I dunno, what would Dave Ramsey say?

[Microcell]

My friend just bought The Total Money Makeover and is having it shipped and wants to take money from her 401k (she works for an auto company and can take out loans from her 401k) and pay of a credit card because she cant make the minimum payment...

I didn't know what he would say because she wouldn't be penalized.. Her job is as stable as any in this economy..

 

[jlima]

My friend just bought The Total Money Makeover and wants to take money from her 401k (she works for an auto company and can take out loans from her 401k) and pay of a credit card because she cant make the minimum payment...

I didn't know what he would say because she wouldn't be penalized.. Her job is as stable as any in this economy..

Can she really take out a loan for that? Most companies require a specific purpose, such as down payment on a house or medical expense.

 

[Microcell]

Apparently they will.. once a calendar year and it allows for misc expenses.

 

[HeyIt'sMe]

Can she really take out a loan for that? Most companies require a specific purpose, such as down payment on a house or medical expense.

This is how my company's 401(k) works - -

With a hardship withdrawal it has to be for a specific purpose and you must provide proof of need. These are medical care expenses, principal residence purchase, eviction and/or foreclosure prevention, tuition (post secondary), or funeral expenses.

With a loan you don't need to show a specific purpose. If it is a general loan you can have a repayment term of 12 to 60 months. If it is a principal residence loan you can have a longer term of 61 to 180 months.

And I don't think Dave Ramsey would say it is OK to borrow from your 401(k) to pay off debt.

 

[stitchlovestink]

Can she really take out a loan for that? Most companies require a specific purpose, such as down payment on a house or medical expense.

Well we are allowed to borrow against my hubby's 401K for anything we want to. They don't ask what the $ is for. All they want to know is how much you want, how long you want to pay it back, and do you want direct withdrawal of the repayments taken from your paycheck or not. and you can only borrow up to 1/2 of his balance. So if he had $10,000, we could not borrow any more than $5,000. Now if you want to "borrow" from it w/o repaying it, then it needs to be for a down payment on a home, to avoid foreclosure on your primary residence, or medical expenses. so I do know that there are plans out there that allow this. also, DH's plan does not require immediate repayment if he was to leave the company. but if you are late on the payments, they will issue the paperwork for a premature withdrawal and then you have to deal w/ the penalties and tax implications. I guess each plan is different in how they are set up. But I do know that this is possible w/ DH's plan.
Now whether she should do that, I don't know that I would w/o knowing exactly how her plan worked. I.E., If she were to lose her job or quit, would she have to repay the loan immediately (as some plans require?) Not enough info to know....

 

[srdipert]

If she can't pay the payment and she really doesn't have any other options than I guess that would be the thing to do. But I would work very hard to try to cut back so she doesn't use the credit card again and get right back where she is.

 

[SandrA9810]

I wouldn't touch it with a ten foot pole. Because if you fluke on your 401k, you're going to be hurting later. And if you lose your job, well then you have to repay any amount up front, or close it and take the 10% tax penalty on it.

She needs to look long and hard at her option, even if it means putting a little less into her 401k account. I wouldn't put in anything less than what the company matches, so if they match 2 bucks, she should put in at least 2$... that's free money right there.

I was thinking about closing my 401k because I lost quite a bit below what I initially put into it, plus everything the company matched. But I didn't think it was worth the 100$ penalty for it, and now I'm back even to what I originally put into the account.

 

[swissfamilyrobinson]

I think he would tell her not to borrow from her 401k, primarily because (like a previous poster said) of the risk of having to pay it all back immediately if she lost her job.

What I hear him tell callers is to up their income - get a second job (delivering pizzas, babysitting, etc.) short term and immediately to help with the cash flow crisis.

 

[crisi]

I don't know what Dave Ramsey would say, but her 401k should be her LAST resort - as much as I hate to say this - AFTER bankruptcy. The reasons are:

She will need to pay back the 401k or face the tax consequences. If she can't make the payments on the credit card, how will she pay back the 401k.

If she looses her job (the auto industry is just as secure as anything now?! Maybe if she were a bankruptcy paralegal she'd be low risk - but not the auto industry) she will still need to pay back the 401k - or pay taxes and penalties.

If she does end up in bankruptcy, the 401k will be protected. If I've got to pay for her mistakes at some point, lets get it over with and maybe she won't be destitute when she retires.

Cut expenses, increase income, sell all that stuff you charged. Those are the first steps. They are also the hardest.

 

[OctMtnWoods]

Yeah, because paying a debt with another debt is always a good idea. NOT.

You pay debt with income.

 

[eyeheartgoofy]

Dave would say "we don't borrow from our 401 (K) to get out of debt". He actually had a caller ask that question today.

