401K Loan

So a few days ago, Chokoboii and I were discussing about credit cards and loans and one thing he said that really irked me was: borrowing from CC is always the first choice, it’s the most convenient

I counter with credit cards loans should only be used as a last resort: interest rates are high, fees are high, and convenience is how people end up in the cyclic credit card debt. I asked if he was referring to 0% intro APRs, but his response was: I’m a fan of convenience, so opening an account…waiting for that card to come in..transfer balance..then closing the other one is kinda a waste of time

Somewhere down the road, I found out he owned a condo and then introduced him to HELOC (home equity line of credit), which is more similar to borrowing from a credit card than taking a loan out from a bank. Your HELOC is based off the value of your house and sits there with no fees. You only have to start paying interest once you take money out of it, and once you pay back the whole amount, the interest fees stop. According to Bankrate.com, a $30K HELOC is currently around 4.8% and a $50K is currently around 4.3%, which is a lot cheaper than typical credit card APRs which are at 10%+.

Anyway, what does all this have to do with a 401K loan? After talking to Chokoboii, in an unrelated incident, I was checking out my 401K to see if I should readjust what to invest in. That’s when I noticed there was this Loans or Withdrawals link. Clicking on it, I found out I had the following options:

  • LOAN – PREAPPROVED | $1,000.00 – $15,800.00 | 6.00%
  • PURCHASE OF PRIMARY RESIDENCE LN | $1,000.00 – $15,800.00 | 6.97%

The amount I could borrow looked close to half of my current 401K portfolio. I did a little more research and found this article: 401k Loans and 401k Hardship Withdrawals.

Some interesting things to note:

  • The primary benefit of 401k loans is that the proceeds are not subject to taxes or the ten-percent penalty fee except in the event of default.
  • The government does not set guidelines or restrictions on the uses for 401k loans.
  • In most cases, an employee can borrow up to fifty-percent of their vested account balance up to a maximum of $50,000.
  • Even though you’re borrowing from yourself, you still have to pay interest!
  • unlike interest paid to a bank, you will eventually get this money back in the form of qualified disbursements at or near retirement
  • the interest you pay back into your 401k plan is tax-sheltered.
  • Another consideration is employment stability; if an employee quits or is terminated, the 401k loan must be repaid in full, normally within sixty days.

Very interesting… Basically, there is no restrictions on what I use the loan for. The loan isn’t subject to taxes nor penalty for early withdrawal (since it’s not really a withdrawal). You have to pay interest on this loan, but you’re not paying the company nor the bank, you’re paying yourself. Since that money would have been accumulating interest or dividends, I assume that’s what your interest is compensating for. The interest you pay back is also tax-free until you withdraw it.

I talked to Derek a bit about this and he said the major drawback is the fact you’re tied to the company until you pay back this loan, because once you quit or get fired, you have to pay back the loan in 60 days, or else the loan would be declared in default and you’ll have to pay taxes + penalty fee for early withdrawal.

As an Amazon.com Seller

Not sure if you’ve noticed, but I’ve added an Amazon.com Store link on my side bar, which currently lists the items I’m selling on Amazon.com. I began to buy and sell stuff on Amazon.com a long time back, but only recently (a few months ago) began to push a lot more volume (instead of 4 or 5 items a month, I am now pushing 30+ items a month). And it’s bringing in quite a shiny penny. Actually, I’m not too sure how shiny the penny is as in I haven’t really done any bookkeeping besides knowing that I’m selling items for more than what I purchased it for, which can range from a few dollars to over a hundred dollars per item.

I’m not going to go too deep into how this all works and what my “secrets” are, but if you’re interested in anything I’m selling and I personally know you, I can probably sell it to you at cost. Also ignore anything that’s listed as $2,000 as that just means I’m currently not selling it, probably due to insufficient stock or the pricing isn’t at what I want to sell it for.

