1. Borrow from your 401K
You shouldn’t borrow from your 401K period, much less to pay off your debt. Let’s talk about what happens when you borrow from your 401K. First, your employer may not let you contribute to it anymore until you’ve repaid the loan. Second, your take home pay is less (because you have to pay back the loan) until the money’s paid back. Third, if you leave your job, you’ll have to pay the entire loan immediately or you’ll end up with early withdrawal fees and income taxes.
2. Refinance your mortgageAnother bad idea, especially if your debt was unsecured to begin with. Tying bad debt to your home’s equity isn’t smart. When you couldn’t pay your credit card debt, you ended up with a bad credit rating. Securing your debt with your home means you could lose your home and get a bad credit rating when you can’t make payments.
3. Debt settlement
Though they seem like refuge in a troubled situation, debt settlement companies tend to make the situation worse. For the scheme to work, you have to stop paying your creditors. When the payments stop, the phone calls start and so do the negative credit report entries. Thirty days late, sixty days late. Before long your account’s charged off and your credit score is trashed.
In the end, your creditors may not agree to a settlement proposed by your company. Imagine going through all that and still owing the money. (Note: settling already delinquent debts on your own is a different, sometimes better strategy.)