You have several options, and you should pick one based on your unique situation and financial goals.

Stay The Course: 401k Is a Long Term Investment

Your first option is to do nothing at all when your 401K is losing money! There are many people who are of the belief that a 401K plan is there for long term investing. If you decide to move your money to another account because you see it lose money, you aren’t following long term investment strategies. The idea of a 401K retirement account is that it provides you with a consistent investment plan that does not depend on what the market is doing. You are sometimes investing when the market is down and sometimes you invest when the market is up- which means your contributions are averaged out and you will eventually see gains even if you’re currently experiencing losses in your 401K plan.

Roll it Over

If you aren’t satisfied to ride out the wave of 401K losses, you could always consider moving your retirement account into another savings vehicle. If your company writes a check for the funds in your 401K and makes it out to you – you will be subject to a 20% early withdrawal fee (not to mention a penalty on your income taxes). This is not the way to roll over a 401K.

If you decide to change how you save your money for retirement, you can roll a 401k into an approved IRA. The company handling your existing 401K would write the check to the trustee handling the IRA you are about to open, and you avoid any fees since the money is going into an approved retirement.

Stop Contributing Temporarily and Pay off Debt

Another option when your 401K plan starts losing money is to stop your contributions temporarily, and apply the money you WOULD have been investing in your retirement account to debt. This will help you pay down debt faster, and you aren’t adding money to an account that is losing money.

When circumstances change, you can begin your 401K contributions again, and with any luck, you’ll have a lot less debt by then!

Mortgage rewards credit cards allow cardholders to earn money that will be applied to their mortgage principle – or saved for a future home purchase. As with any rewards program, the more you spend, the more you earn back in rewards.

Bank of America Home Advante reward credit card, you earn points for purchases. As you accumulate 5,000 points, you can redeem your rewards as a payment sent to your mortgage principle.

Citi Home Rebate Platlinum Select MasterCard

With this mortgage reward credit card, you can receive 6% cash back for using the card to pay for utility costs or for purchases for home improvement. The cash is applied to your mortgage, or if you don’t have a mortgage yet, it is credited to your statemetn and can be used later when you make a home purchase.

How Small Payments from Rewards Programs Pay Off Mortgage Faster

You might be wondering how small rewards from a credit card could actually help pay off a mortgage faster. If you look at most mortage amortization schedules, you’ll see that the first several years of mortgage payments are almost entirely applied to the interest of the loan. If you were to send even a few dollars more per month at this stage of the mortgage, you would actually start seeing the difference in the principle balance of your mortgage reducing, and the number of months remaining on the loan shrinking.

On average, a credit card rewards program may be able to send an extra $50 or so on a quarterly basis to your mortgage principle. Doing this would save you about four months on your loan term and well over $3,000 in interest.

As with any rewards program, you absolutely must stay on top of your payments to make the rewards worth it. Paying the balance in full each month within the grace period means you aren’t paying interest on your purchases and the rewards are not costing you anything. As soon as you spend more than you can afford to pay in full – you start losing out on the benefits of the rewards.

In order to establish credit, you need to open up a line of credit. If you have never had any type of credit before, you may be required to get a cosigner the first few times. This ensures the bank or lender that they will get paid and is also helps to keep your interest rate down. Finding a cosigner is not an easy task for some. It needs to be someone who has complete trust in you and you must do your very best not to miss a payment because you can hurt their credit as well.

Once you have opened a line of credit, it is imperative to never miss a payment. The first few payments are the most crucial. As you continue to make payments on time, your ability to get credit more easily grows.

Even though you may now be getting numerous credit offers, it is important not to open too many accounts. You do not want to end up in a situation where your entire paycheck goes to paying your credit bills. You want to make sure your debt to income ratio stays as low as possible to help establish your credit further. This is a very important factor creditors look at before extending credit and is as simple as how much you make compared to how much you owe per month.

Over time, you will find that with on time payments as well as a low debt to income ratio, getting the credit you need can prove to be very easy. Just remember, the biggest mistake most people make is opening and using too many lines of credit.

The last key factor in maintaining and improving your credit is to pay as much as possible towards your debts each month. Paying an extra 20-30% each month will drastically reduce your payback time. It is also an excellent idea to choose one or two cards and completely pay them off each month. Not only will you not be paying interest, but you will be helping to further establish your credit.

When considering the use of credit as a way of financing purchases one must examine their budget to determine whether or not timely payments can be met.

Keep in Mind. A common rule of thumb is to keep credit payments from taking over 20% of your gross income.  Now, that being said, the amount of credit taken out to equal payments of 20% depends on interest rates, etc.

