401K Loans Being Used to Consolidate High Rate Debt

Alexandria, VA (PRWEB) April 18, 2008 -- To their dismay some consumers with good credit and an excellent payment history are finding their card rate being hiked to as high as 28%. Now banks are aggressively cutting access to home equity lines as well. "It's no wonder that more people turning to their retirement account as a source of cash," says Lamaute of Lamaute Capital, at InvestSafe.com

Tapping one's nest egg should be used only as a last measure, says Lamaute, but for those who decide to go that route getting a 401(k) loan may be a smarter move than taking a distribution from an IRA or 401K and being hit with taxes and a 10% early withdrawal penalty. That's because with a 401K loan:

?    There are no taxes and penalty on early withdrawal as long as the loan is repaid on time according to the loan terms.

?    The interest paid on a 401(k) loan is credited to the 401(k) account - so borrowers pay interest to themselves, not to a bank or other lender.

?    The 401(k) loan is set as low as prime rate, recently at 5 ¼%, is fixed for the 5 year normal term of a 401(k) loan.

Employees should ask their employer if their 401(k) plan allows loans. Those who are self-employed, such as independent contractors and individuals with their own business (part-time or full-time) can set up their own Self-employed 401k plan with a loan feature.

One can transfer funds from IRAs, 401k from a previous employer, SEP plan or other qualified retirement funds to a Self-employed 401(k) (http://www.investsafe.com/financing.html) and borrow up to a maximum of $50,000 or 50% of the account balance, whichever is less.

A loan from a Self-employed 401(k) is easy to obtain because you are in effect borrowing from your retirement account, and repaying the interest and principal to your 401(k) account, according to Lamaute. A default on a 401(k) loan while not reported to the credit bureaus is reported to the IRS. You'll have to pay taxes and a possible 10 percent tax penalty on any outstanding 401(k) loan balance.

Lamaute Capital, Inc., (www.InvestSafe.com). Lamaute Capital is an investment firm that specializes in setting up retirement plans for small business owners and non-profit organizations.

###

Related Articles:

In Debt? Consider A Debt Consolidation Loan
A debt consolidation loan can be a real lifesaver if chosen carefully and properly managed. We?ve all seen the barrage of television commercials and heard the radio ads on this type of loan but not everyone can be helped by debt consolidation.

Low Interest Debt Consolidation Loans Will Solve Your Problems
Are you overwhelmed by debt problems? Too many bills, expenses, loan payments and credit card balances? Your debt problems can be easily solved by applying for a low interest debt consolidation loan. Replacing all your debt with a low interest debt consolidation loan has many benefits which are explained in this article.

Is Your Debt Growing? Find Out Your Debt Consolidation Loan Rate Today And Save
It's not uncommon for debt to spiral out of control, often fuelled by the high interest rates being charged. That's why consolidating all your loans under one, much lower debt consolidation loan rate can be the difference between financial survival and financial defeat.

Debt Consolidation - Get 0% APR On Balance Transfers Today!
Debt Consolidation made easy!

Do You Owe Money to the IRS? An Installment Agreement Will Help You Pay Off Your Debt
So you find yourself with an IRS debt and you don't know how to pay it back.

Improving Yuor Financial Situation With Debt Counseling
Debt counseling can provide a real solution for helping you to repair your credit. Most reputable credit/debt counseling organizations are already sponsored by many creditors. Most debt counseling organizations are non-profit, but some may operate on a for-profit basis.

Finding A Personal Debt Consolidation Loan On The Internet
Introduction

Getting Out Of Debt - The Right And Wrong Way To Pay
I Just wanted to go over a few things regarding how to pay There is a right and wrong way to pay a debt, and it can make a difference when you start trying to get dings removed from your report