401k Loan To Pay Off Credit Card Debt – Any Risk?

401k Loan To Pay Off Credit Card Debt – Any Risk?

Initially, using your 401(k) to pay off credit card debt may seem like a good idea, but there are many pitfalls that you must be aware of before you take this step.

Also, if you do some research, you will see that this is far from being the best option, and some financial experts tend to put it in the “last resort” category.

Hector Milla Editor of the “Credit Card Debt Free” website — http://www.CreditCardDebtFree.org — pointed out;

“…If you happen to lose your job, the loan will due and payable, and if you can’t do that immediately, you will owe penalties and income taxes on the remainder of the loan. The interest rate you will be paying to yourself might be lower than the rates you are paying on your credit cards, but this cannot compare with the return you would realize if you had invested those credit card payoffs…”

If you are unconvinced, this may indicate that you have been overspending. In addition, if you take the relatively easy route of using a 401(k) to solve the problem, instead of practicing some self-discipline, you less likely to change your behavior, and may end up owing as much as you ever did.

“…Here are some alternatives you can try:

? Look for a credit card that offers a 0% annual percentage rate (APR) for one year (this should not be difficult), and read the terms carefully.? Contact the credit company you currently do business with, and indicate that you plan to take advantage of a 0% balance transfer offer. It is possible that you will be offered a lower rate, which is really your goal, and you will be able to leave your money exactly where it is.? Follow up by applying for the card with the 0% APR, but only borrow as much as you feel you can pay off while the introductory rate is still in effect.? Note that such an agreement can only be reached if you have been paying all of your cards and bills regularly, which will mean that you qualify for the special rate.? Dip into your savings account to pay off your credit cars if the interest rate is lower than 10%, and determine if you can qualify for a loan from a Lending Club at a low interest rate.? Reduce spending to earmark more funds for paying off your credit cards, or think of some ways to add to your income…” added H. Milla.

Further information about trusted and reputable companies for credit card debt settlement by visiting; http://www.CreditCardDebtFree.org

Popular Tag :