| 4 Debt Solutions |
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| Written by Stephan Bloomers |
| Monday, 08 November 2010 19:48 |
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Cash out Refinance
Cash out Refinance If you have equity such as a home, you could refinance it to cash out money for your loan repayment. Typically you are allowed to refinance up to 75%, (sometimes 80%), of the value of the property on conforming loans. For example, if your home is now valued at $150,000 and your loan balance is $70,000, you might be able to get a new $150,000 x 75% = 112,500 mortgage. That would allow you to repay the existing $70,000 balance and use the $42,500 for your financial needs. Retirement Benefits If you have a 401(k), plan or certain types of pension plans, most employers allow you to borrow against your retirement account. Typical plans allow you to borrow up to half your vested balance, but not more than $50,000. You usually must pay the money back, with interest, over five years. If you don't repay the loan, you will owe income tax and a 10% early withdrawal penalty. This type of loan offers low interest rates and is much easier to handle. Hence, you can borrow against this retirement account to settle the high interest rate loan. There are a couple of big drawbacks which you should aware of. First, you are giving up the tax-free compounding of the money you withdraw. That could lead to a significantly smaller amount on retirement day. Also, if you leave your current employer for any reason, you will probably have to pay the loan back immediately or face taxes plus a penalty. Credit Union Credit unions generally have lower interest rates and fees on loans. These loans normally offer to member only. If you are not a member, check with your employer, or organizations of which you are a member and find out if you are eligible to join one. Most loans are 1, 3 or 5 years in duration. From time to time individual credit unions will offer special loan rates so it is beneficial to check in with your local credit union regularly. The type of loans available depends on your credit union. A credit union loan has some very special features: *Loans are insured at no direct cost to the eligible member. *Repayment protection insurance is available as an optional extra. *No hidden fees or transaction charges. *Repayments calculated on the reducing balance of the loan. This means smaller interest repayments as you repay your loan. *Repayment terms to suit your particular circumstances. *Flexibility -you can repay the loan earlier or make larger repayments than agreed with no penalty. *Additional lump sum repayments accepted with no penalty . Insurance You can borrow from the life insurance policy at a very low interest rate in order to solve your debt problems. The most advantageous thing is that, you do not have to repay this loan. Your life insurance benefits will be reduced by the amount you borrow in addition to any accrued interest. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. Want to find out more about debt solutions methods, then visit Stephan Bloomers's site on Credit Card Debt. |