I owe about $ 25,000 on various credit cards with interest ranging from 17 % to 30 %. I am barely able to make the minimum payments. In addition, I owe $14,000 ($ 500 a month) on the car with 7 % and 3 years to go.
Because I have bad credit, I was able to get one bank to offer me a Home Equity loan for 20 years and 13.8 %. I also have about $ 70,000 in my 401 K. Should I take a $ 25,000 from the 401 K to pay it over 5 years? Or get the home equity with 13.8 %?
Thanks,
Ashraf
:confused:

I have done both and would always opt to take out a 401K loan. You are paying yourself back with interest. Why pay interest to a mortgage equity loan?

Thanks for your answer but I have another question: Wouldn't taking money out of 401k deny me the benefit of 401 K growth? I mean, the $ 25,000 is not going to be invested.

Here you go... I couldn't have said it better than this:

Second Mortgage Versus 401K Loan (http://www.mtgprofessor.com/A%20-%20Second%20Mortgages/second_mortgage_versus_401k_loan.htm)

Calculate your "opportunity costs" and see if it works for you. Bottomline, if your 401K returns are lower than the equity interest plus expenses, then you are better of borrowing from yourself.

Cheers

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