What is the best source of funding to pay off debt?
"Thirty thousand in credit card debt is a ""big elephant to eat"" so to speak.  But you do it by taking a bite at a time.  One positive is that you do not want to borrow from your 401K.  Doing so is a horrible idea. The first question you have to ask yourself and understand, is how you accumulated 30K in credit card debt in the first place?  Most people get there by running up a relatively small amount, say 5K, and playing the zero transfer game a few times.  Then add in a late payment, and a negative event or two (like the car breaking down or a trip to the emergency room) and poof a large amount of credit card debt.   Obviously, I have no idea if this is how you got there, and providing some insight might help.   Also, your age, approximate income, and other debts might also help provide more insight.  I assume you are still working and under age 59.5 as you are talking about borrowing from your 401K. Where I come from is that my wife (then girlfriend) found ourselves under stifling debt a few years ago.  When we married, we became very intentional and focused on ridding ourselves of debt and now sit completely debt free (including the house).  During our debt payoff time, we lived off of less than 25% of our salary.  We both took extra jobs when we were able.  Intensity was our key.     If I were you, I would not refi the house.  There are costs associated with this and why would you put more debt on your home? I might cash out the annuity provided that there are no negative tax consequences and depending on how much you can get for it.  Numbers are the key here.  However, I feel like doing so will not retire this debt. The first thing you need to do is get on a written budget.  A game plan for spending and stick to it.  If you are married, your spouse has to be part of this process.  The budget has to be fresh each month, and each month you and your wife should meet.  To deviate from the budget, you will also need to have a meeting.  My wife and I still do this despite being debt free and enjoying very healthy incomes. Secondly, it is about cutting expenses.  Cable: off.  No eating out or vacations.  Cut back on cell phone plans, only basic clothing.  Gift giving is of the $5 variety and only for those very close to you.  Forget lattes, etc.  Depending on your income I would cut 401K contributions to zero or only up to the company match (if your household income is above 150K/year). Third, it is about earning more.  Ebay, deliver pizzas, cut grass, overtime, whatever.   All extra dollars go to credit card balance reduction.  At a minimum, you should find an extra $1000/month; however, I would shoot for 2K.  If you can find 2K, you will be done with this in 13 months.  I know the math doesn't work out for that, but once you get momentum, you find more. How good will it feel to be out from under this oppression next March?  I know you can do this without cashing in the annuity or refinancing.  Do you believe it?" You can take a out loan against your 401k, which means you won't be penalized for the withdrawal. You will have to pay that amount back though, but it can help since the interest will be lower than a lot of credit card rates. You could refinance your home if you can get a reasonable interest rate. You could also get a 0% APR balance transfer credit card and transfer the balance and pay it off that way. There are a lot of options. I would  contact a Credit Counselor and explore further options. The main objective is to get you out of debt, not put you more in debt - whether that is refinancing your mortgage, cashing in an annuity, etc. First of all a big thumbs up for Ben's answer.   A few small things you can do to help you on your way.  Hopefully you are not more in debt that 6 months of salary in debt because that is a really tough road. first thing you need to do is get some professional help. The National Foundation for Credit Counseling (NFCC) offers free or low-cost debt counseling to help you through the process. Visit them at NFCC.org or call 1-800-388-2227 to find a local affiliate office near you. You might want to only use cash for a while. If not and you have a credit card with no balance always use that card because it will be interest free.  Remember if you use credit cards as a payment system and not credit, you actually get free interest.  If you roll even a penny over into the next statement you are paying interest day one of each purchase. Pay credit cards with highest interest rate first an pay minimums to others This one I like the best.  As you get money pay your credit card.  You interest is being compounded daily.  Pay your cards when you have money, not when they are due.   Have a mindset that reminds how much something is really going to cost you If you plan on taking 3 years to get out of debt and you buy something for $100 that is really costs you $156.08 Three years of compound 16% interest.   5b. Conversely if you sell something for $100 on eBay that is like selling something for $156.08. Please take a look a Dave Ramsey's Baby Step plan.  It has all the details that you need to clean up your personal finance situation.   None of your options are good.   As some of the other answers mentioned, behavior modification is the key. Any idea will be worthless if you just wind up in debt again.  Many, many people, including me, have made the change using Dave's plan.  You can too. With regard to helping your son with tuition, are there better or cheaper options?  It does not make sense to put yourself in financial peril in order to cover college expenses.  I understand that is a tough decision but he is a man now and needs to be part of the real world solution.  Following the Baby Steps: The biggest factor is a belief that you can fix the mess. 30k is not really that much, with a good plan and focus, you can clean it up.  Good luck.
