Credit Advice

Have a question? Have advice to share? The combined knowledge and experience of everyone in the Credit Karma community can help you. Enter your question or help others below to get started!

Question

Posted in Retirement
Profile Image

Question By
seekingwisecounsel

0 Contributions
0 People Helped
What are the pros and cons of borrowing from your 401K?
We are wanting to pay off credit card debt and make repairs to our home.

Your Credit Scores Should Be Free. And Now They Are.

View your scores and reports anytime.

SIGN UP NOW
All Responses

Results 1-2 of 2Results per page: 5 | 10 | 25Page 1 of 1   Previous | Next
Top Contributor
7363 Contributions
3809 People Helped

Very few people repay the money they borrow from the 401K.  Also, you lose out on the compounded interest you might have received had you left the funds in place.  Search for Dave Ramsey and find out a good way to pay off those credit cards which, ideally, should be paid in full every month. You might also have to pay taxes on that money because a 401K is a retirement fund and the funds should be used for that purpose.

Top Contributor
36 Contributions
11 People Helped

The pros are it's your money and you won't have to subject yourself to onerous interest rate charges borrowing somewhere else.  The cons are:  you forego the investment appreciation on the money you withdraw and spend (which compounded until retirement can be meaningful), if you lose your job you will have to repay the loan within 60 days, and if you don't repay the loan it will probably be taxed as ordinary income and subject to a 10% early withdrawal penalty (assuming you are under 60 years old).  Most people don't have nearly enough set aside for retirement as it is so dipping into those savings is generally a bad idea.  I would suggest you not do it unless you really have no viable alternative.

Results 1-2 of 2Results per page: 5 | 10 | 25Page 1 of 1   Previous | Next

Your Credit Scores Should Be Free. And Now They Are.

View your scores and reports anytime.

SIGN UP NOW

Reply to this Question

Write your response:
Enter Your Comments

The Credit Advice pages of the Site may contain messages submitted by users over whom Credit Karma has no control. Credit Karma cannot guarantee the accuracy, integrity or quality of any such messages. Some users may post messages that are misleading, untrue or offensive. You must bear all risk associated with your use of the Credit Advice pages and should not rely on messages in making (or refraining from making) any specific financial or other decisions.