I understand the implications for losing the compounding value of the 401(k), but I need to pay off:
Mission Fed - $10k @ 12.99%
Citi - $3k @ 29.99% (2 late payments in 12 months, but not delinquent!)
Chase - $7k @ 24.99% (2 late payments in 12 months, but not delinquent!)
Need $8k to pay balance of federal and state income tax (didn't hold back enough stock transaction last year)
My wife and I are cutting back seriously on monthly cash flow - no more gardener, no more housecleaner, tune back the cable/internet/phone bill, set the thermostat for 68/78, etc., etc..
But we need to knock down $300 more dollars a month in cash flow to get above water.
Your thoughts?
I guess you have to weigh out whether it's worth it to you and your peace of mind. Of course this is my non-professional opinion but you're interest rates on the credit cards are pretty high and the odds of your 401K making more than what the charges will eventually add up to is questionable consider todays market. The benefit to borrowing the money from you 401K is you pay the loan back to yourself and not a lending instituation. Yes, you will be out 7% for the loan and lose whatever you would have made on your 401k...but what are your other options for eliminating the debt?
The important thing is if you decide to go this route, do not get yourself back into the same position because your 401k won't be able to bail you out again until the loan is paid off. I believe you can only have one 401K loan out at a time.
I note you say "cutting back seriously on monthly cashflow" - and then mention some items that I've never even been able to consider in my budget.
I don't even have a thermostat to set! I have a wood fire and a fan for summer. If we get cold, we put on a sweater and snuggle under a rug on the sofa.
How many meals a week do you eat out? How much pre-packaged food do you eat and how much could be made for a quarter the cost in your own kitchen? How about lunches at work? Coffee? Shopping trips?
I'd say you should look long and hard at your current spending patterns and see what else could use some trimming back. You'll be surprised at how much you can save when you really have to.
