401k loan to pay off debt?

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Jspeaker
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401k loan to pay off debt?

Post by Jspeaker » Sat Jul 07, 2018 8:02 am

I currently have the following debt (33k):

2k at 11% (cc)
3k at 7% (auto)
16k at 6.5% (student loan)
5k at 2% (auto)
7k at 0%, goes to 14% next year. (CC balance transfer)

Realistically I can pay off all debt in 2 years if I really try, or 3 years without making sacrifices. Would it be worth taking a ~20k loan for 2 years from my 401k to pay off the higher interest rates? That way I would be paying the interest back to myself? My job is very stable so I would not have to worry about leaving, nor would company match or contributions stop.

mortfree
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Re: 401k loan to pay off debt?

Post by mortfree » Sat Jul 07, 2018 8:46 am

How much is in your emergency fund?

Some of those loans could qualify as an emergency if you are just sitting on cash.

Otherwise I would not do a 401k loan. But that is me.

CurlyDave
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Re: 401k loan to pay off debt?

Post by CurlyDave » Sat Jul 07, 2018 8:57 am

I have never taken a 401(k) loan, for the simple reason that if one looses his job, the 401(k) loan is immediately due or it would be treated, and taxed, as an early withdrawal.

If I need to take out a loan while I have a job, I am certainly not going to be able to pay it back when I don't have one.

ChinchillaWhiplash
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Re: 401k loan to pay off debt?

Post by ChinchillaWhiplash » Sat Jul 07, 2018 9:01 am

How close to retirement are you? If it's over 15 years off or so, might be worth doing the loan. Just make sure you don't run up those CC bills again or high car loan interest. I would focus on the loans with > 5% interest. That's a pretty big return by paying those off. Maybe pay off the 0% each month before the interest kicks in. I would just borrow enough to pay off the high interest loans and try and cut your expenses to knock out the low or no interest debt.

Tdubs
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Re: 401k loan to pay off debt?

Post by Tdubs » Sat Jul 07, 2018 9:04 am

So it sounds like you would not reduce your 401k contributions while paying back the loan? If not, I'd go after those high interest loans.

And, never take out another loan again (mortgage excluded).

indexonlyplease
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Re: 401k loan to pay off debt?

Post by indexonlyplease » Sat Jul 07, 2018 9:07 am

Taking out a loan to pay for a loan does not sound smart.

Pay off all loans in 2 years if you can while still investing in your 401k. If not just delay investing and pay off the loans. Then MAX out 401k for the rest of your working years.

Also, pay 7k at zero interest first befor it goes to 14%. Then pay off the smaller amounts first. This way you feel you are accompishing something with each loan paid off.

Being debt free is the best feeling you will ever have when it comes to finances.
Last edited by indexonlyplease on Sat Jul 07, 2018 9:13 am, edited 3 times in total.

ThePrince
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Re: 401k loan to pay off debt?

Post by ThePrince » Sat Jul 07, 2018 9:11 am

Jspeaker wrote:
Sat Jul 07, 2018 8:02 am
I currently have the following debt (33k):

2k at 11% (cc)
3k at 7% (auto)
16k at 6.5% (student loan)
5k at 2% (auto)
7k at 0%, goes to 14% next year. (CC balance transfer)

Realistically I can pay off all debt in 2 years if I really try, or 3 years without making sacrifices. Would it be worth taking a ~20k loan for 2 years from my 401k to pay off the higher interest rates? That way I would be paying the interest back to myself? My job is very stable so I would not have to worry about leaving, nor would company match or contributions stop.
One can’t borrow their way out of debt. Buckle down and payoff the various loans without fooling around with the 401(k).

Edward Joseph
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Re: 401k loan to pay off debt?

Post by Edward Joseph » Sat Jul 07, 2018 9:13 am

I don't love the idea. Maybe it can be justified with math, however you're really just moving money round without accomplishing much. I know you're paying yourself back interest with the 401k loan, but what is the interest rate? Also, you'll be pulling a chunk of money out of the markets that's currently working for you.

If you used the 401k loan would you honestly stop borrowing money? No more cc purchases you can't pay off in full every cycle? No more car loans? Psychologically, most people consolidate in some fashion thinking they've accomplished something big and feel justified to keep borrowing.

