The other day when I talked about the RESET, fellow blogger 444 posted this in the comments:
"I would not list the 401K loan along with other debts, since it's not a
true debt. You took money from your own account when you accessed that
money, and you are replacing it over time; the "interest" is really just
additional amounts you are adding to the account. On a balance sheet,
the 401K is an asset and it's smaller after having accessed that money,
so that should be the only way the transaction is noted. The smaller
account balance shows where the money was shifted.
not you list assets in your public accounting of your financial
situation, don't show the 401K loan as a debt. It's implied that debt
is owed to outside entities; debts to yourself aren't debts in the usual
sense of the word. Give yourself credit for having brought your
consumer debt down considerably."
So my question to you all is this....do you consider a retirement loan "debt?"
444 was (and I assume still is) a supporter of the loan. As she stated, we accessed money that was ours to start with, and we used it to lower our consumer debt (since it paid off the CCs and Lending Club loans"). And yes, a retirement account is an asset, and if you withdraw money, then you just have a smaller asset. In all of those senses, she is right.
As long as you look at all of this as purely "business," all of this is right.
BUT.....part of getting out of debt is emotional. The toll it takes on you while you are working on it is exhausting at times. So I have a hard time just seeing the numbers as numbers (although I do love me some spreadsheet porn).
If we didn't count the loan in the debt total, our debt would be $42,898.55. The CC debt would account for 13%, vs the 8% is accounts for now. And let's really be honest.....the retirement loan paid off consumer debt. So by not counting it, it doesn't reflect the true picture.
Also, we pay $380.15 a payperiod for this loan. That is $9,883.90 a year. Without counting this transaction as debt, it appears that we are contributing almost $10k per year to our retirement account. And in most circles we would get a high five for that. But then others would say put that 10k toward the "true debt" and knock it out faster.
Well, that is double dipping.
I think it is important to note where that much money is really going, and why it is going there. It is going there because we had incredible consumer debt at very high interest rates, and we took a calculated risk to eliminate as much interest as possible. So we took the loan.
In 3 years, we will have an extra 10k to play with (and in all honesty, it will probably continue to go into the retirement account). But we may choose to put it toward remaining debt; we may choose to save it up for a year toward a vehicle. I don't know. Too far in the future to predict that.
But for us, this loan is debt, no matter what a spread sheet says. So 444, I get what you are saying. And there is a logic to your case, but for now it is going to stay as is.