Making a Choice: Retirement Plan loan vs Debt Consolidation
Deciding between a debt consolidation loans and a loan from your retirement plan is a major decision that you need to take seriously. While both plans have their advantages, making the wrong decision can cost you thousands of dollars. Consider these questions before deciding between the two options.
What to Consider before a Retirement Loan and a Debt Consolidation
1. How secure is your job? If you lose your job before a retirement plan loan is paid off, you’ll have to pay back the loan immediately. If you don’t have the money, you’ll have to pay taxes and fees on the money to the IRS. If there is any possibility that you would lose your job before the loan term is complete and you don’t have the money or another line of credit to pay off the debt, go with debt consolidation.
2. Can you afford the payments that you’re being offered? Retirement plan loans tend to come with very few choices about how much to pay each pay period and how long you’ll make payments for. Debt consolidation, on the other hand, allows you to have a lot of choice in what your payment terms will be. If you can’t afford the loan payments, or if you think they will put you in a position where you won’t be able to make them in a couple of months, don’t take out the loan.
3. How comfortable are you with letting your employer know you need a loan? While this information is supposed to be confidential, only you know how secret this piece of gossip will stay in your office. If you don’t want your boss knowing that you need to take out a loan, you need to look somewhere else for credit than your place of employment.
4. Do you want debt counseling? Debt counseling is a confidential process that many people from all walks of life have found to be very useful. Retirement plan loans, however, tend not to offer this service. If you want help with making sure that you don’t rack up debt again over the next couple of years that need to be paid off, you might want to consider a debt consolidation loan.