growth potential.
 
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