Now that many Americans are desperately struggling with debt, there has been a brand new crop of debt and wealth “gurus” who are imparting advice that may not be the best thing for many Americans struggling with debt troubles and considering bankruptcy. One of the most often repeated pieces of advice for homeowners is the suggestion that a home mortgage should be paid off as soon as possible. Homeowners with mortgage debt are given several techniques for paying off their mortgage quickly but some of them don’t gel well with the reality facing homeowners and could even land debtors in bankruptcy. Let’s take a look:
- Some debt and wealth “gurus” suggest that homeowners should borrow from family members to pay off their mortgage debt early. One of the most disheartening things one can see during a bankruptcy case is a parent and child battling over unpaid debt. Even if a homeowner was somehow able to borrow $100,000 from their parents to pay off a mortgage, they still owe that debt and it can be particularly stressful to owe that debt to a family member. Unless the debtor’s parents are very wealthy it is unlikely they can loan a $100,000 at no-interest or even low interest over the course of 30 years and even if they did do that, the parents could be forced into bankruptcy if the child did not repay the loan.
- Another suggestion given to homeowners is that they borrow from their 401K to pay off their mortgage. Another generally bad idea because borrowing from a 401K is like borrowing from your future and the possibility that you won’t be able to repay it is just too great. Just as it is a bad idea for a debtor to borrow from their 401K to avoid foreclosure or bankruptcy, it is a seriously bad idea for a debtor to borrow from their 401K to pay off their mortgage early. Not only that, an underfunded 401K could lead to bankruptcy during retirement years.
- And finally, one of the better suggestions is for debtors to make extra mortgage payments on the principal each month; however this also may not be a perfect solution. If a debtor has other bills such as credit card debt and an empty savings account, paying extra mortgage payments may not be wise. It is better to shore up your savings account or pay off credit card debt first. Debtors who have inadequate savings and high credit card debt are very likely to need bankruptcy relief in the near future if they don’t do something to improve their position.