2654: Stupid Or Smart? (Getting A Loan To Pay Off Your Debt) by Philip Taylor of PT Money

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[00:00:56] This is Optimal Finance Daily, Episode 2654. Stupid or smart? Getting alone to pay off your debt

[00:01:08] by Philip Taylor of PTMoney.com. And I'm your host and personal finance enthusiast, Diania

[00:01:14] Merriam. Thanks so much for joining once again here on Optimal Finance Daily! I'm here narrating

[00:01:20] for you every single day from some of the best articles on the web when it comes to money

[00:01:25] and finance. So without further ado, let's get right to today's post and continue optimizing

[00:01:31] your life! Stupid or smart? Getting alone to pay off your debt by Philip Taylor of PTMoney.com.

[00:01:42] Should you get alone to pay off debt? In most cases, no. Just because you can get alone

[00:01:49] to pay off your debt doesn't mean you should. After all, are you really paying it off by using

[00:01:54] another loan? What you're doing is delaying the inevitable and or making the debt a bit less

[00:02:01] painful to bear, either because you will over the interest rate, payment, or lengthen the time you

[00:02:06] have to pay it off. But I know there are circumstances where life happens and backs you into a corner,

[00:02:12] debt wise. Whether it's a job loss or unexpected medical costs, life can send you in a tailspin

[00:02:19] and leave you with excessive credit card debt. Most of us have been there. At this point,

[00:02:24] you can choose to do a couple of different things. First, you need to make sure you stop the bleeding.

[00:02:30] Find a way to get more income and or drastically reduce your expenses to live within the means

[00:02:35] that you do have. If you don't do those things then you'll be right back here in a few months

[00:02:40] or years looking for another loan to help you get rid of credit card debt. Next, you can try and tackle

[00:02:47] this debt yourself by negotiating interest rates with credit cards, developing a debt reduction

[00:02:52] plan and basically taking this debt on head first. Like I said, you can use a loan to help you delay or

[00:02:58] extend the debt payoff process. Here are some loans you could use. Different loans to pay off debt.

[00:03:07] Number one, home equity loan. If you own a home and have some equity, your home is worth more than

[00:03:14] you owe on it. You could tap into that home equity and get a loan for the amount of your debt.

[00:03:20] Doing so will likely take a high interest debt and reduce it to a lower interest rate.

[00:03:25] However, you're taking an unsecured debt and turning it into a secured debt.

[00:03:31] You are putting your home at risk because of some retail spending. Not a good move.

[00:03:37] Number two, peer-to-peer loan. Take the banks out of the equation. Barrow some money from an

[00:03:43] online lending service. Peer-to-peer lending is growing in popularity because of the lack of credit

[00:03:49] elsewhere and because it makes sense for some people. If you use this type of loan, you'll likely

[00:03:54] pay less interest over time and you can extend your monthly payments to a more manageable level.

[00:04:01] Number three, personal loan. Some banks or credit unions will give you a personal loan if they

[00:04:06] can see consistent deposits in your checking account and a steady paycheck. These loans aren't secured

[00:04:12] so there's no asset at risk except your checking account. You can likely reduce the amount of

[00:04:18] interest on your debt significantly by using a personal loan. Number four, life insurance loan.

[00:04:25] If you have a life insurance policy with a cash value portion, you can take a loan against those

[00:04:30] funds to help you pay for the debt. I'm not a fan of this option since it goes against the

[00:04:36] original goal of the money to protect your spouse and children. Number five, debt consolidation

[00:04:42] loan. Take all of your debt and put it on one payment plan. You have to be careful with these loans

[00:04:48] because the company who is performing the consolidation for you is in business to make money off of

[00:04:54] you. In most cases with a debt consolidation, you'll pay more interest over the long term

[00:05:00] and it will take you much longer to pay off the debt. Finally, people who consolidate debts this

[00:05:05] way often find themselves in dangerous levels of debt again. In other words, they don't address the

[00:05:11] root cause. Number six, 401K loan. Similar to a life insurance loan, the 401K loan borrows money

[00:05:20] from a source where the original intent is something other than consolidating debt. For this reason,

[00:05:26] I'm not a fan of using a 401K loan to help you pay off debt but these loans are pretty easy to make.

[00:05:32] Your 401K administrator isn't concerned with what you use the money for. They'll just loan you the

[00:05:37] money and when you pay back the money, the minimal interest rate is actually paid to your 401K balance.

[00:05:44] And number seven, balance transfer. If you can get accepted, you might be able to get a 0%

[00:05:51] balance transfer credit card. You could do your own consolidation by taking all of your outstanding

[00:05:56] balances and transferring the debt to one single credit card. In most cases, the new credit card

[00:06:02] will have a promotional 0% interest rate period and a 3% to 5% fee to make the transfer.

[00:06:09] I've made this move with success in the past but it's getting harder and harder to perform

[00:06:14] this move nowadays. You just listen to the post titled, Stupid or Smart, Getting Alone to Pay

[00:06:24] Off Your Debt by Philip Taylor of PTMoney.com and I'll be right back with my commentary.

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[00:08:09] When I was digging out of 30 grand of debt, I believe there was a short period of time where

[00:08:14] I consolidated some debt on a 0% introductory APR credit card. But I didn't go this route until

[00:08:21] I was sure I had my spending under control, and I was serious about paying off my debt.

[00:08:27] I think the first order of business when you're addressing debt payoff is to use a debt reduction

[00:08:32] calculator to come up with a plan of attack. This will require that you become hyper aware

[00:08:38] of the gap that you have between your income and expenses because you need to tell the calculator

[00:08:43] how much you can throw at your debt each month. Once you have that well underway and you've proven

[00:08:49] to yourself that you can work the plan, then you can start looking at strategies to expedite

[00:08:54] the timeline. If you got into debt due to not paying attention like I did, then short cuts will

[00:09:00] likely backfire. The reason is that you need to have a deep mindset shift and a shift in your

[00:09:07] spending and money management habits in order to avoid making the same mistakes in the future.

[00:09:14] Short cuts might help you get out of debt quicker, but your habits will inevitably land you back

[00:09:20] in debt eventually. By digging out of debt the quote unquote hard way, you'll be learning what

[00:09:26] you need to know to stay out of debt and start building wealth. But that'll do it for this episode,

[00:09:32] have a happy rest of your day, and I'll be back with you again tomorrow where your optimal life awaits.