The stress of being deeply in debt can cause smart people to make foolish decisions – but you don’t have to. Are you feeling trapped by your financial struggles? Discover the five worst ways to pay off debt, and learn where to find real help towards a brighter future.
#1. Credit Card Balance Transfers
When you have credit card debt, those 0% balance transfer offers look very enticing – but they’re not what they seem. Balance transfers often come with a fee, which is usually about 3% of your balance – or $300 on a $10K debt.
Even worse, that 0% rate is only temporary. After the introductory period is over, your interest rate might be higher that it was originally. If you are moving your balance from one card to another as a strategy to pay off debt, you are only putting off the problem – not solving it.
#2. Cashing Out Your IRA
Thinking about taking money from your retirement savings to pay off debt? Don’t do it. Cashing out your IRA has huge financial implications, and should only be done as a last resort (like you will go to jail or lose your home otherwise).
Taking money from your IRA is a horrible idea because:
· You will have to pay taxes on the money you withdraw
· You will usually have to pay a large penalty fee of 10%
· You will lose investment growth, which could potentially be tens of thousands of dollars by the time you retire
Don’t rob from your future self! Talk to a financial professional before you make this drastic move.
“Come on, seven!” is not a wise financial strategy. Hitting it big and paying off all your debts is an appealing fantasy. But in reality, the house always wins in the long run. The odds are stacked against you.
Using gambling as a strategy to pay off debt is likely to backfire, leaving you owing more than you did when you started.
#3. Borrowing from Your 401(k)
Taking a loan from your 401(k) ties up money that should be earning interest for your retirement – and it comes with a big catch. If you quit your job or are fired, you usually have two months to pay back the balance without a 10% penalty.
When you borrow from your 401(k), the money is no longer compounding interest or serving your future interests.
#5. Taking a Loan from Friends or Family
Borrowing money from people you care about has the potential to wreck your relationships. Getting a loan from relatives or close friends might seem like the perfect solution. It can be quick and easy. Interest rates are low to non-existent, and falling behind on payments won’t affect your credit score.
But nothing is free. Loans from friends and family come with special strings attached. The collateral you are putting up is your relationship with people that mean the most to you.
When someone is supporting you financially, they may feel like they have a say when it comes to your finances and life decisions. This can cause strain and resentments, especially if you struggle to pay back the loan. Your most important relationships could suffer permanent damage.
And the #1 Smart Way to Pay Off Debt…
Ask for help from Pew Law Center. We’re dedicated to helping people get out of debt. Get started right now by downloading our free guide: 6 Bankruptcy Myths that Could Destroy Your Finances (and What to Do Instead!)
Please contact us today to arrange a free consultation, and take back control of your financial future.