Using Your Retirement Fund to Pay Off Your Debt

Nearly every financial advisor you speak to will tell you never, ever to cash in your retirement fund - it's the only nest egg you have for your future. But, what if you were told you could use your retirement fund to pay off your debts of today and still have your retirement fund safely tucked away for the future?

In fact there is nothing new behind the concept of using a fund to pay off a debt. Essentially what you do is you borrow against the amount you have in the fund and then use the proceeds of the loan to pay off your debts of today. The loan itself is then secured by the fund - so be careful because if you default in the payment of the loan you could lose the benefit of your retirement pension in the future!

Using funds like pension funds to repay your debts can have a multitude of positive aspects. Usually the borrowing comes with a low interest rate, as it is secured against the pension. Also, typically, this type of borrowing is fairly straight forward and easy even if you happen to have a bad credit rating as there are normally no income qualifications or credit checks on loans secured against pensions. However, the downside is that you may lose your pension if you cannot repay the loan. Also, you need to check carefully that leaving your job or being made redundant does not result in you having to automatically repay the loan.

While using your retirement fund to pay off your debt may seem risky, if you are paying high interest rates the chances are you won't be able to get out of debt until you have retired anyhow! Using your pension to pay off today's debt could, therefore, help you to have an easier life now and in the future!

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