Temporary loans from 401K to pay off credit cards
June 9th, 2009 by Al Lewis (alewis)The average American adult owes more than $7000 in revolving debt, at interest rates that would make anybody not in the Tax Refund Anticipation or payday loan businesses gag. At a 16% interest rate, over six years that debt costs you about the same amount in interest as the principal you owe…but at the end of six years, $7000 in payments later, you still owe virtually all the principal.
The ThinkOOB proposal: Create a one-time opportunity to borrow from your own pension plan to pay off your credit card debt, and then repay your own pension fund over those six years. At the end of six years –making about the same monthly payments you would have made to the credit card company — you will have paid off the entire debt. (If you can’t repay your pension fund all the money you borrowed, the shortfall becomes early-withdrawal income to you…but even with the early withdrawal income tax penalty, you are probably still ahead of the game.)
June 9th, 2009 at 2:38 pm
I borrowed from my retirement for a down payment on a house and then paid back. This could work
June 10th, 2009 at 5:36 am
THIS COULD WORK BUT WE SHOULDN’T LET PEOPLE MAKE A HABIT OUT OF IT. A GREAT IDEA FOR DISINTERMEDIATION. THOSE CC SCAMMERS REAM US ON INTEREST
June 10th, 2009 at 12:23 pm
Found u looking for other ideas for my cc debt. I’m even thinking of raiding 401k and paying tax penalty. This much better idea–u should tell ur congressman.
June 10th, 2009 at 1:24 pm
The Credit Card companies would block this. They make their money sucking it out of us in interest and late fees. They’d all go bankrupt. Why do think they give us airline flights and crap like that? It’s bc we FALL for this crap and then owe them 20% interest
June 10th, 2009 at 4:00 pm
I made mistakes years ago when I first got credit and overspent. People are allowed to make mistakes once and this idea would let them fix their mistakes once without costing taxpayers any money
June 11th, 2009 at 7:06 am
they start you off with credit cards the way the tobacco companies start you off with flavored chewing tobacco. then you get hooked. a one-time chance to reverse your mistake is a great idea. now if only there was such a pill for smokers.
June 11th, 2009 at 11:14 am
We discussed this in the comments under the “How about Economic Stimulus which actually gets paid back?” idea…
Both ideas are good, but I like mine better because of annual payments vs. trading one monthly payment for another, and eliminating the monthly payment could provide stimulus/avoid defaults.
June 11th, 2009 at 4:58 pm
tooz, I wouldn’t call it an either-or. They are both good ideas and ctually, it was your idea that got me going on this one.
June 11th, 2009 at 11:08 pm
Another great idea. ThinkOOB is like hints for Heloise, but in economics. When is the book coming out?
June 12th, 2009 at 5:50 am
Book will be out by 10/1, if not sooner… The book will have enhances prize rules, like $500 for ideas making it into the next edition (assumign the first one sells), and evn $20 for apropos comments.
hints for Heloise? Hmm…I hope your feelings won’t be hurt if I don’t put that one on the back cover
June 12th, 2009 at 9:06 am
here is a hint. Dont bother with a book. JUST SEND THESE IDEAS TO THE RIGHT PEOPLE. Almost all of the ideas on this site arebetter than spending money and increasing the deficit and interetst rates.
June 13th, 2009 at 4:21 pm
great idea. I can think of no reason not to do this. Why bother with a blog that is not promoted and not many people see? Just write op-eds or something.
June 15th, 2009 at 10:15 am
I don’t understand why NONE of the ideas on this site are being done yet. could you please explain to us Why THIS IS THE CASE??? Why aren’t you getting this done!
June 15th, 2009 at 4:17 pm
credit card defaults are way up today. this would solve the problem in the short term
June 17th, 2009 at 11:08 am
can you come up with something like this for mortgages? how would you do it?
June 17th, 2009 at 11:12 am
People, I don’t run the country, ok? I can’t just call the White House and say, do this stuff. You can’t blame me for these things not being implemented. Hopefully the book will help — it will have a lot of promotion behind it.
The irony is that I did in fact tell Barney Frank about the Stimulus Gift Card. And he acted on it, as you can see from all the Stimulus Gift Cards being issued (not). Actually he said it was a great idea but that I was too late for the January stimulus package.
As to JGP’s point, there is a posting on a proposal to do something like that, last week. Hopefully you found it. It’s from Tooz
June 18th, 2009 at 4:03 pm
You already can borrow from your 401k. I don’t get why you think this idea is so brilliant
June 18th, 2009 at 4:21 pm
you can, but with a whole lot of asterisks. This is a plan specifically designed to reliieve people of their credit card obligations without putting a dent in their cash flow.
June 22nd, 2009 at 9:08 am
My parents did this for me years ago. I ran up too high a debt and couldn’t make a dent in it and they helped me out and I paid them back over time with no interest. it WORKS. i learned my lesson-pay off every month now
August 19th, 2009 at 10:10 am
I’m not finished read this yet, but it’s so fabulous ‘n I’ll back again when I was finished my job :D