Author Topic: home equity/401k to pay off credit card debt  (Read 2060 times)

sassymom

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home equity/401k to pay off credit card debt
« on: April 21, 2016, 12:22:17 PM »
Hi, I'm new here, but have followed the blog for a while.

Would you ever use your home equity or take out 401k loan to pay off credit card debt?  Debt is 30K.

sassymom

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Re: home equity/401k to pay off credit card debt
« Reply #1 on: April 21, 2016, 12:28:32 PM »
some more info, DH has been unable to work the last 2 years , and is waiting on disability

we are young (30's)

selling our house to move somewhere cheaper

would you put all of the house proceeds as down payment, or put as little down as possible on new place to pay most of CR card debt?

dandarc

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Re: home equity/401k to pay off credit card debt
« Reply #2 on: April 21, 2016, 12:38:33 PM »
Interest rate on the debt, and are you going to rack it up again once it is moved to the house / paid for by 401K loan?

401K loans are high risk - if you separate from the employer before it is paid back, you have to pay the remaining balance in full or face a tax bill and penalties.  And it unplugs your investments - not so much a real loan as selling the assets, taking the cash, then committing to return the amount + interest to the account with a pretty substantial penalty if you don't.  So I'd avoid doing that if possible, but if interest is very high and it is something you can pay back quickly, maybe not a 100% DON'T DO IT thing.

HELOC of course further encumbers your house, so there is risk there as well, but I'm personally more comfortable with this approach if it will save you interest.  A lot of HELOCs are variable-rate, so be very aware of the terms of the loan.

All that being said, unless you are 100% sure you're not going to find yourself in a year with a 30K HELOC or 401K loan and another 30K in CC debt, don't do it.  Getting control of the spending that leads to debt is much more important in the long run than minimizing the interest paid.

Jim2001

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Re: home equity/401k to pay off credit card debt
« Reply #3 on: April 21, 2016, 06:34:30 PM »
+1 for don't put your retirement at risk.  This is an asset that is protected from bankruptcy.
+1 for don't put your home at risk.  This is another asset that is usually protected from bankruptcy with some variations by state.

What is the interest on the debt?
What is the monthly payment on the debt?
How does the monthly payment fit into your monthly budget?
What other debts do you have, such as car payment(s)?
Do you have additional cash you can put towards the debt to reduce it?
Have you done everything within reason to reduce unnecessary spending so you can pay down the debt?
Can either of you take a second job to pay down the debt?

Consider posting a Case Study (http://forum.mrmoneymustache.com/ask-a-mustachian/how-to-write-a-'case-study'-topic/) so we can help you in full context of your overall situation.

sassymom

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Re: home equity/401k to pay off credit card debt
« Reply #4 on: April 27, 2016, 11:54:16 AM »
no car payments, but both of our cars are about 10 years old

DH is unable to work due to his health