Popular ways to solve debt issues (part 3)

Continuation from part 2…

Debt Consolidation loan: These debt reduction loans are helpful for merging all your outstanding debts into one debt reduction loan account. For instance, you might have an current loan with a balance of $2,500 that carries a 15% interest rate, a credit card balance of $1,000 that carries a 12% interest rate and a retail store card balance of $500 that carries a 10% interest rate. When you consolidate your debt by a loan, you can merge all of these existing credit card debts into one bill with one interest rate that would be lower than the combined interest rate you are currently paying. Meaning, you would get a new loan for the $4,000 with a much better interest rate. Bottom Line: Just be sure that you pay off the credit cards and be certain the new loan has a better interest rate than your combined amount of the others. If the interest rates are not lowered, be sure the repayment period can be extended.

Retirement Benefits: If you have a 401(k) retirement plan or even other types of pension plans through employment, most employers permit you to have access to your retirement account by borrowing from it. If you borrow from this type of plan it is a better option than just taking the money from the account. Borrowing the money and paying it back carries better benefits as far as taxes go too when compared to just taking the money out without a repayment plan. Doing so, will save you from paying extra taxes and a 10% penalty you would have to pay if just taking the money with no repayment plan. If you cannot pay the borrowed money back within a 5 year period, the IRS will charge taxes and penalties on the borrowed amount. Bottom Line: If you lose your job, you have to pay back the loan without delay and pay taxes for untimely withdrawal of money. However, this type of loan offers low interest rates and is much easier to handle. Your employer will have retirement plan associates that can assist you with the details of these loans at no charge.

Credit union: You will find that credit unions usually carry lower interest rates and fees on loans. If you're not a member of any credit union, see if your employer has one or see if working at a certain type of company qualifies you to join a certain credit union for free. Bottom Line: These loans are low interest, but you have to have great credit to qualify for the best rates.

Insurance: If you have a life insurance policy, you can borrow from it at a low rate of interest.  The best thing about doing this is that you do not have to repay this type of loan. Your insurance benefits will be reduced by the amount you borrow in addition to any accrued interest instead. This is a simple and much used type of debt reduction. Bottom Line: Not everyone has a life insurance policy or is vested in one.

Part 4…

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