Financial emergencies are a common occurrence. Worse, these emergencies can happen when you barely qualify for regular bank or credit union loans. Perhaps your credit score is weak, or you have no collateral to put up as security.

In such a situation, a 401(k) loan can save you from the financial mess. Unlike regular loans, the 401(k) loan gives quick access to funds as long as you have a vested account balance. You won’t need a clean credit score or collateral to secure the 401(k) loan.

How do 401(k) Loans Work?

A 401(k) loan typically lets you borrow money from your retirement savings scheme. Since you will be borrowing your money, the payments and interest rates will go back to your retirement savings account – not the provider.

Unlike traditional loans from banks and credit unions, securing a 401(k) loan is straightforward. You need to approach your employer and notify them of your intent to get a 401(k) loan. After the nitifiation, your employer will liaise with your plan administrator to process the loan.

The processing time takes around one to two weeks. However, you could get your 401(k) loan approved sooner if your plan administrator is quick and your loan application captures all details correctly.

The IRS has capped 401 (k) loan limits at $50,000 or 50% of your vested account balance, whichever is lower. The limits from the IRS ensure that you can access funds to sort emergencies and still save for your retirement.

Without the limits, you could deplete your retirement savings, defeating the purpose of a 401(k) plan.

How 401 (k) Payback Works

Typically, you have to repay your 401(k) loan within five years. Repayment schedules vary depending on the loan terms from the administrator managing your 401(k) plan. Your retirement plan administrator will most likely schedule weekly, biweekly, monthly, or quarterly repayments.

The 401(k) loan providers charge an interest rate based on the prime rate — a rate banks charge their most creditworthy clients. However, one good thing is that your 401 (k) interest goes to your retirement savings account. Thus, you lose nothing, even if the loan had a higher interest rate.

While the repayment period for a 401(k) loan is typically five years, your provider will ask you to repay the entire outstanding amount if you leave your current job. As such, the 401(k) loan might not be ideal if you are expecting a job change or layoff.

How Penalties for Failure to Pay Your 401(k) Loan Work

Unlike regular loans, defaulting on a 401(k) loan does not impact your credit score. The reason is that getting a 401(k) loan is akin to borrowing from your retirement savings. Your provider loses anything if you default payments.

Furthermore, since it is unsecured, you don’t risk collateral repossession with a 401(k) loan. Nonetheless, you need to repay the loan as per terms, lest you expose yourself to a couple of financial disadvantages.

For instance, your plan administrator will consider the unpaid balance as an early distribution of retirement benefits. As a result, if you’re under 59.5 years old, you’ll likely face a 10% early withdrawal penalty.

The Bottom Line- Should I Take a Loan From My 401(k)?

Taking a loan from your 401(k) isn’t a bad idea when you need emergency funds. The loan provides quick access to funds, saving you the stress of lengthy approvals. Moreover, the 401(k) loan doesn’t impact your credit score, and the interest paid goes into your retirement account.

While a 401(k) loan provides financial assistance in times of need, you have to repay it on time. Otherwise, providers will consider it an early distribution, attracting a 10% early withdrawal penalty plus income taxes.

Are you feeling the weight of financial obligations pressing down on you? Managing debt can be overwhelming, especially in the current economic climate of inflation and rising costs of living. If you’re wondering if you can turn the tide, luckily, the answer is yes.

From trimming unnecessary expenses to negotiating with creditors, there are a few steps you can take to manage debt:

1. Create a Budget

A budget isn’t just a mundane spreadsheet; it’s your financial roadmap. It unveils the winding paths your money takes, guiding you toward stability. Every dollar deserves a purpose. Begin by allocating funds to critical needs like food, utilities, shelter, and transportation. Of course, these Four Walls come first. After covering the Four Walls expenses, allocate any remaining funds towards debt repayment and savings goals.

2. Trim Unnecessary Expenses

Take a hard look at your choices. Can you live without that daily latte or monthly gym membership you rarely use?

Start by reviewing automatic payments. Cancel subscriptions or memberships that drain your bank account without providing essential value. Be honest about your lifestyle choices. Do you truly need that monthly beard oil subscription? These are just a few examples, but such small adjustments can make a significant difference in your financial well-being.

3. Pause New Investments

Prioritize paying off existing balances over new investments. Temporarily halt contributions to retirement accounts or other investment vehicles. Instead, redirect those funds toward debt repayment. By doing so, you’ll gradually regain financial stability and pave the way for a more secure future.

While investments are essential, addressing debt should be your immediate focus. Once you’ve cleared the financial fog, you can resume building your nest egg.

4. Avoid New Debt

Resist the urge to add more financial burdens. Taking on additional loans or credit cards only worsens the situation. Stick to a disciplined approach, tackle existing debt, and gradually rebuild your financial health. This involves nurturing habits that increase your income through additional sources or investments. Building an emergency fund can provide a buffer against unexpected expenses, reducing the reliance on credit in times of crisis.

