When you are desperate to
get rid of your debt, you can borrow from your retirement money to
consolidate your debt. This retirement amount is known as 401(k) plan. It is also called a pension plan. The best thing about borrowing from this plan
is that you can get the money at a low interest
rate.
Understanding the
Concept of a 401(k) Loan
Employers follow one simple rule, and that is they permit employees to loan up
to half of their superannuation account for about five years. The limit is usually about $50,000. If you are thinking along the lines of making use of your 401(k),
then first it is important that you decipher the concept and know the rules.
For example, if you decide to leave your employment, then you will need to
pay back the balance of your 401(k) loan in about 60 days. If by chance you are unable to pay back this
loan, then the IRS will view this loan
as a dissemination, and you will get taxed
in that particular tax year.
Perks of 401(k) Loan for Debt Consolidation
When you opt for a 401(k) loan for debt
consolidation, then it has loads of perks. These loans cost less than the
credit cards. What most people worry the most about is their credit score when they opt
for a loan. However, you will not have to face this issue when you opt for a
401(k) loan because it does not affect your credit score in any way. The best part is that you
pay the interest on your account only.
When you want to take the best advantage of the 401(k) loan, then the smart approach is that you should pair up this loan with a good financial plan. Ideally, you should utilize your 401(k) for debt consolidation if you feel that you will not end up in the debt pile again soon. You should not borrow freely. You should only borrow an amount that you can confidently pay back to the company. For example, you should get hold of a loan that you can easily pay back in 12 months.
Do not get tempted to use your credit cards when you use your 401(k) loan for debt consolidation. The most important thing is that when you have decided to get the 401(k) loan, then you need to have a clear strategy in mind. Some people borrow this money without a strategy in mind, and this is why they get into deeper trouble. Discuss the feasibility of a good debt consolidation company. Most companies do offer a free consultation.
When you want to take the best advantage of the 401(k) loan, then the smart approach is that you should pair up this loan with a good financial plan. Ideally, you should utilize your 401(k) for debt consolidation if you feel that you will not end up in the debt pile again soon. You should not borrow freely. You should only borrow an amount that you can confidently pay back to the company. For example, you should get hold of a loan that you can easily pay back in 12 months.
Do not get tempted to use your credit cards when you use your 401(k) loan for debt consolidation. The most important thing is that when you have decided to get the 401(k) loan, then you need to have a clear strategy in mind. Some people borrow this money without a strategy in mind, and this is why they get into deeper trouble. Discuss the feasibility of a good debt consolidation company. Most companies do offer a free consultation.
This way you will be sure
if you are getting the right help or not. You can also raise your questions and
concerns to the company to overcome this trouble. Once you find a good
debt consolidation firm, they will guide you on how you should avoid financial
trouble coming your way in the future also.
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