401k loan - yes or no in this situation?

[Want2BFIandRE]

First off, I know I should do a full case study to get the best advice.  I'm a little scared of all the facepunches I'll get but I do plan on doing one once I have my details organized.  By far one of my worst financial traits is that I've tended to just fly by the seat of my pants, deal with whatever fire (bill) pops up at a given time, and not plan ahead properly.  Working on it.

Anyway, so I'm starting from below zero.  Meaning, I am about a half month's expenses behind on my bills (late on mortgage and car payment) and a couple of utilities.  Have a shit ton of medical bills but those will have to wait.  I also need to make repairs to my car to the tune of $100-500 depending on what's wrong.  It's the battery and/or alternator, but based on my extensive experience with crap cars and what I've learned about car repair from driving those crap cars, I'm leaning toward alternator.  All said, I need to come up with $2500 or so to get me back to "zero".  My credit cards are maxed out, so no help there.  There is not enough equity in my home to take out a HELOC or similar. 

-lost a bunch of additional text, the gist of it is I can take out a 401k loan for just about the amount I need, at 6.25%  Would you do it if you were in my shoes?  What if, after all this, I still can't make ends meet and have to file for bankruptcy?  How are 401k loans viewed by a bankruptcy trustee?

[DadJokes]

The answer to debt isn't typically more debt. I think this is a case where Dave Ramsey's advice is a good place to start.

My first suggestion would be to cut all unnecessary spending. The only money you should be spending right now is what is required to keep you alive and working. The rest needs to be put on hold. Eat beans and rice until this consumer debt is gone.

Secondly, how can you come up with money? Can you take extra hours at work? Can you work a second job? Do you have a bunch of stuff you can sell on Facebook/Craigslist?

Lastly, after those options have been completely exhausted, it might be acceptable shuffle around the debt to keep interest rates low. You can take out a credit card with 0% interest for a year and no transfer fee (I assume they still have those cards). Check into a personal loan at a credit union or the 401k loan you initially planned on.

If you don't do the first two steps first, then you're just rearranging deck chairs on the Titanic.

[DeniseNJ]

https://www.mrmoneymustache.com/2012/04/18/news-flash-your-debt-is-an-emergency/
Please read this MMM blog post.  If your credit cards are maxed you have a very serious problem.  One poster's signature says, You're trying to fill a bathtub but you haven't stopped the drain, or something like that.  From your post I know you will be back in a few months with the same exact issue of being behind and now you have a 401K loan too.

For some the loan is not a bad idea.  For you I don't think it will make a difference just based on your post.

[solon]

NO, NO, NO, NO, NO, NO, NO, NO!!!!!

Your hair is on fire. Do not throw gasoline on it!

You have to figure out ways to increase income and decrease expenses. This is the most important thing you have to do. Do it now!

[BradminOxt19]

Yikes.  You should definitely stay away from touching your 401k.  This sounds like a dire situation that has been happening for quite some time.

Dave Ramsey's baby steps should be your bible at this time. 

[ysette9]

I know you said you didn’t want to post a full case study but I really think you have to for our advice to be any use. You know you need to decrease spending and increase income but if you post specifics we can help make recommendations on how to do that.

[Want2BFIandRE]

I'm realizing just how necessary the big picture is in order to really answer whether it could make sense to take out this loan.  I do fully understand it's a big, resounding NO as of now. I should have mentioned, I've been lurking this blog and these forums for years and I have picked up quite a lot in that time.  We have a pretty simple budget other than our debt, no extras like cable, vacations, dining out, etc., but there's still fat we'll trim (Hulu, a $10 monthly charitable donation, my daily soda at work, et al). Can save money on groceries just by eating up the stockpile of food in our house. 

