Mixing
401(k) loan and job transfer
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Background
I took a 401(k) loan to facilitate a move across state (My wife is a newly graduated physician who took a residency offer near our new home). I up and switched jobs in the same career field to stay with her, and failed to properly vet the organization I was joining. As such, I am switching companies to one that I have had more time to properly vet and have a discussion with.
We have enough emergency money to cover expenses even if I lose my new job in the first couple weeks of having it. Using the emergency money to cover the outstanding 401(k) loan is not an option, as it would introduce an unacceptable level of risk into our finances. The field I am in has such a desperate lack of qualified workers that I can be assured of a new offer within a week of losing a job (though the company may be unsavory).
Question
I am exploring options for mitigating the financial loss that would occur should I default on the outstanding 401(k) loan (~10k USD). I can handle the tax and penalty hit should I need to, but I feel I have other options available.
I can take out an unsecured line of credit for the outstanding balance at a 5.5% APR (credit score over 770 at last report), which will be a significantly reduced cost in the long run, but will up my cash outflow in the short run, thereby increasing risk. I can mitigate that risk by taking an identical 401(k) loan after the new plan allows, thereby seating myself back in the same situation, with a small cost of transaction.
As far as I see, those are the three most prominent options (Take the hit, including taxes; cover the gap with an unsecured line of credit; or use an unsecured line of credit to bridge between 2 401(k) loans) . I'm not asking for a decision to be made for me, rather, I'd like to cover the pros and cons of each option to minimize my mistakes and risks. I am relatively inexperienced as far as juggling debt goes. If it matters, the 401(k) account for both companies will be with the same lender on a similar-but-not-identical plan setup.
The answers thus far hit on our unwillingness to pay down debt. To forestall another post point out that debt is a choice (I agree, it is), I will lay out where our income is going.
My wife will not make a doctors salary until she has completed her 4 years of residency. Until then, our household income rests at roughly 120k USD annually (dependent on my overtime). Her student loans cost nearly 4,000 USD monthly, and our only consumer based debt is her car at under 400 USD monthly. We do use a joint credit card, but never beyond what we can pay off that month. Neither of us has ever owed or paid any interest on a credit card. The 401(k) loan in question costs 427 USD monthly; with a mortgage of just under 1,100 USD monthly, that puts the present (not future) cost of the decision to own a house at par with renting an equivalent apartment in the area.
united-states 401k credit
asked 1 hour ago
GOATNine
1,264216
add a comment |Â
up vote
1
down vote
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Background
I took a 401(k) loan to facilitate a move across state (My wife is a newly graduated physician who took a residency offer near our new home). I up and switched jobs in the same career field to stay with her, and failed to properly vet the organization I was joining. As such, I am switching companies to one that I have had more time to properly vet and have a discussion with.
We have enough emergency money to cover expenses even if I lose my new job in the first couple weeks of having it. Using the emergency money to cover the outstanding 401(k) loan is not an option, as it would introduce an unacceptable level of risk into our finances. The field I am in has such a desperate lack of qualified workers that I can be assured of a new offer within a week of losing a job (though the company may be unsavory).
Question
I am exploring options for mitigating the financial loss that would occur should I default on the outstanding 401(k) loan (~10k USD). I can handle the tax and penalty hit should I need to, but I feel I have other options available.
I can take out an unsecured line of credit for the outstanding balance at a 5.5% APR (credit score over 770 at last report), which will be a significantly reduced cost in the long run, but will up my cash outflow in the short run, thereby increasing risk. I can mitigate that risk by taking an identical 401(k) loan after the new plan allows, thereby seating myself back in the same situation, with a small cost of transaction.
As far as I see, those are the three most prominent options (Take the hit, including taxes; cover the gap with an unsecured line of credit; or use an unsecured line of credit to bridge between 2 401(k) loans) . I'm not asking for a decision to be made for me, rather, I'd like to cover the pros and cons of each option to minimize my mistakes and risks. I am relatively inexperienced as far as juggling debt goes. If it matters, the 401(k) account for both companies will be with the same lender on a similar-but-not-identical plan setup.
The answers thus far hit on our unwillingness to pay down debt. To forestall another post point out that debt is a choice (I agree, it is), I will lay out where our income is going.
My wife will not make a doctors salary until she has completed her 4 years of residency. Until then, our household income rests at roughly 120k USD annually (dependent on my overtime). Her student loans cost nearly 4,000 USD monthly, and our only consumer based debt is her car at under 400 USD monthly. We do use a joint credit card, but never beyond what we can pay off that month. Neither of us has ever owed or paid any interest on a credit card. The 401(k) loan in question costs 427 USD monthly; with a mortgage of just under 1,100 USD monthly, that puts the present (not future) cost of the decision to own a house at par with renting an equivalent apartment in the area.
united-states 401k credit
asked 1 hour ago
GOATNine
1,264216
I'm confused - so you have a 401(k) loan with a company that you've already left, or with the one you're considering leaving?
– D Stanley
56 mins ago
@DStanley As of this morning, just left. To clarify, I left Job 1 to move, got to job 2, then took out the 401(k) loan, and have just left job 2 to move on to job 3.
– GOATNine
37 mins ago
Can you rescind your resignation and hold out until the loan is paid off? That's the best move (financially).
