|
Consolidating of High Rate Credit Card Debt with a 401K LoanCopyright © 2008 Daniel LamauteBanks are putting the squeeze on even their best long term card holders at a time when other sources of credit, such as home equity loans for example, are harder to come by. A lot of people are shocked to receive notices that their credit card rate has jumped to as high as 28% even though they’ve kept good credit and an excellent payment history. With the soaring cost of fuel, food, and other necessities it means that a large number of Americans will be unable to cope with these higher card rates and are at risk of sinking deeper in debt. As an answer, some people are tapping their retirement accounts to pay off their high credit card debt. Tapping one’s nest egg should be used only as a last measure, but for those who decide to go that route getting a 401(k) loan may be a smarter move than taking a distribution from an IRA or 401K and being hit with taxes and a 10% early withdrawal penalty. That’s because with a 401K loan: Employees should ask their employer if their 401(k) plan allows loans. Those who are self-employed, such as independent contractors and individuals with their own business (part-time or full-time) can set up their own Self-employed 401k plan with a loan feature. One can transfer funds from IRAs, 401k from a previous employer, SEP plan or other qualified retirement funds to a Self-employed 401(k) and borrow up to a maximum of $50,000 or 50% of the account balance, whichever is less. A loan from a Self-employed 401(k) is easy to obtain because you are in effect borrowing from your retirement account, and repaying the 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 any outstanding 401(k) loan balance. About The Author:
*** Digital Reprint Rights *** *** Author Notification *** We ask that you notify the author of publication of his or her work. Daniel Lamaute can be reached at: webmaster@lamautecapital.com *** Print Publication Reprint Rights *** If you desire to publish this article in a PRINT publication, you must contact the author directly for Print Permission at: webmaster@lamautecapital.com
|
Home | Article Distributions | Ghost Writers
Article Marketing Blog | Article Marketing Ebook
Unless Otherwise Noted, All Content On This Site Is:
Copyright © 2001-2008, The Phantom Writers