The 20 Worst Ways To Payoff Debt
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There's a bunch of ways to get out of debt, including but not limited to methods, strategies, and financial products. And there's a lot of misinformation floating around them. But good news, old George is here to tell you pretty much all of them are trash. So today we'll cover 20 worst ways to pay off debt, break down what they are, and why you should avoid them like you should avoid Jell-O cubes at the salad bar. They're wiggly, they're jiggly, and completely untrustworthy.

- Get thee behind me, Satan! - Because even though some of these might sound like solutions, they actually keep you in debt longer, cost you more money, and put your financial future at risk. Let's get to it. Number one, payday loans. If you're blessed with the ignorance of how a payday loan works, it's essentially a small short-term loan that you have to repay by your next paycheck, plus outrageous interest and fees. How outrageous, you say? Well, they typically charge a fee for every hundred bucks they loan to you, usually to the tune of 10 to 30 bucks.

That means a $30 fee on a $200 loan, which is equivalent to an almost 400% APR. Let me tell you, the only thing that should be growing 400% year over year is the number of signatures on the petition to rename the national airport to the Dolly Parton International Airport. I support that. If you want to get in on the petition, I'll drop a link in the description. We need the SIGs, guys. We need the SIGs. Do it for Dolly and for America.

This is the most important thing you will ever do. So payday loans might seem like a quick fix, but it traps people in a dark and inescapable cycle of debt. And these are insanely predatory because you mostly find these payday lenders in low-income zip codes where people are desperate.

And these rollovers keep you trapped in a never-ending debt cycle. The only people who win are the lenders. Avoid these and tell everyone you know to avoid them. Number two, credit card cash advances. This is when you withdraw cash from your credit card using it like an ATM. The catch is you get hit with huge fees, sky-high interest, and zero grace period, meaning the interest starts immediately. Don't do this. Number three, making minimum payments fast.

on your debt. I know you might think making minimum payments is actually a good thing, but if that's all you're doing, it actually keeps you in debt for decades longer than you need to be. And here's why. You barely touched the principle. It's mostly going to interest when you make that minimum payment. The only people winning here are the lenders who are happy for you to make this minimum payment for the rest of your freaking life. Number four, 401k withdrawals.

This is when you pull money out of your retirement account early in order to pay off debt. Not only do you lose out on future growth by unplugging all that money, you also pay taxes and a 10% penalty just to access your own money. So you're paying like 35, 40% for the pleasure of using this money for debt payoff. That's insane. And if that's upsetting to you now, just wait until future you hears about it. They're going to be furious. How could you do this to me? Now, the only exception to this

is only use a 401 withdrawal to avoid bankruptcy or foreclosure. For the rest of you, don't use this to pay off debt. Terrible idea. Number five, gambling to pay off debt. Sounds insane because it is insane. Some people try to win their way out of debt with lottery tickets, casinos, sports betting. Spoiler, doesn't work. The system is built to take your money, not give it back. You've heard the quote, "The house always wins." They're not talking about your house, okay? Do not do this. Do not gamble your future in order to pay off debt. Number six, balance transfers.

All a balance transfer does is move debt from one credit card to another, often with a 0% intro APR. But this isn't free. There's typically a fee of 3% to 5% of the transfer amount. And it may sound great, but these fees add up, the intro rates expire, and most people rack up new debt before paying off the old one. And it doesn't fix the real problem, which is you, the behavior, the overspending. So moving the debt around is not it.

Which brings us to number seven, debt consolidation. This is when you combine multiple debts into one loan with ideally a lower interest rate. And this one can sound smart, but most people just keep spending. So they end up with new debt on top of the old debt. And the problem with debt consolidation is it feels like you made some progress. You did something, you moved some things around.

but it's not. And lower payments just mean a longer loan repayment period and more interest paid overall. And again, it doesn't change the habits that caused the debt in the first place. Now, the one caveat here is with federal student loans. And the only time you should consider consolidation with federal student loans is if it's free to refinance, you get the same or lower interest rate, you don't sign up for a longer repayment period, and you won't lose motivation to pay off your debt.

But any other kind of debt consolidation, steer clear. All right, number eight, home equity lines of credit, aka HELOCs.