– D Stanley
31 mins ago
Due to health concerns, that is not feasible. The position this company put me in is not sustainable. As I mentioned, there is a direct lack of skilled labor in my field, and this company decided to place me in a position well above my capabilities without sufficient support. The stress is resulting in trips to the urgent care (ulcers/insomnia/psychotic episodes). While I could remain, I imagine the eventual health bills will be far more expensive than the tax penalty.
– GOATNine
24 mins ago
add a comment |Â
up vote
1
down vote
favorite
up vote
1
down vote
favorite
Background
I took a 401(k) loan to facilitate a move across state (My wife is a newly graduated physician who took a residency offer near our new home). I up and switched jobs in the same career field to stay with her, and failed to properly vet the organization I was joining. As such, I am switching companies to one that I have had more time to properly vet and have a discussion with.
We have enough emergency money to cover expenses even if I lose my new job in the first couple weeks of having it. Using the emergency money to cover the outstanding 401(k) loan is not an option, as it would introduce an unacceptable level of risk into our finances. The field I am in has such a desperate lack of qualified workers that I can be assured of a new offer within a week of losing a job (though the company may be unsavory).
Question
I am exploring options for mitigating the financial loss that would occur should I default on the outstanding 401(k) loan (~10k USD). I can handle the tax and penalty hit should I need to, but I feel I have other options available.
I can take out an unsecured line of credit for the outstanding balance at a 5.5% APR (credit score over 770 at last report), which will be a significantly reduced cost in the long run, but will up my cash outflow in the short run, thereby increasing risk. I can mitigate that risk by taking an identical 401(k) loan after the new plan allows, thereby seating myself back in the same situation, with a small cost of transaction.
As far as I see, those are the three most prominent options (Take the hit, including taxes; cover the gap with an unsecured line of credit; or use an unsecured line of credit to bridge between 2 401(k) loans) . I'm not asking for a decision to be made for me, rather, I'd like to cover the pros and cons of each option to minimize my mistakes and risks. I am relatively inexperienced as far as juggling debt goes. If it matters, the 401(k) account for both companies will be with the same lender on a similar-but-not-identical plan setup.
The answers thus far hit on our unwillingness to pay down debt. To forestall another post point out that debt is a choice (I agree, it is), I will lay out where our income is going.
My wife will not make a doctors salary until she has completed her 4 years of residency. Until then, our household income rests at roughly 120k USD annually (dependent on my overtime). Her student loans cost nearly 4,000 USD monthly, and our only consumer based debt is her car at under 400 USD monthly. We do use a joint credit card, but never beyond what we can pay off that month. Neither of us has ever owed or paid any interest on a credit card. The 401(k) loan in question costs 427 USD monthly; with a mortgage of just under 1,100 USD monthly, that puts the present (not future) cost of the decision to own a house at par with renting an equivalent apartment in the area.
united-states 401k credit
asked 1 hour ago
GOATNine
1,264216
Background
I took a 401(k) loan to facilitate a move across state (My wife is a newly graduated physician who took a residency offer near our new home). I up and switched jobs in the same career field to stay with her, and failed to properly vet the organization I was joining. As such, I am switching companies to one that I have had more time to properly vet and have a discussion with.
We have enough emergency money to cover expenses even if I lose my new job in the first couple weeks of having it. Using the emergency money to cover the outstanding 401(k) loan is not an option, as it would introduce an unacceptable level of risk into our finances. The field I am in has such a desperate lack of qualified workers that I can be assured of a new offer within a week of losing a job (though the company may be unsavory).
Question
I am exploring options for mitigating the financial loss that would occur should I default on the outstanding 401(k) loan (~10k USD). I can handle the tax and penalty hit should I need to, but I feel I have other options available.
I can take out an unsecured line of credit for the outstanding balance at a 5.5% APR (credit score over 770 at last report), which will be a significantly reduced cost in the long run, but will up my cash outflow in the short run, thereby increasing risk. I can mitigate that risk by taking an identical 401(k) loan after the new plan allows, thereby seating myself back in the same situation, with a small cost of transaction.
As far as I see, those are the three most prominent options (Take the hit, including taxes; cover the gap with an unsecured line of credit; or use an unsecured line of credit to bridge between 2 401(k) loans) . I'm not asking for a decision to be made for me, rather, I'd like to cover the pros and cons of each option to minimize my mistakes and risks. I am relatively inexperienced as far as juggling debt goes. If it matters, the 401(k) account for both companies will be with the same lender on a similar-but-not-identical plan setup.
The answers thus far hit on our unwillingness to pay down debt. To forestall another post point out that debt is a choice (I agree, it is), I will lay out where our income is going.
My wife will not make a doctors salary until she has completed her 4 years of residency. Until then, our household income rests at roughly 120k USD annually (dependent on my overtime). Her student loans cost nearly 4,000 USD monthly, and our only consumer based debt is her car at under 400 USD monthly. We do use a joint credit card, but never beyond what we can pay off that month. Neither of us has ever owed or paid any interest on a credit card. The 401(k) loan in question costs 427 USD monthly; with a mortgage of just under 1,100 USD monthly, that puts the present (not future) cost of the decision to own a house at par with renting an equivalent apartment in the area.
united-states 401k credit
united-states 401k credit
asked 1 hour ago
GOATNine
1,264216
asked 1 hour ago
GOATNine
1,264216
edited 7 mins ago
asked 1 hour ago
GOATNine
1,264216
asked 1 hour ago
GOATNine
1,264216
asked 1 hour ago
GOATNine
1,264216
1,264216
I'm confused - so you have a 401(k) loan with a company that you've already left, or with the one you're considering leaving?
