Many people think about two options to consolidate their debts, these options are debt consolidation loan and 401k retirement plan. Now the question is which option is the best option? Both of these two options are appropriate when it comes to consolidate outstanding debts. However, it is very important to you to understand the benefits and drawbacks of both of these options to take a better decision for you. Whatever the option you decide to opt for, it is very important for you to fulfill your responsibilities and other things that are related to both of these options.
Borrowing from 401k Retirement Plan
If you have decided to use your retirement plan and you want t to borrow against your 401k retirement t plan then you can easily take out a good amount of money. You can easily use the borrowed money to repay your outstanding debts. You will be provided with a certain time period for the repayment of the loan and you can repay that loan directly from your paychecks every month until you completely pay off it. If you become default on the repayment of your retirement fund then you will have to pay off certain penalties. Moreover, you have to realize that the repayment of loan that you make on your retirement plan will not be applicable as a tax deduction.
Bad Credit Score & Retirement Plan Borrowing
If you are having bad credit score then you might find it very difficult to get other types of loan. However, with bad credit score it will not be difficult for you to take out certain amount of money against your retirement plan. You will not have to get your credit score checked. If you lose your job for some reason then the repayment term of the loan will be reduced to 60 to 90 days, otherwise you will be required to pay off penalties for early withdrawal. If you borrow a considerable amount of money against your 401k retirement plan then it can proved to be problematic.
Debt Consolidation Loan
If you have taken out a secured debt consolidation for which you have to put any of your assets as collateral. It simply means that you are putting your collateral at high risk. Some borrowers get second mortgages or home equity loans to repay their outstanding debts. Getting one loan to pay off another is not the wise solution. If you become default on your payments then you e more likely to lose your collateral any time.
Benefits of Debt Consolidation Loan
With a debt consolidation loan you can deduct your loan payments on taxes. Another advantage of debt consolidation loan is that you can get lower interest rate on your existing debts. Moreover, you will no longer have to pay off various monthly payments for different loans; instead you will be paying off only a single monthly payment for all outstanding loans. You can easily take out a home equity debt consolidation loan even with bad credit score because your lenders will be interested in your collateral. If you decide to take out a personal debt consolidation loan then you will have to get your credit score checked to find out your eligibility for the loan.
You might also like
|A Fair Comparison of Debt Consolidation Options If you are having a lot of debts on each of your credit cards then you will soon need to engage in a...||Understanding Monthly Payment Reduction & Debt Consolidation If you are considering consolidating your debts then you are not the only thinking about this option....||Advantages and Disadvantages of Debt Consolidation To consolidate your debts, you get a loan to pay off several debts. This makes you consolidate the money...|