5. Boost Your Income

While cutting expenses is crucial, boosting your income can significantly accelerate your debt repayment journey. Consider exploring additional income streams that fit your skills and schedule. You can take on extra work like freelance writing or online tutoring. If your current role allows, negotiate a raise to increase your regular income. For those seeking a more significant income jump, research higher-paying positions in your field or consider upskilling to qualify for new opportunities. Remember, the additional income earned goes directly towards reducing your debt and achieving financial freedom faster.

6. Implement the Debt Snowball Method

The debt snowball method is a strategy for tackling debt as well as achieving financial freedom.
Here’s how it works:

List your debts: List your debts from smallest to largest balance. This clarity helps you prioritize effectively.
Make minimum payments: Pay the minimum required amounts on all debts except the smallest debt. This ensures you meet your obligations without accumulating more debt.
Attack the smallest debt: Channel any additional funds toward the smallest debt.
Repeat: Once the smallest debt is paid off, move on to the next smallest. Repeat this process until you’ve conquered all your debts.

7. Avoid the Comparison Trap

Focus on your journey. Everyone’s financial path is unique — what works for one may not suit another. By avoiding comparison, you can appreciate your achievements without feeling overshadowed by others’ successes.

Moreover, celebrate every debt payment. These milestones, big or small, are signs of your commitment and discipline. They deserve recognition and can motivate you to continue on your path to debt management.

Every year the thought of preparing tax returns can be daunting for many tax payers. One major issue to explore is what tax credits may be available to help you and your family. This year is no different and the time to file is now, so check out these credits for which you may qualify.

Earned Income Tax Credit

For those with earnings less than $63,698, you may qualify for the federal Earned Income Tax Credit (EITC). The amount of credit depends upon the number of dependent children, but those without children may also qualify.

Requirements include being between the ages of 25 and 65. You may not be claimed as a dependent on another’s tax return. Credit amounts range from $600 if you have no dependent children up to $7,430 for those with three or more children.

Child Tax Credit

Another federal government program, the Child Tax Credit (CTC), is offered with the possibility of receiving up to $2,000 per child under 17. To receive these credits an individual’s annual income must be $200,000 or below, or $400,000 or less, if parents are filing a joint return.

Individual State Child and Dependent Tax Credits

Additionally, some states including California, New Mexico, Kansas, and New York offer a state tax credit often referred to as the Child and Dependent Care Tax Credit. Be sure to check if your state offers this program.

American Opportunity Tax Credit

For individuals pursuing higher education, you may receive a tax credit toward education expenses. The maximum credit is $2,500 per year. If this brings you below zero taxes owed, you may receive up to 40 percent of any additional amount returned to you with a maximum set at $1,000.

Retirement Savings Contribution Credit

If you are 18 or older, not claimed as a dependent on someone else’s tax return, and are not a full-time student, you may qualify for a federal Saver’s Credit. As an individual you may receive up to a $1,000 credit or if filing jointly, up to a $2,000 credit if you have contributed to an eligible retirement account during the tax year.

Electric Vehicle (EV) and Fuel Cell Electric Vehicle (FCEV) Tax Credit

Turns out that buying and driving an electric vehicle may not only save on your fuel bills while helping the environment, but it may also help you save on your federal taxes. You may receive a tax credit of up to $7,500 if you bought a new electric plug-in or fuel cell electric vehicle during the past year.

In some circumstances, you may be able to have your credit transferred to a dealer when buying a vehicle to lower the vehicle cost. This can be complex, and it is best to further investigate before trying to use it.

Residential Clean Energy Credit

First implemented in 2023, the Residential Clean Energy Credit may credit up to 30 percent of the cost of various clean energy installations for your home. This credit involves installations from 2022 through 2033 and placed into service by 2034 for such things as solar energy, geothermal, wind energy, and more. If you use a full 30 percent credit in one year, you may be able to carry unused credits into future year filings.

Benefits of Tax Credits

Various tax credits can offer a lot of savings for a variety of circumstances. Whether you file yourself or use a tax service, be sure to do your own research, and don’t be afraid to ask experts for tips and a better understanding of those credits you deserve.

Some say ignorance is bliss. However, regarding your finances, this is not the best policy to apply. Looking the other way regarding your finances might be easier, but taking stock of your financial situation is the solution to improvement. Learn what areas regarding your finances you need to evaluate now and how to make the necessary changes to live your best financial life.

Evaluate Your Financial Condition

You’ll need to zero in on the aspects of your financial health that you could change to maximize the potential of your money. Examining and adjusting your expenses, income, debt, and retirement savings accordingly will improve your financial situation.

Assess Your Expenses

You’ll need to start with a factual account of where your money is going. You can use a spending tracker to narrow your spending to an accurate monthly total. Expenses that you’ll want to focus on include:

Cell phone
Debt payment
Eating out
Education and children
Entertainment
Groceries and other supplies
Health expenses
Helping others
Housing and utilities
Pets
Transportation
Other

Expenses can also include money spent less frequently than once a month, such as car repairs, insurance payments, medical expenses, or seasonal vacations. Regular savings contributions also count and don’t forget about fees you might share with others. You can obtain totals by collecting receipts and reviewing your checking account and credit card history.

