Debt consolidation with a retirement plan loan offers consumers several benefits to paying off debts. Retirement plan loans, such as a 401(k) loan, yield low interest rates and can save employees money with debt consolidation.Many employers allow their employees to borrow up to a certain amount of the assets in their retirement plan. Employees obtain the loan and use the money to finance debt consolidation.The interest rate on retirement plan loans vary by company, but it’s lower than the interest rate charged on existing debts, making the loan an effective option for debt consolidation. Retirement plan loans help employees with bad credit obtain the necessary funds for debt consolidation because the loans involve no credit check.Debt consolidation with a retirement plan loan provides consumers a convenient process to manage their budget. Companies require their employees to repay the loan through regular payroll deductions, which eliminates the hassles of remembering to make monthly payments to a creditor.Consumers can choose their repayment term, usually from one to five years. However, longer terms result in higher interest costs over the life of the loan, which can diminish the purpose of debt consolidation.The risks associated with using a retirement plan loan for debt consolidation involves job security. An employee who leaves with an outstanding balance must repay the loan in full within 30 to 90 days. Failure to repay the retirement loan results in high tax penalties that make this form of debt consolidation a risky method to pay off creditors.