I’m a lender now
Posted on December 12, 2007 - Filed Under Business |
Thanks to the budget overrun, I’m carrying a rather large chunk of debt on my credit card. The balance, multiple thousands of dollars, translates to a few hundred dollars per month in expenses. But it’s a few hundred dollars per month I really don’t have.
My brain went to work, trying to come up with a temporary fix for this problem.
Some ideas:
| Idea | Reason it won’t work |
|---|---|
| Donate Blood | Last time I cut myself shaving, I passed out. |
| Wear short skirt and heels, working the corner | I don’t look good in short skirts. |
| Leave teeth under pillow | Thanks to a steady diet of Twinkies, my mouth is full of mercury, silver and tin. Airport security detectors go off if I yawn. |
OK so anything creative just went out the window.
My 401k has been my emergency-emergency bail out fund. Last resort type of deal. I quick did some reading and discovered a few interesting facts.
First: I can loan money to myself at 8% interest. This loan won’t appear on my credit report or with any credit agency.
Second: The terms of the loan, such as length of repayment time and payment amount, are set by little ol’ me.
Third: If my loan goes into default, I know who to come looking for.
Four: The loan can be paid off early and I won’t charge myself a pre-payment penalty.
The question: Should I pay myself 8% interest or pay the Man 14%?
duh.
Sticking to the Man!
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7 Responses to “I’m a lender now”
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If you quit or lose your job, you have a very short window to pay back the loan. If you don’t pay it back in the window, the loan becomes a distribution and you pay tax and the penalty. The tax deferral on the distribution amount is lost forever.
As I understand the rules, you can take out and redeposit your contributions to a Roth IRA (but not the earnings) without penalty. You might want to look into that as an alternative.
Or, since you are looking for some drama, get a night job at a 7-11 in Long Beach…
The interest cost of a 401k loan is the lost investment returns on the money while you have it borrowed. The second downside is that you will repay the money with after tax income and then when eventually you withdraw the money when 59 1/2 plus you will pay tax on that money again. So take this into consideration…
You didn’t mention selling drugs.
Sure, it’s illegal, but it’s a great way to make some quick cash!
Hehe.
AI, everything has risks. This is another one. Fortunately I’ve mitigated it so this isn’t a problem. And I can’t work at 7-11. Like Starbucks, 7-11 has really really crappy coffee.
Moom, before pulling the trigger I had discussed this with a few finance people. It’s a trade off. One trade off: my debt to income ratio decreased drastically. Also my credit score will go up about 20 points with this credit card debt paid off. Both items are critical for the next mortgage.
Steph, my sales tactics are horrible. I’m probably the only guy in the world who would have trouble selling crack in a crack house.
Cliff,
Why not get another credit card with a teaser 0%? Find one that will do a no fee balance transfer. Get one with a decent timeframe (0% to Dec 09) and make payments to it.
I assume you have good credit. Getting credit cards has never hurt my FICO. I have a ton of them.
Kenric, my score is good. The hassle of having yet another credit card and shuffling balances here and there was not for me. Now it’s a small, automatic deduction from my paycheck that I don’t have to worry about.
But your drop-shipping model is inspiring me.
We did the same at one point for the same reason… out of several options, it was best and helped us over a tight spot.