Getting out of debt is never a bad idea, but exhibiting self-discipline and following a strategic debt payoff plan will work better than paying off large amounts of debt all at once or cleaning out savings to do so, according to U.S. News & World Report.
The publication recommends avoiding these five dangerous debt payoff strategies:
1. Paying off credit card debt too fast. Paying off credit card bills in one fell swoop after you’ve relied on them for an extended period may give you immediate gratification, but you could end up racking up more credit card debt in the near future. You need to wean yourself off of using credit cards while paying them off so once they’re paid off, you won’t depend on them again.
2. Using emergency funds. The desire to get out of debt does not constitute an emergency, so leave your emergency fund alone unless you’re faced with a real emergency. If you drain that account to pay off debt, then you’ll find yourself in worse financial shape when a real emergency occurs. Instead, look for ways to earn more money or sell assets to pay off debt quicker.
3. Tapping a home equity line of credit. The rocky economic climate and the decline of housing prices makes borrowing against the equity of your home for large purchases or to pay off debt is a risky business. If you have to sell your home sooner rather than later, you’ll end up owing more than you bargained for.
4. Withdrawing from a 401(k). This strategy for paying off debt may seem simple, but it is costly in the way of fees you’ll owe for early withdrawing and it cancels out the hard work you put in to saving for retirement.
5. Filing for bankruptcy. Those bills may seem overwhelming and you may feel like you’ll never get out of debt, but think long and hard before filing for bankruptcy. The effects of filing for bankruptcy can last 10 years and it will appear on your credit report for all to see: potential creditors can turn you down for a new credit line, future landlords might think twice about renting to you and potential employers who conduct credit checks may not hire you. So do whatever you can to pay off that debt on your own.