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How to Fund Your New Start

Going back to school or starting a business? It matters where you get the money

Chatzky: Cash in a Jam, Man holding golden egg in tree

Zohar Lazar

It might be a tempting way to fund your new start, but it's best to leave that nest egg untouched for now.

En español | So you're thinking of going back to school, starting a business or otherwise reimagining your life. Where should you get that extra money?

Retirement funds

There's a laundry list of reasons why not to borrow from your 401(k). While the money is on loan, it's not working for you — and if you leave your job, you'll have to pay it back in 60 days or treat it as a taxable withdrawal. On the plus side, interest rates are low (and you're paying back yourself). Also, the argument about missing out on growth is reduced if you treat the loan as part of your overall fixed-income allocation.

Home equity

This may be even cheaper than borrowing from your 401(k). Current rates on a $50,000 credit line average around 4 percent and are tax deductible. But you're putting your home on the line. And if you're counting on a paid-off mortgage as cash to use for retirement, tread very carefully.

Credit cards

Unlike home equity, this debt is unsecured. If you can't pay it back, your credit rating will take a hit, but there's little more the creditor can do. But credit card debt is expensive. Rates average 15 percent and often much more. "It's not good to finance long-term debt with short-term loans," says Miami financial adviser David Smith.

— With additional reporting by Arielle O'Shea

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