March 17, 2018

Using A Life Insurance Policy To Pay Off Credit Cards

In the last couple of years, the economic crisis has forced many consumers to run up large consumer debts.

With that being the case, some individuals may be tempted to take a life insurance plan that they have and cash it in for money to pay towards credit debt. So, is that a good decision or one you should avoid if in that predicament?

Some individuals may even once they have paid off the debt use leftover money from the life insurance plan to put some of it into an IRA or put it towards other expenses.

Many financial experts will tell you to simply leave the life insurance money alone. Yes, you want to pay off that debt as soon as possible, but taking from Peter to pay Paul is not the best way to go about it.

You should first ask yourself how you got into that credit card trouble in the first place.

It may have been some unforeseen circumstances, but it may also be the fact that you are not exactly good when it comes to handling money. If that is the case, some credit counseling would certainly be a good place to start.

Getting back to the life insurance plan, most experts will tell you to let that accumulate and be there for when it is truly needed, like at the time you unfortunately could become permanently disabled or even die.

The life insurance should be there to help you and your family when it is truly needed, not to throw at credit card debt.

Use other assets like extra money from your paychecks that is leftover each month and such to tackle the credit card debt, and do not use the card/s until your debt is substantially under control.

If you have money from the life insurance plan and/or other funds you are able to set aside, then you can open an IRA or other financial vehicle. Remember, money from one’s life insurance policy is not considered earned income.

Individuals take out life insurance policies for a very simple reason – protecting their loved ones and themselves in the event of a major event in their lives.

While credit card debt is important in the overall financial scheme of things, it is something that you likely accrued, not something that hit you overnight.

Leave the life insurance money just where it is and take a lesson from your financial decisions.

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