Debt consolidation occurs when you take out one larger loan to pay off your high interest credit card debt. If you have been waiting for the right time for debt consolidation, then consider using your retirement account to consolidate your high interest debt.
Debt consolidation through a retirement fund is possible even for small business owners. If you have, or start, a business with no employees, or if you are an independent consultant, you can open an individual 401(k), called a Self-Employed 401k, and borrow from it to use for credit card debt consolidation.
One may also transfer tax-free your IRA or 401(k) from a previous employer for debt consolidation. This form of credit card debt consolidation is useful for those relying heavily on credit cards to cover their expenses while they look for new work.
You can borrow up to 50% of the balance of your Self-Employed 401k account for credit card debt consolidation. This type of loan is both tax and penalty-free as long as it is paid back in a timely fashion.
A retirement loan requires no credit check or long application form, and carries a low interest rate. This is beneficial for those with huge credit card debt, as credit cards generally carry very high interest rates.
Credit card debt consolidation can be quickly and easily done with the use of your retirement funds. This is a very attractive option for borrows who are struggling to pay down their credit card debt.
HOWEVER, you need to be aware of some risks involved with debt consolidation using retirement funds. First of all, if you get fired, you’ll have to repay your retirement funds very quickly. Second, and this is important, if you don’t repay your retirement funds, you’ll lose your retirement savings. Gone. Your money, will be gone. Forever.
It is a big gamble to consolidate credit card debt with retirement funds, so only consider it if your job is secure, and you are reasonably certain you’ll be earning enough over the next five years to pay back what you borrow.