– D Stanley
56 mins ago
@DStanley As of this morning, just left. To clarify, I left Job 1 to move, got to job 2, then took out the 401(k) loan, and have just left job 2 to move on to job 3.
– GOATNine
37 mins ago
Can you rescind your resignation and hold out until the loan is paid off? That's the best move (financially).
– D Stanley
31 mins ago
Due to health concerns, that is not feasible. The position this company put me in is not sustainable. As I mentioned, there is a direct lack of skilled labor in my field, and this company decided to place me in a position well above my capabilities without sufficient support. The stress is resulting in trips to the urgent care (ulcers/insomnia/psychotic episodes). While I could remain, I imagine the eventual health bills will be far more expensive than the tax penalty.
– GOATNine
24 mins ago
add a comment |Â
I'm confused - so you have a 401(k) loan with a company that you've already left, or with the one you're considering leaving?
– D Stanley
56 mins ago
@DStanley As of this morning, just left. To clarify, I left Job 1 to move, got to job 2, then took out the 401(k) loan, and have just left job 2 to move on to job 3.
– GOATNine
37 mins ago
Can you rescind your resignation and hold out until the loan is paid off? That's the best move (financially).
– D Stanley
31 mins ago
Due to health concerns, that is not feasible. The position this company put me in is not sustainable. As I mentioned, there is a direct lack of skilled labor in my field, and this company decided to place me in a position well above my capabilities without sufficient support. The stress is resulting in trips to the urgent care (ulcers/insomnia/psychotic episodes). While I could remain, I imagine the eventual health bills will be far more expensive than the tax penalty.
– GOATNine
24 mins ago
I'm confused - so you have a 401(k) loan with a company that you've already left, or with the one you're considering leaving?
– D Stanley
56 mins ago
I'm confused - so you have a 401(k) loan with a company that you've already left, or with the one you're considering leaving?
– D Stanley
56 mins ago
@DStanley As of this morning, just left. To clarify, I left Job 1 to move, got to job 2, then took out the 401(k) loan, and have just left job 2 to move on to job 3.
– GOATNine
37 mins ago
@DStanley As of this morning, just left. To clarify, I left Job 1 to move, got to job 2, then took out the 401(k) loan, and have just left job 2 to move on to job 3.
– GOATNine
37 mins ago
Can you rescind your resignation and hold out until the loan is paid off? That's the best move (financially).
– D Stanley
31 mins ago
Can you rescind your resignation and hold out until the loan is paid off? That's the best move (financially).
– D Stanley
31 mins ago
Due to health concerns, that is not feasible. The position this company put me in is not sustainable. As I mentioned, there is a direct lack of skilled labor in my field, and this company decided to place me in a position well above my capabilities without sufficient support. The stress is resulting in trips to the urgent care (ulcers/insomnia/psychotic episodes). While I could remain, I imagine the eventual health bills will be far more expensive than the tax penalty.
– GOATNine
24 mins ago
Due to health concerns, that is not feasible. The position this company put me in is not sustainable. As I mentioned, there is a direct lack of skilled labor in my field, and this company decided to place me in a position well above my capabilities without sufficient support. The stress is resulting in trips to the urgent care (ulcers/insomnia/psychotic episodes). While I could remain, I imagine the eventual health bills will be far more expensive than the tax penalty.
– GOATNine
24 mins ago
add a comment |Â
2 Answers
2
active
oldest
votes
up vote
2
down vote
I would NOT "take the hit" and pay the taxes and penalty unless you had no other choice. That's effectively paying ~35% "interest" on the loan. The best financial decision is to use all but 1-2K of the emergency fund to pay off the 401(k) loan, then save like mad to build it back up. I would also not take out another 401(k) loan. Remember that with a 401(k) loan, the true cost is the opportunity cost of not having your money invested in the market, which can be upwards of 10-20% in bull markets. Plus as you know, if you leave your job, the loan is due in full, which can leave you in tight spots like you are in now.
Yes, using your emergency fund increases risk from the standpoint of not having a large emergency fund in cash, but with a decent credit score you can always borrow money later if you need to, or find other ways to deal with the emergency.
Finally, I would look at why you felt like you needed a loan in the first place. I get the sense that you've acted somewhat impulsively in the past, borrowing money to fund your actions without a real plan of paying it back or knowing what the true cost is. If this is a pattern that will continue, then that's fine, but I would build an even larger emergency fund to finance these decisions, rather then borrowing money and not having to deal with the consequences until later.
answered 32 mins ago
D Stanley
48k7145155
I understand and agree with the 401(k) loan being a huge cost in the future. The reason we decided it was the best course of action was our decision to switch from renting to owning. The housing market in our area had such a lack of inventory that even apartments were going for ~$1500 monthly per bedroom. The 401(k) loan was the only loan that flew under the radar as far as mortgage underwriting is concerned. It did not help that, despite planning for extra housing expenses, we only had ~3 months total after finding out what city we were moving to for securing housing.
