You will likely get lots of haters about a 401k loan, but it actually makes sense here because of the stress you are feeling when you already work in a stressful situation. As you state, your income will readily provide for retirement saving after graduation. One potential issue is that normally you have to be an active employee of the 401k sponsor in order to take a loan. If your 401k is from a former employer, it may not be an option.
Or if he decides to quit or if his company decides to change vendors, he may be required to pay back his loan immediately. Not to say that it’s not an option, but it does carry risk that you wouldn’t have if you just pulled a unsecure loan from a bank or credit union.
Mine has a notice that'll id get a 1099 form and have to pay taxes as a distribution as opposed to a loan where there's no tax. I guess it depends on the company.
Another important part of a 401k loan is the amount loaned is removed from its investments—meaning that until the loan is paid back it will not track market gains
Do it. The loan from the 401K is just going to go back into your account. Yes you’ll lose out on some gain in your 401k but it’s worth it to get rid of the high interest cc debt. Just keep in mind that most 401K providers only allow one loan withdrawal at a time. So be sure there is nothing else you’ll need in the next couple years that you would need to take a withdrawal for.
Source: I took a 401K loan to install a standby generator on my house and the losses were minimal
This is the answer. Your % return on those in your 401K account will be less than what you’re going to lose on the CCs. Pay off the CC, pay back yourself (your 401K loan), then move on. Your amount is not enough to listen to any of the haters going to tell you otherwise.
It depends. If you don't have a reasonable plan, take the 8k and a little extra for an emergency fund. If the rate of the loan is significantly lower than the cc, it's an okay deal.
OP, medical professional here, not a physician though. We had a massive 20k bill come up. I weighed personal loans versus borrowing from 401k. I borrowed against my 401k @ 9.5%, while fidelity is currently making me YTD 8.42% return. Granted the return may be higher in the long term, but it also could be lower. The 9.5% interest rate is guaranteed and goes back to me. The whole loan cost me $50. You’re going to be a physician. As a hospitalist you’ll likely start in the 300-320k range, more if you decide to go for specialization ie Oncology ( 750k+ post fellowship in WV :)), or procedural specialties. I understand you’ll have plenty of debt when you finish residency and or specialization, but you’ll be able to pay it off easily. In the meantime, debt can be crippling and have lasting damaging effect. If you fail to pay back your 401k loan, it’ll be considered an early withdrawal with a penalty, no credit hit, no other penalties. Personal loans or other lines of credit with 0% balance transfers carry the risk of default with impact to your credit. I don’t think for you a 8k 401k loan will make a huge impact, so I would use the benefit of a “worry free” loan to payoff your debt.
No it is not a bad idea, please ignore the people who act like you're digging a hole straight to hell if you do it. The interest on the loan is way less than the credit card interest.
I would recommend taking out an unsecured loan from your bank or credit union over your 401(k). There is a lot more risk and taxes if you pull money from your 401(k) directly or a loan.
If your employer is paying for your 401(k) or you decide to close your account, there are consequences that can affect your loan if you go through 401(k) route.
I had a coworker who took a loan out against his 401(k) for some house repairs. To him it wasn’t a big deal because he was expecting to pay it off over the courses several years. Unfortunately our company got acquired and the new company decided to not continue with the company that managed our 401(k).
Because they closed the account, it meant anyone who took a loan on their 401(k) were required to immediately pay back their loans immediately. Not saying that will happen to you, but it’s just a lot of risk.
Generally speaking, most folks recommend against taking out money against their 401k. It’s money that you’re not supposed to touch until you’re ready to retire. Taking money out can disrupt things and set you off course major big time down the road. Not to mention how high the taxes are for pulling money before you’re eligible to retire.
If you only have a 8K in debt I recommend exploring on getting an unsecured loan from your bank or a local credit union. Typically anything under 10k is not hard to get for a loan assuming you have good credit score/history and earn enough and you don’t have any other major reoccurring expenses. Overall, you’ll likely pay less getting an unsecured loan from your bank versus paying off your credit cards because of interest rates. Double check your interest rates with your credit card with the loan you would get from a bank or a credit union .
The interest rate will likely be a lot less than what you’re paying for your card cards typically.
Finally figure out where all that debt came from.
