TSP Loan

[armywifelong03]

HI All,

I have a question.  We are looking to buy VA in Aug or Sept.  My husband is Active Army and he will be staying in MT until PCS time in the spring.  My son and I are moving in the fall/winter and I will be quitting my  job, so we won't be able to use my income.  Right now, his income is $7450 per month, including all allowances and I get cs that I may or may not even count.  Our DTI is a little high because of a 20% car loan through Santander that we got over 4 years ago when our credit was IN THE DITCH.  We also have $471 Ford Credit and pay $1071 in child support each month.  These are our only debts, besides our NFCU credit card that will be paid off in May.  We are possibly thinking about taking TSP loan to pay off the high interest car loan ($12,000) and free up almost $600 a month for our debt.  This would put our TSP loan pmt at $217 per month and this isn't counted into your DTI because you are borrowing against your own money.  We would still pay the car pmt amount to have this paid off asap, most likely less than 18 months.

Has anyone ever done this or know anything about it??

[boober]

I've taken out a few TSP loans through out my career.

What exactly is it that you're wanting to know?

[armywifelong03]

Sorry, I was rambling. 

I guess if taking a TSP loan to pay off our last high interest car loan is a good idea.  I just can't see where it is not since we would be paying 1.5% instead of 18-20% and we could have this paid off in a little over a year. 

Also, everything I read says that TSP or 401K loan payments are not calculated into your DTI because it is your money.  Do you know if that is true? 

We are just trying to free up some monthly money because we aren't going to be able to use my income because I will be quitting my job to move.   And, it just makes too much sense to cut down the interest AND free up the $563 per month, so I feel like it must not be that easy.

[boober]

It really is that easy.

In fact it's incredibly easy to take out a TSP loan.

The only real downside to taking out a loan is of course the money you might have made off that money had it still been in your account.

If you were to take out 10 grand, well that's 10 grand worth of shares that lost out on potential earnings had they gone up in value.

But other than that it's so advantageous to take out a loan to pay off any outstanding high interest debt like you're talking about doing.

1 word of advice I can give you, based off of my experience...

Let's say if you did take out 10 grand. When you pay it back, make sure you cut back on how much you are automatically putting into your TSP account.

For example, if you were putting in 500 every month, and you were paying 200 a month for your TSP loan, you may want to instead dial back the 500 you were putting in and instead make it 300 a month. See this way you'll instead of paying 700 a month, you'd be still making that 500 a month you were already paying.

Hopefully that makes sense. Basically you'll want to pay off your TSP loan as soon as you can. Just in case you need to take out another loan some day in an emergency. Or just for peace of mind etc. So instead of paying your usual amount, plus the loan payment, just subtract from your usual monthly amount and make up that difference with your loan payment. The total of both those would be your total regular contribution. Just make sure you don't dial your contribution back to much, so that you end up missing out on any matching contributiuons.

But yea TSP loans are awesome.

I would definitely do it if I were in your shoes.

Any other questions fire away.

[Jasbrek]

Plus all interest paid on your TSP loan is paid to yourself and not some bank! It is definantly a good thing to have access to. I have used mine in the past, and am using it now, and will use it in the future.

[armywifelong03]

Thank you so much! That's exactly what I needed to hear. It is so hard to pay 18 or 20% on a car loan for over 4 years when the Ford we bought two years ago, we are only paying 1.9%. Ugh. That really changes our available amount to borrow for a mortgage too! Substantially. I am sure I will have some more questions, so thank you!!

[armywifelong03]

I would Much rather pay myself back! Thank you.

[iMacDrew]

why wouldnt you just refinance your auto loan through navy federal? I think that the TSP loan should be your last option, that way you are getting as much interest as possible.

[germb747]

I think this would be a good move for you, as long as you plan on staying in the military until the loan is paid off.  If you separate for whatever reason, the full amount of the loan you take becomes due immediately, or else you will have to pay the IRS ordinary income taxes on the unpaid amount plus an additional 10% tax penalty.