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Rosseau | Should I take out money from my 401K to pay off my timeshare? ? |
I have $20,000+ in my 401K account. I bought a timeshare with an ex-boyfriend five years ago. (I know, I know)
Monthly payment: $168
Interest: 17%
Will be paid-off in 10 years. I have five more years to go.
Current balance: $6, 235.64 (amount left that I need to pay)
I've been paying the minimum every year for five years. I don't know why, but I just realized that I should try to pay this timeshare off as quickly as possible. Using Karl's Mortgage Calculator, my total interest would be 50.25% after everything is paid off!!
Should I take out the money from my 401K plan? The interest rate is 5% and I can try to pay it off within one-two years. There's no penalty if I pay it off early.
Additional Details
Update: Thank you all for the advice! I am still considering taking out a loan, but my main concern is security. What if I lose my job, then I'd have to pay off what I owe withing 30 days. That will be tough. The other option is to pay at least $540 a month in order to pay it off in a year. I might just do that?
In addition, it's so hard to sell a timeshare. I don't know how people do it. My timeshare is in West Palm Beach, FL and there are nicer timeshares. I will try eBay and see what is available to me. |
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digdowndeepnseattle
|
since you are talking about an interest rate on taking money from the 401k I would assume that you are talking about a 401k loan. This is a personal decision based upon expected returns and your job security. Given current market conditions that 5% return isn't bad (better than bond income) so by that nature it wouldn't be bad. However, history shows that when markets turn the turn quickly and hard...ie the market will shoot up and get most of their gains in the first 8-12 months. So, if you stretch that loan period out too long you may miss the boat. And, generally the market will lead the economy (ie market performs well before the economy begins recovering).
That being said..if you leave the loan term rate under 2 years you shouldn't do too much damage to your 401k IF YOU PAY IT ALL BACK. Which leads to the second point. You can't quit or lose your job while a loan is outstanding without the loan becoming immediately due and taxable. If you get a new job and the employer will allow a loan rollover you can avoid being taxed and penalized but not many employers will allow that. Not something to bank on.
so...up to you. Personally? I'd only do it if I was using the timeshare now and intended to use it in the future. Otherwise I'd sell it rather than risk the negative consequences. |
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v b
|
There are 3 ways to take money from the 401K.
1. Quit your job and cash it out (not recommended and expensive on taxes).
2. Hardship withdrawal (difficult to qualify for and expensive on taxes).
3. Loan. Does not cause a tax bill.
I believe our poster is asking about a loan. It's her choice.
One major downside of the loan is if you lose your job (I've known this to happen to people) before you can it pay it back. The 401K admin will give you something like 30 days to pay it in full or it will count as a distribution. |
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debtairraid
|
Great question.
First of all, you don't want to make a huge financial mistake and pay penalties for withdrawing money early from your 401K. That's worse than paying 17% interest.
Second, you may not agree, but I would sell the timeshare on eBay. Hopefully it is a timeshare in a desirable location. You may not get the balance owed on your loan, so work out a personal loan with your bank to be ready to pay off the difference.
Get out of the timeshare business all together. It is eating up all of your resources. You are paying $2016 per year in payments alone, plus your maintenance, taxes, and RCI dues, etc which are usually $600-$700 per year. It is costing you almost $3,000 per year for a one week vacation! Once you are free from all of that financial burden, you shouldn't have trouble getting rid of the balance.
Now you may say, but I like timeshares. Simple solution. Rent one. I rent a timeshare every year (one week) for around $300-$400. That's cheaper than the maintenance and taxes!! There are so many people out there who own them and don't use them, so they rent to recoup part of their annual dues just to stay ahead and not lose money.
Get out of that thing while you can!
PS - Many timeshares are deeded. You may need to see if your ex-boyfriend's name is on the deed. He would have to sign if you sell it. |
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mt_pelion
 |
You do realize that there are hefty penalties for withdrawing 401(k) money before you retire, right?
If you can get a loan from your 401(k) then that may be a much better idea since the interest you would be paying to yourself would be yours (and your return would be much higher than most people's in this economy). |
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Doctor Deth
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you mean a loan from your 401k plan? I can't believe the int rate is only 5%. 7-9% is more normal. the only way you would be able to pay it off in 2 yrs is if you pay about $270+ a month - can you live with that high of a payment-once you set the length of the loan - you cannot adjust it. That's a $100 per month LESS in your paycheck. |
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Shieldgambit
 |
yes |
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danna_bill@sbcglobal.net
 |
Why wasn't your xboy friend don"t help with this? Do you ever use it? If not Try to sell it. Good Luck |
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Question man
 |
NO!!! taking money from ur 401 is not only dumb, but very costly (look into it if u haven't already) ...if i were u, i try to do it some other way.. |
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chip.munk077
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If you are currently working at the employer where you have your 401k, you might try taking out a loan against your 401k. mine will let me pay it back with payroll deduction. if you have a website for your 401k, you might try to see if it has a loan calculator. another option may be to try to sell the timeshare. this may not be the greatest time to sell, but it may not hurt to try. i think there are places that specialize in selling timeshares, but i don't know what or how they charge. |
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M W
|
Assuming that the timeshare has value, the answer is maybe. Keep in mind that you must pay income taxes on 401K withdrawals. Also make sure that you can pay it all and not need to pay the interest too. As stupid as that may sound, many debtors require you to pay principal and interest no matter what (when). So there would be zero advantage, thus no do not pay early. |
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src50
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First, you may not be allowed to do that, even as a loan. Review your particular plan provisions. Second, you will pay 10% penalty plus income tax on the gross withdrawal. Third, it will set your retirement investing back. Not a good idea. |
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andy
 |
The only way that I would do what you are suggesting is if that timeshare would put money into your pocket. I would find other ways to pay it off early. Most financial experts should suggest the same thing. |
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tntsolid
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Definitely not!!
Timeshare is for people with NO FINANCIAL problems.
What is the point of paying it off when you won't be able to travel in the future (I mean if you can't afford to pay it off on your own what makes you think you will be able to travel?) you will only get stuck with the maintenance fees; just get rid of the timeshare, don't take money that secures your future to secure a program that doesn't make financial sense for your lifestyle.
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