Personal Loan Recommendations

[Tony275]

Hey everyone,

I've been on a tear to improve my score, as most on here have!

But recently my mind has been stuck on debt consolidation and how to go about it.

I won't justify a personal loan with a rate above 15%, I just can't do it, and I know there are lenders out there usually around the 9% APR mark, which is do-able, but does it make sense?

Here's my position:

I have about $6k in revolving credit card debt as of now, this fluctuates as I have more money from week to week, if the utility bill is higher, I pay closer to the minimum payment, I'm sure most of you know how this goes, I'm not living paycheck-to-paycheck, but I'm also not floating on a river of reserve funds right now.

I work at Target, and they offer a pretty awesome personal loan option through the 401(K) benefit. I pay a $75 fee up front and the interest rate on this up-to-36 month loan is 4.25%. The cool thing is...this only costs me the $75 in the end, I pay the interest and the loan amount back into my own 401(K). Better yet, it's all pre-tax. My dilemma here, is I can only take out what I have contributed to this account, which is currently about $2800-2900 or so (started this account December of 2012). I would end up paying this loan back weekly from every check (19.91/weekly check), to the tune of about $80/month.

Would you say this is worth it? With this amount I could pay off half of my debts right now (which would jump right back up when I purchase this fence for my house at 0% for 18 months). But I could also get rid of some nasty Best Buy Card 29% interest debt ($2700)

Basically I'm saying I can get rid of the Best Buy debt I have (minimum payment $57 each month) with the 401(K) loan

It's frustrating trying to explain everything out, so many numbers with balances and interest rates, minimum payments, yada yada.

Chase Freedom -      $1150 balance with 0% interest for another 12 months

Discover -                   $650 balance with 24.9%? interest

Local Credit Union - $850 balance with 14.9% interest

Best Buy -                   $2700 balance ($500 or so is 0% promo) 29.9% interest

Amazon GECRB -    $350 balance with majority 0% interest

Keep in mind I'm 23 years old, so this wouldn't GREATLY impact my retirement chances at this point, and Target matches what I'm putting in and I will continue to contribute the same amount I do now to my 401(K) and everything loaned out will be all paid back in 3 years or less.

Now what I LOSE from this, is the ability to just pay off this loan with income taxes next year (should be decent with the purchase of my house this year and my wife and I being full time students) and I'm basically locked into the 3 years of paying it.

Would you do it? Alternatives? My credit scores are in my signature, I've had quite a few inquiries the last few months so I have to keep that in mind when applying for personal loans from other lenders, Sallie Mae even denied me for a $3000 student loan

Thanks in advance, sorry for my garbled request! Mods please move if I posted this in the wrong section!

Tony

[user5387]

Have you already bought the house, or is it yet future?  In general, you want to avoid other credit applications while in the middle of buying a house.

Beyond this issue, I'm wondering about the fence you plan to buy.  If you take out the Target loan, and then buy the fence and push your debt back up, do you still come out ahead?  It's hard to tell whether you are improving your situation.  It sounds like you're saving on interest but adding more debt at the same time.

Another angle might be to talk to your CU and see if they have any ideas for how you can restructure things.

[Tony275]

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@user5387 wrote:

Have you already bought the house, or is it yet future?  In general, you want to avoid other credit applications while in the middle of buying a house.

Beyond this issue, I'm wondering about the fence you plan to buy.  If you take out the Target loan, and then buy the fence and push your debt back up, do you still come out ahead?  It's hard to tell whether you are improving your situation.  It sounds like you're saving on interest but adding more debt at the same time.

Another angle might be to talk to your CU and see if they have any ideas for how you can restructure things.

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Didn't mention that! Thanks!

I did already buy the house in December of 2013, didn't make my first payment until February 2014, so I couldn't file it under my 2013 taxes!!

Essentially, I would be adding debt, but taking away a decent amount of interest payments! I emailed my CU to see if they can lower my interest rate as my score has gone up significantly since opening the credit card with them and they give interest amounts based on tiered credit scores, so I asked to see where the tiers sit, and I'll make a decision from there, if they do a hard pull of my credit, I might as well see what the interest rates on their personal loans are at the same time and use one hard pull for both.

This is where my dilemma is, I'm unsure if adding debt is going to benefit anything, though it's 0%. I do need to put up a fence so my dog can run around, plus it's added resale value.

Thanks!

[user5387]

I think as a straight financial transaction, paying off the Best Buy cards with the Target loan makes sense.

However, you're dipping into retirement funds for this maneuver, and this may be a warning signal.

If I was in a position of carrying balances on several CCs, I'd be quite reluctant to add more debt (fence), even if it's with 0% financing.

In such a case I personally would cut expenses to the bone, and also look around for alternatives such as finding some CUs with low APR options on CCs and loans.

It might be worth asking yourself how well your current budget and financial plan is likely to work over the next few years, and evaluate major new purchases (fence) in this context.

[Tony275]

I don't disagree with you at all, I've been toying with the idea of the retirement loan for months because it downright freaks me out, odds are, I'm not going to touch it and I'll find a debt consolidation loan or just a personal loan through my local CU and get things back on track

Mind you, this past year we paid down all of my wife's credit debt with our tax return, and that was the plan for next year to do the same to mine, obviously I'm not relying on that money being there or not, but it should help my financial position regardless.

The main thing killing me is my lease on my car. It's outrageously priced, but I made the stupid decision a year ago to get into this lease with poor credit and as of right now, I'm $5k upside down on my payoff amount with 35 payments remaining. Maybe in a year I'll break even and can sell the car, possibly for a profit. But as of now I'm stuck with a $466 monthly payment. Ouch. Didn't sound so bad at the time I signed for it....

[IWOL]

OP....I'm not sure if it's a good idea to borrow against the 401k but are you sure you can borrow 100% of the value. Usually the maximum you can borrow is 50% of the value up to 50k.

I have taken a couple of loans against my 401k in the past and the max you can borrow at one time is 50% of the current value. I could be wrong but I believe that rule is universal with all 401K loans.

Im not as young as you but. I have a decent amount in my 401k and I was able to continue contributions after taking loans so it had little effect on my retirement savings. I paid back the 3 loans within a year of taking them. 

[Tony275]

I can borrow 100% of what I've contributed, not sure what the max is, but I'd be nowhere near that.

I would continue contributions if I were to go the route of the 401(K) loan, so in three years I would be caught up with where I'd be anyway, but I'm unsure if I'll still be with Target in 3 years and I'd have to pay that remainder of the loan back with x amount of days before it's considered taxable income by Uncle Sam. The main thing drawing me to this is the 4.25% interest, though it won't cover all of my debts.