Manage Debt (part 3)

Ten Ways You Can Pay Off Your Debt (part – 3)


9) Borrow From Your 401k:

Check the literature of your employer’s retirement plan to see if
you can borrow against your 401k balance. Most plans allow you to
borrow up to 50% of the account’s value of $50,000, whichever is
lower. In most cases, you’ll have up to five years to pay the loan
amount back and the interest rates are reasonably less than credit
card rates. The good news: you not only borrow from your account
but the interest you pay also goes back into your account, not the

Before you pursue this strategy, take a look at a few of the

  • You lose the earning potential
    of the money you borrowed.

  • The interest that you pay on the
    loan is deducted from your paycheck with after-tax dollars.
    The interest will also be taxed again when you withdraw money
    from your 401k.

  • If you leave your employer
    before your loan is re-paid, the entire balance on the loan
    may be due in a short period of time. The balance of the loan
    will be reported as a distribution to you and will be taxed as
    ordinary income. If you’re under 59 and 1/2 you will be
    subject to a 10% early withdrawal penalty as well.

10) Talk To A Credit Counselor:

If you feel you can’t negotiate with creditors on your own or your
debts are just getting out of control, there are many credit
counseling services out there that can help you. One of the best
known is the  National Foundation for Consumer Credit (NFCC).
The NFCC is a network comprised of 1450 non-profit community
organizations (most use the name Consumer Credit Counseling
Services or CCCS) spread across the United States. 

Certified counselors at CCCS will examine your financial
situation, help you develop a spending plan, or just answer
general questions about money management. If you have severe debt
and your situation warrants, you may be able to enroll in their
Debt Management Plan (DMP). In this plan, you agree to deposit
funds into a CCCS account each month. CCCS distributes payments to
creditors according to the proportion of debt owed to each. They
also contact your creditors to ask for lower interest rates, lower
monthly payments, and waived finance charges. It will take
approximately 48 months to repay debts through the DMP and when
you have completed your payments, CCCS will help you re-establish

A few things you should know when dealing with CCCS:

  • CCCS is funded with voluntary
    contributions from creditors.

  • Up to 15% of your DMP payments
    to creditors will come back as voluntary contributions to CCCS.
    Your accounts with creditors, however, will always show 100%

  • CCCS and your creditors will
    discuss many options but they’ll never mention bankruptcy as
    one of them.

  • If you enroll in the Debt
    Repayment Plan from CCCS, make sure you follow through. Missed
    payments or a hesitancy to keep up with the plan may show up
    on your credit report as an uncollected debt. Not good.

If there are no CCCSs in your area,
the NFCC recommends asking the following questions to help choose
a qualified credit counseling service:

  • Is this agency a non-profit

  • How much will these services

  • Are agency services

  • What counseling services are

  • Are the counselors qualified?
  • Are budget and credit education
    opportunities offered?

  • Will my funds be protected?
  • Is the agency accredited?

If your debts are too high to
make the CCCS plan work or you’ve exhausted all other options,
then you may want to explore bankruptcy as a last resort.

To contact the NFCC:

Foundation for Consumer Credit

8611 Second Avenue (Suite 100)
Silver Spring, MD 20910
1-800-388-2227 [24hr automated listings]

Or look under "Credit and Debt Counseling" in the
business pages of your local telephone directory. The NFCC also
has a
office locator
at it’s web site that
will allow you to find the NFCC member organization nearest you.

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