Getting a little extra money in your pocket is always a great feeling. Whether you’re getting a nice holiday bonus, a surprise birthday check from a family member, or just stumbled upon a way to get a little additional cash, every bit can make a huge difference in your debt relief plan. Those extra funds are great for paying down debt. If you are trying to decide whether to do that or put the money into savings, we are here to help you figure it out.
High Interest: Pay Down
If you are wondering how to pay off debt quickly, the answer is to get rid of as much interest as possible. Extra money should always go toward paying off the highest debts with the highest interest rates to help you save money over time. If you get an extra $100 for example, it will make a bigger difference on your $3,000 credit card debt with 20% interest than in your savings account.
Low Interest: Save
On the other hand, if you have low interest on an account with a low balance, the best thing you can do is save your money. In this scenario, you likely have put debt relief strategies to good use and are close to paying off your outstanding balances. Unless the extra bit of cash will completely eliminate your outstanding balance, it is a great opportunity to start building up your emergency fund or save up for a special item or a trip to reward your good financial decisions!
Multiple Debt Accounts: Pay Down
For those who still have multiple forms of debt looming over them, paying down debt it the best choice when you get some extra money. Take a look at your budget for debt repayment and see where the extra cash will help the most. If you have a lot of money owed to one account, in particular, that has a high interest rate, for example, it may be in your best interest to use that towards that one alone. Depending on how many outstanding balances you have, you may also find its better to split up the extra cash between several accounts.
Retirement Savings Plan: Save
Many employers offer a retirement savings plan where they will match your savings. It may not be exactly how to pay off debt quickly, but it will make sure that you essentially double your savings with less money. The best part about this option is that when you finally get out of debt and you are ready to retire, you will see that you have a nice backup fund that you can rely on without getting back into a sticky financial situation.
Make the Most of Your Funds
Liberty Debt Relief knows how difficult it can be to make and stick to a budget to get out of debt. Our debt relief specialists will work with you to make sure that all of your income is accounted for and that you are always well-prepared to make quick and smart financial decisions. Give us a call today at 1-800-756-8447 .
https://www.libertydebtrelief.com/wp-content/uploads/2019/07/piggy-bank-coins.jpg8001200libertydebthttps://www.libertydebtrelief.com/wp-content/uploads/2018/10/liberty-debt-relief-logo.pnglibertydebt2019-07-17 04:59:542019-07-17 04:59:54Pay Down Debt or Start a Savings: Which Should You Prioritize
Being low on money is stressful, but the truth is that it really does not have to be. For many people, the most effective way to pay off your debt fast is by simply building a debt relief plan and cutting out the expenses that are not necessary. Between the hustle and bustle of everyday life and the constant swarm of advertisements and great deals, it is all too common for people to end up spending extra hundreds or even thousands of dollars on things they can do without.
Read on to find out what expenses we at Liberty Debt Relief suggest you start eliminating today.
If you are like many other Americans in need of debt relief, you probably love the convenience of subscription services. But if you are looking at how to cut expenses, these services are also the best place to start. Consider asking yourself a few questions about the streaming and delivery services you use: Do I really watch Netflix and Hulu enough to make this worth it? Is this meal delivery service actually saving money on groceries for my family? How often do I really need new perfumes and cologne? You will probably be very surprised when you sit back and realize how much money you have spent on products and services that are piling up around the house.
Dining Out of the House
As great as it is to have a new kind of cuisine by simply walking in and out of your favorite restaurant every day, there is a good chance that doing so is wreaking havoc on your budget and jeopardizing your financial health. If you truly want to pay off your debt as fast as possible, consider spending less time in drive-thrus and more time in the kitchen. Whether your appetite vice is a Starbucks frappuccino, sesame chicken from your corner Chinese restaurant, a burger from the local pub, or any combination of the three, making these foods at home could save you hundreds of dollars a month.
Manage Your Utilities
A common issue for many is managing utilities. Depending on where you live and what utilities are necessary for your home, it is likely you spend several hundred a month on simply using electricity, adjusting your home’s temperature, and using water. If you are looking at how to cut expenses, start by making these services cheaper for yourself. For electricity, consider switching to LED bulbs, which save electricity and are better for the environment as well. You can also try to use more natural light by opening up the blinds, unplugging electronics when not in use, and keeping your home at a comfortable temperature that doesn’t require the air conditioner or heater to constantly run. You should also consider minimize water use by shortening your showers and limiting the time it takes to wash dishes or use the dishwasher.
