The good news is our monthly billing for our electric and gas is going down by $5/month. They dropped it by $17 a month ago and now another $5! Of course, they are overbilling us...right now we have nearly a $300 credit.
The bad news is about a friend. A friend I've known for over 20 years. She and her husband are taking out a 401k loan. No! Say it isn't so. But it is.
She asked me very briefly on Monday what I thought about it. I don't know any numbers...except they have a lot of credit card debts and they are getting hard to manage. I guess I have one number: they are pulling from their line of credit every month to the tune of $500-$700 per month. I guess they pay this back each month.
About 3-4 years ago they took out a home equity loan to pay off all their bills. She was thrilled at the time since they would all be paid off in 5 years. She feels the same way about the 401K loan. It will all be paid off in 5 years. True, but at what cost. At what risk? And what lesson is learned when you move debt around?
I did a little reading after talking to her. Loans from a 401K loan are paid back with after tax dollars...and then when you pull the money out in retirement you are taxed again! Yep, double taxation. Ugh.
I was honest in my conversation that it would be important to get spending under control...so they don't end up at this same spot 3 years from now. She completely agreed and mentioned a credit card cutting party. She might even put them in a jar as a reminder. I hope so. I so very hope so!
Good News Bad News
October 7th, 2009 at 02:33 pm
October 7th, 2009 at 02:45 pm 1254926750
I guess that's a different story though, because my friend's wife knew how bad it is to resort to something like this. It's also the only example I know of where, after hearing their numbers, I also thought it was justified to take out a 401(k) loan. They have it paid off now by the way.
I agree, 401(k) is pretty much never a good idea. But... I think that's because people who take it out may not grasp the gravity of the situation when they do so. They may see this as another cheap way to borrow money, and that attitude is what I think makes it so dangerous.
Hopefully, your friend will have this paid off soon.
October 7th, 2009 at 02:46 pm 1254926779
October 7th, 2009 at 02:59 pm 1254927584
October 7th, 2009 at 03:04 pm 1254927884
Merch...great suggestion. I know I've mentioned it in the past, but I guess I need to bring it up again. I think she trusts my judgement, but never seems to take my advice. Hmmm...maybe she doesn't trust me.
BA...I think on some level they know the gravity of the situation. I hope it does work out. In five years, we'll know!
October 7th, 2009 at 05:00 pm 1254934832
October 8th, 2009 at 12:17 am 1254961077
October 8th, 2009 at 12:23 am 1254961403