I would take your 401k contributions down to the company match only and just focus on repaying the debt aggressively for the next 18-24 months. (Maybe stop 401k all together for 12-18 months while you pay everything off.)

Dottie57
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Re: 401k loan to pay off debt?

Post by Dottie57 » Sat Jul 07, 2018 9:19 am

I think I would take out enough to pay all off. Then I would cut up all credit cards and work at paying the loan back as soon as possible. Really, really work at it. Maybe a second job to funnel more money to debt.

02nz
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Re: 401k loan to pay off debt?

Post by 02nz » Sat Jul 07, 2018 9:22 am

You should only take out the 401k loan if you're convinced you have the discipline not to run up debt again. But the list of your debts suggests otherwise.

thx1138
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Re: 401k loan to pay off debt?

Post by thx1138 » Sat Jul 07, 2018 9:30 am

Not an unreasonable thing to do but be aware of the risk of needing to pay off the 401k loan if you lose or change your job. This is slightly less awful than in the past. Previously you needed to pay off within 60 days but now it is by October of the year following your loss of employment. Regardless if unemployed it would be extremely difficult to get a new loan to payoff the 401k loan.

How much would you save doing this? Assume you pay off 11k per year. Using the 20k loan you save about 1300 the first year and 650 the second. That’s not counting the potential lost growth of investments in the 401k which are of course unknown (or could even be losses).

Be aware many 401k loans have origination fees and maintenance fees so be sure to account for those as well.

So it is a trade between perhaps saving yourself at most $2000 at the risk of a really ugly outcome if you become unemployed while you have the 401k loan out. Not a clear winner, either doing it or not seems reasonable to me.

Nate79
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Re: 401k loan to pay off debt?

Post by Nate79 » Sat Jul 07, 2018 9:37 am

Not a chance. Your debt load and the type of debt indicates this would just be shifting the pile around and would never get paid off. You need a serious plan as this debt is about to explode as the interest rates go up dramatically for the CC debt. I would at a minimum stop going above a match in your 401k to pay off the high interest debt. I would even consider stopping 401k to get the high interest debt out of the way.

Flyer24
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Re: 401k loan to pay off debt?

Post by Flyer24 » Sat Jul 07, 2018 9:42 am

No. Do not borrow more money or take out more credit cards. Just focus on getting out of debt. Use the snowball method. Pick your lowest debt and get it paid off first. Then roll that payment into your next debt.

foo.c
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Re: 401k loan to pay off debt?

Post by foo.c » Sat Jul 07, 2018 9:51 am

How confident are you that you can short the right asset in your 401k?

Also consider that decision gets compounded for another 20-30-40 years.

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whodidntante
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Re: 401k loan to pay off debt?

Post by whodidntante » Sat Jul 07, 2018 11:03 am

CurlyDave wrote:
Sat Jul 07, 2018 8:57 am
I have never taken a 401(k) loan, for the simple reason that if one looses his job, the 401(k) loan is immediately due or it would be treated, and taxed, as an early withdrawal.
Some version of this gets posted to every 401k loan thread. It's wrong every time.

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archbish99
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Re: 401k loan to pay off debt?

Post by archbish99 » Sat Jul 07, 2018 11:25 am

A 401k loan isn't invested elsewhere while you have it outstanding - the profit that money makes is strictly the interest that you pay on it. The fact that you're paying the interest "to yourself" is immaterial, because otherwise it would be invested in something else that will make a return.

Treat it as two independent decisions: Will this loan be a better interest rate for you than the existing loans, bearing in mind that interest on your student loan can be excluded from income? And is the interest rate on this loan a better return than the bond investments in your 401k?

If the answer to both questions is yes, then it's worth considering.
I'm not a financial advisor, I just play one on the Internet.

delamer
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Re: 401k loan to pay off debt?

Post by delamer » Sat Jul 07, 2018 11:26 am

02nz wrote:
Sat Jul 07, 2018 9:22 am
You should only take out the 401k loan if you're convinced you have the discipline not to run up debt again. But the list of your debts suggests otherwise.

Agreed. With the exception of the student loan, the amounts/rates indicate you are not good with credit.

Another factor is what percentage of your 401(k) balance the loan is. A $20K loan on a $200K balance is different than a $20K loan on a $50K balance, in terms of your future retirement security.

