After you have listed all your debts – credit cards, medical bills, department store bills, mortgages, car loans, etc. -- you may be tempted to panic and say “But I just don’t have any money to even begin paying my debt off!” Realize that you may have options you’re not aware of. Take a few minutes to consider whether or not you have any of the following sources of income to pay off your debts:

Remember, you should always contact a financial professional before making any investment decisions such as borrowing money against your 401(k) or selling investments, to make sure you’re fully aware of any penalties and the possible tax implications

Current savings. The first and most obvious is savings. Depending on how much money you have in savings and how large your debt is, you may want to consider using some of your current savings to pay off or at least paying down your debt. If you have an astronomical amount of debt and little savings then it probably doesn’t make much sense to drain your savings. But if you have money in a savings or checking account that’s earning no or very little interest, you’re actually hurting yourself by not using that money to pay off your debt instead. Read here to learn why. Be careful not to use all of your available savings particularly if you don’t have any present income. It’s a good idea to keep some savings available to meet unexpected needs.

401(k) or retirement plan savings. Saving for retirement is an important financial priority. But if you’re deeply in debt or at the point where you are thinking about or have begun the process of filing for bankruptcy, you might consider talking with a financial professional about borrowing against your 401(k) or retirement plan savings. Most companies allow employees to borrow up to 50% of their balance for qualified reasons such as purchasing a home, paying for college and, in some cases, debt repayment. Because you are taking out a loan against your savings, and withdrawing your savings (which is generally not recommended because you will face early withdrawal penalties and miss out on the benefit of compounding interest earning money for your future), the loan will be charged interest. The interest rates for these types of loans are typically very low, especially compared to the interest you’re paying for your credit card debt. Other factors to consider are:

• you will have to pay the loan off in 5 years;
• you will have to repay the loan in full if you are fired or leave the company;
• there may be a loan application fee or maintenance fees

Refinance Your Home Loan. Find out what the interest rate is on your mortgage and compare it to the current interest rate offered by your lender. The general rule of thumb is that if it’s more than a 2% difference it probably makes sense to refinance. While you may have to incur some up front out of pocket costs to refinance (such as application fees, closing costs, etc.) your lender might be willing to waive or reduce some of these fees, and the savings you may realize with your new lowered monthly mortgage amount may more than offset those costs. Use the amount you can get out of your home to pay off your other debts. Click here to learn more about how and when to consider refinancing your mortgage.

Home equity loan. Getting a loan to pay off debt? Does that make any sense? It may. If you are a homeowner and you have equity built up in your home (meaning that you have been paying on the loan), you may want to talk with a financial professional about possibly taking out a home equity loan to pay off your credit cards or other consumer debt (i.e. student loans, medical bills, etc). You’ll need to decide if this is a wise thing for you to do depending on how large your debt is, how much equity you have built up in your home, and whether or not you’re possibly putting yourself at risk for defaulting on the home equity loan and jeopardizing your home. You should only seriously consider taking out a home equity loan if you will use the funds to pay off, or significantly pay down, your credit card debt. If you do use a home equity loan to pay down or off your credit card debt, ensure that you don’t get caught in the same place again. Cut up the cards, close the accounts (by writing your creditor and directing them to close the account), and then don’t open any new lines of credit.

Most banks allow you to borrow up to 80% of the value of your home, minus your current mortgage amount. So if you have a $250,000 home, then 80% LTV (loan to value) of your home is $200,000. Take that amount ($200,000) and subtract your current mortgage (say its $185,000) and that’s the loan amount you may qualify for ($15,000). There may be an application fee or other small fees involved in taking out a home equity loan. Typically you will be required to pay the loan back within 15 years.

Beware of taking out more than an 80% LTV home equity loan if it’s offered. You may be required to pay private mortgage insurance and you may be charged a higher interest rate on the loan depending on your credit history and ability to repay the loan.

One of the actual benefits of taking out a home equity loan in comparison to some other loan types is that you may be able to deduct the interest on the loan from your taxes. And unlike a 401(k) loan, you cannot be forced to repay the loan early and you’re not losing out on potential income growth.

Public Assistance. You may qualify for assistance from the government or nonprofit organizations that you’re not even aware of.

Loan from family or friends. If you are afraid that you might not qualify for a loan from a financial institution (such as a bank, credit union, or savings & loan), or you have been turned down for a loan, or you have worked out a payment plan with your creditors but still can’t quite make the payment schedule, you may want to consider borrowing money from family or friends to help pay your debts off. If you choose to pursue this option, remember that this is another loan that you will have to repay. It’s a good idea to draw up a contract on paper where you agree on:

• how much you will borrow,
• how long the loan term is for (i.e. 6 months, a year, 5 years, etc.)
• what interest rate you will pay,
• how the interest will be charged (i.e. simple interest on the total loan amount), and
• when you will pay it back (i.e. monthly, quarterly, yearly, etc.).

Having a written contract will show your family or friends that you recognize that it’s their money you’re borrowing and you agree to pay it back on their terms.

Downsizing. Families experiencing periods of protracted financial distress often have to make difficult decisions about what they can afford to keep and what they need to change about their living situation or lifestyle. If you are in a financially tight spot the first thing to figure out is what you are currently spending money on and can you afford to keep spending to that same degree. What are your fixed costs (i.e. mortgage or rent, car payment, personal property taxes, insurance, etc.)? Just looking over the tally of costs for those items, does your income meet that figure? If not, and you haven’t even begun addressing other essentials like groceries, utilities, school-related costs, or any outstanding debt that you owe, then you probably need to seriously consider making some life adjustments to bring your expenses more in line with your income. Maybe it’s moving to a home or apartment with a more affordable mortgage or rent. Maybe it’s selling a car with a higher car payment to find a less expensive car.

Before making such big decisions, talk with trusted family and friends for input and consider talking to a financial professional. Click here for more information on how to choose a financial professional. Sometimes the real emotional and financial burden of debt is too great and downsizing may just be the way to ease the burden.