Im hoping someone can give me advice. I currently have less than 7000 dollars worth of credit card debt and have 38,000 in my 401k. Im interested in taking a loan out to clear my debt vs paying interest on the debt. I know by taking out the money from my 401 it will affect the gains i am currently making, however on the flip side of things this will increase my already already excellent credit (760 equifax 770 trans union) and lower my debt to income ratio. I just turned 25 in march and have quite a ways to go for retirement and would rather take the loan from my self at 4% interest. Which goes into my pocket vs one from my bank at 9.9% i feel as though by doing this all though i would be taking a loss in the amount i would earn from my rate of return, i would be saving more money than taking a conventional loan. Im not planning on using the debt i clear as that would defeat the purpose, i know this is not the best way to consolidate debt, but i see this doing more good than bad for my situation. I am asking for aome advice on this matter and would appreciate any input. Thanks!

Some misinformation here. 401(k) loans do NOT result in penalties or a tax hit when taken, but Biff is correct that you must repay the loan before you leave the employer or that will trigger tax consequences.

If you are confident in your ability to pay it back in a relatively short time frame, I'd do it.

Then again, it shouldn't take very long to pay off a $7K credit card bill anyway.

Not a good idea, not just affecting your saving plan, but also you will pay 10% penalty on that loan in addition to the taxes. adding this into calculations, will make it doesn't worth probably.

Also if you left your current job for any reason the 401K loan will be due immediately meaning that you will have to pay the loan balance in full, making you looking for another bank loan to payoff the 401k loan!

better idea is to just try to pay off the highest interest rate credit card first, then the second highest and so on until you are free of debts.

Bad idea, because you are adding a lot of risk.

If you lose your job, you have 60 days to repay the loan in full, at a time when you're in a financial emergency (just lost the job).

If you don't repay, you owe income taxes plus a 10% penalty on the defaulted amount. This means the IRS is now the debt collector.

Also, you use after-tax dollars to replenish a tax-defered account. So you get to pay income taxes twice on the money. How's that 4% look now?

Smart er move is a second jobs and budget for six months and pay it Off.

it is only 7K$

401k loans leave you open to 30% tax hits.

Visit Dave Ramsey.com to learn from others mistakes hard life lessons.

I think its a bad idea, solely due to the upfront penalty + later on penalty fees from pulling money out of a tax shielded account such as your 401k, which can short you up to 50%.

NEVER take money out of a 401k. Get gazelle and get the debt resolved. Change your behavior and change your destiny.

it will hurt your retirement savings and then if you quit or are terminated before the loan is paid off, the unpaid balance becomes taxable income and you will be hit with a 10% early withdrawal penalty also