"The basic optimization rule on distributing windfalls toward debt is to pay off the highest interest rate debt first putting any extra money into that debt while making minimum payments to the other creditors. If the 5k in ""other debt"" is credit card debt it is virtually certain to be the highest interest rate debt. Pay it off immediately. Don't wait for the next statement. Once you are paying on credit cards there is no grace period and the sooner you pay it the less interest you will accrue. Second, keep 10k for emergencies but pretend you don't have it. Keep your spending as close as possible to what it is now. Check the interest rate on the auto loan v student loans. If the auto loan is materially higher pay it off, then pay the remaining 20k toward the student loans. Added this comment about credit with a view towards the OP's future: Something to consider for the longer term is getting your credit situation set up so that should you want to buy a new car or a home a few years down the road you will be paying the lowest possible interest. You can jump start your credit by taking out one or two secured credit cards from one of the banks that will, in a few years, unsecure your account, return your deposit, and leave no trace you ever opened a secured account. That's the route I took with Citi and Wells Fargo. While over spending on credit cards can be tempting, they are, with a solid payment history, the single most important positive attribute on a credit report and impact FICO scores more than other type of credit or debt. So make an absolute practice of only using them for things you would buy anyway and always, always, pay each monthly bill in full. This one thing will make it far easier to find a good rental, buy a car on the best terms, or get a mortgage at good rates. And remember: Credit is not equal to debt. Maximize the former and minimize the latter." "Welcome to Money.SE. Your question is similar to a number of others. The ""How do I pay my debt down?"" and ""How do I invest extra money?"" is a bit of a continuum since there's no consensus than one should pay off the last cent of debt before investing.  Oversimplify it for me: the correct order of investing offers a good look at this. You see, Pete's answer on your question is perfectly fine, but, since you make no mention of, say, a matched 401(k), I'd suggest that any answer to a question like yours should first take a step back and evaluate the bigger picture. A dollar for dollar matched 401(k) beats paying off even an 18% credit card.  Absent any tangents, any thought of investing, saving for anything else, etc, my answer is simple, line up the debt, highest interest rate to lowest. Keep in mind the post-tax rate, i.e. a 6% student loan you can deduct, is an effective 4.5% if you are in the 25% bracket." This is a case where human nature and arithmetic lead to different results. Depending on the your income, the effective interest rate on the mortgage is probably right around 2.5%.  So purely by arithmetic, the absolute cheapest way to go is to put the $11k to the bigger car loan, then pay off the mortgage, then the smaller car loan. The Debt Snowball is more effective however, because it works better for people. Progress is demonstrated quickly, which maintains (and often enhances) motivation to continue.  I can say as a case in point, having tried both methods, that if does indeed work.  So, I am with you ... pay off the car loan first, and roll that payment into the bigger car loan. If you add no extra dollars, you should get the small loan paid off in 6 to 8 months and the bigger car loan in another 16 to 18 months. It sounds like from your message that you have another $1500 or so a month.  If that is the case ... small loan paid off in two months, bigger loan paid off in another year.  If you stick with the Ramsay program, you then build an emergency fund and start investing. Good luck! Two different questions: Is it better to be in debt or to pay off the debt? And: Is it better to have student debt than other debt?  Any debt needs to be paid off eventually, and any debt makes you less flexible. So if you have the choice between spending/wasting your money and paying off debt, I would recommend paying off the debt.  The other question is whether having student debt is better than having other debt. You need to look at the terms of your student debt. Pay off the debt with the worst conditions first. Loan sharks (in Britain: pay-day loans) must be paid first. Credit cards debt must go next. Then general loans. Depending on your situation, you may want some savings as well. In case you lose your job, for example. So if you have $8,000 saved and an $8,000 student loan, you might consider waiting a bit before you pay back the loan. No job + $8,000 student loan + $8,000 in the bank is better than no job + no debt + no money in the bank. "There are a great number of financial obligations that should be considered more urgent than student loan debt.  I'll go ahead and assume that the ones that can land people in jail aren't an issue (unpaid fines, back taxes, etc.). I cannot stress this enough, so I'll say it again: setting money aside for emergencies is so much more important than paying off student loans.  I've seen people refer to saving as ""paying yourself"" if that helps justify it in your mind.  My wife and I chose to aggressively pay down debt we had stupidly accrued during college, and I got completely blindsided by a layoff during the downturn.  Guess what happened to all those credit cards we'd paid off and almost paid off?  Guess what happened to my 401k? If all we had left were student loans, then I still wouldn't prioritize paying those off.  There are income limits to Roth IRAs, so if you're in a field where you'll eventually make too much to contribute, then you'll lose that opportunity forever.  If you're young and you don't feel like learning too much about investing, plop 100% of your contributions into the low-fee S&P 500 index fund and forget it until you get closer to retirement.  