If you could ask Santa for just one Christmas gift, would it be debt relief? Many people who are having a serious problem with debt certainly would. If you’re heavily in debt, the one thing you probably want more than anything else is to become debt free in as short a time as possible. Today’s good news is that if you have a 401(k) with enough money in it, you could pay off all of your debts this week. This is because many employers will allow their employees to borrow from their 401(k) plans. There are a number of advantages to using a 401(k) to pay off debt, the biggest of which is the fact that you’re borrowing from yourself – instead of a bank or credit union.
The positives of borrowing from your 401(k)
There are some other really good reasons to borrow from your 401(k). First, since you’re borrowing from yourself there’s no credit check, and while you’ll be required to pay a competitive interest rate – you’ll be paying yourself. You will probably not have to pay an application fee and if so it will be very low.
You should be able to borrow up to $50,000 or one half of the balance in your retirement plan, whichever is less. You will probably have to start paying back the loan out of your next paycheck. This is usually done via an automatic deduction.
The downsides of borrowing from your 401(k)
There are actually very few negatives to borrowing from a 401(k) plan. You will have to pay back the loan in five years or fewer unless you’re using the money to buy a house. In this case you might take significantly longer to pay back the loan. You also need to consider that you will be forfeiting some growth in your investment. In other words, the money you borrow from your 401(k) will not be growing in value for the entire time the money is not in your plan.
The tax impact
There is definitely an impact on your taxes because when you pay back your loan you do it with post-tax dollars. This means a $100 loan repayment can reduce your take-home pay by $100. And then, worse yet, when you take the money out of your plan to retire, you will pay tax on the same money again. Finally, there is the risk of termination. If you stop working with your current employer for any reason, your entire loan will be due within 60 days. If you can’t pay back the loan during that timeframe, the money will be considered a distribution and is likely to have significant federal and state income tax consequences and early distribution penalties.
Borrow from your life insurance policy
Do you have what’s called a whole life insurance policy or one that builds cash value? If so you may be able to borrow from it to pay off your debts. The good news of borrowing from your life insurance policy is that, again, you’re borrowing from yourself. Plus you can take your own sweet time paying back the money or not pay it back at all. Of course, if you do this, your heirs won’t get whatever amount of money you borrowed from your policy as it will be subtracted from the normal pay off.
Let us provide debt relief
Another alternative for paying off debt that has been used by many American families is to let us settle your debts. We can contact your lenders and negotiate settlements, probably for much less than you actually owe. We can also provide you with an affordable payment plan that will get you out of debt in 24 to 48 months. Learn what debt settlement could do for you. Call our toll-free number today for more details. All you have to lose is all those debts.