should i use my 401k?

Question

I need to pay down some bills and can not get a loan due to to many inquiers on credit report due to someone stoled identy .so Should i use my 401k to pay down these bills or not .I am working 1 full time job plus a part time job just to make it by . I really could use some good advice . I just wish i could get a loan somewhere in the usa .

PLEASE no replies fron the united kingdom or other countries

Answer 1

You should never use your 401K. NEVER!

Answer 2

I don't recommend it. The thing to do is work on clearing the identity theft issues; you may have to get tough and possibly threaten suit; you are not responsible for debts run up from identity fraud any more than you are liable for checks that someone who stole your checkbook signed.

Your 401K is supposed to be there so that you have additional funds to support you when you get older; if you dip into those funds you lose the investment potential. You may also be liable for taxes depending on how you get the money. You also have the possibility if things are bad now, and you borrow from your only source of emergency money, if disaster hits or some really good opportunity comes along, you have nothing.

If you were borrowing the money for productive income such as purchasing equipment for use in your livelihood or perhaps making part of a downpayment toward a house, I'd say it might be a good idea.

But using savings or investment for consumption expenses is the worst possible waste.

Immediately stop paying - do not pay no matter what they threaten you with - any bills that are the result of identity fraud, report it to all three reporting companies and order a freeze on your report. Then start working on getting the fraudulent items removed. You have a legitimate dispute and your credit can't get any worse. In fact, if you've paid any bills that were fraudulent, I'd start asking for your money back; you didn't realize you're not liable for fraudulent bills. Even credit card companies can't ding you for more than $50 in fraudulent charges and most of them won't even impose it. And most creditors aren't even following the Federal requirements to collect that first $50 anyway (must have toll free number to report errors and several other requirements).

Answer 3

Many people may tell you not to touch your 401k...

However, many 401k plans allow you to take out a loan rather than make a disbursement. This enables you to take money out of your account which isn't penalized, as you sign a guarantee to repay the loan.

Depending on the purpose of the loan, many times you are required to repay the note within five years. If the purchase is for a primary residence, the term is longer - details such as this vary from plan to plan.

Figure out your monthly expenses to each of the creditors you need to pay off.

Then, figure out how much you need for a loan, the term you are looking to repay it under, and the weekly amount that will be deducted from you pay.

If you are able to pay the bills off, and have weekly payments back into your account that are less than the total of those bills, this may be a good option.

Bear in mind that the loan will have service charges and an apr applied to it, but the interest that you pay on your loan is generally paid into your account.

If you compare that to the cost that you would ultimately pay if you were to make minimum payments on your outstanding debt, it will be more clear if this is the best choice for you.

Answer 4

Simple answer ... NO

Your 401k is for retirement, NOT emergency savings. You should use your emergency savings for emergencies. Use food money for food. Etc. You need to start an emergency savings fund my dear !

You need to carefully review every thing on your credit report. Dispute the fake ones. After about 6 months things will go back to normal if you are dilligent.

Paying off you bills with your 401k WILL NOT solve the problem because if you pay you bills off, you will just get back into debt, and then you will have no retirement funds, life will be aweful! Don't use money in a long term plan to take care of a short term solution.

In addition, you may be penalized for removing money from your retirement early, this means that you are paying 10% penalty, 10%-30% income taxes so you paid $1 and you are getting $0.90 or less back.

What you need to do is create a LONG TERM strategie. Rule #1, pay youself first - invest in you 401k before you do anything else, you will thank yourself when you are 65.

Rule #2 Fund an emergency fund account $50 a month is fine.

Rule #3, Prioritze your debts and bills. Pay off the highest interest first. For small debts $500 or less, pay those off first no matter what their interest rate. Payng small bills faster will give you greater confidence. Pay the minimum payments on all, except the highest prioritized debt. The highest on your list, you will add an extra $75-$150 per month. As you pay them off, add he +$75 plus the minimum payment for the pevious debt, and pay the next debt. Repeat until you have no debt except maybe a mortgauge, school debt, or a car payment. Then take the money at the end of it all and instead of spending the money,start building wealth by investing that money. In a few years after you pay off your debts and catch up on bills, you will have built a fortune and you will feel proud.

Don't focus on those bills, they are meaningless. You need to focus on your long term strategy. There will ALWAYS be bills, but savings and investments they take work and wit.

Good Luck !

Answer 5

DO NOT USE YOUR 401K!!! The tax penalties and fees you will pay to cash them out will cost you an arm and a leg. First, work with the credit burueas to clear the inquiries from the identity theft. It takes time, but it needs to be done. You say you are working a full time and a part time job. What can you do to cut your expenses?? Maybe driving a cheaper car, or using a bicycle for stuff that's close by. Maybe you are spending too much money on take out food or entertainment. Do you live alone?? Could you take in a roommate to share expenses? Can you get a better paying job or a raise at the one you have?

Obviously your credit is maxed out. You are trying to borrow money you can't afford to repay. That is a bad idea. it will only cause more problems and lead you down a road to bankruptcy.

Cut expenses as much as possible (turn off lights, keep AC a few degrees higher, and don't eat out at all if possible) and fix the problems on your credit report. But if you cash in your 401k, kiss your retirement goodbye and you will spend twice as much money as you need just to pay down debt you shouldn't have run up in the first place.

Answer 6

Borrowing more money does not sound like a good plan, because you will have difficulty paying it back.

Make a budget for your self. Look at the last couple of months and the next couple of months. Try to cut expenses...like meals at home instead of out.

Sell your car and get a cheaper one. (You can get a nicer one later when you're out of debt)

Maybe some overtime work is available at your full time job or extra hours at your part time job.

Can you reduce your rent by getting a roommate or moving?


If you have to borrow... try to obtain a loan from a private party, like your parents. (Maybe a Xmas gift or early birthday gift/)

Borrowing from your 401k is a last resort.

Answer 7

Employers don't offer pensions (hardly any more) so your 401k should be considered a sacred trust -call a broker for advice as to how to convert to IRA, (there'll be no penalty long as it moves from previous employer as a check to your new IRA account that you have personally opened (unless your new employer will accept THE CHECK into his plan.)
You'd better clear up this stolen identity, fast. 1st and most important step: go to police station and give an officer all the details to write up. Get him to make a couple of copies and you reproduce those into several copies to send to any merchant who was defrauded plus all three national credit agencies (CK WEB FOR SITES). I was a victim and aforesaid took all the steam out of my responsibility for those debts, without affecting my crd. rtg. You'd better make arrangements with your debtors or you may NEVER get another loan or credit. acct.. Don't spend on things you can do without, for a LONG TIME. Good luck!

Answer 8

if you take a loan out against your 401k it will be like paying yourself back the interest, but you wont be reaping the benefits of the funds you have. If you just take the money out and never plan on repaying it then its a bad choice.

Answer 9

Probably not. Can you just avoid paying those bills and take the possible hit to your credit rating?

The point is, if worse comes to worse and whoever you owe money to sues you for the money, they probably can't touch your 401k funds. Or more likely they won't sue you, they'll just harass you for awhile with collections calls. Either way you still have your retirement savings.

Answer 10

NO. Do not touch your 401K under any circumstances. The penalties you will pay will be huge- there are better ways.

If someone really stole your identity, start working to get your credit report corrected.

Answer 11

What is your age?! That is a factor, if you are YOUNG, you have time to pay it back. You WILL have to pay it back. IF you are close to retirement, it would be FOOLISH to borrow from it. You need to get some good LEGAL advice!!