Money for Any Reason You May Need!

Consider Borrowing Against Your 401K if You Need Money

Although you shouldnق€™t consider taking out a 401(k) loan unless youق€™ve at least thought about other alternatives of getting a hold of cash such as borrowing money from a family member or from a home equity line of credit it is still a valid option that you may want to consider. You should only be in a situation in which youق€™ve exhausted your other options, but are still desperate for money. In this case, taking out your 401(K) can benefit you.

Alternatives to Taking Out Your 401(k)

Keep in mind that if youق€™re thinking about taking out your 401(K) in order to pay off your credit card bills you should reconsider due to the fact that credit card debt can always be negotiated. If youق€™re dealing with the pressure of being harassed by creditors then you simply need to send them a certified letter requesting that they halt their calls. If on the other hand youق€™re considering taking out a 401(k) loan in order to pay for medical bills then it is best to try to arrange a payment plan instead. Even if the creditors you owe money to are refusing to negotiate with you, as long as you at least make a partial payment every month your bill will not go into default. That being said there are some legitimate reasons as to why taking out your 401(k) will be beneficial to your finances.

401(k)ق€™s Are The Lowest-Cost Loan That is Available

A 401(k) loan can be a helpful solution for those who are having issues with receiving credit at a rate that they can afford. For instance, those people who have very low credit scores due to a bankruptcy may not be able to attain reasonable rates. If this is the case then avoiding a 2 to 4% increase in the interest rates your dealing with by taking out a 401(k) may be worth it. However, be aware that the interest you save from borrowing against your 401(k) may not necessarily be enough to make up for the amount that you will be losing from withdrawing money from your retirement account.

You Have a Secure Job

If you are considering taking out a 401(k) loan then it is highly recommended that you are happy with your current employment, and that your boss is happy with your work and there is no chance of getting fired or laid off. If you leave your job the money that you take out will be deemed an early withdrawal and so you will end up owing taxes on the amount. You should also take into consideration the amount of income that you are projected to receive within the typical five-year repayment period of a 401(k) loan, as the payments on your loan usually will come straight out of your paycheck. You should ensure that youق€™d be able to survive without that money from your pay.

It Can Be a Smart Investment

Under some circumstances taking out a 401(k) loan in order to buy a house, advance your education or finance your business may actually be worth the negative impact of doing so. Keep in mind that if you want to borrow against your 401(k) to purchase a home then your repayment period can be extended. A 401(k) loan can also be a great option for those who want to seek out a degree or educational credentials, but need to maintain their job or want to still advance their career. However, if you are considering a 401(k) loan in order to finance your education, then make sure that the degree or credential you are seeking will be worth the risk you are putting on your retirement. If you can hold off with advancing your education until you can afford to finance it yourself then you may want to consider doing so in order to keep your retirement funds secure. If you just want to get a professional management certificate for instance, then this likely will not actually be worth the investment, however a MBA may be worth the lost dollars in the amount it will bring you. If you are on the fence about taking out a 401(k) loan then talking with a financial advisor is recommended.