Should I consolidate my debts with a loan?
Wait a minute– why are you looking at a bankruptcy website? Aren’t you trying to get OUT of debt? If your credit is already a little shaky, chances are that you will not be able to get a loan that will pay off all of your debt; then you will have another payment each month.
And what about the interest rate? If your credit is “subprime” (not great), you won’t get a low interest rate, and you probably won’t get a fixed interest rate. If you try this, you are going to have more debt and a bigger list of payments each month!
Should I use my home equity line of credit?
For the same reasons stated above — you already have the money available, but, again, you don’t want to tie your unsecured debt to your HOME! Oh, by the way — is your line of credit a variable rate loan? If it is, you are going to have a payment headache every time the rate adjusts upward.
Should I get a second mortgage?
Read the paragraph above. Same thing: if your credit is already a little shaky, chances are that you won’t be able to get a loan that will pay off all of your debt, and you won’t get a low interest rate. Worse, your debt, instead of being unsecured (no collateral) will be tied to your home! Miss a couple of payments, and you’re not looking at having your wages garnished — you’re looking at foreclosure.
Nearly every home-owner client that we have has tried this. Now they are either losing their homes, or they’re going to spend 20-30 years paying off a second mortgage at high interest. They should have discharged the unsecured debt in a bankruptcy instead of tying up their home equity!
Should I put the debt on a lower rate credit card?
Can you put ALL of your debt on a lower rate credit card, and pay it OFF before the higher rate kicks in? If the answer is yes, then go ahead. If the answer is no, ask yourself, “What the HECK am I thinking?”
Should I borrow from my retirement?
No! You’re messing with your future! In most cases your retirement plan is completely protected in bankruptcy — you can keep it and still get rid of your debt. Ask your tax advisor and human resources department about the tax consequences of doing this — they’ll also say no. Almost every client that we have, who has a retirement plan, has tried to borrow from it to pay off debt.
Unfortunately, NONE of them could pay off enough debt to keep them out of bankruptcy, and ALL of them suffered a tax hit that they can’t discharge in bankruptcy. IN fact, a few of them wound up in bankruptcy BECAUSE of the taxes! Do yourself and your family a favor — don’t mess with your retirement!
How about a payday loan to tide me over?
Oh, YES! Absolutely! Do this, but only if a 30-day, $500 loan at 400% interest is going to pay off ALL of your debt. Good grief — you’ll be better off if you pawn something — that’s usually only 120% interest (10% per month). OK, maybe we shouldn’t be sarcastic, but you should NEVER get a payday loan!