 

[Kathymcbain]

My friend just bought The Total Money Makeover and is having it shipped and wants to take money from her 401k (she works for an auto company and can take out loans from her 401k) and pay of a credit card because she cant make the minimum payment...

I didn't know what he would say because she wouldn't be penalized.. Her job is as stable as any in this economy..

You said she can't make the MINIMUM payment...this is a serious problem and taking one loan from her 401K isn't going to fix it. If she can't pay the minimum on her credit card, she needs to look long and hard at why she can't make a minimum payment (which is almost all interest) and how she can cut her budget or increase her income, because creating more debt to basically pay interest on a credit card bill is a VERY BAD idea.

 

[Chicago526]

I'm not a DR expert but I'm pretty sure he'd say no. Short of honest to goodness starvation or a true life-or-death medical situation, don't touch the retirement funds! His book outlines dozens of ways to cut costs and boost income, I'd tell your friend to be patient, wait for the book to arrive and read it through before doing anything drastic. The book is easy reading and most should be able to finish it in less than three days (I could have read it in one sitting but it got late and I was tired, finished up the last couple of chapters the next day) .

Has she tried working with the CC companies? They are facing record defaults, they may be willing to lower the interest rates or make other deals. If she can cut her interest rates, she can cut her minimum payments, and that could be the wiggle room she needs to keep her head abover water until she can gets things turned around.

 

[sylvenmaid]

He would most definitely say, (and I quote) "NO!!!!!!" He would then say, "Was that clear enough for you?!" LOL! He would laugh at this point.

I watch his show every single night, and he always says the same thing we never borrow from the 401K ever. Like others have said for the reasons of if you lose your job then you have to repay it or get hit with the big tax losses. As a matter of fact, he mentioned last night that he would never allow his own staff to borrow from their 401K. It's a huge mistake.

Now what she needs to do is sell some stuff or find a way to earn more money. Or discontinue things like cable and phones or at least downgrade services. Dave would also say we don't see the inside of a restaurant unless we are working in it. The problem is many people don't want to sacrifice short term in order to win for the long term. We did and no I didn't like some of it, but I am glad that we did. We are in a wonderful place now and I wouldn't trade that peace for stuff.

 

[kisobel]

i'm pretty sure he would say "that's a stupid idea and i've done stupid"


you cant tell her how to run her life. unfortunately i think this is just a symptom. if she hasnt cancelled cable and cell phones and tried to sell anything that doesnt move - then taking this loan won't help. she will be farther in debt than before. she needs to get her scissors cracking and start cutting all those credit cards.

kate
debt free except for the house

 

[JeMarie6]

When you take a loan from your 401K, you have to pay taxes on the money twice. (You pay back the loan with after tax money, and then the money is taxed again when you take it out of the 401K at retirement). So it's not a good idea! Better to get a second job!

 

[wall*e2008]

My friend just bought The Total Money Makeover and is having it shipped and wants to take money from her 401k (she works for an auto company and can take out loans from her 401k) and pay of a credit card because she cant make the minimum payment...

I didn't know what he would say because she wouldn't be penalized.. Her job is as stable as any in this economy..

Her job is one of the least stable in this economy.

If she cannot make the minimum payment on her CC she needs to reevaluate her spending first.

If she loses her job she owes the full loan payment then. How would she be able to do that>

 

[Praying Colonel]

I've been listening to Dave since 1994, before his show was syndicated and he was on 1 FM station in Nashville. I've never heard him recommend that someone borrow from their 401(k) for anything. His general rule is 401(k) loans should only be considered as a last resort to bankruptcy. And if you know Dave, you know what he thinks about declaring bankruptcy.

 

[Ava]

Like others have said, the 401k is untouchable. She first needs to lower her expenses and up her income, at least for the short term. If she's done everything possible to get more money to pay towards the CC and she still can't make the payments, then I would try the CCCS (consumer credit counseling service) to work out an affordable monthly payment with the CC companies.

 

[ctinct]

I've been listening to Dave since 1994, before his show was syndicated and he was on 1 FM station in Nashville. I've never heard him recommend that someone borrow from their 401(k) for anything. His general rule is 401(k) loans should only be considered as a last resort to bankruptcy. And if you know Dave, you know what he thinks about declaring bankruptcy.

Gosh, I don't know if it would be a good idea to EVER touch a 401(k). I know I have heard Suze Orman say they should never be touched, especially if a person is in so much financial trouble that they might have to file bankruptcy. I guess retirement accounts are protected from bankrupcty. Now I know there is the question of if it is ethically right; I'm just saying that from a purely financial standpoint it would be foolhardy to touch retirement funds.