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Thread: TSP Loan vs Deduction reduction ?

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    Default TSP Loan vs Deduction reduction ?

    Caveat: If there is such a thing as a general rule. In trying to eliminate Credit Card Debt, is it smarter to take out a TSP Loan for the amount or reduce the amount I contribute and use that to pay down over the course of a year or two?

    Thank you


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    Default Re: TSP Loan vs Deduction reduction ?

    Whats your interest rate on your credit cards? and are we talking a large amount of debt?

    Think about it this way; If you are paying 25% interest on your cards, and you pay them off with a one time tsp loan charging 2-3%. Your loan repayments will go straight back into your tsp building it back up.

    it really depends on the amount, from what I understand a TSP loan is beneficial for short term small loan amounts(say less than 7-10k).

    I used a tsp loan to purchase my second vehicle since i needed third row seating after my son was born and couldn't get a second car loan. so far it is working out well for me, but I didn't make the returns i could have over the last year had i had some of that money in my account...

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    Default Re: TSP Loan vs Deduction reduction ?

    AFter I get my tax reurn I will be at about 10K. I may be as high as 12 because I have an old HVAC unit to replace. So for the sake of the thread let us assume it will be 12K

    Thanks

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    Default Re: TSP Loan vs Deduction reduction ?

    Welcome RoldanFan! Conventional wisdom is that there are very few good reasons to borrow from your retirement savings. Paying off higher interest rate debts may be one, but that is only if you cut the cards.

    I always thought the best time to borrow if you have to, is when the market is falling (a bear market) - particularly for the buy and hold investor.

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    Default Re: TSP Loan vs Deduction reduction ?

    Quote Originally Posted by tsptalk View Post
    I always thought the best time to borrow if you have to, is when the market is falling (a bear market) - particularly for the buy and hold investor.
    I agree with Tom and I did made a loan in the last bear market to pay off debt. It turned out great for me because it was a bear market and I was somewhat protected when others took big hits. However, if you don't change the conditions that put you in debt in the first place then whats the point of the loan?

    Those who are willing to make real sacrifices are the ones who figure out their debt can actually be paid off in a short period of time.

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    Default Re: TSP Loan vs Deduction reduction ?

    I paid off many of my debts with my margin account where the interest is tax deductable. I'm paying 5.25% and have the tax deduction to offset my dividend income. There aren't many places left to deduct interest and apparently Obama is not aware.

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    Exclamation Re: TSP Loan vs Deduction reduction ?

    Quote Originally Posted by RoldanFam View Post
    AFter I get my tax reurn I will be at about 10K. I may be as high as 12 because I have an old HVAC unit to replace. So for the sake of the thread let us assume it will be 12K

    Thanks
    RoldanFam,

    You really haven't left us much to chew on, but...

    1. If you are a civilian NEVER go below 5% contributions to TSP. NEVER lose the TSP match. Losing the match means losing an ever increasing part of your salary. I would even go so far as to say that you should increase your contributions to 5% if you are below that point. If you are military than you have NO match – so this point (the major one) is mute.

    2. I would probably reduce my contributions to the 5% match to pay down the credit card debt. I actually did so. Works pretty well. That way you could save the single TSP loan you are eligible for to cover either the credit cards (at a later date) or some other unexpected mess.

    3. TSP loans are beneficial if absolutely needed. They work best if you have enough of a balance that the hole you put in your assets doesn't hammer your growth. But remember, you fill that hole with after tax income and you fill it with after tax interest. Yeah, you pay yourself back with interest - but you do so with more expensive dollars and you pay it back. And, if you leave government work before the loan is paid you will pay the remainder back in a lump payment. Yuk...

    4. While the interest you will pay into a TSP loan is always a market low I don't know if it is variable. It might go up over time.

    So, me not like TSP loans to pay credit card debt. Another way of thinking of it is penance. Yuk, yuk. Also, it is a bad habit to get in the habit of refinancing debt. You might think you are the Federal government or something.
    Lookin' up at the 'G Fund'!!!

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    Default Re: TSP Loan vs Deduction reduction ?

    Quote Originally Posted by Birchtree View Post
    I paid off many of my debts with my margin account where the interest is tax deductable. I'm paying 5.25% and have the tax deduction to offset my dividend income. There aren't many places left to deduct interest and apparently Obama is not aware.
    Do not listen to this man......DAMMIT BIRCH....stop giving away our secrets!!!!!!

    Seriously though, welcome.....In this market, we seem to have been in a nice little run. If 12K is the only amount you are looking to get rid of, then what I would do is split the difference. Contribute less and double your payments.

    If the Interest rates are stoopid (high), take the loan get out of it immediately.

    Next, make sure youset up an "emergency" fund to cover replacements like furnaces or cars or whiney kids...I digress....

    I used municipal funds to use for my emergencies....I saved money, got interest and could write checks.....

    Edit: Boghie, TSP loan interest is fixed at loan approval.
    It's Frixxxx -- 4 X's - It's my nickname changed because I use to do FOREX. - Get it?
    Tracker = 40%-C 60%-S::::Real World = 10%-G 37%
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    Default Re: TSP Loan vs Deduction reduction ?

    Nice find neighbor Frixxxxx...

    The knowledge of the loan being a fixed rate might play a role in my future. There might be some gaming possible...
    Lookin' up at the 'G Fund'!!!


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    Default Re: TSP Loan vs Deduction reduction ?

    Couldn't agree more, if interests rates are stupid high get out of it, and stay out of it

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    Default Re: TSP Loan vs Deduction reduction ?

    Quote Originally Posted by Boghie View Post
    Nice find neighbor Frixxxxx...

    The knowledge of the loan being a fixed rate might play a role in my future. There might be some gaming possible...
    Thanks Boghie! Still need to get together for lunch...after the NEW YEAR?
    It's Frixxxx -- 4 X's - It's my nickname changed because I use to do FOREX. - Get it?
    Tracker = 40%-C 60%-S::::Real World = 10%-G 37%
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