I am trying to decide if I should take a loan from my own 401k. Here is my situation. I have a bit of credit card debt, at 13%. I am paying it off at a rate that will take 30 months to get rid of it completely. One option I have is to take a loan out of my own 401k. The loan would be for about half the debt, allowing me to pay down the remaining portion in about 15 months.
The interest rate on the 401k loan is 7.43% APR. I understand that if I leave my company, I will have to pay this back immediately. Also, from what I have read, it seems as if the interest payments go back into my 401k account?
I am 24 years old, and not in any real danger of losing my job anytime soon (pretty much have it locked for the next 21 months gaurenteed).
I am looking at a 24 month term to the loan.
The main drawbacks as I understand them are as follows:
1 – miss out on market growth – I view paying off the credit card debt as guaranteed 13% return
2 – double taxed on the interest – works out to about $150 for me, not a huge deal. Big savings over the $150 I pay in interest charges each month.
Anyone know personal finance well enough to give me some good solid advice on this?