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Deal with Your Debt: The Right Way to Manage Your Bill$ and Pay Off What You Owe by Liz Pulliam Weston

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Chapter 8. 401(k) and Other Retirement Plan Loans

It sounds like a great deal: Borrow from your retirement fund and pay back yourself instead of a bank. You get a great interest rate, and the loan doesn't show up on your credit report or affect your credit score.

Plenty of people take the bait. About one in five participants in large-company 401(k) plans has a loan outstanding, according to research firm Hewitt Associates. The average loan balance at the end of 2003, according to the Investment Company Institute, was $6,839.

But borrowing money from retirement plans is fraught with hazards—so many that most people should look elsewhere if they need funds. A loan or, worse yet, a withdrawal from a retirement fund typically should be a last resort, ...

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