You need to consolidate credit cards if you want one bill!

Posted by: Aiden white on

Credit card consolidation is a classic computational invention made by mankind.

A wonderful and unique process that involves theoretical and practical implementation of mathematics to bring all your multiple credit card payments into one single monthly payment.

Sounds confusing?!

Well, don’t you worry, for that’s a subjective definition I just gave. I will surely break it down gradually as you progress down to the end of this post.

This is a whole new different take on how debt consolidation for credit card works, and how you can benefit from it!
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What are the few basic facts of credit card debt consolidation?

  • Best when you have multiple bills to cover:

    Debt consolidation is a debt relief option that is best suitable when you have multiple debts to manage.

    Having too many debts around you, means you will have to make payments on each of them separately. Maintaining separate payments for different debts might become really problematic, if you are unable to keep track of them.

    Many people will advise you to go for a budget, or might even ask you to go for a counseling session in order to organize your finances.
    But we here say, that the best option available to you is probably debt consolidation.

    If you consolidate your credit card debts, then you will have only one single monthly payment to make for all your credit cards.

    There are, in general, 3 most suitable ways to consolidate your debts.

    One is the famous credit card balance transfer method.

    Second is the DIY debt consolidation where you can take out a consolidation loan to pay off multiple credit card debts.

    And, the third is the professional debt consolidation where you will get help from a third party debt consolidation company.

    All three of them are equally valuable and effective.

  • You can do consolidation even if the debts are in collections:

    One major pro of credit card debt consolidation is that it doesn’t matter whether or not your debts are in collection.

    Even if the debts are currently handled by collection agencies, then also you can choose debt consolidation!

    But in this case, I would say that it’s better if you do a professional debt consolidation.

    Dealing with collectors is not at all easy, and it requires proper precision in keeping up with the payments.

    By enrolling into a credit card debt consolidation program with a consolidation company, you will receive a good budget plan that will tell you how to save money each month for the one fat monthly payment you will make to the company.
    Once you do the payment, the company will then divide the amount among all your creditors/collectors, as per the agreements signed between the consolidation company and them.

  • It is still good if you want to consolidate prior to defaulting on payments:

    Debt consolidation can be used even if your debts are not in a bad place to start with.

    Many consumers avail credit card debt consolidation so as to modify their payment structures as per convenience.

    As said earlier in the post, consolidation gives you the opportunity to make one monthly payment which is lot better than making multiple payments.
    If you have not yet defaulted on any of the credit card payments, then for consolidating them you should either take out a consolidation loan, or do a balance transfer.

    A consolidation loan is all the way similar to a personal loan, only that the purpose of this loan is different.
    It’s meant to pay off your other existing debts.

    Once you have taken out the loan, you will straight away clear your all credit card debts. So, now you will have only this loan to pay off. One single loan means one single monthly payment.

    Again, the same thing will happen with a credit card balance transfer.
    This is just another way to consolidate your credit card debt.
    Unlike a consolidation loan, here you will take out another credit card that has a credit limit, which is equal to or more than the total balances combined on your existing credit cards.

    Once you successfully transfer the balances into this card, your other cards will be free of debt, and you will have only this card to pay off.

    If you are lucky enough, then you might get a 0% APR introductory phase for the new card, which will give you a chance to pay off this card without any interest charges during the special period.

    Always try to take out a balance transfer card from the same bank, from where you have issued your other credit cards, to get this premium 0% APR offer!

  • Expect to see a rise in your credit score over time:

    With credit card debt consolidation, you will be having scheduled on time payments each month, for your debts, and in the end you will be actually paying off your debts in full.
    This is a huge positive aspect connected with debt consolidation.

    It will be seen by the creditors, collectors and credit bureaus as a sincere approach from your side.

    You can also expect to see a good status reading for your debts, on your credit reports, after you have cleared the last dime on them.

    A good credit report surely means a good credit score!

    Debt consolidation has always helped debtors to pay off debts fast and at the same time keep up a high credit score.

Don’t hesitate to state your case to a professional debt consolidation company, if you believe managing debt consolidation, all by yourself is very difficult.

Your life your call! Act fast! Be Debt free and live a happy life.

borrowing-from-the-401k-plan-to-pay-off-debts

Borrowing from the 401(k) plan to pay off debts: Is it worthy?

Posted by: Aiden white on

401(K) is an employer-sponsored retirement plan that allows employees to save money for their retirement days in a tax-deferred manner. However, when the employee will retire and withdraw the money from the 401(K) plan, he/she needs to pay the tax on it.

