I have 2 high interest credit cards I want to eliminate quickly.I am considering obtaining a HELOC at 4.25% vs borrowing from one of my 401-k and repaying it at 6.25%. Do you have advice on which should be the preferred solution or do you have a better idea?
Leave the 401(k) alone. The interest you pay to borrow your own money is low but the loss in value you will experience by not having that money in there as the market grows will be huge.
The home equity line of credit (HELOC) is an option but I hate to see you secure more debt against the house, especially as housing values are still uncertain. If you were unable to make the new HELOC payment for some reason, you could lose the house.
My fist inclination would be to see what rate you could get with a debt consolidation loan from LendingClub.com. It is a peer-to-peer lending network that matches small lenders up with people that need a loan. I happen to be one of the many lenders that participates. LendingClub simply cuts the banks out of the loop and thus offers much better rates than a borrower can get elsewhere.
A debt consolidation loan from LendingClub.com is not secured against the house and does not rob you of the future value of your investments in your 401(k). The LendingClub option would be my first choice, followed by the HELOC.
Remember, even if the LendingClub.com debt consolidation loan may be at a slightly higher interest rate, that cost buys you the security of knowing you can’t lose your house if something happens and you can’t make the loan payments. There is a value to you in that.
Please update me on your progress by posting updates here in the comments section of your question. I’m very interested in how this works out for you.
You are not alone. I'm here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don't give up.
P.S. Be sure to read ‘The Secret of Surviving Through Difficult Economic Times. What I Learned On My Journey‘.