The question of how much credit is too much is really a part of a larger discussion of the part that credit plays in your financial picture overall.  That discussion must include a personal determination not to let credit rule your finances, but rather, you set the rules for credit and make it work for you.  If you are successful in this type of environment, then chances are higher for you to take control of credit and not get caught in its tenuous grip.

Life Surprises. Even so, the unexpected events in life that arise and cause financial stress are sure to come.  If you have a plan for how to handle these with respect to your credit, then you will be able to weather these “storms.”

Put Money Back. Before taking on significant amounts of credit, build up an emergency fund of cash that is easy to get to in order to be able to make payments on time for your credit accounts.  You will find this cash fund handy for mitigating life’s surprises.

An emergency fund should be at least $1,000.00 in cash.  It should be immediately liquid and available.  So, it is wise to place this fund in a secure location in your residence.  Any safe or other location that is secure will do.  The existence of this fund must be protected in order to keep it secure.  The fewer people know of its existence, the better.

Those who are good at handling their finances and have a budget will be better at handling credit as well and avoiding its pitfalls.  You must make time to constantly review your status with regard to balances and payments in order to remain current.  Making this a part of your normal routine will keep the credit issue at the forefront of your financial thought process.

How Much? This depends on your comfort level.  Usually an amount between $1,000.00 and $2,500.00 is a good benchmark.  This money will be easy to get to, and so it will be easy to spend in a weak moment.  So, it is wise not to keep too much in the account.

What For? You will breathe a sigh of relief if your refrigerator breaks down and you have the cash to fix it or buy another one.  Or, an unexpected automobile repair can tap this money.  Anything that is considered a small emergency can be a good reason to keep this money available.

Mattress Money. Some resort to the old strategy of hiding this small amount of cash in an inconspicuous place in a house.  This is not really very wise, but it is understandable.  This way, even if the banks are closed (because of the weekend or a holiday) you can still have access to the money.   But, you also stand the chance of having it stolen during a break-in.

Also considered short-term savings is a money market account.  The money market account is more difficult to get to, but you can have a debit card assigned to the account so that withdrawals can be made easier.  Or you can also write checks on the account.

You can use these steps to help fund your short-term savings accounts:

• Put aside a small amount out of each paycheck.  Even $10.00 will help
• Have a specific amount automatically deducted from your paycheck and deposited into a savings account.
• Have a garage or yard sale and use the proceeds to build your account
• Use coupons or other discounts when you shop and then take the extra that you would have paid and put it into your account.
• Cut back on extras like eating out or entertainment, and then place that money into your account.

There are lots of ways to get started.  Be creative.  But do not leave this task undone.  Life will deal you the little blows.  Have some money stashed away to deal back.

Secured or Unsecured. Credit is extended to the borrower in one of two ways: unsecured manner or secured. The unsecured is the most popular (as in credit cards). No money is required to obtain the credit other than the borrowers promise to repay. However, a “secured credit card” exists which is often used by financial institutions to obtain a balance of cash in an account to cover the credit limit. These are not as common.
Whether secured or unsecured, the acceptance of credit requires forethought and planning on the part of the borrower in order to meet monthly expenses and fees that are incurred in the use of the credit line.

Charges and Fees. The lending institution attaches charges to the accounts of the borrowers that rise and fall with the account balance. Also, they may include an annual fee of a fixed amount. While this amount may not seem like much, when multiplied by the number of accounts, it can represent a large return for the creditor and improve their profit and loss.

There are many ways for the financial institution to make money on unsuspecting borrowers. It is imperative then for users of credit to read the fine print on any credit application to determine what the charges are and how they will be figured.

Interest Rates. The interest rates charged are based on market rates. However, variations between institutions should be investigated in order to make sure that one is getting the best rate possible. Creditors are notorious for offering to move balances from one company to theirs in order to obtain the balance owed and get them on their roll as a borrower.

Being a wise user of credit means that the borrower will pay off their balance on or before the due date each month. Also, using credit as a means to “float” between income flows (paychecks, etc) is wise as long as the above principle is not violated.

One can enjoy a successful relationship with a creditor providing that all rules and standards are followed in the use of credit.

For large ticket items insurance should be evaluated. For the purchase of a house or automobile, insurance is usually required by the lender. However, for lesser items that are financed, a discussion can help one determine whether or not they are good candidates to be insured.

