How To Pay Off Debt By Borrowing From Yourself

If you are receiving threatening phone calls from debt collectors or credit card companies, wouldn’t you love to stop them and eliminate that queasy feeling in your stomach? Imagine how relieving it would be to open your mail knowing it won’t contain yet another nasty letter from one of your creditors. 

Understand why you are struggling with debt 

Have you been using credit cards to get by after a job loss or underemployment? Did you go into debt after an emergency because you didn’t have enough savings? Or maybe you have been managing your credit cards poorly. Paying off debt can be challenging; therefore, it is important to determine why you got into debt so you can avoid falling back into it.  

Borrowing from yourself 

If you could borrow from yourself, this would be a much better solution than a debt consolidation loan. You may not have to pay any interest at all and even if you did, you would be paying yourself back. 

The first way to borrow from yourself is by using your retirement account. If you have a 401(k), you should be able to borrow from it and then pay yourself back. As a rule, you can borrow the lesser of $50,000 or one-half of your retirement plan’s balance. You will likely have to pay the loan back in five years or less and pay interest but think about it—you are paying interest to yourself. 

A short-term alternative 

You could also borrow money from your IRA. In this case, you must pay the money back within 60 days or it will be treated as a standard distribution, and you will have to pay taxes on it. If you are less than 59½ years old, you will have to pay an additional 10% penalty tax. 

Whole life insurance 

If you have a whole or permanent life insurance policy that builds cash value, you should be able to borrow from it. In most cases, you can take as much time as you need to pay back the money or not pay it back at all. Of course, your policy would require enough cash value to pay off your debts. 

Debt settlement 

If you don’t have a 401(k) or enough cash value in your life policy to pay off your debts, you could let us do debt settlement for you. Our debt coaches will negotiate with your lenders to have your balances reduced and save you thousands of dollars. They will create an affordable payment plan that will help you pay off your debt in as little as 24 to 48 months. You must have at least $10,000 in unsecured debts and be several months behind on payments. If you would like to learn more, call our toll-free number (800-300-9550) today so we can explain debt settlement and how it could help you achieve your financial goals. 

Disclaimer: The information above is not tax advice and should not be consulted as such.