It’s one thing to have buyer’s remorse after running up your credit card balance. It’s another matter to regret your method of paying down the same credit card debt. Some strategies for debt repayment seem like a good idea at the time, but later cause regret. Taking out a loan from a 401(k) or borrowing from the equity in your home to pay off credit cards are a few ideas that can come back to haunt you. By receiving debt counseling from a reputable credit counseling company, you’ll learn the best ways to eradicate credit card debt without jeopardizing your future. According to a recent article by CBS News, CardHub predicts new credit card debt will increase by 5 percent this year. The credit card comparison site reports the average credit card balance for an American household is now at $7,200. If household credit card debt reaches $8,300 level, experts warn that level is “unsustainable.” In other words, consumers would have to seek debt counseling to figure out a solution.
Don’t borrow from a 401K
Borrowing from a 401(k) to pay off debt doesn’t make sense since your retirement accounts are the only financial accounts truly protected from lawsuits and other legal issues. With debt counseling, you can find out about better alternatives such as a debt consolidation plan. You’ll not only pay back what you owe your creditors, but save a lot of money on interest. Another reason not to borrow from a retirement account is the fact that you’ll need the money to supplement Social Security when you reach retirement age.
Don’t take out a home equity loan
If you own a home, you want to keep your asset safe. Taking out a home equity loan puts your home at risk if you can’t pay your primary mortgage as well as the second mortgage or HELOC. If you are renting, you may have heard people say it’s better to take the money you would have spent on buying a home or paying off credit card debt to invest in the stock market instead. With debt counseling, the goal isn’t to figure out a ‘get-rich-quick scheme,’ but to change your financial habits for lifelong success.
Don’t transfer your balances
Transferring credit card balances from one card to another or trying to pay off the credit card with the highest interest rate first could work for a short period of time. In most cases, people just can’t solve their debt problem on their own. A better idea is to use the snowball approach of paying off debt, which means paying off the smallest balance first before moving to the next balance. If you decide to consolidate your debt with a Debt Management Program, your life becomes simple. You only need to make one debt payment each month without needing to talk to your creditors directly, transferring balances or trying to figure out what to pay first.
At Christian Credit Counselors, we do the hard work for you by negotiating with your creditors and getting everyone on the same page. We directly pay all of your creditors from the one payment you make each month. Many clients end up saving thousands of dollars in interest charges and late fees.
Do you want to know more about debt and how you can make smart financial decisions now that will help you secure a more prosperous financial future? Sign up for our newsletter for monthly money tips.
