Posted on June 29, 2009 at 5:10 am i overheard my neighbors fighting (a couple) one shouted "... but i want to get out of debt not get into more debt!" to the other, because the other one said that she would rather take out a loan to pay off the other debts than do nothing.can one really do nothing? i mean im not being gossipy or anything, but what were they talking about there? its been going on for days, i cant sleep and it seems as if i already know the whole story, except that i dont really understand this whole thing. im sorry to have to come on here and ask...but i saw the words destroy debt, and i just know that you'd be able to piece together this story for me. thank you all, if you reply at all

Posted on June 29, 2009 at 5:29 am Well there are several types of loan that they could be referring to but I can think of two types that are more likely:-a debt consolidation loan-a loan out of the 401(k)Both of which  would take years to pay off and they would indeed add to the debt...And when you said neighbor, did you mean apartment neighbor or house neighbor? Because another loan that they were arguing about could be a home equity loan (if it was a house)

Posted on June 29, 2009 at 6:03 am I agree with damon and graham and just to expound on what they've said:A debt consolidation loan (from a lender) offers a single payment on that loan once a month, instead of you paying several different creditors with several different  rates at different times of the month. With debt consolidation you take out one big loan and pay off all those accounts..but qualifying for it may be difficult as you may need to attach a property to that loan, and once you defaulted on the payment, it could be taken away from you. Plus if you already are in bad credit, the chances of you getting a low interest loan is slim, and if you do not have a property to secure the loan with, the interest rate would shoulder it.While a 401(k) loan (from the employer) is only usually granted for the following reasons: (1) education expenses (2) to save the home; (3) medical expenses (4) to buy a home (first time). This loan must be paid back over a five year period, which may be extended for a home purchase. As for borrowing from their home equity, many would advice against it, as again, if you default on the payment, your house could be in danger.

Posted on June 29, 2009 at 6:09 am To answer your question 'can one really do nothing' -- I'm not sure what your neighbor's exact debt is ..is it unsecured, credit card? If so..it is possible to do nothing until the debt goes into collections...and hope for the statute of limitations to expire on that debt (could be 6 years generally, although it varies per state)..which might not happen at all, as the collection agencies, might sue your neighbors for deliberately ignoring their responsibility or 'for doing nothing.'If you can advice your neighbor to try contacting the creditors and negotiate the debt instead...

Posted on June 29, 2009 at 6:12 am what do you mean negotiate the debt? and perhaps i could advice the female neighbor..after you advice me. thank you all for the replies, sounds like taking out a loan is a bad idea overall..

Posted on June 29, 2009 at 6:22 am Negotiating the debt basically means (this is assuming that your neighbors' debts are unsecured or credit cards) that they'd have to call the creditors to talk about reduction of their balance (if they've already defaulted), freezing the interest rates, extending the payment terms..etc.If your neighbors do not want to deal with the creditors themselves, the above mentioned issues can be negotiated by debt solution groups, otherwise known as the bankruptcy alternatives-- your neighbors could see a credit counselor and enroll in their debt management program, or they can opt to enroll in a debt settlement program.

Posted on June 29, 2009 at 6:26 am Since you do not know the true nature of your neighbors' financial problem and since you said that you can talk to your female neighbor, why not invite her to these threads? It is quite understandable to not disclose it to you even if you ask her so just advice her to come on over here and read up. She may also fill out one of those forms that you see around and speak with a debt expert. It is free and the talk would be confidential. Good luck to you.

Posted on June 30, 2009 at 12:32 pm I would shy away from a home equity loan if you can, especially if you are already haveing financial troubles. You are turning unsecured debt into secured debt, and falling behind in the future on the loan payments would put your property at risk of foreclosure. There is no denying that home equity loans can be helpful for some, but make sure that you have your situation under control before you make a serious move such as that.

Posted on July 9, 2009 at 2:18 am If you want to help your neighbors who want to get out of debt, get out of debt, do not encourage them to incur more debt by getting a loan from a private entity or from their pension...unless they are planning on buying their first house too? That's why one of them wanted to take out a loan from his/her 401(k)?

Posted on July 9, 2009 at 2:24 am I want to get out of debt, I'm a Christian.