A HELOC lets you borrow against the equity in your home with a line of credit, similar to a credit card attached to your home. So in translation, you're putting your house on the line to pay off bad financial decisions. And if something goes wrong, you could lose your home. Imagine asking someone to lend you $10,000 but saying, hey, in case I don't pay you back because, I don't know, maybe I lose my job, have a medical emergency, or just forget, then you can have my house.

Does that sound nuts? That's what you're doing with a HELOC. And they generally have a variable interest rate, which means that thing can keep moving up and up and up, making it harder to pay off. So you're trading unsecured debt for secured debt by using your house as collateral. Bad idea. All right, number nine, debt settlement or relief programs. You've probably seen these ads from companies promising to give you financial relief and negotiate your debt down, and they're going to come in and be the heroes. Does that sound too good to be true? It is.

And just like most celebrity marriages, most end up in a worse situation than when they started. Lookin' at you, Blake Lively! What's going on? What are you doing? He has the receipts. Give it up.

These relief companies promise to reduce your debt, but typically charge high fees, destroy your credit, and may not even settle your debt. So here's what they do. They make you stop paying on your debt, which leads to late fees, lawsuits, creditors coming after you, and all this can put you in a way worse place than you already were. Number 10, loan extensions. This is when you extend the length of your loan in order to lower your monthly payment.

But really, you're just putting yourself in debt for a longer period of time and paying more in interest in the long run. We did an entire episode about loan extensions in the auto world and how it screwed people over with balloon payments at the end of the loan that they couldn't afford. If you want to go watch that, I'll drop a link in the description. Number 11 and worst ways to pay off debt, buy now, pay later. Afterpay, Klarna, Zipod.

Zazzle. They all exist to keep you broke. So here's what Buy Now, Pay Later does. It lets you split a purchase into four or more payments, but it tricks you into spending more than you can actually afford. And they're not hiding it. Klarna, on their own website, says this. Retailers will see a 45% increase in the average order value with Klarna's interest-free installments. That means you...

the consumer are paying 45% more because of the psychological tricks Buy Now, Pay Later plays on you. And these add up. You keep adding to the bill, to the tab, and by the end of the month, you go, "Oh my gosh, I can't afford these payments," which can trigger fees and interest. Number 12, defaulting on some debts to pay others. Ignoring some bills to focus on others doesn't make your debt go away, it just creates bigger problems.

Late fees and penalties will pile up, making the debt even worse, and creditors can take legal action. Think collections, wage garnishments, and even lawsuits. So while you're focusing on your smallest debt to knock it out, you should still be paying the minimum payment on the other debts. Number 13, bankruptcy. And I hearken back to Papa Roach, who famously said, bankruptcy will cut your life into pieces and this should be your last resort. There's a lot of confusion and misconceptions around bankruptcy, and as Michael Scott found out in the office, you can't just declare it out into the ether.

Bankruptcy! It's not a get-out-of-debt-free card. There's massive long-term consequences, and some debts, like student loans or tax debt, aren't even erased through bankruptcy.

This is the worst. All right, next up, number 14, skipping rent, food, or utilities to pay debt. Now, paying off debt is important, but it's not more important than your basic needs. If you're choosing between groceries and a credit card payment, survival comes first. You've got to focus on the four walls before anything else. This is food, utility bills, your housing, and transportation. Don't pay a credit card company before you pay those. Skipping the essentials will cause a bigger crisis later. Moving on, number 15, taking a personal loan.

This is when you borrow a lump sum from a bank or credit union, usually with a fixed interest rate and a monthly payment. It might feel like a smart way to consolidate debt, but you're just shifting debt around instead of eliminating it. That would be like cleaning up your living room by throwing everything in the bedroom. It looks better for guests, but you still have a problem you got to clean up.

Now, huge tiny caveat with personal loans. The only time I would tell someone it makes sense to get one is when they're trying to get rid of a car that they're underwater on. So if the car is worth 15, but they owe 20, they're underwater by five grand. So going to a local credit union, getting a personal loan for the difference can make sense to lessen the debt. And just like there are awful ways to pay off your debt, there are awful ways to store your savings, like in a lame, pathetic, low interest savings account. And that's the nicest thing I can say about it.