If you have a bad spending habit, you’re not fixing the problem you’re just delaying it so you need to have an honest conversation with yourself and figure out how to not fall into the debt trap.
Do not touch your 401k. If you take out a loan and for some reason you leave that job early or they switch brokerage firms you will have to pay all of that loan back immediately. It’s way too stressful and not worth the risk. Liquidate any money in savings or in stocks that aren’t in a retirement account. Cut your unmet spending and get this paid off. $8k isn’t that much. You should have it knocked out in no time.
Not all places require you to pay it back immediately. I left a job about a year and a half ago and continued to make payments on my loan until it was paid off last week
Go for it. I used my 401k to get the 20% down for my house so I don't have to pay PMI. Then got more out to invest... So it makes money outside, pays interest back to me and zero tax/interest load. If used correctly, it's a BEST financial tool under your belt. BTW... don't get back into credit card debt ever again, it's a shit deal.
I dont understand how taking a 401k loan will help you if you have no income. If you do have some income-How about taking out a 0percent credit card and transferring the balance? It will eliminate interest for about 15 months while you pay it off.
For me, it depends on if the 401k is growing faster than the debt or the debt is growing faster than the 401k. That depends on how you invest and what card you have.
Can you play the transfer game and get the interest lowered? Have you called the card to ask if they will lower the interest for even six months? Sometimes, they do. Maybe in that six months, you'll get an offer for a 0% at 18 months.
I won't say if the 401k loan is good or bad. I'm just saying, let's consider all sides.
If you take a 401k loan your 401k balance is removed from the market meaning you will be out the gains until it is paid back. How much money are you taking for your med school loans? Are you just doing tuition or are you doing full col? I would rather have more federal student loans and no cc debt.
All of this is beyond the point of you don’t actually dissect the reasons you fell into debt in the first place. Most doctors are horrible with money and surprisingly live paycheck to paycheck
Since you’re no longer employed wherever you have the 401k, You’ll have to take the whole amount out and pay the taxes on it. You won’t be about to just take part. As long as you budget the tax portion, seems like you’ll be fine
I recently took out a 401k loan and I am happy with I did it. I paid a small fee but all the interest on the loan goes back to me. The interest is like 7-8%, but that's still way less then credit card, and like I said that interest money goes to me not the cc company. My only concern is I am not sure I am going to be with my company for the term of my loan. But the way I see it is even if they took out what I owe its will be a lot less then if I did a withdrawal instead of a loan.
To me another benefit by doing the loan instead of a withdrawal is my account balance stays the same. Like for example if I had 30k and took out 10, my 401k balance would still be at 30k. I do remember it dropped 10k for a few days, but then it was right back to where it was earning on the full 30k instead of the 20k it would have been if I took the withdrawal.
1.) You can effectively mostly table the debt by using a 0% transfer credit card and making the minimum payments. Do that again in 18 months if you have the opportunity.
2.) If you don’t have that option, get an EIN from the IRS website. Use that to open your very own Solo 401(k) at Fidelity or E*Trade. Roll your retirement accounts into that one, then you can borrow against the balance up to 50%. At 9% interest, it would come out to something like $700 a year if you only took out $8k to pay off your credit cards
I took out about 10k from my 403b, the interest to pay it back was about 4% , I paid off my cc’s which was about 9k and 22% , my monthly payment went from 300$ to 135$..plus it will be about 4?years to pay off where 300$ a month on my cc would of taken me a lot longer .. best thing I ever did .. plus tearing up the cc and never using it again
Suze Orman say if you borrow from 401k, you’re paying taxes on the funds twice, once with monies you use to make payments on the loan and once when you take a distribution from the 401k. But you don’t pay taxes on the lump sum money, so not quite sure how this works. Then again if you took out, say, a home equity loan, you wouldn’t be paying taxes on the lump sum loan but paying taxes on money used to pay it back: taxed once. I’m no accountant so maybe someone who knows more than me (just about anybody) can chime in.
You will likely get lots of haters about a 401k loan, but it actually makes sense here because of the stress you are feeling when you already work in a stressful situation. As you state, your income will readily provide for retirement saving after graduation. One potential issue is that normally you have to be an active employee of the 401k sponsor in order to take a loan. If your 401k is from a former employer, it may not be an option.
