Top 7 Tips for Getting Out of Debt

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Top 7 Tips
For Getting Out of Debt
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Debt Crisis
Total consumer debt that includes mortgages,
car loans, credit cards, etc. stands at about
11.4 trillion. The Great Recession forced many
Americans to go deeper in debt to save their
homes, keep their cars, and put their children
through school. Although the economy is
technically in recovery, few but the wealthiest
are seeing any upside to their financial
situation. Good debt management practices can
help many consumers pay down debt and get their
head above water. By making a few prudent moves,
consumers can reduce their debt load, find more
flexibility in their monthly budgets, and improve
their credit scores.
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Tip 1
Pay More Than The Minimum
The more you kick into your monthly debt
payments, the less interest you will pay, and the
quicker you will discharge the debt. Start
inching up how much you pay on your debt each
month by eliminating unnecessary expenses and
applying them to your financial obligations.
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Tip 2
Consolidate Debts
If you have a low interest credit card with
enough available credit to take on the amount you
have on a higher interest card, consider
transferring the balance. Also inquire into
consolidating student loans or consolidating high
interest debt into one lower interest loan from a
bank or a credit union.
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Tip 3
Tap Your Home Equity
Taking out a home equity loan may make your debt
more manageable and reduce your interest rate. In
many cases, you can reduce an 18 percent interest
rate to 7 or 8 percent with a home equity loan.
You can also deduct the interest from your income
at tax time.
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Tip 4
Cash Out Your Savings
It may sound counter to all good financial
advice, but if you can wipe out your debt with
your savings, it may be the right long-term move.
If your debt continues to accumulate interest,
its going to cost you a lot. If youre young and
you can make a substantial dent or pay the whole
debt off, cashing out and rebuilding later may be
the smart move.
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Tip 5
Borrow From Your 401K
The federal government will allow you to borrow
up to half of your 401K retirement savings or
50,000. The upside is that when you repay the
loan, youll be repaying yourself. You even get
to keep the interest. The downside the loan must
be repaid in five years to avoid penalties and
youll be taxed on the interest later in life.
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Tip 6
Borrow Against Your Life Insurance
If your life insurance policy has cash value, you
can borrow against that to repay your debt. The
interest rates are low and you can take your time
repaying the loan. The downside is that if you
die before repaying the loan, the balance is
subtracted from the payout to your heirs.
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Tip 7
Bankruptcy
This should be a last resort, as it will impact
your credit score and may also impact your job
prospects, but for consumers with insurmountable
debt, bankruptcy may be the answer. Under a
Chapter 7 bankruptcy, all your debts will be
cleared. Under a Chapter 13, youll have to repay
some of them over three to five years before the
rest are cleared.
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About Ilan Toledano
Ilan Toledano is a respected engineer, having
worked for the Israeli aerospace industry. You
can learn more about him at www.ilantoledano.com