Amount of Loss. The first principle is to ask about the potential loss of the item in question. If the financial impact incurred by the loss of the item exceeds the ability to pay out of pocket for its replacement, then insurance should be considered. If one owns items of great sentimental, artistic or historic value, then insurance should be strongly considered. If an item is purchased for the express purpose of preserving life, health and/or safety then insurance might be a wise choice.

Cost of Item. Some insurance is not worth the cost given the nature of the item. Often, you will find yourself being offered insurance on a piece of electronic equipment like a television. The insurance providers make a handsome profit on this type of insurance. Most electronic gear is designed to such a rigorous quality standards, that it rarely becomes defective to the point of needing to activate coverage. Generally, entertainment items are not considered worthy of insuring unless they are part of maintaining the livelihood of the owner.

Cost of Insurance. Finally, the monthly cost of the insurance might be the deciding factor in whether or not the option is chosen. A small monthly amount under five percent of the cost of the item might render it a good candidate to be insured.

Insuring simply for convenience sake is not wise. Sometimes the loss underscores the importance of taking care of one’s property and is best left to the experience of the owner. This might be the case in the course of family life where parents are attempting to school their children on the value of items and their ultimate care.
Whatever choices are made regarding insuring items which are under a loan agreement one must carefully examine the potential loss against the money being paid for the item in question.

There are two types of widely recognized loans. Secured or unsecured.

Secured Loan. Secured loans are those where there is collateral involved to “secure” the loan. This means that the loan is required to have some form of physical item that is attached to the loan so that in the unfortunate case of having the loan go into default, that item will then be surrendered to the lender so that they can in turn, sell the item in order to recover their loss on the loan.

The secured loan amount is at the discretion of the lending institution. In turn then, the collateral can be any item that the lender chooses which is owned by the borrower. They hold the ultimate say in whether or not an item can be used. They also will want to see the item to assess its value and to take a picture to place with the loan papers. It is not uncommon for a lending institution to require more than one item of collateral to secure a loan. If the collateral is an item that requires a title of ownership such as an automobile or even a house or piece of property, the lending institution most likely will require that they have physical custody of that title until such time as the loan is paid in full.

Unsecured Loan. Unsecured loans are those that do not require any collateral to secure them. They are completely unattached to any material item of value other than the borrower’s ability and promise to pay the loan in full. Since the risk is higher for the lender in this case, usually, the loan amounts are lower, and the interest rates are generally higher.

Also playing a part in this transaction is the borrower’s payment record. This is where credit reporting bureaus come into play. A consumers’ payment record will be accessed at the time of a loan application in order to determine the propensity for paying on-time. A person’s credit record is given a numerical score upon which the loaning entity will base its interest rates. The lower the credit score, the higher the interest rate.
Whether secured or unsecured, loans of this nature are generally considered higher risk and therefore are more expensive to the borrower. Learning to live outside of the need for these types of loans is a wise financial decision.

Often times the borrower feels that there is no way out but to file for bankruptcy. This should be the last resort, because there are still options for the borrower. And, even though the lenders put up a strong front of arrogance and being in control, the simple fact remains that they would rather settle with a customer than be a party in a bankruptcy case in which they lose it all. It is a smart consumer who knows this and uses it to their advantage.

Do Your Homework. It is imperative to investigate each loan product for the rates, hidden fees and charges. Interest rates are set by the lender at their own discretion. They should be attached to the prime rate, but often are not.

Hidden charges and fees are buried in the small print on the loan or credit application and can keep a borrower frustrated when they try to pay large sums of money towards the balance of a loan.
While the wise advice is not to go down the road in the first place, the reality calls for giving advice to one who has already done so.

Most people never read the fine print on the back of a credit application. But that is what you must do in order to have at least and small idea of what will happen upon the generation of one of these accounts.
Never sign a credit application without looking the back. What you read will make you wary of what could happen to you should you default and not make timely payments.

This alone might provide the impetus to refuse to get one of these loans or credit cards.

Do Not Avoid Responsibility. Finally, if you find yourself in the position of not being able to make payments on your loan, contact the creditor. Maintain open conversations with them. Offer to work with them and you might find a listening ear. Make sure that your arrangements are on your terms and not theirs. Never give a creditor you bank routing number and account number so that they can automatically withdraw a payment from your account. That is a recipe for disaster. Do not agree to a payment program that puts you on a small minimum for a few months without lowering the principle.

Get the lender to lower the interest rate immediately. Have them freeze the account so that no more charges can be made. Then, begin to make as large of payments as you possibly can. If you find that you cannot make headway because of the hidden monthly fees, call them and find out if those can be suspended as well so that you can pay off the card or loan.

In this manner, you can make progress in freeing yourself from this type of credit.