To answer a few questions and provide additional details:
-I am salaried, so no overtime or extra hours are available at my job
-I'm willing to get a 2nd job and think I'll need to, but it's at the expense of spending time with my little one (under 6 months old) in the evenings/weekends. Tbh I'm really bummed at the idea of missing out on this time, but I know doing so is better than losing our house/car/everything to foreclosure.
-DH is not able to work more than 5 hours per week - chronic pain (due to multiple diagnosed conditions).  He has a job  that he works ~5 hours per week at. He's filed for disability and he has a legitimate case, but it's likely to be 3-9 months before we find out anything or see any income from that.  Theoretically, if he is approved for it, we will be back to "even" or better on a month-to-month basis.  DH stays home with our LO so we don't have daycare expenses.  It's almost too much for him physically, but we don't have a choice at the moment.
-Very willing to sell stuff to make money, but I don't have much to sell - or more specifically, much that people seem to want to buy.  A broken lawnmower, some dishes and such.  I have some things on marketplace but have had no interested parties contact me.  What can/should I do differently when selling things?

**It seems short-sighted to try to get a 2nd job when I don't have reliable transportation to get there.  Right?  So how do I come up with the money to fix my car so I can get to my job(s)?  Restaurant work and a paper route are two of the most likely jobs I could get, but they both require transportation/reliability.  Does anyone have ideas for 2nd jobs that DON'T necessarily require transportation? 

I'm all for the first few DR baby steps, but how do you get $1000 for an e-fund when you're in the red by 2.5x that? 

Thanks for the replies so far.  I'm taking them to heart.  I think my responses may sound like excuses but I don't mean them that way.  They're just challenges I'm not sure how to overcome.  Further suggestions obviously welcome.

*Edited to remove overly identifying info and for clarity of intent re: cutting the fat.

[BradminOxt19]

What type of work do you and DH do / did?

It sounds like you're trying to support an entire family with your limited single income, and by the sound of it, seems like fairly low income at that.

Can you move back-in with the parents / relatives for a while?  Grandparents could help with babysitting, etc.

Mathematically it's going to be a very hard road for you unless you can find family support.  Housing costs is the biggest expense, transportation / medical will be the next biggest pieces for most families.

Selling things to survive is not a long term option for most people, moving back in with family could be / should be an option, as bad as that may sound.

This is teaching me to go over a future cost of living / budgeting session with my kids.  They need to understand the costs of living and supporting a family on one or two incomes.   Teens / kids mostly hate finance discussions, so I need to make it sobering but interesting for my kids.  My kids are fortunate that DW and I make over $200k per year, but we never explicitly went over our basic costs of living for the kids and how tough things would be if we made the average income of $60k or $70k combined as a family.

[wellactually]

Dave Ramsey would allow for a $500 emergency fund in this situation. But don't let yourself get hung up on that number right now.

When will you find out the extent of the car problem?

How late are you on mortgage and car payments? You need to know how much time you have before you are in more danger here.

How for behind are you on credit card payments?

What are your public transportation options? Do you have a bike?

Things you could do to raise money without transportation: Rent out a room in your home, walk dogs or dogsit, babysit on nights and weekends, tutor, any retail or food service job that lists weekend hours.

What can/should you do differently when selling things: post on many different sites, update the photos with better lighting, don't go into it thinking you'll get tons of money. Seriously if you have anything else to sell like furniture or a TV or video game console, you should do it. You can buy stuff like that later once you have financial freedom.

Other things you can do...

Call your utility companies immediately and explain that you're behind on all your bills this month due to medical bills and car problems. What assistance programs do they have and/or what payment options can they provide. Say that you want to pay something, but you cannot pay all of it.

You need to expedite the filing for disability process as much as possible. He's "in the middle of filing." I know these things can take a lot of red tape time, but if there is anything waiting on your end, get it done ASAP. If it's already been filed and you're waiting, you can also contact your congressional representative and ask their constituent services staff to inquire about the status. Explain that your financial situation is very precarious and you have an infant, so the disability money is super important so that you stay in your home.