– GOATNine
27 mins ago
Upvoted despite our disagreement in recommendation. However we both understand the core issue.
– Pete B.
19 mins ago
@GOATNine Can you find cheaper apartments in an area that's farther away? I really think you need to get these finances in order before buying a house or you'll just keep chasing bad decisions by making more bad decisions. I understand that things aren't perfect right now but perhaps some pain and sacrifice in the short term will get you out of this hole.
– D Stanley
13 mins ago
@DStanley I'm not looking for perfect. The area we are in is just that expensive. Apparently the population growth is on the order of 35-45 people daily here. The way residency works is on a match system, similar to if you were given exactly 1 job offer and told to take it or leave it. She could not have chosen a different location if she wanted to (this was her #1 location by ranking).
– GOATNine
4 mins ago
I'm not saying she should choose a different location. Can she have the same job but you rent an apartment 20-30 minutes farther way and save a few hundred dollars a month?
– D Stanley
2 mins ago
add a comment |Â
up vote
1
down vote
I'm not asking for a decision to be made for me, rather, I'd like to cover the pros and cons of each option to minimize my mistakes and risks.
This question is very much situation and personal dependent. What will your wife's new income be? How much student loan and other consumer debt are you carrying? Will your new area offer better salary opportunity or worse for you? Will you two live the "doctor lifestyle" now, or live well below your means to get debt paid off?
All of those things changes the calculus of risk versus cost.
However from your post I am assuming that it is your intent to now live the doctor lifestyle and not work on debt. I assume this because you are talking about defaulting on a 10k loan that needs to be paid back in about 6 months. I am assuming your household income is at least 150K/year.
The answer to this question, like many others in personal finance, comes down to one of behavior not math. You two are fully capable of paying down this loan in two months, let alone the 6 months that you actually have. It will be a matter of cutting your spending, getting on a written budget, and earning as much as possible. That 401K loan will be paid off in no time, and then you can work on other consumer debt.
If you two are not interested in doing that, I would recommend to "default" or pay the taxes on the 401K loan. It is highly inefficient cost wise, but as you said it reduces risk. You two will probably be giving such a large portion of your future income to banks the current costs really don't matter much.
answered 20 mins ago
Pete B.
47k1098149
1
For the next 4 years, the majority of our income will be going to her student debt. We will not be living the "doctor lifestyle". Even our decision to purchase a home as opposed to renting was due to the monthly cost rather than the desire to own. Neither of us has paid a penny of credit card interest ever, and our consumer debt is near 0 (her car being the only exception). Her student loans cost us slightly under 4,000 USD monthly, which is where the bulk of our expenses lie. After 4 years, she will be making a physicians salary, until then, we are under 120k household.
– GOATNine
16 mins ago
@GOATNine can't you defer student loans in residency? If so there is your solution. Defer for 2.5 months, use that 4k to pay off the 401K loan, then go back to the loans.
– Pete B.
9 mins ago
add a comment |Â
2 Answers
2
active
oldest
votes
2 Answers
2
active
oldest
votes
active
oldest
votes
active
oldest
votes
up vote
2
down vote
I would NOT "take the hit" and pay the taxes and penalty unless you had no other choice. That's effectively paying ~35% "interest" on the loan. The best financial decision is to use all but 1-2K of the emergency fund to pay off the 401(k) loan, then save like mad to build it back up. I would also not take out another 401(k) loan. Remember that with a 401(k) loan, the true cost is the opportunity cost of not having your money invested in the market, which can be upwards of 10-20% in bull markets. Plus as you know, if you leave your job, the loan is due in full, which can leave you in tight spots like you are in now.
Yes, using your emergency fund increases risk from the standpoint of not having a large emergency fund in cash, but with a decent credit score you can always borrow money later if you need to, or find other ways to deal with the emergency.
Finally, I would look at why you felt like you needed a loan in the first place. I get the sense that you've acted somewhat impulsively in the past, borrowing money to fund your actions without a real plan of paying it back or knowing what the true cost is. If this is a pattern that will continue, then that's fine, but I would build an even larger emergency fund to finance these decisions, rather then borrowing money and not having to deal with the consequences until later.
answered 32 mins ago
D Stanley
48k7145155
I understand and agree with the 401(k) loan being a huge cost in the future. The reason we decided it was the best course of action was our decision to switch from renting to owning. The housing market in our area had such a lack of inventory that even apartments were going for ~$1500 monthly per bedroom. The 401(k) loan was the only loan that flew under the radar as far as mortgage underwriting is concerned. It did not help that, despite planning for extra housing expenses, we only had ~3 months total after finding out what city we were moving to for securing housing.
– GOATNine
27 mins ago
Upvoted despite our disagreement in recommendation. However we both understand the core issue.
– Pete B.
19 mins ago
@GOATNine Can you find cheaper apartments in an area that's farther away? I really think you need to get these finances in order before buying a house or you'll just keep chasing bad decisions by making more bad decisions. I understand that things aren't perfect right now but perhaps some pain and sacrifice in the short term will get you out of this hole.
– D Stanley
13 mins ago
@DStanley I'm not looking for perfect. The area we are in is just that expensive. Apparently the population growth is on the order of 35-45 people daily here. The way residency works is on a match system, similar to if you were given exactly 1 job offer and told to take it or leave it. She could not have chosen a different location if she wanted to (this was her #1 location by ranking).
