Should I pay off 401(k) loan with HELOC

[mtnbkr]

I have a $6100 loan on my 401(k) with a 15 year payback schedule (14 years left) that I would like to pay off faster.

I can either make additional monthly payments and pay it off in about three years or I could borrow the amount from my HELOC and then pay that off in about three years.

To me the advantages of doing that are; the interest I pay on the equity line is tax-deductible and it gets my money back in the 401(k) working for me faster.

401(k) loan has an interest rate of 4% with a small yearly fee and the home equity line has an interest rate of 3.25%

What do you think?

[disneysteve]

It sounds like the HELOC is the better option.

There is one potential problem. The HELOC rate is variable so it can go up. The longer you keep it, the higher that risk.

You could also look into a home equity loan rather than a line of credit. The rate might be a little higher but it would be fixed.

[Fishindude77]

Think about what you are considering. You made a bad decision tapping into your retirement savings that shouldn't have been touched. Now you want to increase debt on your home (bad decision) to pay off a previous bad decision.

Yes using the HELOC would work and it would be easy to do, and save a little interest, but this needs to be a little more painful, so you don't do this kind of thing again. Just knuckle down, do without some things and clean up the debt on 401K ASAP. If you have something of value you could sell (auto, boat, motorcycle, etc.) to clean up the debt, do it.

[Bob B.]

The difference in interest paid is about $50 over the three years, HELOC vs. 401(k) loan. Not sure what the value of the tax deduction is.

Are there any fees associated with the HELOC? Is it worth the hassle for not a lot of savings?