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Money Drain: $1,000+ lost borrowing from 401k

Hi all,

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

Lesson Learned:
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.

About Crystal Groves, Google+

Crystal Groves is a farmer, web developer, musician, blogger, and personal finance enthusiast from the back hills of Maryland and Pennsylvania. She started Money Drain as a project to encourage people interested in fixing their financial situation to share their stories and learn from the stories of others. We all make mistakes, but in order to change we have to make changes.

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