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“Paying off debt is not a good idea” – Does it seem unbelievable? At times it is true though it is quite hard to believe. This is when you target wrong debts or take a wrong approach to repay your dues, as a result of which, you may end up doing more damage to your financial status.

When paying off debt is not a good idea

Go through the following lines to know when paying off debt is not a very good idea.

1. Use your retirement savings to pay off debts – Many of you use your retirement savings to pay off loans/debts. You must know that when you withdraw money from your retirement savings, you actually lose quite a substantial amount. Depending on your federal and state tax bracket, you actually sacrifice about ¼ to ½ of the amount you withdraw. It becomes even more disastrous if you suddenly lose a job.
2. Neglect your 401(k) to repay existing debts – You lose free employer money if you don’t contribute to your 401(k) that you’re entitled to. So, you don’t get back what you’ve passed up even if you make more contributions later. Therefore, think twice before neglecting your 401(k) to repay outstanding debts.
3. When you pay off low interest debt first – Usually, mortgage is a low interest debt as compared to high interest debts like credit card loans, personal loans, etc. Home loan is tax-deductible; therefore, it is definitely a wrong approach to make extra payments towards reducing the mortgage balance faster, when you can use the amount to pay high interest dues. However, this doesn’t mean that you should stop paying off your mortgage loan; you may lose your home if you do so.
4. It is not possible to repay loan/loans – At times, it may be quite impossible to repay certain debts. In these situations, you can file a bankruptcy to get rid off your debts. Though bankruptcy is not at all a good idea to pay off debts, yet it can help you to give your credit a fresh start. Therefore, it can be said that filing bankruptcy is sometimes a better option in comparison to some other bad options to repay outstanding dues.
5. When you can avoid paying off a debt – You can avoid paying off debt if the SOL (Statute of Limitations) has expired on it. Therefore, if any collection agency attempts to collect an old debt from you, then you should at first verify that the SOL hasn’t expired on it. If you make an attempt to repay a debt whose SOL has already expired, then your act will restart the SOL on that specific account.

However, there is no Statute of Limitations for certain debts, as for example, child support debts (in some states), federal student loans and income taxes.