401K Loan and why I did it

Every financial advisor on the planet will tell you don't do the 401K loan because you lose the compounding interest on your money. In the end this loan will probably cost me $100,000 in retirement funds instead of the $20,000 I borrowed. However, if your financial advisor has never been swimming in debt, avoiding calls from creditors and unable to get it together they have no idea the freedom that comes from not seeing one big bill a month. It was July 4 years ago when I couldn't make ends meet. It was a time when I knew I needed to get serious about my finances and I tried for a year with no success. It was depressing to see these bills coming in and paying $5 or $10 extra on a $20,000 bill really didn't impact it. My thoughts were I know it will cost me 4 times the amount of the loan in retirement but I'm going to pay a whole lot in interest (29%, because I was late so many times) while I'm working. So the jump start to my financial freedom came with my 401K loan because with this my credit score increased and I was able to renegotiate interest rates on my other credit cards to a manageable 9.99%. Now when I pay my extra $10 or $15 on the card balance, I can actually see it making a difference. My confidence level has grown with every bill paid off and believe it or not that snowball effect really does happen, when one card goes away, it's ten times easier to pay off the next card.

There are some things I learned about a 401K loan that I didn't know when making the decision. First, you can't pay additional $10 - $15 to pay it off sooner, if you want to pay it off sooner you need to save the money and pay the entire balance left at one time. Now I don't know if this is just our plan, but it is something to consider if you are thinking about this process. Second, you must pay back the loan within 90 days of leaving the company whether you are laid off or quit. During this tumultuous time, this is something to truly consider. I have felt trapped at my current job many times during the last 4 years because of the loan and gone home crying out to God to help me to leave.

I know that many financial advisors are cringing at this blog post but for me the loan was the best thing I ever did. First the timing was perfect. I took out the loan and 3 years later the stock market and housing markets have crashed. My loan is paying paying my 401K 9% in interest that my stock is losing right and left. It is the only thing increasing my portfolio right now. I know it took away for 3 years but this last year it has been a blessing. I have paid off most of my loan before my company is going through their layoff process so to be laid off won't affect my loan, I have enough to pay the entire balance within 90 days of my final day. There is a freedom in all of this. I now have the ability to look elsewhere without the "stuck" feeling of debt. God certainly blessed me when I took out this loan and paid back my debtors instead of trying to get out of what I charged. My life has been given back to me through this 401K and the strength to control spending after the loan.

God Bless.