Does debt have you bound up and feeling like a police officer bound up, not able to reach the donuts? Try consolidating your debt with a home equity loan. (image from flickr)

When struggling with personal debt, you may be tempted to apply for a personal loan, payday loans or try to borrow money from other sources from time to time simply to relieve the financial pressure you may feel weighing in upon you.

In this article we will attempt to address some of the advantages and disadvantages of the various debt payment options that may be available to you to pay down, pay off  and take control of the debts you owe.

Payday Loans

Payday loans, although a valuable service for emergency funds, are not the best option for paying off or consolidating debt. Payday loans are more a source of emergency funds for dire situations, such as when your car breaks down and you need money for quick repairs or if you want to avoid a late payment penalty with a creditor.

Because payday loans usually limit you to a maximum of $1,500, it is likely that a payday loan would not be sufficient to cover and or consolidate your debts anyway. There are better options available to you that can provide you with a lower interest rate.

Withdrawals On Your 401(k)

A lot of people resort to using funds that they have put aside in their 401k savings plan. This is a tempting but ill-advised approach to debt relief.

Remember, the funds that are in your 401k are reserved for your retirement years. Using these funds to bail yourself out of financial trouble today may cause another crisis for you several years from now. You may find at retirement you don’t have sufficient funds in the account to last through your retirement years.

Taking money out of your 401k will cost you more than you think. You have to take into account how much you will be taxed for on the withdrawal of these funds plus the total amount of interest these funds would have acquired between now and the age you retire. This adds up to be a significant sum.

Home Equity Loans

Home equity loans are usually the best option for consolidating and paying off your debts. Home equity loans are obtained by borrowing against the equitable portion of your home’s value. This gives you the advantage of lower interest rates than most other options. Plus, interest paid on home equity loans is tax deductible.

When borrowing against your home equity, be sure to remember defaulting on or failure to pay your home equity loan payments can result in losing your home.

Avoid Repeating The Cycle

The biggest thing to remember when paying off your consumer credit debt, regardless of the options you choose, is to avoid repeating the cycle again by running up your credit card balances that have been paid off.

If you find that your money spending habits are habitually putting you under financial stress, you may find it helpful to work with a debt counseling service that can help you manage your finances in the future. Click to learn more about debt consolidation.