Limit Your Personal Spending
Another key to limiting your debt is limiting the amount of money you spend on personal things every month. Your personal purchases, such as clothes, salons, vacations, gym memberships, and accessories, should be budgeted every month. While those activities and purchases are always fun, they can cause high damage to your bank account. Limiting how much you spend will save your pockets so you can spend more time doing what you love when you get out of debt.
Learn How to Pay Off Your Debt Fast
If you are looking to revamp your budget and want to know how to cut your expenses, look no further. Contact Liberty Debt Relief today and we will get you on the path to financial health, wealth, and happiness.
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Debt is an overwhelming topic to say the least. While many people have a handle on paying back their outstanding loans and credit card balances, millions more are struggling to make their minimum payments every month and just get by in general. When situations get particularly difficult, many considering using their 401(k) savings plans to pay off the rest of their debt. Doing so is certainly an option, but, at the end of the day, is doing so really worth it? Consider the following when making your decision so you can get the best debt relief solution for your situation.
Cashing Out Early Puts a Toll on Your Taxes
Even though the 401(k) is in your name, it is not easily available before it reaches maturity. Choosing to take out money before you reach the age of 59-and-a-half will hit you with significant fees that you will be forced to pay, and they are usually pretty hefty. The first fee is a 10 percent tax penalty on whatever you take out too early. So, for example, if you want to withdraw $10,000 to put towards credit card debt, you will then have to pay an additional $1,000 fee.
Taking out the money also affects your taxes. Because you are technically receiving additional income, you have to claim the cashed out amount when filing and will have to pay an income tax. Depending on how much money you withdraw, it may even put you into a higher tax bracket, which means you will pay a higher amount on your yearly income than you would have if you did not withdraw. For many people, this can be an increase of up to 10 percent, which means they could potentially pay thousands more at the end of the year in federal and state taxes.
You Have to Pay it Back Within Five Years
To avoid those fees associated with using your 401(k) to pay off debt, you could take it out as a loan. Essentially, this will allow you to pay yourself back and protect your retirement funds. You will, however, have a repayment period and interest rate that will dictate how that money is returned to the account.
The repayment period for the amount cashed out is usually five years and the interest rate varies upon the loan market but will usually be between four and five percent. While that may not sound bad for a personal loan, it can make a mess of your 401(k) and even your monthly paychecks. Many employers choose to withhold the monthly payments toward your 401(k) from every paycheck to ensure it does get paid back upon the terms agreed, which means you will see less money each month to help pay for your day-to-day expenses. And while you are technically going to see less money in your paychecks, you will not be able to claim less money on your income for the next tax season because those missing funds went back toward your 401(k) loan.
It Reduces Your Retirement Savings
Just because the answer to “Can I use my 401(k) to pay off debt?” is yes does not necessarily mean that you should go down that route. Because you may have to pay back any amount you borrow from the plan or pay the fees associated, you will be spending a fair amount of time simply replacing money you took rather than adding contributions to the fund.
In the end, this can cost you thousands of dollars of additional savings that would receive no tax penalties or fees in the future. You should do all you can to protect your retirement from debt. That may mean finding a different solution to your financial hardship. This could be a consolidation loan that will combine some of your current debts (and will still require you to pay monthly payments and interest fees) or a debt settlement negotiation that may allow you to lower how much you owe by half!
Changing Employers Does Not Change What You Owe
Some things are just not meant to last forever. Millions of people switch jobs every year for better career opportunities, but if you do so when you have an outstanding 401(k) loan with a previous employer, it can make things a little more complicated. If you decide to completely end the relationship with the employer who issued the 401(k) loan while you still owe money, the outstanding balance will then be considered a taxable distribution and you will have to pay high fees that can severely damage your financial status in between jobs.
You Can End up in Worse Debt Than Before
All those fees and repayment plans are not always what they are cracked up to be. For many of those who choose to cash out their retirement savings plan, they find that doing so ended up costing them more money and very little of what they took out was actually able to be applied to outstanding debts. If they took out a $10,000 loan from their 401(k), for example, there is a good chance they only saw about $7,000 to $8,000 of it and that amount barely put a dent in the other debts they owe. They now have to pay that full $10,000 back along with their other outstanding debt.
Get Advice from the Specialists
401(k)s are confusing and can take a lot of navigating through the fine details to truly understand the ins and outs of the plan. If you are considering using your 401(k) to pay off debt, talk to Liberty Debt Relief to find out if that is the right course of action for you and what alternatives are available. Contact us today to get started on finding the debt relief plan that is best for your situation.
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