| Good idea? taking out money from 401k? |
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crashergs
New Member
Cash: $ 0.85
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Joined: 17 Mar 2006
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| Good idea? taking out money from 401k? |
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Goodday ladies and gents!
I have a quick question. I have 837.00 dllrs in two credit cards which my interest rates for both cards at in about 20% range.
I have a 401k that I started last year with my company, and I have 3,000.00 in
my 401k. I was planning on doing a hardship withdrawal of 1000 to pay off my
two credit cards since both of them are maxxed out. It was my fault and now im trying to find a way to repay them quickly as their interest rates are high.
I can do a loan on my 401k, and my interest rate on my 401k is 8.7%, which seems that would sound better in the long run instead of paying over 40% in interest for both credit cards.
Does this sound like a plausible idea? to take out a hardship withdrawal or a loan of 1000.00 ?
I really appreciate any tips or tricks
cheers,
mario
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Fri Mar 17, 2006 5:02 pm |
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MattL
Senior Member
Cash: $ 46.85
Posts: 234
Joined: 25 Jun 2005
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| Re: Good idea? taking out money from 401k? |
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quote:
Originally posted by crashergs
Goodday ladies and gents!
I have a quick question. I have 837.00 dllrs in two credit cards which my interest rates for both cards at in about 20% range.
I have a 401k that I started last year with my company, and I have 3,000.00 in
my 401k. I was planning on doing a hardship withdrawal of 1000 to pay off my
two credit cards since both of them are maxxed out. It was my fault and now im trying to find a way to repay them quickly as their interest rates are high.
I can do a loan on my 401k, and my interest rate on my 401k is 8.7%, which seems that would sound better in the long run instead of paying over 40% in interest for both credit cards.
Does this sound like a plausible idea? to take out a hardship withdrawal or a loan of 1000.00 ?
I really appreciate any tips or tricks
cheers,
mario
Don't take money out of the 401K, instead temporarily stop making contributions to the 401k and pay off the cards.
If each credit card is 20% interest your interest is still 20%, not 40%.
I used this method to pay off my cards http://www.debteliminationhelp.info/credit/0-apr-credit-card.php It works if your credit is still good.
Debt Elimination
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Fri Mar 17, 2006 5:33 pm |
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crashergs
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Cash: $ 0.85
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Joined: 17 Mar 2006
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ahh no no, what i meant to say is that im paying 20% per credit card one which is household and another which is bestbuy...
this is the true story,
i have a 5000 credit limit on a credit card which i have an outstanding balance of 4800
i have another one with a 1500 dllr limit and that one is maxxed out at 1400
i have another credit card which is 500 and i owe 340 something in that range
and another one at 300 which is maxxed out.
finally that I got my tax return today at 700.00 i can no longer think about
getting out of my debt with my premature 401, now i can use that 700 towards my two lower limit credit cards.
then that will motivate me since ill see my credit score jump from 680 to the 700's and then start eliminating my 1500 credit card and finale the 5000 one.
I read somewhere in order to overcome your debt is to pay the smaller cards first, and then the higher ones last.
In terms of investments, what do the professionals recommend to invest in? im not too interested in stocks since i dont want to keep track of something like that on a daily basis, is there anything else that can give you a good amount of return investment? thats medium-highrisk?
im 23 yrs old, i got my credit cards when i was like 20-21 i couldnt resist to buy stuff and see that i was buying stuff with no money at all, but to only encounter monthly payments, thankfully i have a decent waged job that i can afford my debt at this point. Now i have to take a turn for the best which is to start doing investments, but very difficult since there are million of ways to invest your money thats worth while.
