While credit cards offer us a convenient solution to purchase items or bridge the financial gap until next pay day, they accruing interest at 16% on average, along with ongoing charges can often create a debt trap pulls us down farther and farther and is hard to swim out of.
Now more than ever, consumers are looking for simple solutions to free up there monthly budget, that in most cases is consumed by credit cards, auto loans, and personal loans. While there are some within reach life saving resources, many consumers are considering all options to resolve their debt.
In their quest to resolve this debt a common consideration is, “Should I use my 401k to pay off my debts?”
As a result of the growing debt, it is tempting to just access your 401k, that is intended to provide a worry free retirement just to get out of debt now.
What are the penalties for taking early withdraws my 401K to pay off credit card debts?
If you are under the age of 59 1/2, then you will be subject to a 10% penalty for early withdraw plus you will be required to pay taxes on this money. Remember the money that goes into a 401K is not taxed at the time it is earned. It is only waxed upon withdraw.
So if you are in a 22% tax bracket, and have to pay a 10% early withdraw penalty fee that equals 32% you will pay on your withdraw. So if you have $ 20,000.00 in credit card debt, that means you will have to withdraw $ 29,411.76. This means you have to pay an additional $9,411.76 to pay off $20,000.00 in debt. That is almost half of the debt you owe.
Should I use a Home Equity Line of credit to pay off credit cards?
While this seems like a better option than the considerations of using a 401K, there are some future considerations that should be evaluated.
Home equity lines of credit typically require credit scores above 720, and will only let you borrow up to 85-90% the value of your home. So if you fit both of these conditions, than it is worthy to continue to explore this as an option.
The draw back to using a home equity line of credit is that almost all lenders require an adjustable rate and its a revolving line of credit, much like a credit card.
As interest rates continue to rise, the normal credit cycle clearly shows that home owners who use a home equity line of credit end up ultimately refinancing their 1st mortgage to consolidate the home equity loan into the first. Therefore, they end up paying closing cost 2 times, once for the home equity line of credit and a second time for mortgage consolidation loan.
In summary, using a home equity line of credit is better than accessing a 401k, but still comes with some significant financial cost.
Should I use a Debt Management Service to pay off my credit cards?
Almost all debt management services, accept for one, will adversely affect your credit rating while using these services. Basically these services, act much like a bankruptcy chapter 13 debt reorganization program.
In summary, they have you forward payments to them that they then hold in escrow for 2 months, which will then have creditors reporting you late on each tradeline you give them. This means that if you have 5 accounts, each account will end up reporting a one 30 day late and one 60 day late for each credit card they consolidate.
In addition you will see your credit score drop almost overnight, most likely in the mid to low 500’s. It most likely take at least 3 years to rebuild your credit rating, and during that time all lines of credit are frozen.
Should I use CCS National Debt Relief?
Considering the factors discussed above, CCS National Debt Relief offers a very effective strategy to instantly lower your monthly payments, reduce long term debt balances, and become debt free in less than 4 or 5 years, excluding mortgages.
CCS National Debt Relief will consider all viable options, as they represent a variety of lending programs, debt restructuring programs, and debt negotiations to provide you with instant debt relief while keeping and or improving your credit rating.
The reason Consumer Credit Services branched itself into debt resolutions is because the viable options as listed above, are to determinantal. Frankly, if you call a debt service company, they will tell you to ruin your credit, if you call a home equity line of credit they will tell you to use that, if you call a mortgage lender they will tell to use your mortgage.
CCS National Debt Relief, will evaluate all options and has access to all options. Therefore, you can take comfort in the evaluation of all options, and select the best one for you all within one company.
