If you are carrying a lot of credit card debt it may be tempting to borrow money from your 401(k) plan to pay it off. But taking money out of a 401(k) can take a bite of your retirement nest egg over time. Here is what you need to know about borrowing money from a 401(k) plan.
Using a 401(k) to Help with Debt
Many Americans who need help with debt have turned to 401(k) money. Many 401(k) plans allow you to borrow up to 50% of the vested balance, with the total withdrawal capped at $50,000, according to SmartMoney. In some cases the money can only be used for a home purchase, medical costs, or education expenses. Read the rest of this entry »
You’re up to your ears in credit card debt and want a debt consolidation loan to lower your payments and streamline debt management. Unfortunately, it can be difficult to find a debt consolidation loan unless you’re willing or able to put up your home or car for collateral. Paying off debt with an affordable repayment plan through consumer credit counseling can be a welcome alternative to pricey unsecured debt consolidation loans.
Consumer Credit Counseling: How it Works
Non-profit consumer credit counseling services offer a package of services for a fee. In some cases, their fees are based on your ability to pay as determined by a review of your income and debts. Paying a fee to get out of debt often makes more sense for debt ridden consumers than paying more interest on a debt consolidation loan. Here’s a general picture of how credit counseling services work; policies and procedures vary.
Initial interview: When calling for an appointment, you may be asked several questions about your situation, but legitimate credit counselors never ask for credit card information over the phone. They provide instructions about the financial documentation you need to bring to your appointment. Prepare this information well before your appointment in case you find that some of what you need is missing.
Your debt consolidation and repayment plan: Your credit counselor reviews your income, assets, and unsecured debt obligations. This information is used to determine your eligibility for a debt repayment plan. These plans are set up according to your ability to pay and requirements of your creditors. Your credit counseling agency acts as an intermediary between you and your creditors. Your counselor attempts to negotiate lower finance charges and fee waivers, but usually cannot lower the balances you owe.
Signing your debt away and cutting up your plastic: Once your credit counselor has determined the terms of your repayment plan, you review it and are asked to sign an agreement. As part of the agreement, you destroy your credit cards and close your accounts. This is a difficult step for many, but it ensures that you won’t sabotage your repayment plan by incurring more debt.
Debt consolidation: You make scheduled payments to your credit counseling agency and they distribute funds to your creditors according to your agreement. You gain the dual benefit of debt consolidation and lower, less costly repayment terms. Congratulations!
Consumer credit counseling can be a beneficial alternative to unsecured debt consolidation loans. Contact a credit counseling service to learn more.
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Chris Rocks is the Regional Director of the National Credit Federation (NCF). NCF is a nationwide membership-based organization that assists consumers recovering from a financial difficulty and those who need a significant increase in their credit score.
Chris began his financial services career as a Financial Advisor helping young families with risk management and asset accumulation strategies. It was during that time that Chris realized that many of these young families also needed someone to guide their choices with regards to debt management.
He made the transition into the mortgage industry where he first worked as a loan originator and later the Vice President of a small mortgage company. As Chris came across clients who had suffered through financial challenges and saw the difficulty they had in re-entering our credit driven economy, he discovered there was a real opportunity to leverage his unique background and help others.
He can be contacted by visiting his personal site, GoodCreditLiving.com.
Francine L. Huff is the Publisher and Editorial Director of Super Savvy Publishing, LLC, which provides editorial and publishing services. She is a gifted author, freelance journalist, and motivational speaker who has entertained and motivated a variety of audiences through workshops, panels and keynote addresses. Francine is the author of The 25-Day Money Makeover for Women, which has inspired and motivated many readers to rein in poor financial habits, become good stewards over their money and work toward a debt-free life. She has appeared on a variety of TV and radio shows. Francine previously worked for the Wall Street Journal, where she was the spot news bureau chief, a news editor and a copy editor. She has interviewed a variety of financial professionals about financial issues and strives to present information about managing money in an easy-to-understand format that is accessible to people of all backgrounds and income levels.
Karen Lawson is a freelance writer with more than 15 years of experience working in mortgage banking and loan servicing. She holds BA and MA degrees in English from the University of Nevada, Reno. She enjoys writing informative articles about debt management and personal finance.