How does 401(k) plan work?

401(k) plan is managed by the employers. They decide the type of 401(k) workers can use and, what investments workers can select for their plan. The employers also decide that what investment management firm will run the investment part of the 401(k) plan.

The employee has to sign up for the 401(K) plan usually from the first day of the job.

What are the benefits of contributing money into a 401(k) plan?

Employees can decide how much of their paycheck should be contributed into the 401(k) plan depending on the IRS contribution limit.

They can also select investment vehicles while opening a 401(K) plan. Rest will be taken care of by the employer (Plan sponsor).

One more benefit of contributing money into a 401(K) plan is that it allows the users to take out a loan against their savings. The users can get relatively low-interest rate loan that they can use to consolidate their debts.

So, it is clear that the 401(k) plan is one of the great ways to build wealth for your retirement days.

But, today’s topic is not discussing about the benefit of a 401 (K) plan in detail. Today’s topic is, should you take advantage of your 401(k) account to consolidate your debts?

Should you use a 401(K) loan to pay off your debts?

The answer cannot be said in one sentence. So, read the article to know the answer.

As per the financial experts, taking out a 401(k) loan to pay off the debts should be your last resort. When you have other debt repayment option to get out of debt, then you shouldn’t borrow from your 401(k).

On the other hand, some financial experts say that borrowing money from a 401(k) plan is a less expensive option to repay the debts. If you’re drowning in multiple debts, then you can take advantage of a 401(K) plan.

Why you shouldn’t borrow from your 401(k) plan to pay off your debts

Though a large number of 401(K) users are taking advantage of their plan to get out of debts, the idea of borrowing money from the retirement plan is not good.

Here’s why you shouldn’t borrow from your 401(k) plan:

#You can’t save enough for your retirement

Remember, the major goal of having a 401(K) plan is saving enough money for the time when you will not work anymore. In most of 401(k) plans, there is a provision that prohibits the user from making additional contribution until the loan balance is repaid by you.

#You are not making the profit

If you stop contributing money since you have an outstanding loan, the money is not growing. Also, you will miss the potential growth in the stock markets. The low interest that you are paying to yourself is very inadequate than the ROI that you can get from the market by contributing money thoroughly.

If you borrow a loan from it, then you should double your contribution to make most of it.

#You are losing time to grow your money

The more time you will give in a long-term investment like 401(K), the more wealth will build with time. As per the financial expert’s calculation, the money in 401(K) usually becomes double on average in every 8 years.

But if you take out a loan from the 401(K) plan, then you are losing the time to make up the lost contribution. Because you are repaying the loan for a long period (Usually 5 years). Therefore, you are losing the growth opportunities.

#You may have to pay a withdrawal penalty

If you are below 59 years, then you will be charged an early withdrawal penalty. Also, if you don’t repay the loan, you have to pay the tax on the outstanding balance. So, you could lose more money on your withdrawal.

#You can never retire

If the user is unable to repay the loan after 60 days of the retirement, it will become fully taxable. Also, the user has to pay the 10% early withdrawal penalty. So, if you have a loan, you can’t quit your job without repaying the loan.

Why you should borrow from your 401(k) plan to pay off your debts

You can’t predict your financial life. You can face a financial challenge at any point in your life. And, you may have to take out a loan from your 401(K) plan.

Though you shouldn’t miss the opportunity to build wealth by taking out a loan from your retirement plan, here’s why you should borrow from your 401(k) plan.

Taking out a loan from 401(k) plan to consolidate debts is beneficial because the debtor can get the loan with relatively lower interest rate than the other commercial loans.

When the debtors repay the loan, they are paying back to themselves the money with the interest instead of paying back to a financial institution or bank.

You can repay the loan from your paycheck. You can make the repayment automatic by setting an automated system. So, no chance to miss the repayment on the new loan that you have borrowed from your 401(k) plan.

Usually, commercial loans have a higher interest rate and it takes a longer time to repay the loan. But the 401(K) plan has maximum 5 years term to repay the loan. So, you are repaying the total balance sooner.

If you borrow a loan from your 401(k) plan, it will not be reported to any credit bureaus. So, your credit score will not get any negative effect from it.

Lastly, you shouldn’t invite financial difficulties by taking out a loan from your 401(K) plan when you are about to retire. It will not let you take full advantage of this plan. So, instead of making your retirement days insecure, you should find out other ways to pay off your debts.