Debt Consolidation Loan or Borrow Against Your Life Insurance Policy?

Debt is one of the biggest financial problems of our time and one of the most popular ways to handle the debt is to get a debt consolidation loan. However, borrowing against your life insurance policy can be a better solution.

Debt Consolidation Loan

Using a debt consolidation loan is a very common way to deal with debt. A debt consolidation loan does not remove the amount of the debt, instead it shifts the amount of debt elsewhere.

A debt consolidation loan will help reduce the interest that you are paying on the debt significantly. Credit cards are the most common form of debt with interest rates usually over 20%. A debt consolidation loan will cut that rate by 10 % percent.

The drawback of a consolidation loan is that they require some form of collateral. Many of these advertised debt consolidation loans are simply a home refinance or home equity loan. If you secure the loan with your assets, you may have more problems in the long run because you can lose your home or car if you miss a few payments.

Borrowing on Life Insurance Policy

Borrowing against whole life insurance policies are another way to pay off debt, although this form of loan is not a common practice, it provides debt relief as well.

The biggest advantage is that the interest is typically lower than other loans. Also, you will not be tied down to a strict repayment schedule.

With a life insurance loan, you get the money and then pay it off when you want. As long as the interest and principal does not go over the value of the policy, you are in good shape.

Which is best?

In most cases, it is better to borrow against your life insurance. The money is in your policy gaining interest, even though you borrowed against it.

Therefore, as long as you do not let the balance go over your policy amount, you will be fine. You will save money on interest and have an easier payment schedule. It will also keep you from risking your personal possessions in foreclosure.

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