I need other opinions on this. I want to know if this is a good idea or not. I have a balance of 62,452 on a Heloc loan, at an APR of 8.5% monthly, so roughly 425 a month, interest only payment. I can get a loan out on my 401K for 46,000. The twice-monthly payments,or per check payment, will be 483.54 exactly, for 5 years for 401k loan. I plan to make more payments. Here's my question, is it better to pay off the majority of the HELOC with 401K and save hundreds in interest and I pay myself back, or just leave as is? I can take out and pay back the HELOC at will, just like a credit card.
I wanna pay down a HELOC with a 401K loan.
- Thread starter daves66nova
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Most people here will slap your wrist for even thinking of taking a 401k loan. In my opinion it can make sense for the short term. I took one out to finish paying off my student loans years ago. The payment was way lower and I paid off the 401k loan much faster than i would have finished paying off my student loans.
Are there other options such as a lower interest loan? Rates are dropping.
@daves66nova DO you still contribute to your 401k or did you stop because of the HELOC that you took out?
On the surface I also agree but at the end of the day the computed numbers decide. He needs someone qualified to go over all his things and decide what would be best for him financially.
One thing to consider, how stable is your current job? If you leave or wind up being RIF-ed, the balance on the 401k loan may be due in full before you leave, otherwise the company will report that as a withdrawal and there will be tax implications. This happened to a friend of mine so that's why it came to mind. You definitely need to run things by a professional.
I'm not a financial advisor, I do not play one on TV, and I did not stay at a Holiday Inn Express last night.
I'm not a financial advisor, I do not play one on TV, and I did not stay at a Holiday Inn Express last night.
I agree. I suspect you know as I do that a second mortgage was taken out on his home for no reason. But doesn't matter, it is what it is. It should be paid back now by making extra payments, selling off any expensive vehicles (including boats and motorcycles etc) for low cost used ones as whatever that loan was used for.
Terrible idea to have a 30 years mortgage and even worst idea to buy stuff on the equity of your home with a second mortgage. Sell off everything he can, stop contributing to the 401k if he has too and suffer as the HELOC gets paid down, once it is, close it out.
Re-start 401k and pay down 30 year mortgage a little at a time. Buy used cars. He doesnt need "qualified" advisor for this, the reason for the situation is mis-handling of money, immature spending on stuff you cant afford. Meaning a spending problem. If he stands up, takes charge he will never do it again, I think better than a bandaid approach finding an easier solution.
BTW- my post is not intended to demean the OP in ANY WAY. I think we all have made bad decisions in our lives or not to smart ones. I CERTAINLY HAVE DONE SOME STUPID THINGS, but I never took out a second mortgage.
Good news is I also did some smart things, whether by luck or not. One thing as I look back is the stupid things so I try to teach that to my kids ... and I see they got the idea. One really good and the other knows but doesnt exactly follow
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Some thoughts for the OP
https://www.forbes.com/advisor/retirement/borrowing-from-your-401k/
https://www.forbes.com/advisor/retirement/borrowing-from-your-401k/
A 401k loan imo is never a good idea, might as well cash out and take the penalty.
Need to think outside the box a bit. Losing 6 months of 401k gains to pay off a high interest loan can make sense. There are many financial scenarios that can exist, it all boils down to the numbers. Taking a penalty for withdrawal is a completely different ball game.
I still contribute. I have 9 more years to go before I retire.
it's a loan. I don't pay taxes on when I take it out, plus, I pay myself interest.
There is NO penalty. It's a loan, not a withdrawal. Only a withdrawal incurs a penalty.
50 Dollars, that's it. A loan does not incur penalties.
There's too much nuance and unknown in this and if one's not an expert they can't say. OP needs to find an accountant. None of us can give an actual answer.
Can you sell things? Make extra income? Skip buying many things? You need to come up with $1500-$2000 PER MONTH and pay that baby off ASAP. Will be extremely painful, I get that.
The HELOC loan was too tempting, should have passed, but you are where you are.
So bear with me - do the pain above for a year. I know! Knock it down, in half if possible. Then look at a new loan, refi if possible during.....
The real pain is taking from your 401K. Now if the stock market tanks, well GENIUS. But two-three years of growth missed is LOT more than people understand.
Get an interest free loan from a relative - is something as well.
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