Bye.

Live from the headquarters of Ramsey Solutions broadcasting from the Pogs moving and storage studio

It's the Ramsey show where America hangs out to have a conversation about your life and your money

I'm George Campbell joined by J. Warshaw this hour and we're excited to take your calls at triple eight eight two five

Five two two five you jump in we'll talk about your life and your money

Well jada want to kick off the show with a correction to a call I took yesterday many of you reached out

Thank you for that and we took a call from Angela and she had a he lock

She wanted to use a 401 K loan to pay off the he lock and so we're walking her through why this is a bad idea

And the advice remained that she shouldn't do it but my explanation of why was incorrect

That's all right

So I want to make sure that we educate our folks out there on why the 401 K loan is a terrible idea

So the idea here is I'm gonna take money out of my 401 K and pay myself back with interest of you know five percent right

Already not tracking because you have to use your own money to pay yourself that interest right right

The big issue here is that you're unplugging all of the growth of that money compound interest was working for you

You know the S&P 500 average rate of return 10 to 12 percent since 1928 yes

And so you are missing out on all of that growth which is only gonna hurt you down the line of retirement

Number two it puts you in a very precarious situation because now we're dependent on our employer because if you leave that job for any reason

You get fired you switch jobs that loan now becomes due the IRS sees that as you withdraws now to do within 60 to 90 days

You've got to come up with all this money or else it's a withdrawal and now you've got a 10 percent penalty your tax rate on top of that

Adds insult to injury

So it's a very very scary situation and to make it worse you're using after tax dollars

Yeah, come on George to put the money back in because you're using your net income to repay the loan and interest

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