Facing overwhelming debt can be very stressful and cause various difficulties. Marriages break up all the time over finances, which is why many people will go to drastic measures to avoid debt from eating up every penny of the budget.
One alternative is to liquidate assets to pay off debt, but is it a smart decision to make?
The goal of liquidation is generally to free up your cash flow. If this is not possible, is there any benefit to liquidating all of your assets? In addition, are you actually losing some of your worth in the process?
This is something few people consider as they are cashing in assets to pay off their debt.
You must first look at the amount of debt you have, the type of debt, and the worth of your assets.
For instance, are you trying to pay off a home mortgage or credit card debt? Cashing in all of your assets to pay off a home could be useless unless you are able to completely pay off the mortgage.
Otherwise, you are merely lowering the debt, but not eliminating it or monthly payments.
Liquidating assets to cover credit card debt makes more sense if you have the ability to pay the cards off in full and eliminate the monthly payment altogether.
In addition to increasing your monthly cash flow, you are also eliminating the accumulation of significant interest charges.
Without trying, you have actually increased your worth and made your assets more effective.
If the assets you are going to cash in are things such as a 401k, IRA, or insurance policies, think very carefully before pulling the trigger on the liquidation.
Generally, there are significant fees for cashing in these types of assets early. If the fees outweigh the interest charges, you are losing money in the process and decreasing your overall wealth.
Weigh all of these factors in before making your final decision to liquidate.