@Creditaddict wrote:
@syeb wrote:
@Creditaddict wrote:
you are crazy if you think that the 401k loan will come out better than doing debt counseling at 2-10%!!!!! CRAZY!
AND if something financial terrible happens after you have taken the 401k loan and end up having to file bk anyway, now you have lost that 401k money that was protected against BK.
DONT DO IT!
did we learn nothing from 2008 when people kept taking 401k loans thinking they could keep their home and get out of credit card debt and ended up pennieless and with no home and still bk! don't touch protected money to pay unsecured unprotected debt like credit cards
Sorry I disagree.
A 401k loan will carry a lower interest rate overall than credit counseling, it will be paid to himself, will not be reported as open debt to CRAs, and will lower utilization thereby perhaps heading off any further credit line decreases. It will enable the OP to pay off a large portion of the balances, providing some much needed breathing room. It provides the automatic payments by being withheld from payroll automatically.
Credit counseling will result in all of the covered cards being closed - thereby killing both utilization for a long time and average age of accounts forever.
A bankruptcy does not seem highly likely in this scenario and we generally do not plan to file and walk away from our debts. The OP seems to have a plan to pay of fhis debts and a 401k loan should be a very viable part of it.
1. closed cards do not effect AA negatively... they report for 10 years!
2. I don't know about you but my partners ROTH Averaged 17% return last year... so if you pay yourself 5% on the loan but loose 12% a month x $50k... you can see the compounding is EXTREMELY against your 401k loan!
3. Are we worried about credit score or getting out of debt... OP clearly doesn't need anymore credit because if there is another job loss they will be bk rather they like it or not.. if the goal is to get out of debt, then you do it the fastest and cheapest and until op actually talks to a credit counseler and gets the rates that they would pay in the program it's not fair to say it will be up to 10% and that taking a 5% loan against yourself not talkiing about the interest you would actually earn if the money stayed in a 401k might be more expensive by itself.
1. I am referring to the decreased credit line resulting from closed cards affecting utilization. This is a fact, not an opinion.
2. Past performance is not a guarantee of future returns. We are talking about a guaranteed savings vs. a potential gain.
3. Decreased credit availability and account age will affect the OP long after he is out of debt. So we are thinkg both of the present and the future.
Every financial planner I know is predicting an extended period of very low absolute returns in the market. So again, a hypothetical gain against a guaranteed savings. I have gone through a full 5-year credit counseling program and creditors vary exactly as I said - from 2% - 10%. Once I realized that I could take a 401k loan, I did and paid all my remaining balanced early. I assume my case was not completely unusual.
I can understand your point about a bankruptcy, where the credit card debt would be discharged but 401k funds would be safe. I agree that in that scenario it would be better to not have taken the 401k loan. But there is every indication here that the OP is committed to paying off his debts, and again we do not consider bankruptcy as an option ever unless in extreme cases. Considering both the OP and his wife have decent jobs, even if one were to lose the job, a judge may not even agree to discharge the debt so it would result in a payment plan in any event.
Sorry got to go. It's been nice discussing this with you. Hearing both sides may be enlightening for anyone reading this, and a good financial planner will consider all options. With that level of debt the OP should definitely have a financial planner. Have a good weekend.
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