Eliminating debt
I have about $50,000 of debt that I want to get rid of and I don’t know what option would be better. I have that much in investments that I could sell or I could get that much from employer as a 401k loan to pay off from payroll deductions. Is the latter a better option since there is no tax liability. The loan has an interest rate of 2.5 percent and I can take as long as 5 years to pay it off. I make about 130,000 a year and I don’t know how the 50,000 would affect my income taxes.
Thanks for your help,
Terry Says
This is a tough one. It’s tempting to borrow from your 40l(k) with two big “BUTS” — First, you are losing out on growth of that money while it is out of your account. Second, if you lose your job that becomes a withdrawal if not repaid immediately — and possibly a 10% penalty plus ordinary income taxes.
On the other hand, it’s insane to keep paying interest rates of 20% or more. any way you could earn extra money each month to pay down more of the debt? It doesn’t have to be extra hours at work — but any odd jobs, driving for a delivery service, etc?
Do you know the simple formula to pay off ANY credit card balance at any rate in less than 3 years? Simply DOUBLE the CURRENT monthly minimum payment — and pay that exact same amount every month, although the new minimum goes down. Pay the original amount, don’t charge another penny –and your card will be paid off in less than 3 years!
That’s really the best approach if you have the discipline. And if you don’t have the discipline to do that, and choose the 40l(k0 route instead, I’m betting that you don’t have the discipline to start charging again on your paid off cards!
