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Is Taking A Loan From My 401(k) A Good Idea?

Sometimes life throws you a curveball, and events can leave you wondering which way is out. This is especially true in the world of personal finances, where the job market is such that it is hard to make enough to cover monthly obligations. You have several options if you are facing overwhelming debt, from seeking the protection bankruptcy has to offer to downsizing your home, and perhaps even taking on extra work in order to pay bills or establish an emergency fund. For some, looking at taking out a loan to roll multiple debts into one is an attractive option, but it can be hard to obtain credit when your pay history is less than perfect. One place some people look to take out money is their 401(k), but is this really a smart financial move?

Most financial industry professionals would advise against taking out a loan from your 401(k), but there are some instances where it might be your best option. For instance:

  • If the return on your investment is less than the interest you are paying on your debt, you can save more by taking a 401(k) loan to pay off high rate debt, and then putting those payments towards retirement.
  • The interest rate on a 401(k) loan is usually much lower than other types of loans, and if you have no other resources for funds it is a good idea to take a loan from the most cost effective option.
  • If you have job security, the chances of repaying your 401(k) loan are great. What this means is that you can save money in interest payments, pay down higher rate debt and free up disposable income, and still go to work every day and contribute to your retirement.

A word of caution though, if your plan prohibits you from contributing until the loan is repaid, you may want to rethink your decision to take a loan against the funds in your 401(k) account.  You should also look at the cost of the loan in terms of missing out on having that money in your account, making money for your future. Even when the return is lower than the interest you are paying, most experts say give it time. Retirement accounts fluctuate in value, and over time you might end up losing more than you’ve gained. In order to make a decision for your finances that works, call one of our knowledgeable debt management attorneys. We can help you decide what is best for you, and help come up with a plan for your financial future.


If you have questions about finances and if taking a loan from your 401(k) is the right answer, contact our office for help. We will explain your options, so you understand your choices and can make a decision that meets your needs. Call a Plantation, Florida debt relief attorney today for more information.

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