Taking Out A Loan Against Your 401(k) Is A Bad Idea

Have you ever had the desire to take money out of your own pocket, lend it back to yourself over time, and pay a penalty for doing so? If not, then there is absolutely no reason you should ever want to borrow a loan out on your 401(k). The temptation may be there to do so, but you should resist the urge for the following vital reasons.

1) You Are Missing Out On Potential Stock Market Growth 

A person puts their money into a 401(k) program to take advantage of the growth in the stock market over time. They cannot continue to do that when their money has been pulled out and is sitting on the sidelines being used for some other purpose. That is essentially what happens when one borrows a 401(k) loan. Investopedia.com says that this means you have less capital that could enjoy the growth of the market. Therefore, you are hurting yourself both with the interest payments and with the lack of funds in the market.

2) You Could Have To Pay It Back Immediately

The value of most loans to people is that they receive money today that they do not have to pay back until a later date. That is all good and well, but check out the fine print when you go to borrow a 401(k) loan. What it will tell you is that if you are to lose your job while that loan is still outstanding, you could be on the hook to pay back the entire thing immediately. That is a huge pain because it will mean that you have just lost your job, and now on top of that you have to pay back money that you borrowed in the first place.

3) Other Loans Are More Practical

It takes a long time in some cases to even receive the funds from a 401(k) loan in the first place says CashMoneyLife.com. By the time you have actually received your money, your financial troubles may have gotten far worse.

Instead of doing that, you could have borrowed the money from a service such as texasapproval.com and received your funds almost instantly. In that scenario, you can take care of whatever financial troubles are currently pressing down against you in no time. That is a lot more comfortable position for a person to be in compared to waiting around anxiously for their money to arrive.

4) You Are Probably Living Beyond Your Means 

Have you ever heard of the expression “living beyond your means”? This is a simple phrase that means that a person is spending more than they can afford to based on their income. A lot of people live like that, but those that do tend to be stressed out all the time. It is not a comfortable place to be in when you are always falling behind on paying your bills. As such, someone who is borrowing a 401(k) loan should probably consider the other lifestyle choices they are making before borrowing even more money.