Trying Not to Default

Posted by: Sophie H. | Jan 16,2008


You might have been made very afraid about all the talk regarding high interest as a result of defaults.  Take the universal default clause: your credit card interest rate can go up even if you default on an entirely different bill, such as a car payment.  Thankfully, the outcry against universal defaults is having some effect, as Chase and Citigroup are both discontinuing universal defaults.  Viva la resistance!

You may not have a card with one of those two corporations.  Even if you don’t have a loan with a universal default clause, you are still going to have the weather high interest rates if you default on that loan.  As a result, people will look to dip into emergency funds and other sources in order to pay off debts.  How wise is this?  Obviously it’s better to make a payment than to default, but it matters very much where you get this money.  

I’m speaking specifically about retirement funds.  You should absolutely not, if you can help it, dip into retirement funds to pay off debts.  The charge for dipping into a fund could actually end up being more than the cost of default.  It’s a terrible way to go.  Basically, it’s exactly what you don’t want to do and the main reason that you should be looking to get out of credit card debt as soon as possible. The greater your credit card debt, the more strain you put on your overall savings.  It’s the nightmare scenario to use retirement funds for debt rather than necessary living expenses, so you want to avoid this at all costs.  

If you think you are going to be defaulting for months on end, then this is another story.  If this is the case, I would look towards debt settlement and debt counseling before dipping into your retirement accounts.  That should be your mantra: retirement accounts should be the last resort for paying of debt.  It’s like throwing your earnings away.  

Sponsored Resources Ads by Google