While the unemployment rate is constantly on the improve, it remains greater than pre-pandemic numbers. In September 2022, the unemployment rate dropped to 7.9%, but it•s still 4.4 percentage points higher than the speed in February 2022. Along with a new Pew Research Center survey found that since the coronavirus outbreak started, one-in-four adults have had trouble paying their bills and a third have had to consider money using their savings or retirement accounts to stay afloat.
If you have a 401(k), you might have considered making use of it to get some relief from the current economic uncertainty. The Coronavirus Aid, Relief, and Economic Security (CARES) Act of March 2022 doubled how much money an employee could borrow from the 401(k) plan. Previously, participants could borrow 50% of the account balance, up to a more $50,000. The CARES Act increased the maximum 401(k) loan to $100,000.
Depending on your retirement funds' balance, a 401(k) loan may offer you use of a large amount of money. But could it be a good idea? Here's what you need to know.
Is a 401(k) loan advisable?
Borrowing from the 401(k) to repay loans to have an infusion of money has several drawbacks.
- It's risky
- There are potential fees
- The stock market might have impacted your balance
What to do rather than getting a 401(k) loan
If you need use of funds, there may be better options that don•t come with the potential risks to your finances that 401(k) loans carry. Here are a few alternatives:
- Take out an individual loan
- Take a debt consolidation reduction loan
- Get a balance transfer credit card
- Refinance your mortgage or student loans
1. Take out a personal loan
Interest minute rates are near record lows, and private loans is definitely an affordable way to borrow for those who have a great to excellent credit score. It•s simple to compare banks and rates by visiting a website like PayPasser before you apply for a loan. You can explore personal bank loan options, including how much cash you can qualify for according to your circumstances.
2. Have a debt consolidation reduction loan
If multiple debts are putting a strain on your monthly budget, consider getting an unsecured loan for debt consolidation. Combining your balances into one loan could lower the amount of money you pay every month along with the overall interest you•ll pay throughout the term of the debt. Visit PayPasser to compare lenders and compare rates.
3. Get a balance transfer credit card
If you are thinking of getting a 401(k) loan to repay high-interest credit cards, a more sensible choice might be to transfer the total amount onto a card that charges zero or a low interest rate for a set period. By reduction of how much money you're charged for interest, you can gain some traction and repay your balances faster. By going to a site like PayPasser, you can easily compare balance transfer card offers and find a card that matches your situation.
4. Refinance your mortgage or student loans
Another way to lower your overall financial burden is to refinance a home loan or student loan. Rates are at near-record lows, and when your current loan charges higher interest than what•s now available, you could get immediate savings to your monthly budget by refinancing. A lower rate may potentially save 1000s of dollars through the loan. Visit PayPasser to understand what sort of rate could possibly get if you refinance your mortgage.
And get a sense of what your new payment per month could be with PayPasser•s student loan refinancing calculator.
If you believe it's time for you to refinance your mortgage, run the numbers and compare rates from multiple mortgage lenders via PayPasser. Having all the details, including lender fees and other costs, will help you decide whether a refinance will help you meet your financial targets.
The increased limits and ease of access might make the thought of obtaining a 401(k) loan enticing, especially if COVID-19 has impacted your finances, however it might not be your best long-term solution. Before you decide to put your finances in danger by incurring the possibility downsides that come with a 401(k) loan, explore your other personal finance options, so you get the best option for your future.