Dave Says: Borrowing Against a 401(k)

Dear Dave,

My husband has been transferred again in his job. Right now, we have three houses and about $60,000 in other debts. He just found out that he can borrow against his 401(k) without hardship at the beginning of the year. Is this a good idea?

Yvonne

Dear Yvonne,

Three houses? Do you buy a new house every time you move? You guys need to stop doing that. The “other debt” isn’t the problem. It’s those houses that are killing you!

I would never recommend that someone borrow against their 401(k) just to pay bills. It might be a different story if you were facing foreclosure or about to file bankruptcy, but that doesn’t sound like the case here. I think you’ve just made some really bad decisions, and these decisions are following you around and messing up everything else.

Most of the time in situations like this I have to say: “Sell the car!” In your case, it’s: “Sell the houses!” I know the market isn’t great in some areas, but these things are eating you guys alive. You’ve got to put some effort into getting rid of them.

Then, start living on a really tight budget and clean up the other debt!

—Dave