L.A. Bankruptcy Lawyers: Be Wise About Credit Card Debt Reduction
Working to rid yourself of credit card debt is a smart move that can lead to better credit and greater financial stability and freedom.
Our Los Angeles bankruptcy lawyers believe if you are in a position to comfortably pay down your debt‚ you should do it.
But the big key word here is “If.”
One common mistake that too many of our clients make is approaching credit card debt the wrong way‚ believing that it must be paid down at the cost of your retirement savings or by taking out another high-risk loan.
It’s easy to understand why people reach these conclusions‚ given the pressure applied by card companies and collection agencies for overdue balances. It’s their job to create a sense of urgency about their money‚ and make it seem as if it should be your top priority.
It’s not. And many people end up falling into this trap of thinking they have to do everything in their power by whatever means necessary to pay off that debt in its entirely. In the end‚ they may end up not only unable to pay off that debt‚ but suddenly in even deeper financial trouble for having squandered their nest egg.
Understanding how you should approach debt means also understanding how you shouldn’t.
First of all‚ reaching into your retirement savings should be No. 1 on your “Do Not” list. This involves taking out a 401(k) loan‚ which in the end will have you losing out on loads of interest you could be earning. And the second is to simply withdraw funds from your retirement account. Right off the bat‚ you’re looking at a 10 percent penalty‚ an amount that is likely to be more than the interest on your card. Not only that‚ but you will then have to pay taxes on that money as if it were income.
Secondly‚ you want to avoid using a home equity line of credit. Although lower interest rates might make this seem like a wise move‚ the fact is‚ you’re still paying for debt with different debt. This will generally kick off a pretty vicious cycle.
The same principal applies to payday loans. These are short-term‚ high interest loans that will give you an advance on your paycheck. The reality is‚ by the time you cover the cost of the loan’s interest rate and fees‚ you’re going to end up paying even more than you would have had you simply paid on the card directly.
If you have multiple credit cards‚ what you don’t want to do is approach your payments without a plan. Paying just the minimum on all your cards is never going to get you out of debt. But it might be worth it to pay your lower-interest debts at the minimum rate while tackling hard those high-interest payments. Evaluate your priorities every few months.
Too often‚ we see clients who worked incredibly hard to try to pay off their balances‚ only to be unsuccessful and lose out on money and assets they may otherwise have been able to keep had they explored bankruptcy as an option much sooner.
It’s not a given that bankruptcy will be the right answer for you‚ but we can help you decide upon the best course of action.
If you are facing foreclosure in Los Angeles‚ contact Nader‚ Naraghi & Woodcock‚ APLC to schedule your free consultation. Call (800) 568-0707.
6 ways not to pay off credit card debt‚ Feb. 22‚ 2013‚ By Dawn Papandrea‚ CreditCards.com