– GOATNine
4 mins ago
I'm not saying she should choose a different location. Can she have the same job but you rent an apartment 20-30 minutes farther way and save a few hundred dollars a month?
– D Stanley
2 mins ago
add a comment |Â
up vote
2
down vote
I would NOT "take the hit" and pay the taxes and penalty unless you had no other choice. That's effectively paying ~35% "interest" on the loan. The best financial decision is to use all but 1-2K of the emergency fund to pay off the 401(k) loan, then save like mad to build it back up. I would also not take out another 401(k) loan. Remember that with a 401(k) loan, the true cost is the opportunity cost of not having your money invested in the market, which can be upwards of 10-20% in bull markets. Plus as you know, if you leave your job, the loan is due in full, which can leave you in tight spots like you are in now.
Yes, using your emergency fund increases risk from the standpoint of not having a large emergency fund in cash, but with a decent credit score you can always borrow money later if you need to, or find other ways to deal with the emergency.
Finally, I would look at why you felt like you needed a loan in the first place. I get the sense that you've acted somewhat impulsively in the past, borrowing money to fund your actions without a real plan of paying it back or knowing what the true cost is. If this is a pattern that will continue, then that's fine, but I would build an even larger emergency fund to finance these decisions, rather then borrowing money and not having to deal with the consequences until later.
answered 32 mins ago
D Stanley
48k7145155
I understand and agree with the 401(k) loan being a huge cost in the future. The reason we decided it was the best course of action was our decision to switch from renting to owning. The housing market in our area had such a lack of inventory that even apartments were going for ~$1500 monthly per bedroom. The 401(k) loan was the only loan that flew under the radar as far as mortgage underwriting is concerned. It did not help that, despite planning for extra housing expenses, we only had ~3 months total after finding out what city we were moving to for securing housing.
– GOATNine
27 mins ago
Upvoted despite our disagreement in recommendation. However we both understand the core issue.
– Pete B.
19 mins ago
@GOATNine Can you find cheaper apartments in an area that's farther away? I really think you need to get these finances in order before buying a house or you'll just keep chasing bad decisions by making more bad decisions. I understand that things aren't perfect right now but perhaps some pain and sacrifice in the short term will get you out of this hole.
– D Stanley
13 mins ago
@DStanley I'm not looking for perfect. The area we are in is just that expensive. Apparently the population growth is on the order of 35-45 people daily here. The way residency works is on a match system, similar to if you were given exactly 1 job offer and told to take it or leave it. She could not have chosen a different location if she wanted to (this was her #1 location by ranking).
– GOATNine
4 mins ago
I'm not saying she should choose a different location. Can she have the same job but you rent an apartment 20-30 minutes farther way and save a few hundred dollars a month?
– D Stanley
2 mins ago
add a comment |Â
up vote
2
down vote
up vote
2
down vote
I would NOT "take the hit" and pay the taxes and penalty unless you had no other choice. That's effectively paying ~35% "interest" on the loan. The best financial decision is to use all but 1-2K of the emergency fund to pay off the 401(k) loan, then save like mad to build it back up. I would also not take out another 401(k) loan. Remember that with a 401(k) loan, the true cost is the opportunity cost of not having your money invested in the market, which can be upwards of 10-20% in bull markets. Plus as you know, if you leave your job, the loan is due in full, which can leave you in tight spots like you are in now.
Yes, using your emergency fund increases risk from the standpoint of not having a large emergency fund in cash, but with a decent credit score you can always borrow money later if you need to, or find other ways to deal with the emergency.
Finally, I would look at why you felt like you needed a loan in the first place. I get the sense that you've acted somewhat impulsively in the past, borrowing money to fund your actions without a real plan of paying it back or knowing what the true cost is. If this is a pattern that will continue, then that's fine, but I would build an even larger emergency fund to finance these decisions, rather then borrowing money and not having to deal with the consequences until later.
answered 32 mins ago
D Stanley
48k7145155
I would NOT "take the hit" and pay the taxes and penalty unless you had no other choice. That's effectively paying ~35% "interest" on the loan. The best financial decision is to use all but 1-2K of the emergency fund to pay off the 401(k) loan, then save like mad to build it back up. I would also not take out another 401(k) loan. Remember that with a 401(k) loan, the true cost is the opportunity cost of not having your money invested in the market, which can be upwards of 10-20% in bull markets. Plus as you know, if you leave your job, the loan is due in full, which can leave you in tight spots like you are in now.
Yes, using your emergency fund increases risk from the standpoint of not having a large emergency fund in cash, but with a decent credit score you can always borrow money later if you need to, or find other ways to deal with the emergency.
Finally, I would look at why you felt like you needed a loan in the first place. I get the sense that you've acted somewhat impulsively in the past, borrowing money to fund your actions without a real plan of paying it back or knowing what the true cost is. If this is a pattern that will continue, then that's fine, but I would build an even larger emergency fund to finance these decisions, rather then borrowing money and not having to deal with the consequences until later.
answered 32 mins ago
D Stanley
48k7145155
answered 32 mins ago
D Stanley
48k7145155
answered 32 mins ago
D Stanley
48k7145155
answered 32 mins ago
D Stanley
48k7145155
48k7145155
I understand and agree with the 401(k) loan being a huge cost in the future. The reason we decided it was the best course of action was our decision to switch from renting to owning. The housing market in our area had such a lack of inventory that even apartments were going for ~$1500 monthly per bedroom. The 401(k) loan was the only loan that flew under the radar as far as mortgage underwriting is concerned. It did not help that, despite planning for extra housing expenses, we only had ~3 months total after finding out what city we were moving to for securing housing.