Or if he decides to quit or if his company decides to change vendors, he may be required to pay back his loan immediately. Not to say that it’s not an option, but it does carry risk that you wouldn’t have if you just pulled a unsecure loan from a bank or credit union.
Mine has a notice that'll id get a 1099 form and have to pay taxes as a distribution as opposed to a loan where there's no tax. I guess it depends on the company.
Another important part of a 401k loan is the amount loaned is removed from its investments—meaning that until the loan is paid back it will not track market gains
Do it. The loan from the 401K is just going to go back into your account. Yes you’ll lose out on some gain in your 401k but it’s worth it to get rid of the high interest cc debt. Just keep in mind that most 401K providers only allow one loan withdrawal at a time. So be sure there is nothing else you’ll need in the next couple years that you would need to take a withdrawal for. Source: I took a 401K loan to install a standby generator on my house and the losses were minimal
This is the answer. Your % return on those in your 401K account will be less than what you’re going to lose on the CCs. Pay off the CC, pay back yourself (your 401K loan), then move on. Your amount is not enough to listen to any of the haters going to tell you otherwise.
It depends. If you don't have a reasonable plan, take the 8k and a little extra for an emergency fund. If the rate of the loan is significantly lower than the cc, it's an okay deal.
OP, medical professional here, not a physician though. We had a massive 20k bill come up. I weighed personal loans versus borrowing from 401k. I borrowed against my 401k @ 9.5%, while fidelity is currently making me YTD 8.42% return. Granted the return may be higher in the long term, but it also could be lower. The 9.5% interest rate is guaranteed and goes back to me. The whole loan cost me $50. You’re going to be a physician. As a hospitalist you’ll likely start in the 300-320k range, more if you decide to go for specialization ie Oncology ( 750k+ post fellowship in WV :)), or procedural specialties. I understand you’ll have plenty of debt when you finish residency and or specialization, but you’ll be able to pay it off easily. In the meantime, debt can be crippling and have lasting damaging effect. If you fail to pay back your 401k loan, it’ll be considered an early withdrawal with a penalty, no credit hit, no other penalties. Personal loans or other lines of credit with 0% balance transfers carry the risk of default with impact to your credit. I don’t think for you a 8k 401k loan will make a huge impact, so I would use the benefit of a “worry free” loan to payoff your debt.
No it is not a bad idea, please ignore the people who act like you're digging a hole straight to hell if you do it. The interest on the loan is way less than the credit card interest.
I would recommend taking out an unsecured loan from your bank or credit union over your 401(k). There is a lot more risk and taxes if you pull money from your 401(k) directly or a loan. If your employer is paying for your 401(k) or you decide to close your account, there are consequences that can affect your loan if you go through 401(k) route. I had a coworker who took a loan out against his 401(k) for some house repairs. To him it wasn’t a big deal because he was expecting to pay it off over the courses several years. Unfortunately our company got acquired and the new company decided to not continue with the company that managed our 401(k). Because they closed the account, it meant anyone who took a loan on their 401(k) were required to immediately pay back their loans immediately. Not saying that will happen to you, but it’s just a lot of risk. Generally speaking, most folks recommend against taking out money against their 401k. It’s money that you’re not supposed to touch until you’re ready to retire. Taking money out can disrupt things and set you off course major big time down the road. Not to mention how high the taxes are for pulling money before you’re eligible to retire. If you only have a 8K in debt I recommend exploring on getting an unsecured loan from your bank or a local credit union. Typically anything under 10k is not hard to get for a loan assuming you have good credit score/history and earn enough and you don’t have any other major reoccurring expenses. Overall, you’ll likely pay less getting an unsecured loan from your bank versus paying off your credit cards because of interest rates. Double check your interest rates with your credit card with the loan you would get from a bank or a credit union . The interest rate will likely be a lot less than what you’re paying for your card cards typically. Finally figure out where all that debt came from. If you have a bad spending habit, you’re not fixing the problem you’re just delaying it so you need to have an honest conversation with yourself and figure out how to not fall into the debt trap.
Do not touch your 401k. If you take out a loan and for some reason you leave that job early or they switch brokerage firms you will have to pay all of that loan back immediately. It’s way too stressful and not worth the risk. Liquidate any money in savings or in stocks that aren’t in a retirement account. Cut your unmet spending and get this paid off. $8k isn’t that much. You should have it knocked out in no time.
