Finding Extra Funds

In these tough economic times it is a good idea to go over your income portfolio and your expenses.  Find out where you can receive some extra funds to start paying off your debts.  Some ideas on how to find these additional funds:

1)      Increase your income – work more hours, ask for overtime, or look for a part time job.  Every extra dollar you earn and apply to your set aside will be worth 2-3 dollars at settlement time.  How about your spouse or your teenager, this is a family crisis, ask everyone to pitch in.

2)      Adjust your withholding – Most people have too little deducted from their paychecks and have to wait for their tax filings to get this money back in the form of a refund.  In 2005, the average refund was $2,144.00 that is $178.00 a month, which could be added to your set aside fund.  A 6-month set aside would equal $1068.00 (or a settlement of a $2000.00 debt at a 50% agreement).

3)      Borrow from family or friends – It doesn’t hurt to ask, but once you’ve settled your debts for 40 or 50% of the totals you can concentrate on repaying them back at a fair interest return (more than the 4% they can earn in the bank).  Without the credit card debt, you can afford to pay them back at a reasonable time.  Make it a true business arrangement where both sides can prosper.

4)      Sell some stuff – Go online or have a garage sale.  Do you really need all the stuff that has accumulated over the years.  With the success of eBay and other online flea markets, millions of people are getting top dollar for items that have been stored in their basement or attics for years.  There is a market for everything, so take a realistic inventory of what you have accumulated and turn it into much needed cash.

5)      Borrow from your Whole Life Insurance – You can borrow on the cash value in your life insurance at a reasonable rate with long-term payback period.  However, your benefit will be reduced by the amount borrowed.

6)      Tap into your Stocks, Bonds, Mutual Funds or other Investments – You could do much better than your 10-12% return by paying off 50% of your debt.  Get your debt under control, stop those killer interest rates and fees, then start investing for your future.  Think of what your nest egg would look like if you invested your minimum monthly payments instead of the black hole of credit card payments.

7)      Borrowing from your 401k.  This should be your option of last resort, however, the rate of employees tapping into their retirement funds are growing.  According to the Investment Company Institute about 20% of workers have borrowed against their 401k with an average amount withdrawn at about $7,000.  Some things to consider:

1-      This $7000.  At a 7-8% interest rate could be worth $75 – 80,000 by retirement time.  So you’ve traded $75,000 for $7,000.  Was it worth it?

2-      If you lose your job you will have a short period of time to replace the money into your account or get taxed and penalized as a premature distribution.  If not paid back, you lose your tax exemption on this amount and the money will be treated as income and a substantial penalty assessed.  This could cost you thousands of dollars.

8)      Sell Assets – If you are truly serious about debt freedom you will need to look at the luxuries in your life and decide what you can part with.  The extra car, heirlooms, collections, even real estate.  Get debt free first, and then rebuild your wealth.  These are things and although nice to have, cannot replace your good health that could be jeopardized by your continued financial stress.

To recap! For these first 90 days, set up your savings account and make deposits. Then advise the creditors on a monthly basis with a phone call or letter.  Nothing important happens over this period.  No one you could talk to would have the ability to settle so don’t offer.  Remember the settlement process will not work until your account has aged at least 150 days and the credit card company is looking at charge offs.

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One comment

  1. I’ve recently started a blog, the information you provide on this site has helped me tremendously. Thank you for all of your time & work.

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