Monday, July 10, 2017

Should I Save My House With A 401(k) Loan Or File Bankruptcy?

When most people face difficult financial times, they do all they can to get out of trouble. This might include taking a loan from a friend or family member, refinancing their house to get out some equity and maybe even a lower payment, asking for a modification of their mortgage, or filing for bankruptcy. These are all good things to consider, but not all of us have family or friends that can help and if you have already exhausted your other choices or are unable to get a loan from your bank, you will start to look to other sources. Credit cards are often used when there are no other funds available, and some people even take loans from their life insurance or retirement plans. But is it a good idea to take a loan from your retirement account? Because if you do will you still be able to participate in the plan, or will there be enough money there when it comes time for your to retire?

Having the answers to these questions will help you decide where to look for funds when you need them, and if it is your house you are trying to save you should know these things about taking a loan from your 401(k):

         A 401(k) loan has to be repaid, and the payments come out of your paycheck. This means your take home pay will be lower, so you need to make sure you can still manage your obligations with less money each month.
         There is interest on 401(k) loans, and even though it is a lower rate than most other loans, you will still end up paying back more than you borrowed. This should be considered when you are trying to decide if the repayment schedule fits within your budget.
         If you leave your job before the loan is repaid the amount loaned will be considered as income. This means you will be taxed on the amount of the loan and may even have to pay penalties for taking money out of your retirement account before you actually retire.
         Depending on the rules and restrictions of your plan, you may not be able to put any money in the account until the loan is fully repaid. And if your employer is doing a match of what you put in, your employer may not be contributing until the loan is repaid either.
Another alternative is to file for bankruptcy. This will allow you to keep on contributing to your 401(k) and will also save you from having to repay a loan. Your financial security as you age is critical, and if you deplete your retirement savings before actually retiring, you may end up working longer than you had planned. Let us look over your budget and options, and help you decide what to do to get out of debt.

For more information about how to fix your finances, call us today or reach us online at We have multiple locations to serve you and can schedule a time to meet at the office most convenient for you.

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