I’ve also been maximizing my earnings by using my Amazon.com credit card and directing people to purchase under my affiliates account. The credit card gives me 3% back on all Amazon.com purchases, which has netted me $75 worth of Amazon.com gift certificate rewards for each of the last 2 months. The affiliates account started with only $90 earnings a few months ago, but just last month, I’ve broken $200.

Concurrently, I also list the items in my Half.com Shop, which gets me purchases once in awhile, but they don’t really have that high of an audience as Amazon.com. I’m currently also thinking of becoming a merchant on Buy.com Marketplace, but they have a bit more requirements to join.

All in all, I’m happy with the results.

Chase Freedom Credit Card + Chase Checking Account

Some time earlier this week, we had a discussion over dinner about credit card with rewards. Chase Freedom was mentioned to be one of the better cards to use overall since it gives you 3% cash back on the top 3 categories on your bill. Today I saw this thread: Chase Freedom Credit Card Holders! 3% Rewards in TOP 5 w/ Chase checking account

The Chase Freedom credit card rewards 3% cash back or 3 points per $1 on the first $600 in purchases in the top 3 of 15 Everyday categories where you spend the most each month. Chase checking account customers will earn 3% cash back or 3 points per $1 on the first $600 in purchases in the top 5 of 15 Everyday categories. That’s 2 additional Everyday categories. If you are an existing Chase Freedom credit cardmember and a Chase checking customer, your account will be upgraded to these new benefits; a confirmation letter will be mailed when this takes place in June, 2008. To apply for Chase Freedom with the exclusive benefits for Chase checking customers, or to learn more including pricing and reward program terms, see a Chase branch banker. Restrictions apply. Subject to credit approval. Chase credit cards are issued by Chase Bank USA, N.A. There are 15 Everyday categories consisting of grocery stores (that are not affiliated with or departments of superstores, warehouse clubs or discount stores), gas & convenience stores, quick service payment/fast food restaurants, telecommunications, cable/satellite TV/Internet Service Providers, video rentals, department stores, dry cleaners, drug stores, movie theatres, local and suburban commuter passenger transportation (including ferries, bridges, tolls, parking garages, taxis/limos), pet supply stores and veterinary services, utilities, beauty shops (salons and spas), or gym/recreation memberships. Benefits will no longer apply if, at any time, the checking account is closed.

For more details, visit Chase Exclusives.

Do note, there is a cap on the amount of 3% rewards you get per month (currently capped at $600, which translates to $18 worth of 3% rewards). After which, all remaining purchases will be rewarded at the 1% tier for the remainder of the month. That equates to $7,200 in purchases eligible at the 3% tier which translates to a maximum of $216 of cash back per year.

If you want to try out the Chase Freedom credit card, currently there’s a $100 sign up bonus: Chase Freedom Application

If you want to try out Chase checking account, currently there’s a $125 sign up bonus: Chase Checking Application (requires you to be logged into any Chase account)

WaMu Credit Card – Free Monthly Credit Score

You can already get 3 free credit reports a year, but getting free credit scores hasn’t always been easy.

Speaking of the 3 free credit reports, I was talking it over with Ungsunghero and Derek and it appears they’re both smarter than me about it. Every year I would get all 3 of my credit reports at the same time to see if there’s any problems in any one of the credit bureaus, but the real smart way to do it is to get them separately. That way you can get updated credit reports every 4 months instead of once a year. I now have appointments scheduled in Outlook to remind me to get my credit reports from a particular credit bureau every 4 months.

Anyway, back to the free monthly credit score. WaMu (Washington Mutual) has been offer credit cards that come with free monthly credit score updates as a bonus feature if you have their card. The feature’s rather nice and doesn’t have any fees or require any monthly purchases. Once you log in and click on “FICO Credit Score”, you’ll be shown your score along with other data such as Accounts, Open Accounts, Closed Accounts, Inquiries, Derogatory Items, Delinquencies, and Total Revolving Balances. You can also see the history of your credit score for up to a year.