– GOATNine
27 mins ago
Upvoted despite our disagreement in recommendation. However we both understand the core issue.
– Pete B.
19 mins ago
@GOATNine Can you find cheaper apartments in an area that's farther away? I really think you need to get these finances in order before buying a house or you'll just keep chasing bad decisions by making more bad decisions. I understand that things aren't perfect right now but perhaps some pain and sacrifice in the short term will get you out of this hole.
– D Stanley
13 mins ago
@DStanley I'm not looking for perfect. The area we are in is just that expensive. Apparently the population growth is on the order of 35-45 people daily here. The way residency works is on a match system, similar to if you were given exactly 1 job offer and told to take it or leave it. She could not have chosen a different location if she wanted to (this was her #1 location by ranking).
– GOATNine
4 mins ago
I'm not saying she should choose a different location. Can she have the same job but you rent an apartment 20-30 minutes farther way and save a few hundred dollars a month?
– D Stanley
2 mins ago
add a comment |Â
I understand and agree with the 401(k) loan being a huge cost in the future. The reason we decided it was the best course of action was our decision to switch from renting to owning. The housing market in our area had such a lack of inventory that even apartments were going for ~$1500 monthly per bedroom. The 401(k) loan was the only loan that flew under the radar as far as mortgage underwriting is concerned. It did not help that, despite planning for extra housing expenses, we only had ~3 months total after finding out what city we were moving to for securing housing.
– GOATNine
27 mins ago
Upvoted despite our disagreement in recommendation. However we both understand the core issue.
– Pete B.
19 mins ago
@GOATNine Can you find cheaper apartments in an area that's farther away? I really think you need to get these finances in order before buying a house or you'll just keep chasing bad decisions by making more bad decisions. I understand that things aren't perfect right now but perhaps some pain and sacrifice in the short term will get you out of this hole.
– D Stanley
13 mins ago
@DStanley I'm not looking for perfect. The area we are in is just that expensive. Apparently the population growth is on the order of 35-45 people daily here. The way residency works is on a match system, similar to if you were given exactly 1 job offer and told to take it or leave it. She could not have chosen a different location if she wanted to (this was her #1 location by ranking).
– GOATNine
4 mins ago
I'm not saying she should choose a different location. Can she have the same job but you rent an apartment 20-30 minutes farther way and save a few hundred dollars a month?
– D Stanley
2 mins ago
I understand and agree with the 401(k) loan being a huge cost in the future. The reason we decided it was the best course of action was our decision to switch from renting to owning. The housing market in our area had such a lack of inventory that even apartments were going for ~$1500 monthly per bedroom. The 401(k) loan was the only loan that flew under the radar as far as mortgage underwriting is concerned. It did not help that, despite planning for extra housing expenses, we only had ~3 months total after finding out what city we were moving to for securing housing.
– GOATNine
27 mins ago
I understand and agree with the 401(k) loan being a huge cost in the future. The reason we decided it was the best course of action was our decision to switch from renting to owning. The housing market in our area had such a lack of inventory that even apartments were going for ~$1500 monthly per bedroom. The 401(k) loan was the only loan that flew under the radar as far as mortgage underwriting is concerned. It did not help that, despite planning for extra housing expenses, we only had ~3 months total after finding out what city we were moving to for securing housing.
– GOATNine
27 mins ago
Upvoted despite our disagreement in recommendation. However we both understand the core issue.
– Pete B.
19 mins ago
Upvoted despite our disagreement in recommendation. However we both understand the core issue.
– Pete B.
19 mins ago
@GOATNine Can you find cheaper apartments in an area that's farther away? I really think you need to get these finances in order before buying a house or you'll just keep chasing bad decisions by making more bad decisions. I understand that things aren't perfect right now but perhaps some pain and sacrifice in the short term will get you out of this hole.
– D Stanley
13 mins ago
@GOATNine Can you find cheaper apartments in an area that's farther away? I really think you need to get these finances in order before buying a house or you'll just keep chasing bad decisions by making more bad decisions. I understand that things aren't perfect right now but perhaps some pain and sacrifice in the short term will get you out of this hole.
– D Stanley
13 mins ago
@DStanley I'm not looking for perfect. The area we are in is just that expensive. Apparently the population growth is on the order of 35-45 people daily here. The way residency works is on a match system, similar to if you were given exactly 1 job offer and told to take it or leave it. She could not have chosen a different location if she wanted to (this was her #1 location by ranking).
– GOATNine
4 mins ago
@DStanley I'm not looking for perfect. The area we are in is just that expensive. Apparently the population growth is on the order of 35-45 people daily here. The way residency works is on a match system, similar to if you were given exactly 1 job offer and told to take it or leave it. She could not have chosen a different location if she wanted to (this was her #1 location by ranking).
