Debt Repayment Plans That Don't Work

Author: Martin Lukac

There are a million people out there telling you how to pay off
your debt. Finances are a very individual thing. While there are
guidelines you should follow, not everything works for everyone.
You have to consider your personal spending habits and reasons
before you are able to make a debt repayment plan that works for
you.

For many people, it takes a combination of different methods to
find a formula for success. Getting out of debt is a wonderful
goal, but you have to work hard to accomplish it. Too many
people are in a rush to get out of debt. And desperation leads
to mistakes. These mistakes can just end up costing you more in
the long run.

In general, there are a few methods that you should avoid. While
they work for a few people, most people are only at an increased
financial risk by trying them out.

So many experts will tell you to go ahead and take out a home
equity line of credit or loan to pay off your credit card debt.
Especially if they are trying to get you to borrow the money
from them!

It isn't a good idea.

Credit card debt is unsecured debt. That is why the interest
rates are so high. There are no assets that can be taken if you
fail to pay what you owe. They can't take your car, your home or
your belongings. Things won't be repo'ed -- like in the movies.

A mortgage, equity loan or line of credit is a secured debt. If
you don't pay it, you will lose your home. If you lose your job,
divorce, become ill or have a death in the family, you can lose
your home. With the credit cards, you will still have a place to
live.

You should also avoid using a 401(k) loan to pay off your credit
card debt. I know that all you want to do is get out of debt.
But think before you act.

There are severe tax consequences that come along with using
your 401(k) before it is time. Your contributions to your 401(k)
are not taxed when you make them. So when you pay back your
401(k) loan, you are using after-tax money. I know that you are
usually paying yourself back with interest, but you are still
losing money.

When you take the money out for retirement, you will absolutely
be taxed for it again. Because it was taxed when it when in, you
are being taxed once. Not a great financial move.

And if you get into money trouble (which you are having after
all) and can't pay it back and take a withdrawal -- oh, you lose
out big time.

So don't use your home or your retirement as a way to bail
yourself out of debt. Think before you choose a way to eliminate
your debt. Remember, the tried and true is always your best bet.
Create a budget, spend less, pay more on your debt, negotiate
with your lenders and work hard. It can all be said in one
sentence.

Martin Lukac represents http://www.RateEmpire.com, an Internet
consumer banking marketplace. RateEmpire.com is a destination
site of personal finance, investing, taxes and mortgage rates.
RateEmpire.com provides mortgage guides and financial rates and
information. RateEmpire.com also operates a financial portal #1
American Financial, found at http://www.1AmericanFinancial.com
and San Diego loan portal http://www.LendingSanDiego.com

About the author:
Martin Lukac represents http://www.RateEmpire.com, an Internet
consumer banking marketplace. RateEmpire.com is a destination
site of personal finance, investing, taxes and mortgage rates.
RateEmpire.com provides mortgage guides and financial rates and
information. RateEmpire.com also operates a financial portal #1
American Financial, found at http://www.1AmericanFinancial.com
and San Diego loan portal http://www.LendingSanDiego.com