Joined: 09 Nov 2013
Location: Greater NYC area
I have an opportunity to retire an outstanding debt
I have an opportunity to retire an outstanding debt (promissory note) for half the balance due. The note outstanding balance is $21,375 which I have been paying back at $125/month. It is the last debt from a short sale of my home two years ago. I can settle it for $10,687. I do not have savings enough to cover that amount.
Would it be a good idea to take a short term (36 month) loan from my 401k to settle this note? I realize that 401k loans are not usually the best way to go but the long term savings are appealing.
What other questions should I be asking? What downside is there?
Sat Nov 09, 2013 3:22 pm
oldguy Senior Member
Cash: $ 718.00
Joined: 21 May 2006
It depends - if your credit is already ruined, then accepting a 'deal' won't hurt you too much.
Your $125/m is barely paying 7% interest - so you are not repaying any of the $20,000 principal.
Your lender loaned you $20,000, the only reason that they will accept less is that they think that you are going to fail to repay the loan - and 50% is better than nothing, ie, they are hoping to cut their losses.
Deoending on your state's laws, the $10,000 that the lender is giving you may be counted as income - you may owe the Fed & State Income Tax on it.
Sat Nov 09, 2013 4:34 pm
coaster Senior Advisor
Cash: $ 1626.30
Joined: 11 Oct 2005
If you take the deal, make sure to get written documentation from the lender that the settlement discharged the debt so that it goes on your credit report as "paid"