Guest Author - Vannie Ryanes
Your family needs money. They need it now. Should you borrow from your retirement account at work? If it is not a life or death situation you should think very carefully before doing so.
As someone who has done this, I feel very fortunate that I was able to repay my loan and get my full monetary benefit upon retiring from my workplace. Actually, I borrowed against my retirement fund twice, both times it was to pay off credit card debt. The fact that I borrowed a second loan after repaying the first, tells you that "borrowing from Peter to Paul" does not always work when it comes to borrowing money to pay off credit card debt.
I was among fortunate pension/retirement fund borrowers; I was able to repay my loans and get rid of credit card debt. I have found that life has a way of not following our plans, so give serious thought before you touch your retirement money. Also, some retirement plans only allow borrowing under special circumstances, you would have to check with your employer for details.
Something to think about before you borrow from retirement monies:
___/ You will have less money in your paycheck. Generally you return the money or repay through payroll deductions directly from your paycheck. If your paycheck is budgeted to the last dollar, it will be difficult to live on the money you will now be bringing home.
___/ If you are borrowing money to pay off credit debts, try to work out a deal with your creditors before touching your retirement money.
___/ Repaying your loan can take a year or more. This can put additional strain on family finances. You must be prepared to live on less. If you have used the money to pay credit card bills, you should not use those credit cards or you will find yourself in a worse financial situation.
___/ If you are considering leaving your present job, remember that you must repay the loan before you leave. Therefore, you may not be able to take advantage of job offers until your account is paid in full. Of course you may decide to leave your job without paying off the loan. Keep in mind that your retirement monies will be forever reduced from that particular company.
___/ Before you borrow, know the interest rate. Borrowing from your retirement may be easy and feel painless however, if you are paying a high interest rate you may be solving a short term financial problem, but may be borrowing long term trouble. Check out other sources before you borrow from your retirement fund.
If you are in the U.S., you can find more information about retirement funds at U.S. Department of Labor Employee Benefits Security Administration at What You Should Know About Your Retirement Plan.
I am recommending two books that can help you get on the right financial track, both are from Suze Orman and can be found at Amazon.com below. If your budget only allows for one purchase, Orman's The 9 Steps to Financial Freedom is a must have. Check out your local library, they may have these books.
The 9 Steps to Financial Freedom: Practical and Spiritual Steps So You Can Stop Worrying and Women & Money: Owning the Power to Control Your Destiny