Jspeaker
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Re: 401k loan to pay off debt?

Post by Jspeaker » Sat Jul 07, 2018 11:28 am

My spending habits have changed and I am focused on getting this down to zero. I was at 85k two years ago and now am down to 33k. The bills won't rack back up after it's paid off. The origination/maintenance fees of the loan would be under $100 for the life of the loan. My main question I guess would be, would a guaranteed return of the interest being paid to my 401k instead of other creditors be worth it? The risk of not having the money in the 401k to grow on it's own is definitely there, but that is with the assumption that it will be in an up market?

Flyer24
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Re: 401k loan to pay off debt?

Post by Flyer24 » Sat Jul 07, 2018 11:30 am

whodidntante wrote:
Sat Jul 07, 2018 11:03 am
CurlyDave wrote:
Sat Jul 07, 2018 8:57 am
I have never taken a 401(k) loan, for the simple reason that if one looses his job, the 401(k) loan is immediately due or it would be treated, and taxed, as an early withdrawal.
Some version of this gets posted to every 401k loan thread. It's wrong every time.
What is the correct answer?

delamer
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Re: 401k loan to pay off debt?

Post by delamer » Sat Jul 07, 2018 11:31 am

Jspeaker wrote:
Sat Jul 07, 2018 11:28 am
My spending habits have changed and I am focused on getting this down to zero. I was at 85k two years ago and now am down to 33k. The bills won't rack back up after it's paid off. The origination/maintenance fees of the loan would be under $100 for the life of the loan. My main question I guess would be, would a guaranteed return of the interest being paid to my 401k instead of other creditors be worth it? The risk of not having the money in the 401k to grow on it's own is definitely there, but that is with the assumption that it will be in an up market?
Up market or down market in the near term isn’t the issue. The issue is long term return.

Jspeaker
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Re: 401k loan to pay off debt?

Post by Jspeaker » Sat Jul 07, 2018 11:42 am

Up or down in the near term would be an issue though, correct? Advise to not borrow from a 401k usually stems from the thought that the money in your 401k during the life of the loan will be profitable and you now lose out on all the compound interest over the years. But if my loan is a relatively short one at 2 years, the current market should play a factor? If I borrow when the market is up and sell less shares at a higher price, if the fund goes down during the life of the loan, I would be buying back more more shares than I had sold?

Not trying argue as if I made my mind up, just trying to get different opinions and facts.

delamer
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Re: 401k loan to pay off debt?

Post by delamer » Sat Jul 07, 2018 11:53 am

Jspeaker wrote:
Sat Jul 07, 2018 11:42 am
Up or down in the near term would be an issue though, correct? Advise to not borrow from a 401k usually stems from the thought that the money in your 401k during the life of the loan will be profitable and you now lose out on all the compound interest over the years. But if my loan is a relatively short one at 2 years, the current market should play a factor? If I borrow when the market is up and sell less shares at a higher price, if the fund goes down during the life of the loan, I would be buying back more more shares than I had sold?

Not trying argue as if I made my mind up, just trying to get different opinions and facts.

In theory, you would have sold high and bought low in your scenario. But you have no way to know if that is going to happen because you can’t predict the market.

Not to mention that when you are out of the market, you lose any dividends paid during that time. Dividends make up a significant portion of total return.

CurlyDave
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Re: 401k loan to pay off debt?

Post by CurlyDave » Sat Jul 07, 2018 11:58 am

Flyer24 wrote:
Sat Jul 07, 2018 11:30 am
whodidntante wrote:
Sat Jul 07, 2018 11:03 am
CurlyDave wrote:
Sat Jul 07, 2018 8:57 am
I have never taken a 401(k) loan, for the simple reason that if one looses his job, the 401(k) loan is immediately due or it would be treated, and taxed, as an early withdrawal.
Some version of this gets posted to every 401k loan thread. It's wrong every time.
What is the correct answer?
A little research reveals this gem: https://ttlc.intuit.com/questions/18994 ... uit-my-job . "Immediately" may be too strong, but 60 days is not exactly a lengthy grace period.

The big point is that the payments over time you thought you could make are now due pretty quickly.

delamer
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Re: 401k loan to pay off debt?

