Balance Transfer on 401K Loan

[CBARR82]

Hello all! Have a question that I have not been able to lockdown an answer on that I feel comfortable with. I had to take a small loan against my 401K to pay off some medical bills. Now I realize touching that money is a bad idea, but at the time I had no choice. I am wanting to pay off those loans with a balance transfer on a card I am going to app for. Are there any restrictions on transfering a 401k loan? Is this even possible to do? Thus far I have found none, but no real reassurance that it IS an option. Does anyone have any advice on this? Thanks

[AvadaKedavra]

Wouldn't the only way you can do a "balance transfer" is using a check the CCC provides to write cash to yourself and then pay off the 401k loan?

[takeshi74]

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@CBARR82 wrote:

Are there any restrictions on transfering a 401k loan? Is this even possible to do?

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You'd need to confirm with the creditor you're applying with for the card to use for BT'ing.  If they can provide BT checks then you can certainly do so.

[thom02099]

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@CBARR82 wrote:

Hello all! Have a question that I have not been able to lockdown an answer on that I feel comfortable with. I had to take a small loan against my 401K to pay off some medical bills. Now I realize touching that money is a bad idea, but at the time I had no choice. I am wanting to pay off those loans with a balance transfer on a card I am going to app for. Are there any restrictions on transfering a 401k loan? Is this even possible to do? Thus far I have found none, but no real reassurance that it IS an option. Does anyone have any advice on this? Thanks

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Just for a clarification -- above in red, you're saying LOANS (plural) which would indicate you have more than 1 401(k) loan outstanding?  Or did you mean one loan to pay off multiple medical bills?

As others have noted, it's possible to do, the way that they mentioned. Another way would be to deposit a BT check in your checking account, and then pay off the 401(k) loan from your checking account, either by sending them a check or doing the payment on line, whichever way your 401(k) loan originator would allow.

The question is, what credit card are you looking at for the BT?  What's the amount in question?  Are you certain you would get approved for a CL that would cover the amount of the BT and still not unduly increase  your utilization?

[youdontkillmoney]

As others have said if you are issued BT checks you can write that check to pay off the 401k loan BUT it does not make sense. A BT check has a transaction fee and high interest rates versus the 401k loan has a lower interest presumably, why would you pay back the 401k loan with a higher interest rate credit intrument rather than pay back the 401k over time at a much lower, probably, single digit interest rate?! Unless you have a balance transfer offer at 0% and $0 transaction fee for a set period and you plan to pay off the BT balance before the 0% period expires!?

[thom02099]

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@youdontkillmoney wrote:

As others have said if you are issued BT checks you can write that check to pay off the 401k loan BUT it does not make sense. A BT check has a transaction fee and high interest rates versus the 401k loan has a lower interest presumably, why would you pay back the 401k loan with a higher interest rate credit intrument rather than pay back the 401k over time at a much lower, probably, single digit interest rate?! Unless you have a balance transfer offer at 0% and $0 transaction fee for a set period and you plan to pay off the BT balance before the 0% period expires!?

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+1.  And to add to that, with the 401(k) loan repayment, you're paying yourself back, rather than an intermediary.

[CBARR82]

I do understand what you mean abaout paying "Myself" back. I have 2 401k loans currently totaling a little under $5,000.00 I received a BT offer from CITI for 0% for 21 months and 12.99% after that. I feel confident that I can have them easily paid off in that amount of time. With my current CL on my other cards and a low UTL, I will almost certainly get approved for a CL high enough to cover both loans. Does these details change anything or am I still looking at a bad move to BT? Thanks all.

[youdontkillmoney]

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@CBARR82 wrote:

I do understand what you mean abaout paying "Myself" back. I have 2 401k loans currently totaling a little under $5,000.00 I received a BT offer from CITI for 0% for 21 months and 12.99% after that. I feel confident that I can have them easily paid off in that amount of time. With my current CL on my other cards and a low UTL, I will almost certainly get approved for a CL high enough to cover both loans. Does these details change anything or am I still looking at a bad move to BT? Thanks all.

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^^^^^^^^^

BT have a tranasaction fee of say 4% so that's around $200 on your $5,000 payoff amount, double check to see if this is less than the total interest you'll pay on your 401k loans if you pay yourself back over time. Plus the gain would also be by putting the money back, you'll be earning a market return in the investment (unless the market goes down); but leaving this out, market fluctuations.....if you do pay off the 0% interest loan in 21 months then I think you made a cost minimizing decision in saving in interest costs. But you have to have the discipline to pay it back and assuming you have an income stream coming iin etc etc

[DaveInAZ]

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@CBARR82 wrote:

I do understand what you mean abaout paying "Myself" back. I have 2 401k loans currently totaling a little under $5,000.00 I received a BT offer from CITI for 0% for 21 months and 12.99% after that. I feel confident that I can have them easily paid off in that amount of time. With my current CL on my other cards and a low UTL, I will almost certainly get approved for a CL high enough to cover both loans. Does these details change anything or am I still looking at a bad move to BT? Thanks all.

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Well, if you can pay back a BT in that time, why not just pay down the 401k loan directly and save the expense of a BT fee? I assume the interest rate on the 401k loan is very low, and any interest on the loan goes into your 401k and not some lender? The main purpose of a BT is to save on interest expense. For example, I apped back in March for a Barclays NFL card for the express purpose of doing a 0% BT for 15 mos to payoff a Prosper loan with a balance of $3800. The Posper loan wasn't bad, 10.89%, but with 0% I budgeted to pay that off within the 15 mos instead of the remaining 27 mos remaining on the Prosper loan. The BT fee was 3%, but that card came with a $100 cashback spend bonus for charging $500 within 3 mos. I charged my 2nd half property taxes on the card, promply paid that off, then did the BT so the spend bonus offset the BT fee. I play the BT game to save money.on interest/fee expense, and I don't see how using a BT to payoff a 401k loan does that. 

[bada_bing]

I would not take a BT to pay off a 401K loan *unless* the 401K plan

had restrictions placed on accounts with outstanding loans. Some plans

have restrictions such as no new contributions allowed while a loan is outstanding.

Most plans don't have those types of restrictions though.

Does your 401K restrict you in any way while the loans are out ? If not,

I wouldn't do a BT just to pay them off. If you are worried about "shorting"

your 401K, just increse your contributions by the amount of BT fee you

saved (or more, more is always better).