Are TSP loans a viable choice?
“No loans, no troubles” is the policy employed by many successful businessmen and empire builders but for people with low paying employments, this policy is often not applicable due to financial insufficiency. If you don’t borrow till you retire, you will lead an excellent post-retirement life but if you have to, where should you, as a federal employee be headed?
Without loans, your cash flows will always look beautiful and you will only see improvements. Another reason to avoid loans is that you won’t have to deal with any stress. But let’s assume that you absolutely have to. Should you borrow from your retirement account? Are TSP loans the way to go?
Taking TSP loans:
Taking loans from your retirement accounts is different from the traditional loan methodology. Let’s take an example to consider this: Say you having a 100 thousand dollar debt on your credit card and it has an interest rate of 10 percent. This entails that you will pay a handsome 10 thousand dollars every year or 830 dollars per month and this would be exclusive of the principal. If you pay this over a 5 year period, your monthly interest plus principal will amount to 2120 dollars roughly or over 1200 thousand dollars in total for a 100 thousand debt.
Another option would be to borrow the 100 grand from your TSP account. To counter this, you will have to pay the requirement amount through your pay checks. If you plan to take TSP loans, make sure that you consult the required people before doing so. The best part though is that the interest rates are considerably low. The maximum they get is a meagre 2.125 percent which is nothing compared to what the credit cards charge.
Yes, there are other complexities involved in this regard, but this is one option that you should have in your mind. Note that before you go ahead and take the loan, make sure that you have gone through the guidelines and know all the rules.