– GOATNine
4 mins ago
I'm not saying she should choose a different location. Can she have the same job but you rent an apartment 20-30 minutes farther way and save a few hundred dollars a month?
– D Stanley
2 mins ago
I'm not saying she should choose a different location. Can she have the same job but you rent an apartment 20-30 minutes farther way and save a few hundred dollars a month?
– D Stanley
2 mins ago
add a comment |Â
up vote
1
down vote
I'm not asking for a decision to be made for me, rather, I'd like to cover the pros and cons of each option to minimize my mistakes and risks.
This question is very much situation and personal dependent. What will your wife's new income be? How much student loan and other consumer debt are you carrying? Will your new area offer better salary opportunity or worse for you? Will you two live the "doctor lifestyle" now, or live well below your means to get debt paid off?
All of those things changes the calculus of risk versus cost.
However from your post I am assuming that it is your intent to now live the doctor lifestyle and not work on debt. I assume this because you are talking about defaulting on a 10k loan that needs to be paid back in about 6 months. I am assuming your household income is at least 150K/year.
The answer to this question, like many others in personal finance, comes down to one of behavior not math. You two are fully capable of paying down this loan in two months, let alone the 6 months that you actually have. It will be a matter of cutting your spending, getting on a written budget, and earning as much as possible. That 401K loan will be paid off in no time, and then you can work on other consumer debt.
If you two are not interested in doing that, I would recommend to "default" or pay the taxes on the 401K loan. It is highly inefficient cost wise, but as you said it reduces risk. You two will probably be giving such a large portion of your future income to banks the current costs really don't matter much.
answered 20 mins ago
Pete B.
47k1098149
1
For the next 4 years, the majority of our income will be going to her student debt. We will not be living the "doctor lifestyle". Even our decision to purchase a home as opposed to renting was due to the monthly cost rather than the desire to own. Neither of us has paid a penny of credit card interest ever, and our consumer debt is near 0 (her car being the only exception). Her student loans cost us slightly under 4,000 USD monthly, which is where the bulk of our expenses lie. After 4 years, she will be making a physicians salary, until then, we are under 120k household.
– GOATNine
16 mins ago
@GOATNine can't you defer student loans in residency? If so there is your solution. Defer for 2.5 months, use that 4k to pay off the 401K loan, then go back to the loans.
– Pete B.
9 mins ago
add a comment |Â
up vote
1
down vote
I'm not asking for a decision to be made for me, rather, I'd like to cover the pros and cons of each option to minimize my mistakes and risks.
This question is very much situation and personal dependent. What will your wife's new income be? How much student loan and other consumer debt are you carrying? Will your new area offer better salary opportunity or worse for you? Will you two live the "doctor lifestyle" now, or live well below your means to get debt paid off?
All of those things changes the calculus of risk versus cost.
However from your post I am assuming that it is your intent to now live the doctor lifestyle and not work on debt. I assume this because you are talking about defaulting on a 10k loan that needs to be paid back in about 6 months. I am assuming your household income is at least 150K/year.
The answer to this question, like many others in personal finance, comes down to one of behavior not math. You two are fully capable of paying down this loan in two months, let alone the 6 months that you actually have. It will be a matter of cutting your spending, getting on a written budget, and earning as much as possible. That 401K loan will be paid off in no time, and then you can work on other consumer debt.
If you two are not interested in doing that, I would recommend to "default" or pay the taxes on the 401K loan. It is highly inefficient cost wise, but as you said it reduces risk. You two will probably be giving such a large portion of your future income to banks the current costs really don't matter much.
answered 20 mins ago
Pete B.
47k1098149
1
For the next 4 years, the majority of our income will be going to her student debt. We will not be living the "doctor lifestyle". Even our decision to purchase a home as opposed to renting was due to the monthly cost rather than the desire to own. Neither of us has paid a penny of credit card interest ever, and our consumer debt is near 0 (her car being the only exception). Her student loans cost us slightly under 4,000 USD monthly, which is where the bulk of our expenses lie. After 4 years, she will be making a physicians salary, until then, we are under 120k household.
– GOATNine
16 mins ago
@GOATNine can't you defer student loans in residency? If so there is your solution. Defer for 2.5 months, use that 4k to pay off the 401K loan, then go back to the loans.
– Pete B.
9 mins ago
add a comment |Â
up vote
1
down vote
up vote
1
down vote
I'm not asking for a decision to be made for me, rather, I'd like to cover the pros and cons of each option to minimize my mistakes and risks.
This question is very much situation and personal dependent. What will your wife's new income be? How much student loan and other consumer debt are you carrying? Will your new area offer better salary opportunity or worse for you? Will you two live the "doctor lifestyle" now, or live well below your means to get debt paid off?
All of those things changes the calculus of risk versus cost.
However from your post I am assuming that it is your intent to now live the doctor lifestyle and not work on debt. I assume this because you are talking about defaulting on a 10k loan that needs to be paid back in about 6 months. I am assuming your household income is at least 150K/year.
The answer to this question, like many others in personal finance, comes down to one of behavior not math. You two are fully capable of paying down this loan in two months, let alone the 6 months that you actually have. It will be a matter of cutting your spending, getting on a written budget, and earning as much as possible. That 401K loan will be paid off in no time, and then you can work on other consumer debt.
