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Dangerous ways to pay off your debt

by , 20 November 2014

We know you're in a terrible hurry to get rid of debt. But certain debt reducing strategies may be more detrimental than beneficial.

Don't choose the quick and easy way out because it rarely works. Here are some debt reducing strategies that are dangerous to your financial well-being.

1. Borrowing money from your retirement account
 
Paying off your current debt may be on top of your to-do list, but you can’t sabotage your retirement savings in the process. Securing retirement is just as important as paying off your debt. Look for other ways to pay off debt, including using up your other savings and selling assets.
 
2. Debt consolidation
 
Debt consolidation is not a viable solution if all you can get is a higher interest rate than your average credit card debt. You’ll end up paying more money than before.
 
3. Using up your emergency savings
 
Even if you are desperate to pay off your debt as quickly as possible, don’t tap into your emergency fund. You’ll be left helpless in case of a real emergency and you’ll just end up in debt again. Avoid resorting to your emergency savings for debt reduction because you won’t have anything to count on should the unexpected happen.
 
4. Transferring balances to a credit card with a low introductory rate
 
This is a good idea only if you can pay off the balance before the expiration of the introductory rate and if you won’t take out cash advances or make purchases using the new card.
 
5. Refinancing your mortgage
 
This is a bad idea because you could end up in much more debt than in the beginning and lose your home if you can’t make payments. Refinancing your mortgage will also mean that it will take you longer to repay it and that your credit score will suffer. Your home will also become less attractive in the eyes of potential buyers, should you wish to sell it.

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