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Refinance Debts to Save
Question: My husband and I are $70K in Credit Card debt. We have a mortgage balance of $180k, and have started falling behind on 3 of our bigger credit cards. Should we take out a equity loan (house value approx. $350) or cash out my husband's 401k of $45k (after severe penalties might receive about $28k) not to mention adding on the whole $45k as income for taxes. At most,we might get to utilize $18k of the $45k. HELP!! Please, desperate!! Thank you for anything you have to offer.
Answer: First, regardless of how you choose to repay the debts, I would recommend that you pull the equity from your home rather than taking the money out of your husband’s 401(k). The penalties associated with pulling money out of the 401(k) early rarely justify the benefits.
As you mention in your question, there are significant penalties associated with drawing money from a 401(k) prematurely, along with an increased tax burden, which leads to most people losing around half of their money in penalties and taxes. Clearly, borrowing money from the 401(k) should be your last resort. To borrow money against your home, either through a home equity loan or a refinance loan, you will be required to pay lender fees and closing costs, along with interest, but these costs should be significantly less than had you borrowed the money from your 401(k) - and the interest is tax deductible.
If you want to apply - you may be a good candidate for a combination program of debt settlement and a refinance. In this case, you could refinance your home and take less cash out than you owe and then supply the funds to a company that will negotiate settlements on your behalf for much less
than you owe. I know this company does this program:
Freedom Debt Relief
www.freedomdebtrelief.com
1-800-544-7211
Or if you want a free debt consultation with one of Bill's approved debt help partners, click here:
https://www.bills.com/debthelp/debt/
Therefore, in order to maximize the value you receive for the money you borrow against your home, I recommend that you consider the services of a debt settlement firm. These companies specialize in negotiating reduced balance settlements with your creditors to payoff your debt for significantly less than you actually owe. In many cases, I have seen successful debt settlement plans reduce debts to 40% of the balance owed or less. This means that if you owe $10,000 on a credit card, a debt settlement company may be able to settle the account for $4,000. Clearly, this would make paying off your delinquent debts much easier. Also, since you are borrowing the money against your home to repay the debts, debt settlement could significantly reduce the amount you need to borrow, meaning that you will pay less in interest when repaying the loan. Given the situation described in your question, I think that a debt settlement program, coupled
with a home equity loan, may be the best way for you to quickly and effectively resolve your delinquent credit card accounts.
To learn more about debt settlement and other debt relief options, I encourage you to visit the Bills.com Debt Consolidation Resources page at http://www.bills.com/debt-consolidation/
Enter your contact information in the Bills.com Savings Center at the top of the page, and we can have a pre-screened debt settlement provider contact you to discuss the options available to you and if a debt settlement plan can help improve your situation. In my opinion, Freedom Debt Relief is the best debt settlement firm in the industry. I believe that FDR has partnered with a mortgage lender to assist clients who want to resolve their debts through a settlement program using their home equity. When you speak with someone at the settlement firm, make sure that you mention the fact that you would like to fund your settlement program through a home equity loan, so they can connect you with the appropriate resources.
I wish you the best of luck in resolving your accounts. I hope that the information I have provided helps you Find. Learn. Save.
Best,
Bill
www.bills.com
Also, make sure to get a free financial health check-up with Bills IQ!
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