How to Fix Your Credit Report Part 9

Ok, this is the final part of eliminating your debts of the How to Fix Your Credit – Personal Finance Series. Today’s discussion revolves around extreme cases. You would use these methods to eliminate debt quickly due to one of the following:

• You have an eviction shown on your credit report and need to prove you aren’t head over heels in debt.
• You need to take out a business loan… BUSINESS loan, not personal.
• You are refinancing or purchasing a home and need a lower debt-to-income ratio

So let’s review two extreme options:

Borrow Against Your Life Insurance

This is a bit of a last minute resort, but it is effective. If you have a life insurance policy, such as a whole life or term policy, you may be able to borrow against your cash value. This is borrowing your own money as opposed to a financial institution’s money.

The interest rate is low, and you are repaying the loan back to yourself. There is not a particular deadline to pay it back either! However, your policy value is reduced by the amount of your outstanding loan. So you do want to ensure you put it all back.

I only advise this though if you have two life insurance policies. The main reason for the policy is for when the unexpected happens. You don’t want to gamble your family’s peace of mind.

Borrow Against Your 401k/IRA

This method is a bit safer – you can always put it back right? However, just note that circumstances can change at your job, both voluntarily and involuntarily. So if you borrow money against your 401k, you will be paying it back via your paychecks. However, if you leave your job, you must pay it back in full. Otherwise, it will be considered as taxable income, which could put you into another tax bracket.

Your IRA will depend on you being able to pay the loan back. If you take it out, you must have an idea of how to pay it back before you even do so. So just weigh your options. 9 times out of 10, you’ll gain more by paying off your higher interest rate cards than saving in the stocks, especially if you are managing it yourself.

I hope this series has helped you figure out a few ways to dig yourself out of debt and get your credit back in the game!

“In God we trust; all others must pay cash.” -American Proverb

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