Need some financial advise from the members on here who’ve been around longer and have come across ways to make the most headway financially.
So here’s the deal. Trying to consolidate the last of my high interest CC loans into one payment in which the interest is paid to me and not some bank.
I can take, for example, a 20 month loan (I can pick and choose from 1 month to 60 months) against myself and pay off all my outstanding debt (besides the car) and have just two payments (one of which pays the interest back to me). The loan payment would be automatically deducted from my loan.
I’m 23, make in the middle $40k range, and plan to continue my contribution to my 401k just as I’ve been doing.
$20 annual fee, with a $35 fee to take the loan initially.
Good idea or bad idea? The loan amount would be about $7k. At face value, this seems like a good idea, but trying to see if anyone has done this before. All I can find on the internet is pointed at older folks (in their 40’s and 50’s) in which case it’s a bad idea. But, I am 23 and have a long way to go before I retire. Many people don’t start their 401k’s till their mid-20’s anyway and I’ve been doing mine since I was 21.
I’ve done the same thing a few time borrowed against my retirement. I work for NYS so its a tad different but totally with it. $20 fee to get the money at a 7% interest rate payable every two weeks. at like 22 bucks a paycheck and can never be turned down for it. ONLY thing that sucks for me is say i get fired or laid off my loan balance is due IN FULL my last day of work, and if i can’t pay that in full then they take every paycheck / unemployment check til the loan is paid off. then i can withdraw the money in full.
^ often times it’s cheaper in the long run to simply pay off the high interest CC bills without added costs/interest/ramifications later on down the line
Yes, I found that ‘info’ online, but it seemed to be geared towards the older generation who doesn’t have much time left to make it up. I haven’t been able to find anything for someone in my age range or 40+ years away from retirement (an expert opinion other than a calculator).
Here is the what the calculator said:
"You will have saved $3,284,419 in your account by the time you retire in 42 years.
If you left your retirement plan intact and never borrowed against it, the assets in the account could grow to $3,327,686, a difference of $43,267."
"Learn more about taking a loan
If there’s no other source you can turn to for desperately needed money, consider taking a plan loan before a withdrawal. Even if you have an outstanding loan, it might make more sense to pay off your existing loan and take another rather than make a withdrawal.
A plan loan is generally a better option than a straight withdrawal. When you take a loan, you borrow from your plan and repay it to your account over time with interest. It’s a better idea than a straight withdrawal because you put the money back into your plan and you aren’t liable for additional taxes if you pay it back.
However, there are a few caveats associated with a loan.
First, taking a large-sum loan and paying it back over time means that money won’t be able to grow and compound. The larger your account balance is, the more it has the potential to take advantage of long-term market growth.
Second, if you switch jobs, your loan becomes due and payable in full. You have to come up with the full amount due or default on the loan. If you default, the loan payoff will come out of your remaining plan account balance, which counts as a cash distribution. That means you’ll pay taxes and the 10% tax penalty on that payoff.
While there aren’t taxes associated with taking a loan, certain fees do apply. These fees differ from plan to plan"
and
“Pros
You pay the interest back to you, not someone else.
The interest rate is competitive.
You don’t pay taxes on a loan.
Cons
Money that’s not invested misses out on potential gains.
If you stop working your loan could become a withdrawal, at which point you’ll owe any taxes and penalties on the remaining balance.
Interest on the loan is not tax-deductible.”
I just got done paying off all of my ‘bad debt’ and now the only debt I have is my car and a loan which is paying back to me and not someone else (this 401k one). In 10 months, all I’ll have left is my car.