The average credit card balance in June 2015 was $15,706, down from its peak of $18,600 in 2009.¹ With the average credit card annual percentage rate sitting at 14.9%, it represents an expensive way to fund spending.²
Which leads many individuals to ask, “Does it make sense to borrow from my 401(k) to pay off debt or to make a major purchase?”³
Borrowing from Your 401(k)
- No Credit Check—If you have trouble getting credit, borrowing from a 401(k) requires no credit check; so as long as your 401(k) permits loans, you should be able to borrow.
- More Convenient—Borrowing from your 401(k) usually requires less paperwork and is quicker than the alternative.
- Competitive Interest Rates—While the rate you pay depends upon the terms your 401(k) sets out, the rate is typically lower than the rate you will pay on personal loans or through a credit card. Plus, the interest you pay will be to yourself rather than to a finance company.