Good day.
I took a loan against my 401(k) to help with my current financial situations. I should be getting back ~$5,600 after their service fee.
First, I was thinking of taking $1,235 and putting that into savings for cushion. (one months rent)
The remainder I plan to throw all of it towards my car loan. (~$12k remaining) I know it won't cover it all, but at 18.04% it'll eventually save me money and get paid off sooner.
Unless others can suggest what else I do with it, let me know if this is a good idea. (My companies financial advisor suggested I do so.)
Wait, you took out a loan against a 401K ... a choice that most financially savvy people consider a big financial mistake ... and you did it without a solid plan for what to do with that money? without knowing -- to the penny -- how much you'll receive?
Your company's financial advisor is not giving you good advice. Did he really suggest this plan of action, or did he just tell you how to go about taking out the loan? Regardless, ignore him. Sell the car and get something cheaper. Move into a cheaper place.
Annual Salary: $60,000
Let's put this into perspective: I am currently supporting my family of three (including paying college tuition and support of three cars) on less money than you're earning. AND I'm putting money into savings every month.
I'm a project manager. I put 40k miles on this car in the last year. My last car (Subaru) had the same payment and was 4 years older. I had a repossession 10 years ago which has screwed me. I need a car for work, its the car I got at the interest rate I could get (which was less than the Subaru).
Okay, I accept that you need a car; however, you need a car that you can actually afford. If you insist upon keeping this car with its high price tag, you must slash expenses in some other area.
As far as rent goes, this is the only place I could find to allow me to have my ten year old Labrador within the time frame I had.
No I am not going to give him up, I've raised him his entire life.
I am looking into getting a roommate or getting my GF to move in.
So failure to plan got you into this situation, and now you're now in a rental you can't really afford. You're in it now ... but when does your lease expire? Are you looking for something cheaper once the lease expires?
Your rent and your car are killing you.
Yes, the problem is that you're topped-out on those two big expenses AND are spending pretty heavily on some others. In the whole wide world, only two options exist to get yourself out of this:
1. Reduce expenses
2. Earn more money
Seriously, no other options exist. What you're trying to do is borrow your way out of debt, and that can never, never, never work.
Even though you are renting, it might be an easy couple hundred dollars a month if you have a spot near your house to allow someone to live in a motorhome.
How about you start looking for a motorhome for yourself to live in after your lease expires? You can get used motorhomes for practically nothing, and you wouldn't have to ask anyone's permission to have your dog in it. RVs are pretty expensive to drive around, but they're cheap to park and use as a primary residence.
I actually don't think that 401(k) loans are as bad a deal as people make them out to be. Think of it as a bond in your portfolio.
Hmmm, when math-oriented people agree almost universally on a financial topic, it's probably because they're right ... and, yeah, people who are good at finances will tell you: Do not borrow from your 401K. In the OP's case, done is done, but I have to disagree strongly with the idea that -- except in a huge, huge, financial crisis -- borrowing against a 401K should ever be a choice.
You have to pay the 401k loan back with after tax money just like every other loan.
Dicey is correct that the biggest risk is that you can't pay it back. Also, the 401k may demand immediate repayment if you leave the company for any reason.
Another problem with 401K loans -- one that isn't mentioned much -- is that the amount you put away in the 401K didn't count as income in the year you earned it; so as far as the IRS is concerned, it's income in the year 2017. Meaning the OP is going to be taxed on 60K earnings + the 401K amount next April.
And, yes, the possibility of separating from the company /being forced to pay it back immediately is a scary proposition.