How to Get Out of Debt - Your Life Insurance Policy
One of the biggest obstacles to getting out of debt is coming up with the funds to pay back the money that is owed. Many individuals turn to a second job, loans from friends and family, or second mortgages in order to come up with the funds necessary to eliminate high interest debts from their credit cards or other sources. There are also some advantages to using the money that an individual has in their savings account to cover these debts, but a person may also want to consider borrowing money against their life insurance policy if it has a cash value.
The idea of borrowing money to pay off borrowed money may seem ridiculous at first glance. One of the basics of debt reduction is to eliminate high interest loans as quickly as possible. This is why many individuals transfer balances from high interest credit cards to low-interest ones. The amount of money that an individual borrowed is often not the issue when it comes to their debt problems. Interest that is compounded month after month can quickly turn the balance on a loan or credit card from something manageable to something outrageous.
Because eliminating high interest is so crucial to eliminating debt, using money borrowed against a life insurance policy makes good sense. When a person borrows against their life insurance policy, they are essentially borrowing money from themselves. This is not unlike borrowing from a 401(k), but is generally preferred by most financial experts. The biggest benefit that comes from borrowing from a cash value life insurance policy is that the interest rate being charged is well below commercial rates. Of course, like any loan it is important that a person repay the money that they are borrowing.
If a person is not able to pay back the money their partner life insurance policy before they die, the outstanding balance and any interest will be immediately deducted from the value of the policy before any money is paid to the policy beneficiary. While it may be easy to justify not paying back a loan because they life assurance policy now, an individual it fails to do so may actually be putting their loved ones at financial risk once they pass away. Using every option available and carefully considering this and every other option is the best way for person to make smart decisions regarding debt repayment plans.