Don't get suckered into their high-fee ""Retirement 20XX"" managed funds. Anyway, sure, if you have at least three months of income replacement in savings, have maximized your employer 401k match, have maximized your Roth IRA contributions for the year, and have no other higher interest debt, then go ahead and knock out those student loans." A traditional bank is not likely to give you a loan if you have no source of income. Credit card application forms also ask for your current income level and may reject you based on not having a job. You might want to make a list of income and expenses and look closely at which expenses can be reduced or eliminated. Use 6 months of your actual bills to calculate this list. Also make a list of your assets and liabilities. A sheet that lists income/expenses and assets/liabilities is called a Financial Statement. This is the most basic tool you'll need to get your expenses under control. There are many other options for raising capital to pay for your monthly expenses: Sell off your possessions that you no longer need or can't afford Ask for short term loan help from family and friends  Advertise for short term loan help on websites such as Kijiji Start a part-time business doing something that you like and people need. Tutoring, dog-walking, photography, you make the list and pick from it. Look into unemployment insurance. Apply as soon as you are out of work. The folks at the unemployment office are willing to answer all your questions and help you get what you need. Dip into your retirement fund. To reduce your expenses, here are a few things you may not have considered: If you own your home, make an appointment with your bank to discuss renegotiation of your mortgage payments. The bank will be more interested in helping you before you start missing payments than after. Depending on how much equity you have in your home, you may be able to significantly reduce payments by extending the life of the mortgage. Your banker will be impressed if you can bring them a balance sheet that shows your assets, liabilities, income and expenses.   As above, for car payments as well. Call your phone, cable, credit card, and internet service providers and tell them you want to cancel your service. This will immediately connect you to Customer Retention. Let them know that you are having a hard time paying your bill and will either have to negotiate a lower payment or cancel the service. This tactic can significantly reduce your payments. When you have your new job, there are some things you can do to make sure this doesn't happen again: Set aside 10% of your income in a savings account. Have it automatically deducted from your income at source if you can. 75% of Americans are 4 weeks away from bankruptcy. You can avoid this by forcing yourself to save enough to manage your household finances for 3 - 6 months, a year is better. If you own your own home, take out a line of credit against it based on the available equity. Your bank can help you with that. It won't cost you anything as long as you don't use it. This is emergency money; do not use it for vacations or car repairs. There will always be little emergencies in life, this line of credit is not for that.  Pay off your credit cards and loans, most expensive rate first. Use 10% of your income to do this. When the first one is paid off, use the 10% plus the interest you are now saving to pay off the next most expensive card/loan. Create a budget you can stick to. You can find a great budget calculator here: http://www.gailvazoxlade.com/resources/interactive_budget_worksheet.html Note I have no affiliation with the above-mentioned site, and have a great respect for this woman's ability to teach people about how to handle money. True, not everyone becomes a debt-slave, especially if you choose your major wisely. I like it when people like you tell those debt-slave holders to put it in their pipe and smoke it!  Actually, they probably would, with a brandy. I think about debt as a good option for capital investments that offer a return. In my opinion, a house and clothes you need for that new job are good things to borrow for. School is ok, depending on the amount. Car is ok, if it's a 3 year loan. The rest is not good. You should try to carry as little debt as possible, but don't let it dominate your life. If faced between the choice of paying ahead on your student loan and blowing $300 on an XBox, you should pay the loan. If the choice is between taking your kid to the zoo and paying the loan, have fun at the zoo. No. Unless you are ten Bill Gates rolled into one man, you can not possibly hope to make a dent in the 14 trillion debt. Even if you were and paid off whole debt in one payment, budget deficits would restore it to old glory in a short time. If you have some extra money, I'd advise to either choose a charity and donate to somebody who needs your help directly or if you are so inclined, support a campaign of a financially conservative politician (only if you are sure he is a financial conservative and doesn't just tell this to get elected - I have no idea how you could do it :). "Pay off the highest rate debt. Interest on both are charged on the balance owed, nothing more complicated than that. There are those who would call a mortgage ""front loaded"" but that's nonsense. Of course most of the payment is interest at the beginning because the debt is higher and you start with a 30 year term. The fastest way to pay off multiple debts is always from highest rate first and then the next and so on." What is best for everyone is maximizing the effectiveness of the resources at hand.  We are most certainly not doing that, as there is just so much capacity sitting idle right now.  Demand is what we are lacking.  Stimulus creates demand.  Demand puts people to work, it builds companies, it brings ideas to fruition.  Effective limiters can be used to avoid consequences of an overheating economy when that time comes, but we are far away from that point.  Imposing these silly superstitions that somehow someday the U.S. is going to get to a point where we can't pay back our debt is making us lose focus on the fact that real people are suffering today, and that we can do something about it.  