Post by delamer » Sat Jul 07, 2018 12:03 pm

CurlyDave wrote:
Sat Jul 07, 2018 11:58 am
Flyer24 wrote:
Sat Jul 07, 2018 11:30 am
whodidntante wrote:
Sat Jul 07, 2018 11:03 am
CurlyDave wrote:
Sat Jul 07, 2018 8:57 am
I have never taken a 401(k) loan, for the simple reason that if one looses his job, the 401(k) loan is immediately due or it would be treated, and taxed, as an early withdrawal.
Some version of this gets posted to every 401k loan thread. It's wrong every time.
What is the correct answer?
A little research reveals this gem: https://ttlc.intuit.com/questions/18994 ... uit-my-job . "Immediately" may be too strong, but 60 days is not exactly a lengthy grace period.

The big point is that the payments over time you thought you could make are now due pretty quickly.
Zz

The above link contains outdated information. The law was changed in the tax reform legislation: https://www.forbes.com/sites/ashleaebel ... b069a040f7

thx1138
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Re: 401k loan to pay off debt?

Post by thx1138 » Sat Jul 07, 2018 12:08 pm

CurlyDave wrote:
Sat Jul 07, 2018 11:58 am
Flyer24 wrote:
Sat Jul 07, 2018 11:30 am
whodidntante wrote:
Sat Jul 07, 2018 11:03 am
CurlyDave wrote:
Sat Jul 07, 2018 8:57 am
I have never taken a 401(k) loan, for the simple reason that if one looses his job, the 401(k) loan is immediately due or it would be treated, and taxed, as an early withdrawal.
Some version of this gets posted to every 401k loan thread. It's wrong every time.
What is the correct answer?
A little research reveals this gem: https://ttlc.intuit.com/questions/18994 ... uit-my-job . "Immediately" may be too strong, but 60 days is not exactly a lengthy grace period.

The big point is that the payments over time you thought you could make are now due pretty quickly.
As I already stated before your post the law changed. Due by October the year after you leave your employer. Prior to this year it was 60 days.

If truly unemployed though unlikely able to payoff or get a different loan but the larger grace period helps in some cases presumably.

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whodidntante
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Re: 401k loan to pay off debt?

Post by whodidntante » Sat Jul 07, 2018 12:16 pm

delamer wrote:
Sat Jul 07, 2018 12:03 pm
CurlyDave wrote:
Sat Jul 07, 2018 11:58 am
Flyer24 wrote:
Sat Jul 07, 2018 11:30 am
whodidntante wrote:
Sat Jul 07, 2018 11:03 am
CurlyDave wrote:
Sat Jul 07, 2018 8:57 am
I have never taken a 401(k) loan, for the simple reason that if one looses his job, the 401(k) loan is immediately due or it would be treated, and taxed, as an early withdrawal.
Some version of this gets posted to every 401k loan thread. It's wrong every time.
What is the correct answer?
A little research reveals this gem: https://ttlc.intuit.com/questions/18994 ... uit-my-job . "Immediately" may be too strong, but 60 days is not exactly a lengthy grace period.

The big point is that the payments over time you thought you could make are now due pretty quickly.
Zz

The above link contains outdated information. The law was changed in the tax reform legislation: https://www.forbes.com/sites/ashleaebel ... b069a040f7
It is also true that a specific plan can allow payments after separation, so you still have the original loan term. My plan allows this. The TCJA improved upon the minimum time, but the maximum can be even more favorable.

chevca
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Re: 401k loan to pay off debt?

Post by chevca » Sat Jul 07, 2018 12:38 pm

Jspeaker wrote:
Sat Jul 07, 2018 11:28 am
I was at 85k two years ago and now am down to 33k. The bills won't rack back up after it's paid off.
You've already done the heavy lifting then. The time to think of this might have been a couple years ago.

As thx brought up earlier, there's not much to be saved or gained by taking a loan out now. Even though some of the interest rates are high, there's not a whole lot of total interest to be paid or saved on a few thousand. The numbers wouldn't be of a big enough difference to go the 401k loan route, IMO.

Just keep doing what you're doing and knock the debt out. Do you have no cash around at all? Why hang onto a $2k loan? Just get rid of that. I like the snowball method of attack one at a time and then move onto the next. Some like to attack the one with the highest interest rate first. I like the attack the smallest balance first. Either works okay, IMO. Both are knocking out the debt.

