401k versus line of credit question

[moneyquestions]

Hi I am new here!!! And had a question of some experts....

I have $25,000 in a 401k plan from an old employer. I haven't touched it in a couple years and have left it there to continue to invest. The question I have it that I have this line of credit that I pay everything month. The balance on that line of credit is about $23,000. Here is the scenerio, I pay $517.00 a month to this line of credit that I have and it is about a 16.99% interest. It really irritates me every month when I pay it. It is the only real debt I have left to pay off other than my home and car. I would like to get it paid off, but only about $175.00 a month out of the $517 payment goes to prinicipal each month and that is with me paying more than the $517 (i actually pay about $550). I have always been told to NEVER withdrawal your 401k early and I do understand the impacts.... (I will get taxed 20% and I will have to pay the 10% withdrawal fee)... however, in this situation I am wondering if I should take the payout and pay down this line of credit? I do have a new 401k plan at my new employer and am socking some money into it every paycheck. I would be able to put even more into it when I get this line of credit paid down. By the way, I am 33, so I do have some more time to save... but, I am not wanting to work until I am ancient either.

[disneysteve]

You are going to lose 30% by taking out the 401k in order to repay a loan that is only costing you 17%, so you are losing 13% in the process. Doesn't make any sense to do that. Keep the 401k. Keep paying on the credit line and try to find a way to refinance it. How about getting a low interest credit card and transferring the balance? Do you have home equity you could borrow against? I agree that the 17% is lousy, but cashing out the 401k isn't the way to fix the problem.

[noppenbd]

No, I would not do a distribution from your 401k to pay off the HELOC. It will set you back many years on saving for retirement, and the penalties are really going to hurt you.

Have you looked into refinancing the HELOC? 17% interest is outrageous, you could beat that almost anywhere.

[moneyquestions]

I guess when you put it that way, it makes sense. I will look into refinancing the 16.99% (17%) line of credit or seeing if they will drop the rate. My credit is pretty good, so hopefully there wont' be a problem with that.

Thank you guys so much!

[Hypersion]

I will get taxed 20% and I will have to pay the 10% withdrawal fee.

20% is just the withholding; your actual tax (fed and state) could be twice that.