[DeniseNJ]

Things you could do to raise money without transportation: Rent out a room in your home, walk dogs or dogsit, babysit on nights and weekends, tutor, any retail or food service job that lists weekend hours.

Also pet sit.  Like if someone is going out of town, the pet can stay at your house rather than at a kennel.  Your DH could be a big draw to that since he's home.

Also any job that's close to home or public transit won't require a car.  And anything online too.  DH being home should do surveys, product reviews, secret shopping, and anything else that would toss even a little money your way.

The census is hiring at $28 per hour and paid training.

[DeniseNJ]

AND, call each of your credit cards and tell them you are on the balls of your ass and can't afford the payments and they need to both lower your rates and set up a payment plan with you.

[MountainFlower]

There are many work at home jobs, but I know that you have to be careful about scam companies.  One is to teach English online to kids in China.  I think that they pay $25/hour for that.  Perhaps your DH could do that in addition to you?  VIPKID is the big one I think, but may require a degree. 

[Alternatepriorities]

If your medical bills are significant, all you credit cards are maxed out, and you really are spending as little as possible, it might be time to consider that bankruptcy may be inevitable. That would be one very good reason not to take money out of your 401k. Also pay your mortgage even if you lose the car and/or can't pay other bills. My mom chose to spread her money around to whoever called and lost her house. Fortunately my brother and I were Mustachians before it was a word and had the cash to convince her bank to sell the house to us the day they foreclosed. I'm not sure she ever really did understand why they didn't evict her. She still went bankrupt but she wasn't homeless. More importantly neither were our teenage sisters.

[SailingOnASmallSailboat]

There are many work at home jobs, but I know that you have to be careful about scam companies.  One is to teach English online to kids in China.  I think that they pay $25/hour for that.  Perhaps your DH could do that in addition to you?  VIPKID is the big one I think, but may require a degree.

I have a bunch of friends who do VIPKID and they love it - but the hours are brutal if you're not a morning person (3 am- 8 am Eastern), and the starting pay is more like $10 an hour until you build up referrals and levels of competence. My friends who do it are all teachers.

[robartsd]

but there's still fat to trim (Hulu, a $10 monthly charitable donation, my daily soda at work, et al).

Cut the fat. There is some free (ad supported) streaming options that can replace Hulu (assuming you don't have the badassity to cut home internet completely). Speaking of internet, is there a lower tier option that could save money? Pluto TV has quite a variety of content. Charity can wait. Drink water.

You say you've been lurking here for a while (and you've saved some in a 401k) so I'll assume this emergency is due to your husband's situation being a fairly new development (compounded by timing with your child's birth) that you simply haven't responded to fast enough. I'm sorry you're in this situation.

Lastly, after those options have been completely exhausted, it might be acceptable shuffle around the debt to keep interest rates low. You can take out a credit card with 0% interest for a year and no transfer fee (I assume they still have those cards).

I've never seen one without a transfer fee, but they can be pretty reasonable. I think the one I used was about 3% fee with 16 months of 0% interest. That's still a lot better than the loan OP asked about. OP is far enough in the hole that these types of deals might not be available. Certainly a 401k loan could be in the cards for shuffling debt around.

[RedwoodDreams]

I'm going to go against the grain here and tell you to take the 401k loan. You appear to be in a crisis situation, but you're paddling madly to get out of it and things can potentially calm down quite a bit fairly soon. Meantime, you are rowing the boat for your entire family, so do what you need to so you can stay healthy and be able to sleep at night.

Having a 4-month old under any circumstances is a crisis. A good one, but a crisis nonetheless. It's good that your DH can watch the baby and hold up the home side of things for now.

Having a DH in a disability situation is another crisis. If everything has been submitted and now he's just waiting for a response, which can take months, that's good. Once approved (assuming you're talking about SSDI) he will receive a chunk of back pay up to the time of original disability. That will help you catch up more too, whittle back on the debt, have an emergency fund, etc.

