Oregon consumers facing high debt may often feel they have nowhere to turn and can be unsure of their options. Concerns about filing for bankruptcy can often make them seek out other solutions that may actually cause more harm than good down the road. A Chapter 7 bankruptcy can often help eliminate creditor harassment, credit card debt and the financial challenges associated with high interest credit cards.
In the desire to avoid filing for bankruptcy, one solution that many people consider for help with their consumer debt is taking loans from their retirement accounts. While this may appear to be a viable option, there are some serious disadvantages to going this route including the dramatically short time in which payback will be required if future unemployment results from layoffs or other situations. Consumers who cannot pay back the loans in full when demanded may face severely high early withdrawal penalties.
While money is loaned out, it is not working for consumers earning more returns for future needs. Additionally, because the repayment of such loans is made with money that has already been taxed, this portion of consumers’ retirement becomes double taxed because the tax is still assessed when the money is taken out for actual retirement later on.
These problems do not mean that retirement account loans are always bad but care should be taken before choosing this solution. People who have high levels of debt and are in need of help may wish to speak with a lawyer to learn more about the options that may best fit their needs.
Source: ClickonDetroit.com, “Should you raid your retirement savings to slash debt?,” Melanie Hicken, July 11, 2014