TSP Loan to Refinance High Interest Credit Card

[Anonymous]

Tell my why I should not refinance my 19% interest credit (15,000 balance) with a TSP Loan at 2.5%? I've already tried to get another 0-interest credit card but only got approved for $3200 which is not enough to take care of the 15,000 balance.

[Anonymous]

Stuff like this sends shivers down my spine, OP.

I can't tell you why you shouldn't do it because I know nothing about your situation. I assume you're in dire straits if that's the #1 option.

[Anonymous]

15k @ 19%?? Wow... That's one major self-destructive debt.

[Anonymous]

Read up on Dave Ramsey and get yourself out this mess ASAP, preferably not by tapping into your TSP.

[Anonymous]

you should do it as long as you plan to be in your job and have a plan to pay off the loan and not drive up your cc bill again

[Anonymous]

We took a TSP loan many, many years ago. I liked that you are paying yourself back when you borrow. And it's auto deducted from your paycheck so you don't even think about the money. But I could see it being really bad if you ran the credit card up again or if you lost your job.

[Anonymous]

Mathematically, you definitely should do it. Making the same regular payments on the TSP loan until you pay it off and keeping all your other purchases the same will leave you in a much better financial position.

So the question is:

Will you make the same payments?
Will you pay it off?
Will you keep all your other purchases the same?

Some people will see that zero balance credit card as an excuse to buy more than they otherwise would.

How did you build up the debt? Are you at risk of repeating that? If so, don't.

[Anonymous]

Anonymous wrote:We took a TSP loan many, many years ago. I liked that you are paying yourself back when you borrow. And it's auto deducted from your paycheck so you don't even think about the money. But I could see it being really bad if you ran the credit card up again or if you lost your job.

keep in mind you are losing potential earnings on your loan. if market is doing well, this could really add up.

[Anonymous]

If you lose your job, you're really screwed, as you will typically need to pay any loans back immediately.

[Anonymous]

Mathematically, you definitely should do it. Making the same regular payments on the TSP loan until you pay it off and keeping all your other purchases the same will leave you in a much better financial position.

So the question is:

Will you make the same payments?
Will you pay it off?
Will you keep all your other purchases the same?

Some people will see that zero balance credit card as an excuse to buy more than they otherwise would.

How did you build up the debt? Are you at risk of repeating that? If so, don't.

[Anonymous]

I'll tell you why you shouldn't do it. Because I have taken out multiple pension loans and I ran the cards back up again.

Perhaps you will pay it off, and keep your job, and it will be fine, but many people who are not good with cards or money will not do this responsibly.

[Anonymous]

Why not just get a 2nd job and pay it off? Why make it more complicated than it needs to be. It's not as easy as 19% vs 2.5%. How did you get into this debt in first place?
How much are you paying towards it? Seems like the interest is about $240 monthly. Do you only pay the minimum?
Your income and credit score didn't qualify you for more than $3200. Should've seen it coming. Stop opening new cards. Suck it up and work 2nd job for the next 2 years.

[Anonymous]

OP here - The alternative is to do a home equity loan to refinance the credit card debt. I haven' t looked into the rates but I'm sure it's going to be more expensive than re-financing through the TSP. How I got into this mess is a long story but I'm not worried about running up another credit card balance after paying this off. The high interest rate is what's killing me. I'm also 39 yrs old so I have time to repay my TSP and don't foresee leaving the fed govt anytime soon.

[Anonymous]

I did this OP with a 401k loan. I learned my lesson and never did it again. It was worth the piece of mind for me.

Good luck

[Anonymous]

Over 5 years this TSP loan would cost you about 4K between interest and lost appreciation (assuming 5%). So when you compare costs to a home equity loan don't just look at the interest rate, you need to consider the lost investment. Still might be worth it but do the math.