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Sat Mar 18, 2006 2:13 am |
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rockhound
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Joined: 03 Feb 2006
Location: West Virginia
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| first things first |
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I would agree with Coaster that maybe investing could be a little premature for you right now. I like the "pyramid" analogy, in that you build a broad, stable base (i.e. no debts combined with a safe emergency cash supply) and then you can start looking to do something with your extra money. After all, you still have $4,800 @ 20% and $1,400 @ 20%, and I would suggest that you would be better off to wipe that out before investing in something external to your existing 401k. With your investing, you'd be looking to gain 10%, and meanwhile would be paying 20% on outstanding debt. So in a way, you'd be farther ahead to wipe out your credit card, otherwise even with modest investment you'd like as not be earning a net loss. There is also this issue of fiscal discipline. What you said is common: a young person gets a credit card and finds out that they like buying things. You mention that you have four credit cards, and they are basically all maxed out. That may be an indication that, even though you say you can afford the debt, maybe you aren't truly in the most stable position yet. You may want to ask yourself some probing questions concerning why all your cards are maxed, and whether you really need four credit cards. $6,200 is not a trivial amount, and frankly I'd be worried that it could be a threshold of spending starting to spin out of control. Personally, I would be looking to cancel the two credit cards that would be paid off with my tax refund. Best of luck.
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Sat Mar 18, 2006 5:17 am |
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crashergs
New Member
Cash: $ 0.85
Posts: 4
Joined: 17 Mar 2006
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glady appreciated your responses. you guys have given me some good insight. I really couldnt talk to my parents about this, since they have tried telling me howto manage my money and I refused to acknowledge their financial advice since I believed "it was my money, I can do what I want with it", which is now credit card companies money, I want it to be my money  this is a very good forum with active forumers that are good advisors!!!
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Sat Mar 18, 2006 6:21 am |
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financialpeace
Contributing Member
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Joined: 21 Feb 2006
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I would like to comment that both rockhound and coaster are both right on in my opinion with their advice.
Here's what I would do if I were in your situation...
First and foremost, get on a budget, a real, honest budget. I would account for my income and every expense. I would spend every single dollar on paper before the month begins, we call it a zero based budget. Give every dollar a name, send it somewhere.
Then I would save for a "baby" emergency fund, of $1-2k, liquid, without some fancy investment scheme or high return, just plain old savings account that I can get to easily, but not too easily, but something that doesn't keep my money tied up for months. A leather couch or HDTV is NOT an emergency, those are line items on a budget... a broken waterpump on a car or a flat tire, or refrigerator dying, those are real emergencies, and this fund will keep from going into debt if those events happen.
Once there is accountability(budget) and a safety net(emergency fund), now I can start to get out of debt. Without both of these in place, getting out of debt will only be very temporary if at all... If I don't know that I just spent the electric bill in WalMart on CD's or something unneeded, how can I ever expect to get out of debt. These two items, the budget and the emergency fund are the foundation to all of your financial stability. If you can't sit down and make yourself accountable and save first for protection, then you might as well do whatever you want, cause I guarantee that you'll be back on this board in 6months in worse shape, asking, "what went wrong?"
Now, once the foundation is built, we can start getting the financial house in order, and the first thing is to pay off the debts. Dave Ramsey promotes the debt snowball, which is what I personally used when I got out of debt, and believe me, it works. Pay just as stated earlier, lowest balance to highest balance. Intensity and confidence will carry you farther than any consolidation, trying to eat a cow in one bite is impossible because you lose hope because you have to focus on the entire animal, but cut it into small bites, and before you know it, its gone. It doesn't really matter how well it tastes(lower interest consolidations) if its too big to swallow, it won't get finished. That's the basis behind the debt snowball system, increased intensity through quick wins and confidence in a plan that is working.
I would surely do as the others suggested, lower the amount of investing contributions until the debts are paid. When I was getting out of debt, I lowered my 401k contributions to only the matching amount from my employer, and at the very beginning of my debt snowball I lowered it even lower than that, just to help break up the log jam and get some funds flowing toward the debts...
Anyway, this is just my $.02, and its worth about as much as you paid for it...
I hope the best for you... you're at a critical age to get things together and start building wealth in a way you can't really even imagine right now, but just have some vision and listen to those with gray hair who "have" done it before. GO KILL THE DEBTS!!
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Sun Mar 19, 2006 3:52 pm |
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