Which should be used by seniors to pay off debt – retirement fund or loan?
If you’re on the other side of 60 and an overwhelmingly large amount of credit card debt is hanging over your head, you must be wondering whether or not you must use your retirement account to repay your multiple creditors. You may be wondering ‘how to get debt relief’ as you’re going through immense financial mess managing payments for so many financial obligations. If you feel hopeless about your present economic state and you are confused about choosing your retirement account or a senior debt consolidation loan, here’s help for you. Read on to know which would be the best option for you as a senior citizen in the US.
What happens if you cash out your retirement fund to pay off debt?
Paying off credit card debt is a simple thing if you have enough of money amassed in your retirement fund or 401(k) account. But you really need to reconsider your decision before taking the plunge into cashing out your retirement account. Although it may apparently seem to be the right option, if you think twice, you may end up changing your decision. It is certainly a noble aspiration to take steps to pay off your credit card debts, but you must also be aware of the immediate consequences of cashing out your retirement fund instead of taking out a senior debt consolidation loan.
You must remember that when you’re contributing your money to a retirement account, you’re accumulating it in a fund that is sheltered from taxes. There is a penalty fee that you’ll be charged if you withdraw the money before time. The penalty for early withdrawal is 10% and this amount will be deducted from your payout and the due taxes before you get your funds. This will immensely reduce the amount that you can use in paying off your credit card debts.
Should you take out a senior debt consolidation loan instead?
Well, if this question is asked by a senior to any financial consultant, the most probable answer would be ‘yes’. It is always better to manage your personal finances and repay your loans through a senior debt consolidation loan. Here are some benefits that you can reap through this option.
* Revised interest rates and monthly payments: By taking out such a loan, you can qualify for revised interest rates and monthly payments that will simplify the entire debt repayment procedure.
* Single outgoing payments: As senior citizens have limited source of income, they can find it easier if they can stick to making a single monthly payment towards the debt consolidation loan. You can relieve yourself of the added stress of making more than one monthly payment.
* Boosts your credit score: You may require taking out a loan at any point of time and for this you need to maintain your credit score. This is possible by consolidating your debts through a debt consolidation loan.
Thus, if you’re a senior who is knee deep in unsecured debt, do not spend sleepless nights thinking ‘how do I consolidate my debt’. Just get in touch with an authentic debt consolidation company and get an unsecured loan. This would certainly be a better option that cashing out your retirement account.
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