Instead, you should be storing it in a high-yield savings account like the one offered by online bank Laurel Road, a sponsor of

of today's video. They offer competitive rates that help your money make more money. And if you've watched this channel at all, you know that more money is a good thing. There are no minimum deposits or fees, and your savings are FDIC insured. If you want to get started, go to laurelroad.com slash george, or just click the link in the description below. That's laurelroad.com slash george. And while you're cleaning up your debt, you should also be cleaning up your digital footprint. Because whether you realize it or not, it's probably a

a little dirty. And that's why you should check out Delete.me, another sponsor of today's video. They are the best when it comes to getting your personal info off the web and out of the hands of data broker websites. It's like a pedicure for your digital footprint, okay? You're going to walk away and those feet are going to be supple, pampered, polished.

Or so I hear. It's been a while. My boys are getting crispy down there. And if you want a discount, you'll get 20% off by going to joindelete me.com slash George or just click the link in the description below. Okay, back to the worst ways to pay off your debt. At number 16, borrowing from family members. Now this one might seem harmless, but it can ruin relationships faster than an ill-timed fart in the middle of a political conversation. You're telling me to feel the burn? Trust me, buddy. I felt the burn. Got it. No, thank you. You pooped in your pants. I pooped my pants.

Also, in this scenario, you still have debt. You just owe someone you care a lot about instead of a bank who hates you. I've never seen a relationship stay the same or get better after loaning money to family. If you want to gift money to family, that's one thing. Never loan money and never take money. It never ends well. At number 17, we've got the 401k loan.

This loan allows you to borrow money from your 401k with interest. And here's the major problem. Number one, you're unplugging all of the growth of that money while it's being repaid. And number two, you've got double taxation. You've got to use after-tax income in order to repay the loan. Then when you withdraw the money in retirement, you're paying taxes again. Oh, and if you leave your job, the entire balance is usually due within 60 to 90 days. Otherwise, it's treated like a withdrawal, which as you know now, has taxes and penalties. Number 18, retirement.

borrowing against life insurance.

This is where you have a permanent life insurance policy and you take out a loan against the cash value of the plan. You probably didn't even know this was an option and it's best to keep it that way. So what's the deal here? Well, products like Universal and Whole Life Insurance already suck as their investment. So taking out a loan against one adds fees and interest and robs you of what little you were getting out of it. All the while, you're paying insane fees for a crappy product with a subpar return. Run away from these. Number 19, the debt avalanche method.

This is where you pay off your debts from highest interest rate to lowest interest rate. And it might make mathematical sense on paper, but it doesn't take into account human psychology.

And listen, if this gets you out of debt, great. There's much worse ways to pay off debt like the ones I mentioned earlier. I just think there's a better way, like the debt snowball method, where you focus on the smallest balance first and ignore the interest rate. And the reason is behavior wins over math when it comes to getting out of debt. And those quick wins, knocking out a payment, adding it to the next one, is what actually gets people out of debt for good. And last but certainly least, number 20, not paying off your debt at all.

Now, this one might seem like a given, but a lot of people try to ignore their debt and pretend that it doesn't exist. And I love you enough to tell you that is a terrible idea. The debt is yours. You signed for it. It's not going away. And ignoring it will only make things worse. It's like if you had a mouse infestation in your house. You probably want it gone. And if you don't do anything to get rid of it, then they'll reproduce up to 10 times per year, depending on how much wine they had with their cheese. Those mice are getting it.

It's a weird analogy, but yeah. And in the same gross way, that interest is going to rack up more debt and you're going to be in a deeper hole, probably with creditors coming after you. Are you seeing a theme here with all these ways to pay off debt? Taking on more debt or taking on more risk is not a winning plan. The key is to stop borrowing money, take debt off the table completely, and pay off your debt using future income and things you can liquidate or sell without taxes or penalties.

There is a clear proven way to pay off debt and build wealth that has helped millions of people build a life with more money and less stress. I'm so passionate about this. I wrote a whole book about it called Breaking Free from Broke. If you want to check it out, I'll drop a link in the description below. But in case reading isn't your thing, keep watching this video to learn the best way to pay off debt fast or click the link in the description. And if you enjoyed this video, hit the like button, hit the subscribe button and share it with a friend. Thanks for watching. We'll see you next time.