topic Re: Not sure what to pay off in Personal Finance

Not sure what to pay off

Smooth_J — Fri, 18 May 2018 01:50:03 GMT

Hopefully this is a easy question to answer. Let say you have two debts; one being a 401K loan that will default (due to a changeing job), and a credit card at 15%. Both have roughtly the same amount, which is around $8500. You have the money to pay only one of them off completely. Which one would you pay off?

Re: Not sure what to pay off

kimbersleep — Fri, 18 May 2018 01:36:50 GMT

@Smooth_J wrote:
Hoppefull this is a easy question to answer. Let say you have two debts; one being a 401K loan that will default (due to a changeing job), and a credit card at 15%. Both have roughtly the same amount, which is around $8500. You have the money to pay only one of them off completely. Which one would you pay off?

The defaulted 401k loan won't appear on your credit reports, but there will be tax implications. The balance owed on a defaulted 401k loan is treated as a distribution from the account and becomes taxable. You'll receive a 1099 with the defaulted loan balance and have to declare that as income on your tax return. Also, if you're under age 55, there will be a 10% penalty to pay to the federal government on early distributions. If you are 55 or over and defaulted because of losing your job, you won't owe this federal penalty. If your state also taxes retirement distributions, you will also owe state taxes on the defaulted balance.

You might want to talk to your tax professional to see if defaulting on the 401k loan will cost you more in taxes than the 15% interest on the credit card.

Re: Not sure what to pay off

Anonymous — Fri, 18 May 2018 11:42:55 GMT

Sounds like the credit card has more lienency (sp?)

You can pay min payment for months until you can pay more or in full.

Can also open another card with 0% BT fees for x months if necessary and possible.

Not paying the 401k loan could keep the shovel digging with more and more tax/fees

So prob your best bet is to pay that off if due soon.

Re: Not sure what to pay off

Anonymous — Fri, 18 May 2018 15:07:52 GMT

I am against touching retirement funds for any reason, so my vote is 401k. Get the money back in there and leave it.

Re: Not sure what to pay off

DaveInAZ — Fri, 18 May 2018 20:55:57 GMT

I'm pretty sure you can keep your 401k if you change jobs, you can no longer make contributions but you should be able to keep making the loan payments. When you repay the loan in full you can then transfer/rollover the 401k to your new employer's 401k, or to an IRA if the new employer doesn't offer a 401k.

If you can keep your 401k with the loan & keep making the payments then I think paying off the 15% interest credit card makes more sense.

Re: Not sure what to pay off

Anonymous — Sat, 19 May 2018 18:41:35 GMT

If it was me I would talk to my accountant that does my taxes and if I could afford to I would take care of the 401k situation. Your 401k is your future and you really want it to start growing again if possible. The credit card you can take care of at more of a leisure since you are not wanting that money to help support you in the future. Good luck!

Re: Not sure what to pay off

UncleB — Sat, 19 May 2018 21:55:38 GMT

@DaveInAZ wrote:
I'm pretty sure you can keep your 401k if you change jobs, you can no longer make contributions but you should be able to keep making the loan payments. When you repay the loan in full you can then transfer/rollover the 401k to your new employer's 401k, or to an IRA if the new employer doesn't offer a 401k.

If you can keep your 401k with the loan & keep making the payments then I think paying off the 15% interest credit card makes more sense.

I had a 401(k) loan when I was downsized, and I was sent a payment coupon book so I could continue to make payments by mail to prevent a default.

Re: Not sure what to pay off

Anonymous — Sun, 20 May 2018 15:30:54 GMT

@DaveInAZ wrote:
I'm pretty sure you can keep your 401k if you change jobs, you can no longer make contributions but you should be able to keep making the loan payments. When you repay the loan in full you can then transfer/rollover the 401k to your new employer's 401k, or to an IRA if the new employer doesn't offer a 401k.

If you can keep your 401k with the loan & keep making the payments then I think paying off the 15% interest credit card makes more sense.

It depends on the 401k plan administrator and/or the way your company crafted their 401k.

Some allow you to continue making payments. Others require immediate payment in full.

Re: Not sure what to pay off

joltdude — Mon, 21 May 2018 01:04:22 GMT

Pay off the 401k loan ... period....

Your still able to afford paying on the CC right?