Without artificial constraints like congress putting a limit on the debt, **it is impossible for the U.S. government to default.** "Wow, you guys get really cheap finance. here a mortage is 5.5 - 9% and car loans about 15 - 20%. Anyway back to the question. The rule is reduce the largest interest rate first (""the most expensive money""). For 0% loans, you should try to never pay it off, it's literally ""free money"" so just pay only the absolute minimum on 0% loans.  Pass it to your estate, and try to get your kids to do the same.  In fact if you have 11,000 and a $20,000 @ 0% loan and you have the option, you're better to put the 11,000 into a safe investment system that returns > 0% and just use the interest to pay off the $20k. The method of paying off the numerically smallest debt first, called ""snowballing"", is generally aimed at the general public, and for when you can't make much progress wekk to week.  Thus it is best to get the lowest hanging fruit that shows progress, than to try and have years worth of hard discipline just to make a tiny progress.  It's called snowballing, because after paying off that first debt, you keep your lifestyle the same and put the freed up money on as extra payments to the next target.  Generally this is only worth while if (1) you have poor discipline, (2) the interest gap isn't too disparate (eg 5% and 25%, it is far better to pay off the 25%, (3) you don't go out and immediately renew the lower debt.  Also as mentioned, snowballing is aimed at small regular payments.  You can do it with a lump sum, but honestly for a lump sum you can get better return taking it off the most expensive interest rate first (as the discipline issue doesn't apply). Another consideration is put it off the most renewable finance.  Paying off your car... so your car's paid off.  If you have an emergency, redrawing on that asset means a new loan.  But if you put it off the house (conditional on interest rates not being to dissimilar) it means you can often redraw some or all of the money if you have an emergency.  This can often be better than paying down the car, and then having to pay application fees to get a new unsecured loan.   Many modern banks actually use ""mortgage offsetting"" which allows them to do this - you can keep your lump sum in a standard (or even fixed term) and the value of it is deducted ""as if"" you'd paid it off your mortgage.  So you get the benefit without the commitment.  The bank is contracted for the length of the mortgage to a third party financier, so they really don't want you to change your end of the arrangement.  And there is the hope you might spend it to ;) giving them a few more dollars.  But this can be very helpful arragement, especially if you're financing stuff, because it keeps the mortgage costs down, but makes you look liquid for your investment borrowing." In the United Kingdom, there is a leading company that has been offering Progressive business funding solutions to the businesses for the last 120 years. Their service areas are South Africa, New Zealand, Ireland, Canada, Australia, USA, etc. "Although there is no single best answer to your situation, several other people have already suggest it in some form: always pay off your highest after-tax (!) interest loan first! That being said, you probably also have heard about the differentiation for good debt vs. bad debt. Good debt is considered a mortgage for buying your primary home or, as is the case here, debt for education. As far as I am concerned, those are pretty much the only two types of debt I'd ever tolerate. (There may be exceptions for health/medical reasons.) Everything else is consumer debt and my personal rule is, don't buy it if you don't have the money for it! Meaning, don't take on consumer debt. One other thing you may consider before accelerating paying off your student debt, the interest paid on it may be tax deductible. So you should look at what the true interest is on your student loan after taxes. If it is in the (very) low single digits, meaning between 1-3%, you may consider using the extra money towards an automatic investment plan into an ETF index fund. But that would be a question you should discuss with your tax accountant or financial adviser. It is also critical in that case that you don't view the money invested as ""found"" money later on, unless you have paid off all your debt. (This part is the most difficult for most people so be very cautious and conscious if you decide to go this route!) At any rate, congratulations on making so much progress paying off your debt! Keep it going." "The answer is stimulus, but more specifically direct spending.  The kind of ""stimulus"" where we simply fill in giant gaping holes of bank balance sheets is not ""stimulus"" at all, and those who criticize ""keynesian economics"" because the bailouts ""failed"" don't understand what they are saying.  Bailouts are not stimulus.  Creating middle class jobs, that is stimulus.    I will put it to you this way.  Almost every single company in existence uses some kind of debt to leverage its operations.   Almost every company that is listed on the stock exchange either sells bonds or issues commercial paper or both.  This can also be a useful position for the government, especially since their cost of borrowing is lower than that of any company.    Essentially, the government can borrow at 1%, put people to work, and collect 25% in taxes.  Its cash flow positive in the short term, and in the long term as well, as long as it is effective and the economy gets better.  A growing economy will bring in more than enough tax revenue to offset any costs of jump starting the economy.    If instead you wanted austerity, you would be calling for austerity on the largest economy in the world, who's bonds are still rated AAA, and who's borrowing costs are 1%.  If you are calling for austerity on that, then nobody on earth is credit worthy.  It is a non-sensical position."