In the event that you are using some form of debt repayment strategy that shuffles instead of really paying away it, then you are going about it the wrong manner. You’re not actually reducing your debt. In some instances, your debt could possibly be growing instead of shrinking.

As you think about ways to get rid of your debt load, ask yourself, “Is this just a quick, easy treatment for tide me around or will this actually, once and for all, get rid of the debt?” Here are some of the worst (and many costly) methods to “pay off” your debt.

1. Borrow from your 401K

You shouldn’t borrow from your 401K period, much less to settle your debt.

Your employer might not allow you to contribute to it anymore until you’ve repaid the loan. If you leave your job, you’ll have to pay the whole loan or you’ll end up with income taxes and early withdrawal fees.

As it pertains to paying off your debt, borrowing from your retirement fund is a horrendous idea.

2. Refinance your mortgage

Refinancing your debt in your mortgage is another bad idea, especially if your debt was unsecured to begin with. Tying bad debt to your own house’s equity isn’t smart. You ended up using a poor credit score, when you couldn’t pay your own credit card debt. Guaranteeing your debt by means of your home means you can lose your home and get a lousy credit rating when you can’t make payments.

3. Debt settlement

Debt settlement firms have a tendency to make the situation worse though they seem like recourse in a troubled situation. For the scheme to work, you will need to quit paying your creditors. The phone calls begin and thus do the late fees and negative credit history entries when the payments cease. Thirty days late, sixty days. Before your account’s charged off and your credit rating is trashed.

In the end, your lenders may not consent to some settlement proposed by your firm. Imagine going through all that and still owing the amount of money. (Note: settling already delinquent debts in your own is a distinct, occasionally better strategy.)

Settling your debts is a procedure that is long. Even when it’s successful, you’ll spend the next couple of years rebuilding the credit score you lost.

4. Combine using a high interest loan

When you can get financing at the proper conditions debt consolidation reduction could be a solution. Leave it alone if the only loan you are able to get has a higher rate of interest compared to the average of your bank card debt.

That’s only because the loan is spread over a very long repayment period, although your own monthly payments may appear lower with debt settlement. Should you add up the interest you’d pay over the life span of the outstanding loan, you’ll see that you’re spending more income than in the event that you couldn’t consolidated with that loan.

5. Transfer your balances to credit cards

Transferring balances to credit cards with those low introductory rates only makes sense when: you’re financially in a position to pay off the balance before the introductory rate expires and you will not make use of the card to make purchases or take out cash advances. It won’t work should you can’t transfer the balance under those conditions. And, forget about shuffling your balance to a brand new credit card with a brand new teaser rate, the balance transfer fees negate the interest savings.