You can apply for the WaMu Platinum MasterCard online.

I have actually tried applying for this card for a total of 3x, being rejected twice initially. They always mail me a postcard apologizing for rejecting my application and that if I had any questions, to contact them. However since I never really needed the credit card, it wasn’t one of my priorities to get this straightened out. However, I decided I really wanted to see what my credit score was and called up WaMu and asked them why I was rejected. Unfortunately my previous request was over 60 days old so no information is available. I went ahead and reapplied and this time I was instantaneously accepted. No idea why, but I’m not complaining.

One thing I do dislike about their website is the fact that they’re like American Express and limits your password to be 6-8 characters.

American Express – SimplyCash Business Card – 5% Cash Back on Costco Gas

I’ve mentioned this card before, but didn’t really have a reason to get it before since I had my Advanta card. However, due to the fact that Advanta has changed its term in limiting the amount of rewards you can get per year, the Advanta card has basically become useless to me:

Cash Back rewards are also earned on Bonus Qualifying purchases, which include purchases in the following categories: “gasoline and diesel fuel,” “computers, computer supplies, electronics and office supplies,” “online advertising services,” and “utilities and telecommunications.” Cash Back rewards on Bonus Qualifying purchases are earned as follows: 5% on up to $1,200 in annual purchases; 1% on purchases in excess of $1,200.

That means the 5% rewards bracket only adds up to $60 in rewards a year and everything after that you only receive 1%. The nice thing about the Advanta card is the fact it’s a Mastercard so it’s accepted practically everywhere (Costco being the main retailer I purchase from that doesn’t accept either Visa or Mastercard). I haven’t used my Advanta card in quite some time, but it’s still associated with my utilities (Comcast Cable and High Speed Internet and garbage collection). Otherwise, I’ve basically stopped using it on office supplies and electronics.

Anyway, I was reading some thread about Costco gas today and someone had asked if the Executive membership gets 2% cash back on gas also and I told them that the terms specifically exclude gas from the extra 2% back. However that got me thinking. I’m currently only getting 1% cash back on Costco gas with my American Express Costco TrueEarnings card. Costco gas accepts any type of American Express credit card and SimplyCash has 5% cash back on gas, office supplies and wireless services with no annual cash back limit. Of course American Express is also not widely accepted, but all the gas stations, office supplies stores, and wireless services that I use all accept American Express.

Cash Rebate: There is no limit to the amount of cash rewards you can earn. You will receive the Rebate in the form of a credit to your Account (net of credits for purchases). The credit will appear on the second billing statement following the billing statement in which the qualifying Purchase(s) appeared, based on the following structure: You will receive a Rebate of 5% for purchases of wireless telephone services, automobile gasoline(effective December 01, 2007, any individual Purchase transaction in excess of 75 gallons or equivalent dollar value will not be deemed to be a Purchase of automobile gasoline), and office supplies and equipment not purchased at warehouse clubs, superstores or supermarkets (“5% Purchase(s)”). You will receive a Rebate of 1% for all other purchases. To receive the Rebate, your account must be active and in good standing.

Important: You will receive a 5% Rebate only if the merchant submits the Charge for your 5% Purchase under the appropriate merchant code, industry code and required service or product identifier established by us with/for the merchant. For example, if a general merchandise retailer sells office supplies, and the retailer processes your Card transaction as a general merchandise charge instead of an office supply charge, you will receive a Rebate of 1%, not a Rebate of 5%. You will not receive a Rebate for balances transferred from other accounts, purchases of American Express Travelers Cheques or American Express Gift Cheques, fees, Finance Charges, Cash Advances and similar means of accessing your Card Account. Additional terms and conditions apply.

Therefore I’ve decided to apply for one. I’m hoping Costco gas counts as gas and not a regular Costco purchase since those only get 1% cash back. Looking at my previous statements, they do distinguish:


If you’re interested, you should apply for the American Express SimplyCash Business Card.