If you two are not interested in doing that, I would recommend to "default" or pay the taxes on the 401K loan. It is highly inefficient cost wise, but as you said it reduces risk. You two will probably be giving such a large portion of your future income to banks the current costs really don't matter much.
answered 20 mins ago
Pete B.
47k1098149
I'm not asking for a decision to be made for me, rather, I'd like to cover the pros and cons of each option to minimize my mistakes and risks.
This question is very much situation and personal dependent. What will your wife's new income be? How much student loan and other consumer debt are you carrying? Will your new area offer better salary opportunity or worse for you? Will you two live the "doctor lifestyle" now, or live well below your means to get debt paid off?
All of those things changes the calculus of risk versus cost.
However from your post I am assuming that it is your intent to now live the doctor lifestyle and not work on debt. I assume this because you are talking about defaulting on a 10k loan that needs to be paid back in about 6 months. I am assuming your household income is at least 150K/year.
The answer to this question, like many others in personal finance, comes down to one of behavior not math. You two are fully capable of paying down this loan in two months, let alone the 6 months that you actually have. It will be a matter of cutting your spending, getting on a written budget, and earning as much as possible. That 401K loan will be paid off in no time, and then you can work on other consumer debt.
If you two are not interested in doing that, I would recommend to "default" or pay the taxes on the 401K loan. It is highly inefficient cost wise, but as you said it reduces risk. You two will probably be giving such a large portion of your future income to banks the current costs really don't matter much.
answered 20 mins ago
Pete B.
47k1098149
answered 20 mins ago
Pete B.
47k1098149
answered 20 mins ago
Pete B.
47k1098149
answered 20 mins ago
Pete B.
47k1098149
47k1098149
1
For the next 4 years, the majority of our income will be going to her student debt. We will not be living the "doctor lifestyle". Even our decision to purchase a home as opposed to renting was due to the monthly cost rather than the desire to own. Neither of us has paid a penny of credit card interest ever, and our consumer debt is near 0 (her car being the only exception). Her student loans cost us slightly under 4,000 USD monthly, which is where the bulk of our expenses lie. After 4 years, she will be making a physicians salary, until then, we are under 120k household.
– GOATNine
16 mins ago
@GOATNine can't you defer student loans in residency? If so there is your solution. Defer for 2.5 months, use that 4k to pay off the 401K loan, then go back to the loans.
– Pete B.
9 mins ago
add a comment |Â
1
For the next 4 years, the majority of our income will be going to her student debt. We will not be living the "doctor lifestyle". Even our decision to purchase a home as opposed to renting was due to the monthly cost rather than the desire to own. Neither of us has paid a penny of credit card interest ever, and our consumer debt is near 0 (her car being the only exception). Her student loans cost us slightly under 4,000 USD monthly, which is where the bulk of our expenses lie. After 4 years, she will be making a physicians salary, until then, we are under 120k household.
– GOATNine
16 mins ago
@GOATNine can't you defer student loans in residency? If so there is your solution. Defer for 2.5 months, use that 4k to pay off the 401K loan, then go back to the loans.
– Pete B.
9 mins ago
1
1
For the next 4 years, the majority of our income will be going to her student debt. We will not be living the "doctor lifestyle". Even our decision to purchase a home as opposed to renting was due to the monthly cost rather than the desire to own. Neither of us has paid a penny of credit card interest ever, and our consumer debt is near 0 (her car being the only exception). Her student loans cost us slightly under 4,000 USD monthly, which is where the bulk of our expenses lie. After 4 years, she will be making a physicians salary, until then, we are under 120k household.
– GOATNine
16 mins ago
For the next 4 years, the majority of our income will be going to her student debt. We will not be living the "doctor lifestyle". Even our decision to purchase a home as opposed to renting was due to the monthly cost rather than the desire to own. Neither of us has paid a penny of credit card interest ever, and our consumer debt is near 0 (her car being the only exception). Her student loans cost us slightly under 4,000 USD monthly, which is where the bulk of our expenses lie. After 4 years, she will be making a physicians salary, until then, we are under 120k household.
– GOATNine
16 mins ago
@GOATNine can't you defer student loans in residency? If so there is your solution. Defer for 2.5 months, use that 4k to pay off the 401K loan, then go back to the loans.
– Pete B.
9 mins ago
@GOATNine can't you defer student loans in residency? If so there is your solution. Defer for 2.5 months, use that 4k to pay off the 401K loan, then go back to the loans.
– Pete B.
9 mins ago
add a comment |Â
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I'm confused - so you have a 401(k) loan with a company that you've already left, or with the one you're considering leaving?
– D Stanley
56 mins ago
@DStanley As of this morning, just left. To clarify, I left Job 1 to move, got to job 2, then took out the 401(k) loan, and have just left job 2 to move on to job 3.
– GOATNine
37 mins ago
Can you rescind your resignation and hold out until the loan is paid off? That's the best move (financially).
– D Stanley
31 mins ago
Due to health concerns, that is not feasible. The position this company put me in is not sustainable. As I mentioned, there is a direct lack of skilled labor in my field, and this company decided to place me in a position well above my capabilities without sufficient support. The stress is resulting in trips to the urgent care (ulcers/insomnia/psychotic episodes). While I could remain, I imagine the eventual health bills will be far more expensive than the tax penalty.
– GOATNine
24 mins ago