Sometimes your debt is so massive that you cringe and get a sinking feeling in your stomach at thought of even checking your credit card bill. You can no longer afford payment on your debt with your current income and all the balance transfers in the world won’t make a difference in the amount of debt you owe.
That is when you need to start thinking outside the box about how you are approaching the debt problem. All is not lost. If you are in a dire situation that is similar to what I have just described, here are some creative ways to pay off your debt:
1 – If have a funded 401k account, you can get a loan from it.
A 401k loan is different from a 401k withdrawal so do not get it confused. With a loan, you will have to pay it back vis-a-vis payroll deductions. Everything you pay back will go right back into your 401k account. Additionally, the money that you take out as a loan on your 401k does not count towards your income for taxes purposes, as it does with a 401k withdrawal.
Also, you do not get penalized for a 401k loan, as you would with a 401k withdrawal before the age of 59 and 1/2. Keep in mind that your employer may require that you have contributed a certain amount of money in your 401k before you are able to get a loan from the account. With a 401k loan, you are only allowed to take out a loan for whatever amount you have contributed (and the earnings thereof). To get started with a 401k loan, get in touch with your HR office.
2 – Tapping Your Equity
If you own a house with equity you should definitely think about getting some equity out of the house to pay off your high interest debt. You can do this in the form of a home equity line of credit or a home equity loan. Both have fees associated with it but the interest rates are a lot lower than that of credit cards and personal loans.
Since there are fees and such associated with taking equity out of your property, do not do this unless you know the savings from paying off your debt with the equity trumps the the fees and interest that you will incur as a result of taking out equity.
3 – Turn To Your Loved Ones
You may have to put your ego aside and ask to borrow money from your loved ones. Borrowing from family and friends is usually not done because of the shame and stigma that comes borrowing money and admitting that you are in debt.
However, I believe the benefits of borrowing from loved one outweighs any hesitation you may have because of your pride. Your loved ones will not charge you interest (or very little) and whatever you borrow from them will not go in your credit report as additional debt.
4 – Parting With Your Material Belongings
Sell your stuff. Yes this includes selling your beloved iPod, your TV, your camera. Anything worth of value over $100. Post on Facebook, Twitter, Craigslist. Host a garage sale. Parting with material belongings is one of the hardest things but it needs to be done if you are serious about paying off your massive debt. If you are looking at items to sell, you should probably start with your iPhone or other Apple products. Apple products hold their value extremely well.
5 – Put In Extra Work
When none of the options above exist or is enough to get you out of debt, you will need to get a second job or a side gig. The key to finding a second job or a side gig is to be flexible. The pay might not be what you want but at least you’re still getting paid. Use that money from your side gig to pay off your debt. It is hard work but once you have paid of your debt you can quit your side hustle if you want to. Who knows, maybe your side gig will lead you towards a new career.
Paying off huge amounts of debt is not easy. Actually it is rather hard. It is very hard to get out of debt once it has piled on. Being in debt takes an emotional, mental, physical, and financial toll on you and your loved ones. But there is hope. You can get out of the massive debt you have piled on yourself. However it does require sacrifice, hard work, and making smart choice. Are you ready to do that? Are you ready to work to get out of debt?
About the author: TK is a blogger who writes about investing, saving money, and retiring in style at SmartFinance101.com.
Photo credit: Alexander Kalina