Sorry for the break there, it’s been a busy money in these parts. But I am back and ready to catch-up on some money drains and success stories! Don’t forget to send your story in!
I had a 401k at my job, but was also in a good chunk of debt. I decided I would try to borrow against my 401k in order to pay off the debt, and then pay it back as quickly as I was able. The amount I borrowed was $5,000.
Unfortunately the job started to become intolerable so I left after only paying $800 of it. Because I had left, I had to pay off the remaining amount, plus the tax, which came to well over $5,200 after the $800 I had already paid. I had no funds for this, obviously, so I borrowed money from relatives, which I hate to do because of the stress it puts on me and them.
What a horrible experience, I don’t ever recommend borrowing from your 401k 🙁
– Submitted by: June
Total flushed down the money drain: $6,000, or really $1,000 in excess
Borrowing money from retirement, or in general, in order to pay off debt, is rarely ever a good idea. If you’re about to lose your home, it’s acceptable, depending on how severe the situation is. But using it to pay off a general debt, when you could just buckle down and take care of the debt with some discipline, seems like you’re just biting yourself in the a$$.
Borrowing money from family, if you can get away with it that’s one thing, so long as you acknowledge it will put a strain on your relationship with them. I would personally never loan money to family or friends, unless it was something I wasn’t worried about getting back or I knew them well enough to know they would pay it back eventually.
The best bet in this situation would be to just try to find a side income in order to supplement the debt payments, and for crying out loud don’t leave a job if you’ve borrowed from the 401k until you’ve at least paid it back, no matter how crappy the job is. It’s the same logic behind not leaving a job until you have another job set in stone.