Help For Debt Repayments

If you are in debt, you may be surprised to learn that you have quite a few repayment options. First, do what might sound obvious and try to cut your expenses. If you keep track of your spending for a month, some unnecessary expenditures might jump out at you. Once you've determined that you've cut outlay as much as you can, start looking at your options for debt repayment.

401k

If you are in debt and you have a 401k plan, you can borrow from that to pay what you owe. Typically, 401k plans have restrictions on how much you can borrow, usually half of your balance. And you must pay the money back over time, including interest. You are paying yourself back, though, so don't worry too much about the interest. If you don't repay the loan, you get hit with a 10 percent early withdrawal penalty, and you'll have to pay income tax on the money you borrowed. The other caveat is if you leave your employer for any reason, the money is due back immediately or you pay the penalty.

Home Equity Loan

If you own a home with equity in it, you can take out a home equity loan to pay your debt. Usually, you can get a home equity loan for a lower interest rate than what you are probably paying on your outstanding debt. You are usually able to deduct the interest you do pay on a home equity loan on your income tax. If you default on your loan payment, however, you could lose your home.

Credit Card Consolidation

If you have good credit, you probably get offers for low-interest-rate credit cards. You can transfer your debt to one of those, but this is risky because the low-interest rates are usually just teaser rates that go up after a certain amount of time. If you don't pay off the credit card within the introductory period, you might be in the same position as before. You can keep transferring your balance to new low-interest-rate cards. As long as you transfer before the introductory period ends, you can come out ahead.

Debt Counselor

If you don't like those options and want help, you can hire a reputable financial counselor through the National Foundation for Credit Counseling. You have options with the NFCC from simply seeking financial advice to enrolling in a debt management plan. A credit counselor can help you develop a budget, can advise you on money management and can provide you with free educational materials. If you choose the debt management option, you deposit money every month with a credit counselor who pays your bills for you after working out a payment plan with your creditors. Beware, however, because many credit repair organizations are scams. Learn your rights under the Fair Credit Reporting Act, and never give any firm money up front.