Personal Investment & Financial Planning Q`s/401(K) Loan

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Question
I am 20 years old, I have a full time job with a 401(K) putting in 12% of my pay into the account weekly. I have been on my own since I was 18 and in doing so of leaving my parents house because of the situation I racked up some debt. I have about $2,000 of unpaid debt and I am looking for an easy and cheaper also effective way to pay for this before it gets out of hand with interest. I currently have a good chunk of change in my 401(K) and have done extensive research on loans and the fees that apply. my credit score is not the greatest so applying for a bank loan just is not really an option since interests rate are crazy. I spoke with a financial adviser and explained to me that the loan is a 3.5% interest loan so I would be paying about $70 in interest a year with a $12 quarterly fee, which brings the total to an extra $118 a year that I would need to pay for a $2,000 loan. So if I was to take a 3 year loan (small cheap weekly payments, which would also restrict me from taking any other loans out for 4 years) I would owe a total of $2,354 at the end. My weekly payments would be as low as $14 a week +$12 quarterly fee every 3 months added on. Im currently in a situation where I need to consolidate this debt and try to pay it off efficiently and fast. My living situation is going to be changing so this needs to be taking care of. I just want to make sure that since I'm still young this will not effect me too much and that this will be kind of "acceptable" thing to do. I don't want to do anything that will jeapardise my future and doing anything foolish. Thank you!

Answer
Zachary

Your attitude will save you here and serve you well in the future. Make your life easier and just pay the credit card off where it is as fast as you can. Juggling small amounts like $2k around (it is small; it SEEMS large to an 18 year old) will make you nuts and the work involved and potential costs make me say just leave it there and pay it FAST. Forget the finance company; just live like everybody else and handle it at the credit card company.

If the card debt is on one card, set it up online if you didn't already. You can log on and pay often so you can make it like a weekly pay if that works. Just make sure the amounts add up and all hit by the dates and amounts due by the time the statement comes out.

If the card debt is on several cards, pay all cards at least the minimum, and any extra, pay towards the card with the highest interest until it goes away. Then pay the other cards in the same order of interest rates.

This will build good habits and good credit reports for you too

Good luck

Bruce

Personal Investment & Financial Planning Q`s

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Bruce Julien

Expertise

I can answer questions on and raise issues clients overlook in the areas of Estate Planning as far as taxes and distribution flow problems, Asset Management as far as appropriateness of assets and allocations for a desired goal and the value a consumer gets for their costs, Tax Planning related to Income and Estates, and Insurance/Annuity questions particularly in light of suitability to the consumer.

Experience

I became a CPA in 1991 and began offering financial advice in 1992. I am a Registered Investment Advisor which means I sign off on putting clients' interests first in a fiduciary role.

Education/Credentials
BA in Accounting, University of Maryland 1990

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