Back a few years ago I was in a tough spot financially, I had had just built a brand new house and it was costing me more than I had expected. As a result I had loaded up my credit cards, and worse my emergency fund was completely depleted.
I felt excited and scared all at the same time. I knew that if I didn’t change something fast it was going to easily take me at least 5 years to pay off the credit card debt that I had accumulated, and even longer to build my emergency fund back up.
Their had to be a better way. It didn’t have to take 5 years, I knew that if I wanted to pay off my debt and build up my emergency fund I could do it much faster if I put my mind to it.
In this article I’m going to share with you how I was not only able to pay off all $6500 of credit card debt, but also saved up $3600 in emergency fund cash.
What’s even more amazing is that I was able to do all of this in 1 month, yes you heard me right one month. To boot I don’t even make anything close to that kind of money on a monthly basis.
So how did I accomplish this amazing feat, with my life insurance policy.
Looking For A Solution
Now before I start I just want to say nobody had to die in order for me to pay off these debts, rather I just had to get a little creative.
To find the solution I asked myself one simple question.
What Caould I Do Right Now To Improve My Finances?
With that question on my mind I started to look for solutions. I looked at my budget, my credit card statements, and then I came across my life insurance policy.
After a little research I noticed that my life insurance was rather expensive policy when I compared them to other types of plans out there. On top of that I realized that my life insurance had a cash value account attached to it with over $12,000 in it.
For those of you who don’t know what this is it’s basically an account tied a life insurance policy that builds up as you own the policy that helps lower the cost of insurance over time.
The problem with this is that this money is tied to the policy and their are basically 3 ways to get the money out of the account.
- Take A Loan. The first option is to take a loan against the policy, however the problem with this is that you will have to pay the money back at some point and on top of that you will have to pay interest on your own money. As you can tell this is an option I’m not that impressed with.
- Withdraw It. The second option would be to withdraw the money from the account. I wouldn’t have to pay the money back and I wouldn’t have to pay interest on my own money, however I would still have the expensive life insurance policy and that doesn’t sit well with me either.
- Replace The Policy. The final option would be to cancel and replace the costly life insurance policy with something that is a bit cheaper and flexible. This option is exactly what I was looking for.
Now that I’ve laid out the options and it’s time to map out a solution that I’ve found to be a great option.
- I Switched To Term. The first thing I did is started a term life insurance policy. Going to a term policy saved me $40 a month in premium and on top of that I was able to go from a $300,000 death benefit to a $500,000.
- I Canceled The Permanent Policy. Secondly, once I had the term policy in full effect I canceled the permanent policy and released the funds from the old policy. Just as a side not you may want to consult your accountant before doing this because any money released from the cash value may be taxable.
- I Added A Return of Premium Rider. Finally, as a last note I should mention I added a return of premium rider to my term policy. Personally I’m not a big fan of term life because if you don’t use the policy you get nothing back. With a return of premium rider if I don’t use the policy after the term is up I get all the money back minus the cost of the rider. I like this option much better.
What Are Your Thoughts On This Financial Strategy
So there you have it, by following the plan I have laid out above I not only save $40 a month, but I got a cheaper policy, freed up $12,000 from the permanent policy, and finally I get all the money back from my term policy after the term ends.
So what are your thoughts? Is this a plan something you would consider, or not? I’d love to hear your thoughts and comments below.
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