Is there such a thing as a bad ways to paying off debt?
When you think about debt and paying it off, you might assume that nothing could be wrong with that plan, and no matter what it takes, you should stay focused on that task at hand.
The truth is paying off debt is, for the most part, a very good thing, but in some instances you can go wrong with not so much wanting to pay off the debt but how you’re going to go about it.
For instance, have you ever thought about paying off your debt by borrowing from yourself? So, there are two ways to look at that proposition, one much better than the other.
If you have $15,000 in debt and $30,000 in a saving account, most experts will agree that debt is the root of all evil, and you should pay off the debt, take the leftover $15,000 and then start the savings process all over again.
The one element of borrowing from yourself that you should, ten times out of ten, steer clear of is taking money from your retirement fund to pay off debt. That only serves as a way to set back when you want to retire and the plan you’ve set forth as far as looking beyond your days working. Now, if your plan is to borrow and pay back by upping your contribution levels substantially to sort of play “catch up,” then that’s a start. But if you can avoid borrowing altogether from your 401K, IRA or retirement fund.
In addition, you want to stay away from balance transfers or consolidating debt to the point that you aren’t really getting ahead, but rather a move that would be deemed inconsequential. For the group of people who argue that they’ve made a living saving money by balance transfers from a high interest credit card to one with a low introductory, annual percentage rate for a period of time (usually 12 to 18 months, sometimes 24), you need to move gently on that proposition.
If you can transfer a higher balance and rate to a lower one, you need to be certain that you can pay off the total amount before the introductory period ends, or you’re right back where you started, plus that transfer fee you probably paid in the process.
When you tell someone you’re paying off debt, they’ll be grinning from ear to ear at that thought, unless you begin to tell them your path from debt to debt free is either ill advised or convoluted to the point that progress might be harder to achieve than originally thought.
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