Paying Off Debt the Right Way
There are different strategies for paying off debt.
Once your debt really starts to pile up, you are likely going to start looking for any way possible to pay it off. There are good ways to pay off debt and bad ways to pay off debt. Let’s discuss some of them here.
Good Ways To Pay Off Debt
Work an extra part time job and put all of the money you earn towards your debt. Doing this for six months or a year could make a significant dent in what you owe, without the necessity for borrowing more.
Slash spending in every possible area. Go through your cable bill, telephone bill, insurance bill, grocery bill, clothing allowance, gift allowance, vacation spending…if you’re paying 25 percent interest on a credit card loan, any extra luxuries are costing you a fortune. Give up these luxuries until your debt is paid down.
Find a credit card with a low percentage rate and transfer your balance and debts there, if you qualify. If you don’t qualify now – make all of your payments on time until you get a better credit rating, and then start asking around to find a credit card company that will allow you to lower your payments.
Home Equity Loan – if you can qualify these days, and ONLY IF you are going to change your spending habits. Home Equity Loans generally have much lower interest rates than credit cards.
Bad Ways To Pay Off Debt
Home Equity Loan. Hey, wait a minute, didn’t we just say that was a GOOD way to pay off a debt? Yes, IF you can change your lifestyle and spending habits. If not – guess what – you now have a home equity loan, and you paid off your credit cards and then ran them up again – so you haven’t really helped your situation, have you? In fact you are more in debt than you were before – and at risk of losing your house.
Borrowing against your 401k or cashing in your 401k. If you cash in your 401k you are putting your retirement money at risk and also you will be hit with huge prepayment penalties and you will have to pay taxes on it.
Taking out a high interest loan to pay off all of your old loans. Taking on new debt hurts your credit, and odds are that this new loan won’t solve whatever problems caused the debt in the first place.
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