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401(k) Loans Used To Get Debt ReliefCredit card debt consolidation can relieve financial problems by paying off debts with more manageable terms. Various methods exist to fund the consolidated balance, including drawing on a retirement plan, such as a 401(k). Remember though, that is your retirement. The more you borrow, the longer you will have to wait to retire. Most employers allow loans from a 401(k) or other retirement plan. If consumers decide to use a 401(k) for credit card debt consolidation, they first must get their specific plan's details. Consumers can do this by speaking with their company's 401(k) administrator. Credit card debt consolidation using a 401(k) has some advantages. First, consumers pay a low interest rate for the loan, and secondly, they pay interest to their own 401(k) account instead of to a bank or financial institution. Another advantage of credit card debt consolidation with this method is lower transaction costs compared to other methods, such as a cash-out refinance. With this type of credit card debt consolidation, no credit check exists and consumers repay their own account through payroll deductions. This method of credit card debt consolidation entails several drawbacks, however. Utilizing a 401(k) plan for credit card debt consolidation can harm some consumers. If an employee fails to pay back a 401(k) loan, the IRS considers it default and can tax it as income up to 60 percent. An employee who leaves a job must pay the loan in full immediately. Before consumers elect to borrow from their 401(k), many experts suggest seeking other methods first. While a 401(k) plan can help credit card debt consolation, other methods exist that yield a higher level of security. Consolidation through a home equity product or unsecured loan probably offers consumers more protection from incurring further debt compared to tapping into a 401(k) plan. Consumers should review all options before deciding on the best method of credit card debt consolidation. About the Author
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