Herekittykitty
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Re: 401k loan to pay off debt?

Post by Herekittykitty » Sat Jul 07, 2018 12:44 pm

Jspeaker wrote:
Sat Jul 07, 2018 8:02 am
I currently have the following debt (33k):

2k at 11% (cc)
3k at 7% (auto)
16k at 6.5% (student loan)
5k at 2% (auto)
7k at 0%, goes to 14% next year. (CC balance transfer)

Realistically I can pay off all debt in 2 years if I really try, or 3 years without making sacrifices. Would it be worth taking a ~20k loan for 2 years from my 401k to pay off the higher interest rates? That way I would be paying the interest back to myself? My job is very stable so I would not have to worry about leaving, nor would company match or contributions stop.
And: " I was at 85k two years ago and now am down to 33k."

Great! ($85,000 - $33,000)/2 = $26,000 rate of debt payment over the past two years. $26,000/24 = $1,083/month! That's great!

$2,000 + $3,000 + $16,000 + $5,000 + $7,000 = $33,000 you currently owe.

$33,000/$1,083 = 30.5 months to debt freedom at the same debt payment rate you have been doing the past two years. But you are saying you can rev it up and get it paid off in 2 years (24 months). $33,000/24 = $1,375 a month to get it done in 2 years.

But as you pay off each debt, you can add the payment you were making toward it to the $1,375 and speed up your debt free date. That's what I would do. Here's the order I might do it in:

2,000 CC @ 11% (quick and easy win, high interest loan)
3,000 car @ 7% (quick and easy win, next highest interest loan)
5,000 car @ 2% (fairly quick win)
7,000 CC @ 0% but jumping to 14% next year (at 0% for at least 6 months, and will just be at 14% for just a few months because you will be paying $1,375 + the payments you would have been making on the first 3 loans which are now paid off)
16,000 SL @ 6.5% (now pay the $1,375 + the payments you would have been making on all the other loans)

Yes, I know I didn't account for interest in my calculations as to how long it will take you to get out of debt. But you will be plowing through this pretty fast anyway. And yes, I know that the order I might do it in might not be the order you might do it in and that's fine - just pick an order that makes sense to you.

Do the above and you will be out of debt in short order without borrowing from your 401k. There are a lot of reasons I recommend the above. Only one of which is that it reduces your risk to do it this way compared to taking out a 401k loan.

You might want to consider slowing down your 401k contributions to the match while you do this. I wouldn't go below that. Whether you should slow it down at all depends on the rest of your situation including age and so on, which we don't know.

I know you think your job is safe and maybe it is. There are a lot of smart people who have thought that and been mistaken. But again - that is only one of several reasons I would do it like the above.

Best wishes. And congratulations on your financial turn around and getting so much debt paid off so fast. Keep up the good work.
I don't know anything.

02nz
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Re: 401k loan to pay off debt?

Post by 02nz » Sat Jul 07, 2018 2:09 pm

Jspeaker wrote:
Sat Jul 07, 2018 8:02 am
Realistically I can pay off all debt in 2 years if I really try, or 3 years without making sacrifices.
Make sacrifices. You already sacrificed a part of your financial freedom when you took on these debts, at least some of which were unnecessary. So make the right sacrifice this time around.

Rather conveniently, your two smallest loans have the highest interest rates. So the snowball method and the highest-rate-first method both say pay those off first, and set a goal of paying everything off in 24 months - or even 18.

bberris
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Re: 401k loan to pay off debt?

Post by bberris » Sun Jul 08, 2018 7:06 am

Jspeaker wrote:
Sat Jul 07, 2018 11:42 am
Up or down in the near term would be an issue though, correct? Advise to not borrow from a 401k usually stems from the thought that the money in your 401k during the life of the loan will be profitable and you now lose out on all the compound interest over the years. But if my loan is a relatively short one at 2 years, the current market should play a factor? If I borrow when the market is up and sell less shares at a higher price, if the fund goes down during the life of the loan, I would be buying back more more shares than I had sold?

Not trying argue as if I made my mind up, just trying to get different opinions and facts.
You are right. Shares are sold to fund your "loan", and bought when you pay it back. That walks, talks, and squawks like a withdrawal, not a loan.