Add Up Your Income

Once you arrive at an accurate expense total, add your income to see how they compare. You’ll want to see that there is more money left over every month than not.

Consider Your Debt

While debt payments, such as mortgages, car payments, and credit card charges, can be a part of your expenses, you should examine this portion closely. Your debt-to-income ratio, the percentage of your monthly income that goes to debt payments, is important in comparing how your expenses measure up and can also impact lenders when you apply for more debt.

A 36% or lower debt-to-income ratio is the percentage lenders generally accept, but you should try to keep it under 30%. The ratio is calculated by dividing your monthly debt payment by your monthly income.

Review Your Retirement Savings

Determining how much of your income you should set aside for retirement depends on a variety of factors, including:

When you plan to retire
Your planned retirement lifestyle
When you started saving
How much you already saved

However, putting those factors aside, your goal should be to typically save at least 15% of your pre-tax income each year. These savings can include employer match funds that help contribute to your retirement plan.

How To Make Needed Adjustments for Financial Improvement

When checking your bank statements, the amount you usually have in your account each month should match what your budget says you should have left over. If there’s a discrepancy between the two numbers, you must re-examine your actual spending totals to see if you missed something.

If your income total is less, the same, or barely above your expense total, evaluate your expenses to see where you can cut or eliminate, especially if the undesirable difference is due to debt. You can lower your debt obligations by doing the following:

Transfer balances to lower interest rate accounts
Pay off debt with the highest interest rates or the smaller debts first
Talk to your debt holders to see if balances or interest rates can be negotiated
Stop creating new debt
Pay more than the minimum due
Consider credit counseling

Once you start chipping away at where you can lessen your expenses and debt, you’ll have more money to spend or save as you would like.

Facing Your Financial Situation Provides Peace of Mind

Taking a close, hard look at your financial situation may not be a pleasant experience at times, but it can increase your wealth for a more comfortable and secure lifestyle in the long run. Plan to start your financial revival journey this year for better financial well-being.

The housing market dynamics are never constant in any given period. For instance, prices fluctuate with market demand, mortgage rates change with economic transitions, and supply flows with the availability of homes for sale.

Given the shifts, you have to scrutinize the current market conditions before making any buying or selling decision. Otherwise, you could end up overpaying when purchasing property, or selling below value.

Discover 2024’s leading trends in the housing market so you can make educated decisions.

1. The Supply for Homes Will be Low

By the end of December 2023, America’s housing market had around one million houses for sale. This inventory was equivalent to a 3.2-month supply, falling short of the five to six-month supply considered sufficient for the market.

Real estate analysts predict that the supply of housing units will remain low to the end of 2024, not unless there is a surge of sellers. Many potential sellers will hold onto their current property for fear of buying their next homes at inflated prices.

2. Home Prices Will Increase

Since 2023, the prices for homes have maintained an upward trend. Real estate analysts expect the property value to keep soaring into 2024 for many reasons. For one, in 2024, mortgage rates will likely decline due to favorable economic conditions.

The reduction in mortgage rates will encourage more buyers to enter the market. The result? There will be an increase in buyer activity, intensifying demand for the already scarce homes for sale. The high demand will push home prices to the higher side.

3. Mortgage Rates Will go Down

Despite a recent surge in mortgage rates, many realtors remain optimistic that the rates will reduce as 2024 progresses. Most likely, mortgage rates will decrease once the Federal Reserve imposes interest rate cuts.

According to Forbes, mortgage rates are projected to reduce to around 6% to 6.5% by spring 2024. Notwithstanding, the mortgage rate projections depend on factors like consumer spending, GDP growth, and inflation.

4. There Won’t be a Housing Recession

Contrary to doomsayers, in 2024, the housing market is unlikely to collapse. Usually, if a housing recession was imminent, the market would experience a surge of housing units for sale, a decrease in prices, and a sharp reduction in demand.

However, as of today, none of the mentioned factors has happened. In fact, the current housing market has insufficient inventory to meet the demand. Furthermore, the prices of houses on sale have increased, indicating that the market is far from the speculated downturn.

5. The Competition for Available Homes Will go Up

Buying your dream home in 2024 is likely to be a tricky affair. The reason is that the market has a low inventory of homes for sale, and many buyers with ready finances to buy. Many of these buyers halted buying homes in 2023, thinking 2024 would be the best year to buy.

Realtors anticipate the market will still have fewer units for sale in the entire 2024. With fewer properties available, buyers should expect cutthroat competition. Worse, if mortgage rates decrease as projected, the competition will intensify.

Is 2024 the Best Year for Buyers or Sellers?

2024’s housing market will not be so favorable for buyers. The market has low supply and intense competition for available units. Moreover, mortgage rates are yet to drop to a point that can give buyers some relief. On the contrary, 2024 is two-sided for sellers.

The property prices are still high, and the competition for available units is stiff. So, one is likely to sell quickly and at fair prices. Nonetheless, sellers intending to buy a new home will be disadvantaged by the high property and mortgage rates.

Can I Take A Loan From My 401(K)?