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Five Ways to Help Pay off Personal Loan Debt

the number 5 made out of coins
The best way to get out of personal loan debt is to have enough money to pay it off. Unfortunately, not everyone can magically summon money from thin air. Instead, most people have to either earn more money or save more money.

Since the current job market makes it rather difficult to earn more money at the moment, it is far easier for most to save money in order to pay off personal loan debt.

Here are five great ways to save money and get rid of debt sooner rather than later.

1. Annuities

Annuities are insurance products which pay out income in the future. They are excellent financial choices for investors that want to receive a steady income upon entering retirement.

By first depositing money into an annuity, an investor will see a larger return of their investment at a future date. That return can be received on a monthly, quarterly, or annual basis. Naturally, the size of the payments that investors receive is based upon the length of their payment period.

Investors can choose to receive payments for the remainder of their lives or for a set number of years.

Patrick Kelly, a consultant at Impact Partnership, explained to us how annuities can help people save money that can be put towards repayment of personal loan debt.

“If the right annuity is chosen, it provides a consumer the opportunity to grow their money by tracking the equity markets in the good years, without any fear of loss in the bad years,” said Kelly.

He explained that investors receive a portion of each positive year’s gains without risking losing any money in negative market years.

“The second feature that many of today’s annuities provide is the opportunity to make a bonus (usually ranging from 5 percent to 10 percent) on their initial purchase amount which allows their funds to accumulate more quickly from day one,” said Kelly.

Finally, unlike brokerage accounts, most annuities do not charge an ongoing management fee. When borrowers utilize annuities and receive returns on their investments, they can then enjoy additional streams of income that can be used towards repaying their personal loan debt.

2. Home Equity

Home equity refers to the value of your home that exceeds the amount you owe on it. For instance, if you owe $50,000 on your home that is appraised at $200,000, then you have $150,000 in equity. That equity can be extracted and used for personal use — including paying down existing debts.

Kelly says that one easy method of saving money “is to utilize a low-interest home equity loan to pay off higher interest loans such as credit cards.”

This can be an excellent debt-payoff tactic for some consumers since so many of us owe money on more than one type of loan or credit source. However, Kelly cautions that consumers and borrowers shouldn’t bet on or become overly confident in their home equity.

“Many homeowners lost much, or all, of their home equity with the credit crisis and real estate plunge of 2008,” he said. “Without significant home equity an individual will not be able to utilize this type of loan.”

An even better option for debt repayment than home equity might be discipline. Kelly said that discipline is key since even if a borrower pays off their high-interest debt, they still have to pay off their low-interest debt. Simply running up those credit cards again would be counterproductive and land the borrower right back into the situation they were previously in.

3. Zero-Interest Credit Cards

Transferring your credit card balance can actually help you pay off your debt sooner rather than later. If you owe a lot of money on your credit cards, then you can reduce the amount of interest your debt accrues by transferring your balance to a zero-interest credit card. These credit cards only have zero percent interest rates for a short period of time, but you can use this time period to your advantage and pay off other credit cards’ balances, which won’t grow during that introductory time period.

Once a consumer’s credit card debt is paid off, he or she can focus their payments towards finishing off their personal loan debt. In effect, having one less debt to pay off makes it easier to focus on paying off personal loan debt.

Unfortunately, for this to work, a borrower would have to have a high credit score in order to qualify for a zero-interest credit card. Heavily indebted borrowers are less likely to qualify for zero percent interest on credit cards due to that requirement.

4. Roth IRA

Roth IRAs are individual retirement accounts that offer valuable tax-free income in retirement. Every dollar that investors put into their Roth IRAs can be accessed anytime tax-free and penalty-free. Roth IRAs are ideal for people who expect their tax rate to be higher during retirement when compared to their current situation.

“It simply allows an individual to put away after tax money and then be able to access both the principle and the gain, tax-free, in the future (based on limits of the Roth IRA laws),” said Kelly.

Naturally, Roth IRAs are wise choices for young consumers that don’t want to miss the upfront tax deduction benefit as well as the future tax-free compounded growth. All it really takes to qualify for a Roth IRA is to have a consistent income from an existing job.

“Anytime a person can accumulate money tax-free that’s an instant 20-, or 30-percent savings benefit because they are able to earn interest on their taxes instead of paying taxes on their interest,” Kelly said.

5. Insurance

When it comes to insurance policies, consumers can save some money as well.

“The easiest (and best) way to save money on insurance is to raise deductibles on cars and houses,” said Kelly. “This is tangible and immediate and does not jeopardize the bigger loss of issues of liability.”

Kelly cautioned that people shouldn’t attempt to save money on liabilities. Rather, he said that they should buy all the liability insurance that they are allowed to purchase. After all, it prevents borrowers from having to pay money for damages in the future.

“It’s cheap and it protects the major losses that an individual couldn’t sustain if they were to occur,” said Kelly. “Save money on the small stuff (like a higher deductible) that will not wipe someone out financially if the loss were to occur.”

If borrowers implement these ways to save money, then they will be well on their way to having more disposable income that can be spent on paying down debt. While saving money can be temporarily uncomfortable, in the end getting of personal loan debt will lead to a much more comfortable life.

(Interview conducted by Isaac Juarez)