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Lane
Lane, JD, CFP, MBA, CRPS
Category: Finance
Satisfied Customers: 9451
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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I am a little over &20,000 in credit card debt, I have 6 credit

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I am a little over &20,000 in credit card debt, I have 6 credit cards with 2 of them at 11% interest and the others from 14 to 18% I am not late on any of them but I would like to consolidate. I have a 401k and was thinking of borrowing 23000 for 48 months the interest rate is 4,5% my monthly payment would be lower then what i am paying now total of all cards, I know the downfalls as far as if I lose my job etc, but what else can I do? I do not own a home.
Thanks
Bobby

Lane :

Hi Bobby!

Lane :

What you're thinking of doing actually does make financial sense as long as you get that 401(k) loan paid back, as I'm sure know

Lane :

What you're losing here is the ability of that money to be working for you at the kind of rates that equities CAN achieve over long time frams

Lane :

but the tradeoff is that you're eliminating that 14 to 18% debt

Customer:

everything I read says dont do it! ugh I am 50 years old I have as of today 87000 in my 401k

Lane :

I would certainly never WITHDRAW

Lane :

and pay the taxes and penalties ... THAT makes NO financial sense

Customer:

no I know not to withdraw :-) it is a loan

Lane :

There's one option that better

Customer:

I am listening

Lane :

If you can afford it ... and that's lower your 401(k) contributions a bit (maybe to the level that you're still getting a full match) .... then

Lane :

use that plus any discretionary income to start paying the highest card off first ... throwing EVERYthint at that car

Lane :

card ... pay the minimums on the others until it's paid off them pay off the next highest, etc

Lane :

your 401(k) keeps moving along, you eliminate the risk of taxes and penalties that come from not getting it paid back

Customer:

with 6 cards that will take me forever , I have 10% of my pay go into my 401k and that is taken out before taxes still it makes sense but......

Lane :

you don't lose that free monty that the company's putting in for you ... becuas one of the othr downsides of using the 401(k) is they'll suspend contributions, most lans do

Lane :

yep, you just have to understand that's the trade off ...pushing back or lowering your retirement level

Customer:

suspend contributions if I take a loan? I dont think so with my company will have to call fidelity and ask

Lane :

I would do that

Lane :

That's a plan document issue

Customer:

ok thanks you

Lane :

If you can keep contributing, gettig that match AND still do it... then it begins tomake more sense

Customer:

ok thanks

Lane :

You're welcome ... sounds lik you understand the tradeoffs

Customer:

yes I do

Lane :

definitely keep putt in AT LEAST enough to get a full match if you can (may be stating the obvious)

Lane and other Finance Specialists are ready to help you

Thanks so much for the rating Bobby,

Let me know if I can help further,

Lane