Lose weight; Eliminate credit card debt - are common but fleeting 
New Years' resolutions. This year, however, the fact that most 
credit card companies are doubling their required minimum monthly 
payments will push consumers to be more diligent about replacing 
their card debt with an alternative such as a home equity loan or 
a 401(k) loan, predicts Daniel Lamaute, retirement plan 
specialist at Lamaute Capital, Inc. (InvestSafe.com).

An estimated 11 million credit card users pay only the minimum 
required credit card amount. Under the new required minimum 
payments scheme, the average credit card holder with a balance 
of $9,000 will be forced to pay some $200.00 more a month. This 
large increase comes at a time when most families are already 
being squeezed by skyrocketing energy costs and gasoline prices.

A large number of consumers will be unable to pay the additional 
hundreds of dollars more per month on their credit card bills and 
many will fall deeper in debt trouble. That's because often a 
payment received just one day late will trigger a hike in the 
cardholder's interest rate to as high as 29 percent plus a big 
late payment fee.

The alternative of a home equity loan is well known. But the 
401(k) loan is also becoming popular because:

1. There's little paperwork, and there's no credit check. 

2. The interest paid on a 401(k) loan is credited to the 
   401(k) account - so borrowers pay interest to themselves, 
   not to a bank or other lender. 

3. There are no taxes and penalties on early withdrawal as 
   long as the loan is repaid on time according to the loan 
   terms.

4. The Interest rate on many 401(k) loans is set at prime rate 
   and is fixed for 5 years, the normal term of a 401(k) loan. 


Employees should ask their employer to learn if their 401(k) plan 
allows loans.  Independent contractors and individuals with their 
own business (part-time or full-time) can open their own Solo 
401k plan with a loan feature.  

It's possible to transfer funds from IRAs, 401k from a previous 
employer, SEP plan or other qualified retirement funds to a Solo 
401(k) plan and borrow up to a maximum of $50,000 or 50% of the 
Solo 401(k) account balance, whichever is less.

Solo 401(k) plans with a loan feature first became available in 
2002, as a result of changes to the tax law.  A loan from a Solo 
401(k) is easy to obtain because you are in effect borrowing 
from your retirement account, and you repay the loan payments, 
interest and principal, to your 401(k) account.  

Make sure, however, to follow the 401(k) loan guidelines. A 
default on a 401(k) loan while not reported to the credit bureaus 
is reported to the IRS. You'll have to pay taxes and a possible 
10 percent tax penalty on your outstanding 401(k) loan balance 
if you don't follow the loan terms. 

Daniel Lamaute
Lamaute Capital, Inc., (http://www.www.InvestSafe.com) is an 
investment firm that specializes in setting up retirement 
plans for small business owners and non-profit organizations.