TheAncientOne
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Re: 401k loan to pay off debt?

Post by TheAncientOne » Sun Jul 08, 2018 9:26 am

I'm usually with the consensus here that borrowing from your 401K is a bad idea. Not only do you face the risk of having to pay that loan back prematurely if you lose your job, we also know that just as the credit card companies that so kindly offer you zero interest rate balance transfers that too many people are unable to take advantage of this opportunity to actually pay down those debts before the high interest rates resume.

In your case, however, I'd go ahead and take out that loan as long as you're reasonably confident that you'll be staying at your job for at least the next 18 months. You've already shown your ability to pay down large amounts of debt. Wipe out all those debts now, live a frugal life until your 401K loan is paid off, and above all, stop using credit cards until that loan is gone. If you're sure you can do this, go ahead. And if you do, don't forget to get back to us to let us know of your success! Good luck whichever way you go.

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mhadden1
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Re: 401k loan to pay off debt?

Post by mhadden1 » Sun Jul 08, 2018 11:30 am

ThePrince wrote:
Sat Jul 07, 2018 9:11 am
One can’t borrow their way out of debt.
But one can possibly refinance and pay less interest. Sometimes much less. I did not bother to do the arithmetic, but in the OP case I assume the savings from to the 401k loan strategy was enough to be desirable. I am not at all horrified by the idea of paying off the high interest debt with a 401k loan that will most likely be repaid in a reasonable time.
Oh I can't, can I? That's what they said to Thomas Edison, mighty inventor, Thomas Lindberg, mighty flyer,and Thomas Shefsky, mighty like a rose.

Herekittykitty
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Re: 401k loan to pay off debt?

Post by Herekittykitty » Sun Jul 08, 2018 11:36 am

2,000 CC @ 11% (quick and easy win, high interest loan)
3,000 car @ 7% (quick and easy win, next highest interest loan)
5,000 car @ 2% (fairly quick win)
7,000 CC @ 0% but jumping to 14% next year (at 0% for at least 6 months, and will just be at 14% for just a few months because you will be paying $1,375 + the payments you would have been making on the first 3 loans which are now paid off)
16,000 SL @ 6.5% (now pay the $1,375 + the payments you would have been making on all the other loans)

I fail to see much interest paid if the scenario above (which I suggested) is followed. The $2,000 CC @ 11% - minimal to no interest cost as it will be paid immediately. The $3,000 car @ 7% - that is gone within 2 months of paying off the $2,000 CC which means it will be paid off 2-3 months from now, costing a total of about $50 in interest between now and when paid off. The $5,000 car @ 2% will be paid off within 3 months of the $3,000 car, so a total of 2% interest for 6 months, or about $50 interest.

The $7,000 CC @ 0% x 6 months = zero interest. Then it jumps up to 14 % for about 3 months until it is paid off, for a total of about $245 total interest.

So for everything except the $16,000 SL @ 6.5%, the total interest paid in the above scenario is about $50 + $50 + $250 = $350.

I didn't account for compounding interest but I also didn't consider how much each successive debt has been paid off by the time the "snowball" hits it. I also didn't figure the difference in interest paid if the above scenario is followed except putting the $7,000 CC right in front of the $5,000 car. But I think the approximations are close enough to demonstrate the point. Which is it would be nuts to take on a 401k loan to avoid $350 or thereabouts in interest. Oh - I didn't check my math either.

Now to the $16,000 SL @ 6.5%. In the above scenario, by the time the OP gets to snowballing this one all the others will be wiped out and he/she will have made about 9 months of regular payments on it so the balance will be less than $16,000. The OP will have in his/her budget more per month than when paying off the lower amount debts since he/she won't be paying those payments any more.

But taking $16,000 @ 6.5% a year - that's about $1,040 a year. But it isn't going to take the OP a year to pay this off. With no other payments to make, but somewhere between a year at a slow lope and 1 1/2 year at a crawl. So say the total interest is about $1,500.

So the total interest paid in the scenario is about $50 + $50 + $250 $ 1,500 = $1,850.

Big woop-de-do.

Even less of a woop-de-do if one accounts for any application fees for the 401k loan. Not that it matters because this really isn't a lot of interest money in the grand scheme of life, especially compared to the risks of a 401k loan.

