6 Debt Payment Ideas That Do More Harm Than Good

There is no one formula to get out of debt. You actually have a lot of choices before you. However, that does not mean that all of them are effective. Believe it or not, there are options that may seem like a good idea but are actually not.

This is why you have to take the time to research the different debt payment options that you have before you make a choice. There are debt solutions that will only make you feel better now but they are actually not helping you solve the root cause of your problems. When you are deep in debt, there are many issues lurking beneath the surface. The most evident is the debt that you have to pay off. However, you need to stop and consider if the debt payment option that you will use can also help you solve the reason why you landed in debt in the first place.

6 payment options that will harm your finances more than it will help with debt

There are 6 debt payment options that people should consider carefully before using them. Most of these are doing you more harm than good. If you are not careful, you could end up paying more than the debt that you really owe.

• Sticking to the minimum payments. There is no one happier with you doing this than the creditor. While it will keep you from incurring late penalties, it will also keep you in debt for a very long time. If you want to see how long, you can use the minimum payment calculator from Bankrate. Feel free to alter the monthly payment and see how long it will take for you to completely pay off your dues. You will also see how much you will end up paying on interest.

• Credit card cash advance. The cash advance that you will get from credit cards are more destructive than you thought it would be because of the high interest rate that is imposed on it. Not only that, there is no grace period. So as soon as you take this out to help pay for your other debts, you are already accruing interest.

• Direct deposit advance. This other type of advance can also end up crippling you because of the high-interest rate. This is an arrangement that you will make with your bank. They will agree to give you a loan but they will take your paycheck when it is directly deposited in the bank. It may solve your payment problems now but what about for the next month? Not to mention the money you wasted on the interest rate.

• Getting money from your 401(k). Some people use their retirement money to help pay off their debts. This is usually a bad idea. If you are near your retirement age and you are tempted to use the money you have set aside – don’t do it. You will lose in terms of your taxes. The money you put in your 401(k) is before taxes. If you withdraw from your 401(k), you need to pay it back with interest from your income after taxes. And when you retire and you withdraw the same money, that will also be taxed.

• Title loans. This will give you a loan but you have to put your car’s title on the line. The interest rate is high and you have to endanger your car from being taken by the lender in case you cannot pay off your debts.

• Payday loan. The last debt payment option that is not advisable is using payday loans. These also have high-interest rates and short payment terms. If you are using this to make ends meet month on month, you are not solving your debt problems – you are making it worse.

Better payment plans for your debt

Instead of using these options to help finance your debt payments, we strongly suggest that you go for a debt relief program that will work within your budget. Most of the loans that we mentioned above involve getting a high-interest loan to help pay off the expenses of today. You are not addressing the high amount of expenses that goes beyond your income capabilities. Well here are two options that will help you keep up with your debt payments while sticking to your budget.

Debt consolidation. This option will help you get a lower monthly debt payment plan. That should help loosen the restrictions in your budget. Also, this debt relief program will allow you to consolidate your debt payments into one. That should make it easier for you to monitor your debt contributions. In most cases, you are also given a lower interest rate on your debts. It has to be said, though, that this will not lower the balance that you owe. Your current debt is stretched over a longer payment period – that is what makes the lower monthly payments possible. You have three options for this: debt consolidation loan, debt management, and balance transfer.

Debt reduction. If your income cannot pay for a significant part of your debts, you may need to reduce your balance. This is where debt settlement or bankruptcy can help. By proving to the creditor or bankruptcy court that you are in a financial crisis, you will be granted debt forgiveness.

To help you choose between the debt payment options, we encourage you to use the debt calculator from the National Debt Relief site. Or you can use the consumer options calculator from the IAPDA.org site. These will help you understand which of the debt payment plans can actually help your unique financial situation.