Dave Ramsey, while a smart man, is selling a product and he isn't the be-all, end-all of financial advise. He is there to coach people that have finance problems or don't understand finance very well. For many his information is very dumbed down. It's great for the beginner where too much, in-depth talk will confused them. This topic is in-depth.
Ive done a 401K loan before, but only because I needed a very fast fat wad of cash to cover my arse until my GTX sold. Was paid back in full in a month.
I wouldn't use the 401K loan as a debt consolidation - I'd find some other way to do that. It's always helpful to get off of sky high credit card interest rates, but there are other ways to accomplish that.
Only other way I'd rob my 401K is if I get laid off and have to do something to keep the bills paid.
My opinion, NO.
Moving debt from one place to another is not paying it off!
I don't care who your are paying the interest to, the goal should be to pay NO interest. The bad taste in your mouth from giving a bank your money should be a lesson no to do that in the future. Pay the interest and learn the lesson.
Unplugging money from an investment account also "costs" you money. Leave it alone.
If for some reason, you don't pay it back, now you are stuck with a tax penalty as well. Don't mess around with the IRS, deal with banks.
In summary, NO.
<-----This guy.
If you do decide to take from 401k, be prepared to face the tax fees and other penalties. There are down sides. I would hate to see you wait to pay the taxes until the following year...it can get nasty with the IRS.
There are no penalties or fines for taking out a 401K LOAN.
As part of my preps, I need to get out of financial debt.
So, a "friend" has some significant credit card debt. This friend can pay off this credit card debt by taking out a loan against his 401 plan. What this means is that the friend will have to pay back into his 401 to pay off the 401 loan. The interest paid on the 401 loan goes back into the 401 as well.
What's the down side here? The interest on the 401 loan is much lower than interest on credit card. The interest paid on the 401 loan goes to my own 401, not to the banks as in credit card interest.
All of my 401 is tied up in paper instruments (stock). If the market crashes, much of that value would be lost anyway, and if I didn't take out the loan, would still have the credit card debt.
My job is very secure.
Should I or shouldn't I?
Who manages the fund? I want in on an IRA that's doing that well.