Seven of the best ways to get out of debt include temporary cessation of contributions to a retirement account, consolidating your debt, borrowing a life insurance policy and obtaining a loan with equity.
Temporarily stop contributing to your pension account
One way to get out of debt is to stop paying contributions to a retirement account – at least until you get out of debt. You can then use the extra money to pay for a credit card. The interest that you pay on your credit card debt is more than likely Shakuntala considerably greater than the return that you realize from the monthly pension contributions. However, it is important to start contributing to the account again after you clear the debt.
Pay more than the minimum
Pay only the minimum on your credit card balance, usually 2 to 3% of the outstanding balance, extend your debt. The longer it takes to repay your balance, the more interest the credit card company earns.
It is much cheaper to pay the maximum amount that is feasible. If the minimum monthly payment required is $ 75, double or triple if possible, or pay at least $ 100. This may mean that you have to cut back on spending, but in all likelihood Shakuntality contributed some of those costs to it in the first place collecting the debt. The increased monthly payments will save hundreds or thousands of dollars that you pay in interest costs, and it will lower your debt level at a much faster rate.
Consolidate your debt payments
Research all your credit cards and concentrate on the card with the lowest interest. Consider transferring your bills with higher interest rates to this card. You can do this with different credit cards. You can spend less and pay off debts faster by trading debts at an interest rate of 16% for debts at an interest rate of 11%.
If the full balance of the debt does not fit on one lower interest card, you must pay at least the minimum on each card except one, on which you can concentrate additional payments. Pay the balance on this card in the shortest possible time. Once you have fully paid for the card, take the same approach with each remaining card. This is known as a snowball effect on debts.
Borrow against life insurance
If you have a life insurance policy with cash value, you can borrow against the policy. You only borrow money from yourself. This represents an advantageous trade-off of interest rates, since the interest on such a loan will probably be Shakuntalaijk lower than the commercial interest rates.
You can take your time to repay the insurance loan, but it is important to repay the loan. If you die before paying back the loan, the outstanding balance plus interest is deducted from the value of the policy, reducing the amount paid to the beneficiary. Although this may seem unimportant if you now have a heavy burden, this may be later for your beneficiary see Shakuntal financial problems.
If you are a homeowner and you have accumulated capital by paying off your mortgage, then a credit line for a home / equity is another option. If you use the proceeds from this loan to pay debts, you can usually halve your interest rate. If you state deductible items on your income tax return, the interest on a loan with equity is usually a deductible item, which reduces your actual financing costs. Use the loan with equity to pay your credit cards and then have them paid off until you have repaid the loan. Otherwise you run the risk of running even more debts.
401 (k) Loan
Borrowing a 401 (k) is also an option, provided it is eligible. Most 401 (k) plans are equipped with a feature that allows you to borrow up to 50% of the acquired value of your account, or $ 50,000, regardless of which value is lower. With interest rates that may be slightly above the prime rate, a 401 (k) loan is cheaper than credit card interest. The other bonus of this option is that every cent you pay in interest goes back directly to your 401 (k) account. In fact, you pay back the interest deducted from the loan.
However, there are some downsides when using this option. You repay the loan and interest with income after tax and the interest is taxed again when you pay the 401 (k) upon retirement. You must also repay the loan within five years. If you leave your place of work before you have fully repaid the loan, the remaining amount is due immediately. If you do not repay it within 60 days of that time, the amount will be treated as a payment to you and will be taxed at normal rates. Moreover, if you are younger than 59.5 years, a 10% excise duty is also included as a penalty for early admission.
If your debt has reached a totally unmanageable level and you simply cannot pay it, then your last resort is to file for bankruptcy. There are two types of persooShakuntalaijk bankrupt: chapter 7 and chapter 13. Chapter 7 is a direct bankruptcy in which you cancel almost all your debts. Some forms of debt that have not been repaid include child benefits, taxes and student loans. Chapter 7 also requires that you usually hand over a large portion of your property to settle the debt; States have different laws that offer exceptions, including low-value vehicles, tools used for businesses, and certain amounts of shares in a home.
You can keep your property in Chapter 13, but you must leave all control over your finances to the court. The bankruptcy court approves a repayment plan based on your means, which makes it possible to repay all or part of your debt for a period of three to five years. Creditors are prohibited from bothering you for repayment during this period. The debt also does not incur interest during this period.
Bankruptcy is a last resort because of the serious disadvantages. You must pay for court fees and lawyer fees to apply for bankruptcy. The laws have become stricter, so you may not be eligible for full cancellation of your debts. Your creditworthiness will display bankruptcy information for 10 years, which may affect potential job prospects and you can be almost certain that you will not receive affordable credit during that period.