Keep in mind that a Boglehead math nerd (I'm only nerd-lite) and maybe the OP can zip out the exact numbers in a matter of minutes and will likely check their math. That would be great. If it turns out I have made major miscalculations or that my results are way off like an order of magnitude or so, I'll come back and edit in the corrections. Or if I'm a light year or so off, I'll delete my post entirely. Otherwise - well, OP, you see my point.
I don't know anything.

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mhadden1
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Re: 401k loan to pay off debt?

Post by mhadden1 » Sun Jul 08, 2018 12:03 pm

Herekittykitty wrote:
Sun Jul 08, 2018 11:36 am

So the total interest paid in the scenario is about $50 + $50 + $250 $ 1,500 = $1,850.

Big woop-de-do.
Some may not care about $1850. I usually do, especially if it's pretty easy.

(Did not verify the arithmetic)
Oh I can't, can I? That's what they said to Thomas Edison, mighty inventor, Thomas Lindberg, mighty flyer,and Thomas Shefsky, mighty like a rose.

JStephens
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Re: 401k loan to pay off debt?

Post by JStephens » Sun Jul 08, 2018 1:19 pm

I would say it's not worth it. The CC debt and the 7% auto debt should be going away by the end of the year, and those are the two big ticket items. I wouldn't pay off the 2% one early at all. Personally, I would probably keep doing cc transfers on the 7k until the student loans are paid off.

Tdubs
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Re: 401k loan to pay off debt?

Post by Tdubs » Sun Jul 08, 2018 2:23 pm

mhadden1 wrote:
Sun Jul 08, 2018 12:03 pm
Herekittykitty wrote:
Sun Jul 08, 2018 11:36 am

So the total interest paid in the scenario is about $50 + $50 + $250 $ 1,500 = $1,850.

Big woop-de-do.
Some may not care about $1850. I usually do, especially if it's pretty easy.

(Did not verify the arithmetic)
Take care of the dollars and the thousands of dollars will take care of themselves.

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BL
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Re: 401k loan to pay off debt?

Post by BL » Sun Jul 08, 2018 2:43 pm

JStephens wrote:
Sun Jul 08, 2018 1:19 pm
I would say it's not worth it. The CC debt and the 7% auto debt should be going away by the end of the year, and those are the two big ticket items. I wouldn't pay off the 2% one early at all. Personally, I would probably keep doing cc transfers on the 7k until the student loans are paid off.
+1
I might cut back on 401k except for match. (Remember it will cost more in taxes, but will give you the cash in hand to pay down the high-interest loan you are working on.)
Pay down one at a time and then apply those payments to the next item being paid off. You will have a lot of extra cash to apply to the next loan as you pay off the loans. Perhaps your credit rating will also increase enough to get a better student loan rate.
I can pay off all debt in 2 years if I really try
Why wouldn't you really try?
What can you give up for 6-12 months? tv, fancy phone or plan, vacations, liquor/beer, eating out, groceries (clean out your pantry, refrigerator, and freezer), expensive hobbies or exercise plans, etc. Some of those can probably be cut. Apply all savings to the next debt item.
Maybe sell off some belongings. Work part time and send it all to debts.

Herekittykitty
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Re: 401k loan to pay off debt?

Post by Herekittykitty » Sun Jul 08, 2018 7:43 pm

mhadden1 wrote:
Sun Jul 08, 2018 12:03 pm
Herekittykitty wrote:
Sun Jul 08, 2018 11:36 am

So the total interest paid in the scenario is about $50 + $50 + $250 $ 1,500 = $1,850.

Big woop-de-do.
Some may not care about $1850. I usually do, especially if it's pretty easy.

(Did not verify the arithmetic)
Good point - and certainly there will be smart who agree with you. Yet I stick to my guns.

But I should clarify that my point wasn't that $1,850 is chicken feed - it isn't. But IMHO $1,850 paid in interest is much better than the risks of a 401k loan. And that with a 401k loan there may be losses of potential investment growth, and loss of flexibility. To say nothing of the risks. And that the OP should get these loans paid off well before the $1,850 accrues. So yep - $1,850 isn't chicken feed but a 401k loan isn't risk free or benign.

:happy
I don't know anything.

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