I like others' suggestions for pet sitting and dog walking as good ways for your DH to make some cash, if he's able to do that. The exercise will also help with his anxiety and help him feel more productive.

In the grand scheme of things, a $2500 loan isn't going to derail your entire life or future retirement. We have to keep these things in perspective. You seem well aware of the situation and the need to get rid of your credit card debt (or declare bankruptcy), but for now, please take the loan to keep your family afloat, and then go from there. Even declaring bankruptcy is a stressful BIG DEAL. You have enough big deals going on now... Best to you and your family.

ETA: I would see about doing this as a penalty-free withdrawal as opposed to a loan if possible. You might be able to do this for medical expenses reasons, see: https://figuide.com/early-withdrawal-of-an-ira-or-401k-medical-expenses.html

ETA #2: Have you taken a look at your 2019 taxes to see what your tax refund picture looks like? Because of your new baby, you might be eligible for a nice child tax credit that can get you a big chunk of money back. If that's the case, file asap.

[BradminOxt19]

Before you do anything, talk to a nonprofit credit counselor - https://www.nfcc.org/   They specialize in helping people who are in debt and will have more relevant advice for you.

401k is bankruptcy protected...I definitely leave that alone until you consult with a counselor and figure out your options.

https://www.fool.com/retirement/401k/2018/01/22/should-you-take-out-a-401k-loan-to-pay-off-debt.aspx  - good article to read

401k should be that last resort after all else has failed, and only if that money can make a meaningful difference to save your house or car or pay fora life saving operation. I would never use it on unsecured debt like credit cards and such.

[ontheway2]

Have you spoke to the hospital about the medical bills? Ask to pay $25/month just to keep them out of collections for now or find out about additional financial assistance they might have

[sparkytheop]

Unless you have a very well-funded retirement, and can be sure you won't rack up debt, I'd leave it alone.  However, have you contributed to a Roth where you could withdraw some of your contributions?  Still not ideal, and I'd only do that if it would actually fix an issue, but that is another option.

Are you on WIC?  If not, sign up for that, because that will at least help ease some of your food expenses (and if the child is on formula, that alone is a huge savings).

If it were me, I'd pick up a second job anywhere I could, using whatever transportation I can come up with to get there-- bike, walk, carpool, borrow a car (no public transportation where I live outside a couple taxis).  Drop the daily soda and one other thing to pay for a taxi/uber/whatever if that's what it takes.  I know it sucks, but hopefully the extra sacrifice will be short term and you can come out better on the other side (I had days where I didn't see my son awake for a couple days when he was around that age.  The good thing is that he doesn't remember that.  It was much harder when he was a toddler and I only had one day off a week, between school and work.  It got better though.)

[Bernard]

I am sorry that you are finding yourself in such a dire financial situation.
A great first step is that you are recognizing the severity of your situation and are willing to do whatever it takes to remedy it.

Other members have thrown some ideas in your direction, but the truth is, you need a comprehensive plan that goes beyond fixing your car and the best way to outline it is if you really put all the numbers in form of a case study on the table. MMM is right when he say's that your debt constitutes an emergency and Dave Ramsey's rice and beans, beans and rice also applies here.

Since you "own" your home, bankruptcy is not an option I see as a viable solution.
You need your car fixed, so I second @RedwoodDreams ' suggestion to take the 401K loan. It's a small amount and you need to stuff the hole right away before the boat sinks.

Next thing is to write down a case study with all the numbers. I am confident that there's a way out of your situation. There are things to do you may not have considered.

[Want2BFIandRE]

Thanks for all the replies. I have some number crunching to do to figure out what's the best plan of action. Checked into WIC but I make too much to qualify - but I hadn't thought to look into that so that's the kind of suggestion I needed. Will also be contacting creditors to see what I can arrange. I'll work on a case study and try to post it soon for more feedback. Thanks again!