Debt2Assets

Debt Reduction Options: Some Are Good, Others Are Not

Carrying a debt burden can sap your energy, causing you endless worry and aggravation. Everyone wants to get out of debt, but not every debt reduction solution will really help you out. Most will take some time implementing while others should be avoided except at last resort.

Personal bankruptcy. Yes, bankruptcy is an option for some consumers, especially if there are absolutely no way you can pay off your debt. The U.S. Constitution empowers Americans with the right to discharge their debt, and it is a choice some must take in order to keep creditors away. With medical expenses climbing, fuel prices passing $3 per gallon, and food prices surging, bankruptcy could be your only alternative to help guard your remaining assets from difficult creditors. The bankruptcy court will determine a debt reduction plan which may include discharging your debt through bankruptcy.

Loan Consolidation. Before declaring bankruptcy, consider lumping all of your outstanding loans into one low monthly payment. Loan consolidators can help you come up with a plan to pay off all of your obligations while maintaining your creditworthiness. A home equity loan is one way to go about doing this, but you are putting your home at risk should you default on payments. In addition, a bankruptcy judgment ruins your credit while a consolidation loan may help you rescue it.

Cash In Your Life Insurance Policy. Your life insurance policy may have cash value, therefore consider taking the cash from the policy and using it to pay off or lower your debt. Remember, whatever you take now will not be available to your heirs later.

Government Loans. Local, state, and federal loan support may be accessible to you and at a rate much lower than what your creditors cost. Examine loan programs, which must be repaid, as well as grants – which are considered as gifts to you – to see what you are entitled to accept.

Borrow From Your 401(k). If your company has a 401(k) or 403(b) plan, you can take out a low rate interest loan and use these funds to pay off your obligations. Just remember you are borrowing from your retirement account so you will need to pay it all back or risk IRS penalties.

Of course, some of these options are much less attractive than others, but when your choices are limited, then examining what you have before you is imperative to helping your regain your peace of mind.

Tags: 401(k), debt consolidation, Debt Relief, government loans, life insurance policy, loan consolidation, personal bankruptcy, personal loan