Reply to Explain to me why it's a bad idea to borrow against your 401k?

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[quote=Anonymous][quote=Anonymous]I did it, and don't regret it one bit. In fact, it was a life changing (for the better) decision. I had racked up a lot of debt, most of it unavoidable but certainly some of it idiotic. The whole time I had been dutifully contributing money I didn't really have to my 401K, in a responsible version of the way I was paying for suits I couldn't afford (but needed for work) on my credit card. In my situation, I was close to defaulting on some of the debt, because something unexpected happened that I did have to put on my CC. I was paying the minimums, but because I was late my interest rate was sky high all of the time. I finally took a loan against my 401K and paid the cards off completely. I was realistic about how much I could pay off all at once, which meant I was paying the loans back a little bit more slowly than I wanted to do, but I was also able to set up a savings account, get myself back on track with bills, etc. I used the money to really get myself out of debt and I am so glad I did. To be honest, I worried a little bit about what I would do if I lost my job, but since I was so close to default anyway, it seemed like the safer option, and I also figured that if I did lose my job they'd have to pay me unused vacation, which would have accounted for almost all of it (of course, my company had a generous leave policy). In all, it took me three years to pay myself back, but it was worth it. My company allowed up to five loans, and you could take out no more than one loan per calendar year. I actually took two separate loans out, because the first loan was a little bit under what I needed to really pay everything off (the first one just saved me from defaulting). In hindsight, I would have just borrowed everything at once, because the two different payment lines were harder to track and it was a better feeling just to pay one loan down. But that's not really a big issue. I happened to borrow when things were up and repay when things were down, so I am sure I lost out on some interest. But to be honest, I took a MUCH bigger hit during the recession than I did with my loan to myself. I'm not where I want to be with respect to retirement savings, but it's not the loan that set me back, it is the fact that I started out poor as crap and without good money management skills. I had no other option to consolidate and pay off debt, because my credit wasn't great and my payments were late constantly. So this loan, and treating it responsibly, was a HUGE turning point for me. Honestly, the only thing I wish were different is that I wish that the loan reported to credit agencies. But, that's ok. I always wondered why one would continue to save for retirement when they had mountains of credit card debt, but every single financial planner we ever heard from (associated with the company, of course) had all of these stories for why you still had to save for retirement. I honestly think it is wiser for young people to get themselves on firm financial footing, saving a little bit if they can, before they spend money they don't have on an investment. However, if you're just not saving in order to buy yourself outfits or things you don't need, then yes, priorities have to change. (BTW, OP, I have no idea why you're considering a loan - I was talking in the theoretical / general sense).

Good luck to you! [/quote]

Best post ever.[/quote]

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