Can I include a Retirement Plan Loan in a Debt Consolidation?
If you currently have a loan from your retirement account, it can feel as if you’re trapped in a cycle of payments. Most plans pull payments directly from your paycheck, and they don’t allow you to renegotiate the amount you have to pay every month. We frequently hear from people who were comfortable with their level of payment when they first took out the loan, but now need a lower loan payment due to unforeseen circumstances.
Sadly, these loans can only be included in a debt consolidation loan under very limited circumstances. Because many of them have restrictions on paying them back early, it is hard to get a loan to pay them off if you’re still employed by the company that you have your retirement account with. There are a few ways to include them, however.
Ways to Include Your Retirement Plan on a Debt Consolidation Loan
If you have left your old job and are looking for a way to get your 401(k) loan paid off before you reach the 60 day limit, a debt consolidation can be a good option. Under this plan, the debt consolidation loan would give you the money to pay back your 401(k), helping you to avoid the taxes and penalties that come with not being able to pay back the loan. Then, you’ll be able to continue to make payments on the debt at a level that you can afford. If you’re currently unemployed, be sure to let your debt counselor know. He or she will be able to look for a loan with payments that you can afford on your limited income. Once you find a new job, it will be possible to make extra payments to get the loan paid off earlier if you would like.
If you are still employed, but you need to free up money to pay the 401(k) loan every month, you might want to consider debt consolidation for your other loans. This process will lower the monthly payment you make on your credit cards, personal loans, and other debts, freeing up the extra cash you need to cope with the reduction in income that comes along with paying back a 401(k) loan. That will help you keep up with payments and not get behind on other bills.