Debt can become a heavy burden on you and your goals of business financing, especially when financial circumstances change. While being piled in with debt can be stressful, there are worst ways to pay off debt that people commonly use that you should avoid, especially when you’re dealing with financial security down the road. Avoiding these methods may make it harder to find an immediate solution, but in the end you will save yourself a lot of headache by seeking alternate means if possible.
Below are some of the worst ways to pay off debt:
Avoid Debt Settlement Companies
Chances are that you’ve seen some of the ads put out by these companies that are supposedly out to help people w
ith their debt. This is a classic example of “if it sounds too good to be true, then it probably is.” While these companies can sometimes help you remove your debt, there are a large amount of negative affects you may feel during the process. These companies are out to make money, so they almost never point out the potential drawbacks.
First of all, they are going to charge you a large fee for their services even though they cannot actually give you any guarantee that you’ll receive a settlement that actually works for your current situation.
Additionally, your credit score is most likely going to take a hard hit because most creditors aren’t willing to take a settlement payment until you’ve been so past due that they are happy to just take anything. By this point, all the delinquent payments are going to destroy your credit, making it harder to purchase a car, purchase a home, or even get certain types of job positions. Additionally, bad credit will make it impossible to find good business financing from banks.
Don’t Borrow Against Home Equity
The idea behind borrowing on your home equity is that you’ll take all your smaller debts and consolidate them into a single payment. While this may seem more manageable, the drawbacks should be kept in mind. First of all, a change in employment may make it difficult to make this payment, meaning that you cannot pick and choose which debts are most important to be paying back. This means that when you can’t make that one larger payment meant to make your life easier, you’ll be facing the potential of foreclosure on your home! Is it really worth the risk?
Say No to High Interest Loans
It should go without saying that anytime you take on a high-interest loan, you’re basically setting yourself up for failure. Those businesses that give out high interest loans aren’t expecting you to succeed either. Other than some quick cash in hand now, the only real result from this is going to be even more debt in the future unless you have a large sum of money coming. Even if you do have a large sum of money coming, it’s basically throwing money away to take any type of high interest loan or pay day advance.
Save Your Retirement Account for Retirement
Lastly, whatever you do, do not tap into your retirement savings. This is not only one of the worst ways to pay off debt but a guaranteed way to make life harder on yourself in your older age. Not only does this take money out of your savings, but it will also make the earnings from interest lower in the long run. Never touch your retirement accounts prior to retirement.