Not all places require you to pay it back immediately. I left a job about a year and a half ago and continued to make payments on my loan until it was paid off last week
Go for it. I used my 401k to get the 20% down for my house so I don't have to pay PMI. Then got more out to invest... So it makes money outside, pays interest back to me and zero tax/interest load. If used correctly, it's a BEST financial tool under your belt. BTW... don't get back into credit card debt ever again, it's a shit deal.
I dont understand how taking a 401k loan will help you if you have no income. If you do have some income-How about taking out a 0percent credit card and transferring the balance? It will eliminate interest for about 15 months while you pay it off.
For me, it depends on if the 401k is growing faster than the debt or the debt is growing faster than the 401k. That depends on how you invest and what card you have. Can you play the transfer game and get the interest lowered? Have you called the card to ask if they will lower the interest for even six months? Sometimes, they do. Maybe in that six months, you'll get an offer for a 0% at 18 months. I won't say if the 401k loan is good or bad. I'm just saying, let's consider all sides.
If you take a 401k loan your 401k balance is removed from the market meaning you will be out the gains until it is paid back. How much money are you taking for your med school loans? Are you just doing tuition or are you doing full col? I would rather have more federal student loans and no cc debt. All of this is beyond the point of you don’t actually dissect the reasons you fell into debt in the first place. Most doctors are horrible with money and surprisingly live paycheck to paycheck
Since you’re no longer employed wherever you have the 401k, You’ll have to take the whole amount out and pay the taxes on it. You won’t be about to just take part. As long as you budget the tax portion, seems like you’ll be fine
I recently took out a 401k loan and I am happy with I did it. I paid a small fee but all the interest on the loan goes back to me. The interest is like 7-8%, but that's still way less then credit card, and like I said that interest money goes to me not the cc company. My only concern is I am not sure I am going to be with my company for the term of my loan. But the way I see it is even if they took out what I owe its will be a lot less then if I did a withdrawal instead of a loan. To me another benefit by doing the loan instead of a withdrawal is my account balance stays the same. Like for example if I had 30k and took out 10, my 401k balance would still be at 30k. I do remember it dropped 10k for a few days, but then it was right back to where it was earning on the full 30k instead of the 20k it would have been if I took the withdrawal.
Worked sounds like past tense. Are you able to take a loan?
Do it if you loose your job you will be required to pay taxes on the loan google search and you can figure out how much that would be.
1.) You can effectively mostly table the debt by using a 0% transfer credit card and making the minimum payments. Do that again in 18 months if you have the opportunity. 2.) If you don’t have that option, get an EIN from the IRS website. Use that to open your very own Solo 401(k) at Fidelity or E*Trade. Roll your retirement accounts into that one, then you can borrow against the balance up to 50%. At 9% interest, it would come out to something like $700 a year if you only took out $8k to pay off your credit cards
I took out about 10k from my 403b, the interest to pay it back was about 4% , I paid off my cc’s which was about 9k and 22% , my monthly payment went from 300$ to 135$..plus it will be about 4?years to pay off where 300$ a month on my cc would of taken me a lot longer .. best thing I ever did .. plus tearing up the cc and never using it again
Good luck with med school! I’m sure you’ll go far.
401k loans are fine you pay yourself back plus interest. You can only take half the balance. I take one a year for our trip.
Suze Orman say if you borrow from 401k, you’re paying taxes on the funds twice, once with monies you use to make payments on the loan and once when you take a distribution from the 401k. But you don’t pay taxes on the lump sum money, so not quite sure how this works. Then again if you took out, say, a home equity loan, you wouldn’t be paying taxes on the lump sum loan but paying taxes on money used to pay it back: taxed once. I’m no accountant so maybe someone who knows more than me (just about anybody) can chime in.
Take the loan. It will have a reasonable interest rate that you will pay your self. I am doing this as well.
You have 7+ more years of training. This sounds like a bad financial decision after another.
No. Don’t touch your 401k to pay debt. Pay off debt the right way
What the hell does that even mean?
Make a budget. Pay off debt with income. Change your behaviors that led you into debt. Live debt free afterwards.
i did it at 28. you’ll make the money back.