The Two Worst Ways to Pay Off Credit Card Debt
by Ellise Walsh

More and more consumers are dealing with high levels of credit card debt. With prices rising faster than wages and more and more people feeling strapped and living from paycheck to paycheck, it is not hard to see how credit card debt can get out of control. Paying of high interest credit card debt should definitely be a priority in anyone’s financial life, but there are some definite don’ts when it comes to paying off credit card debt. Two of the most common and egregious mistakes are:

Borrowing from your retirement fund – Dipping into your source of future security to pay present day bills is almost never a good idea. Your retirement fund is designed for just that – your retirement. Dipping into this great source of future investment to pay credit card bills simply does not make sense.

One of the things that makes borrowing from a 401(k), 403(b) or other retirement plan so unattractive is the fact that most plans bar participants from making future contributions until the loan is paid. Not only will this set you back on your retirement savings, but you will lose the important tax savings on your retirement plan contributions. And you will lose not only the money you would have otherwise invested, but all the appreciation that money would have made.

Using a home equity line of credit – While using a home equity line of credit may seem like a good idea due to the low interest rates and potential tax deductibility, this is also generally a major mistake. The most obvious reason this is so is that a home equity line of credit is secured by the roof over your head. Unlike credit card debt, which is unsecured debt, a home equity line of credit is secured by your home. If you default on your credit cards, the worst the bank can do is take you to court to try to recover the money. If you default on a home equity line of credit, however, the bank has the right to take your home away.


To make matters even worse, the interest rate on a home equity line of credit is adjustable, and you could really get hurt if interest rates rise. A sudden spike in interest rates could put that affordable monthly payment out of reach, and consequently put your home at risk.



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