Hey guys i have an offer for a 2nd mortgage to consolidate some cc debt as well as pay off some other debt that is set up in a credit card counseling program. I don’t like the idea of a 2nd mortgage but this sounds pretty good because i can set it up to be paid in 6 years. I’m doing fine in the debt counseling program but it doesn’t cover this other debt that i have. Here are my two options. Which one looks better to you:
1) Continue with Credit Counseling:
Payment of $330 to be paid off in 4 years (balance is $12,186)this is with cc counseling.
other cc debt of $4200. I can get a loan against my 401k at work and make payments of $102 for 4 years. (interest 9.9 or 9.2 interse paid goes back into my 401k when paid off) TOTAL PAYMENT = $432.
2) Mortgage Co.
Payment would be $390.16 for 6 years for loan of $16,386.00 (interest 15.5 but i don’t really understand how mortgage interest rate is calculated) Total payment $390. Or i can go for 7 year payoff on this for Total payment of $355.
I realize it’s only a $42 difference and the credit counseling and the other loan for 4 years looks like the best option but i want to be sure I’m not missing something. With the mortgage co. i could do 7 years and not be under as much pressure to make the big payments but I’m trying to pay this off quickly and I’m already making the $330 every month anyway. I guess I’m just looking for assurance since I’ve made so many dumb mistakes in the past. Any advice would be appreciated.
I wouldn’t borrow from my 401K. I used to do it all the time and then recently I found out that by doing that, I was subjecting myself to double taxation. You are paying the money back with after tax money and then you’ll pay taxes again on it when you withdraw it at retirement. Also, if the worse happened and you lost your job, you would have to pay all that money back within 30 days or incur penalties and taxes. That should be your last and final option and then just realize the possible ramifications.