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Question By
Madejah143

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Which is better for paying down credit card debt, a personal loan or a loan against my 401k?
I have been looking at options for paying down most or all of my credit card debt. I was leaning towards applying for a personal loan equal to my full credit card balances to consolidate everything, but I also know that I can borrow against my 401k at a 4.25% interest rate and would be able to pay off about half with that (since I can only borrow a portion of my total 401k value). What would be the best choice?

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Save 401k.

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The problem with borrowing from the 401k is that, for the time the money is not in that fund, you're losing the potential interest that would ordinarily accumulate.  AND, many who borrow don't get the funds paid back.

A personal loan may be as good option though, if you can, consider consolidating your credit cards by getting a card that charges zero interest for at least 12 months.  Then everything you pay on them will go towards clearing them out, instead of some going to interest.  I did that and will have the consolidated balance paid before the year is up, just using the same amount of money I was paying before consolidation.  Something to consider.

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Loan on your 401K

I'm going to diagree with jwsister.  They're correct that your 401k will not be making money from what you borrow but as for never paying the funds back, I don't know where they are getting that information from.

I have a small loan on my 401k that I am required to pay back. It's small, 50$ a month but the fact I didn't have to take a hit on my credit score, I don't have to worry about some ridiculous intrest rate and I never miss a payment because it comes directly out of my check every pay period, makes it well worth the few bucks missing from my 401k.

Reply by
KCSunshine35

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When I was working, I took loans on my 401k & was required to pay it back to the account WITH a 12% rate. While people may be saying, "Ouch," over that one, I was paying MYSELF the 12%, so I felt like, in the end, I was OK with it. 

I agree with the statements throughout the "personal loan/401k loan to pay off CC debt" thread that whatever you do to get your debt paid, is only as good as your discipline NOT to get back into trouble by using those zero balanced CCs that REALLY are not zero if you are paying on a loan. :)  You need to create a MIND GAME that you are going to be successful. It's only a few months out of a lifetime that you will forever be thankful that you remained discipline. 

GOOD LUCK everyone--I'm researching this as well. I am determined to get out of debt or be very close to it. I'm tired of the monthly fanaggling of income with debt. I want to save more than I am so I can quit work & enjoy life since I am nearing my 60's.

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