@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.
@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.
+1
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. 
Pay off the 401k loan ... period....
Your still able to afford paying on the CC right?
