Have you recently lost your job? And do you have credit card debt? A thought that might have crossed your mind—take money out of my 401(k) and pay on credit card debt. No, no, no. According to Gerri Willis, host of CNN Open House, it is never a good idea to use 401(k) money for anything but retirement, especially if you are near retirement.
A better way to go—talk to your credit card company. They can usually work out a payment plan, possibly with lower interest, and you may be able to get part of that debt forgiven. If you have a good credit rating until your job loss, it may be easier to deal with the credit card company. Some are helpful and some are very hard-nosed.
There is another alternative called debt reduction or debt negotiation. These plans claim they can negotiate down your debt by 40 to 60%. While this sounds attractive, there is a down side. You must stop paying on your credit card bills while you pay into an escrow account for negotiation and fees. The fees are rather significant and your escrow reserves must build up so the company can negotiate. Meanwhile with no payments being made your credit score takes a huge hit. Some credit card companies will phone you several times a day. You are instructed not to take the calls and if you do, refer them to the debt reduction firm.
If you have a good credit rating, it can be very difficult to watch your score take this huge hit.
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