You can withdraw money from your IRA and close it out. Once you do this you have 60 days to put it into a nether IRA account. During those 60 days you basically have a 60 day loan of the funds from your IRA. If you don’t get it back into an individual retirement account within the 60 day period you will owe taxes and an additional 10% penalty.

This is a risky strategy. When you borrow from your IRA you are running the risk of what could be significant expense in the form of taxes and penalties. A new IRA will generally take a few days to set up so you can’t wait until day 59 to start getting the new account ready. If you want to borrow money out of your IRA in this manner make sure you know exactly how long it will take to get a new account set up and give yourself some time as a cushion just to be on the safe side.

There is not a way to borrow against your IRA. In other words you can’t use the value of your IRA as collateral for a loan. This means you also can’t enable margin on an IRA brokerage account. Margin is basically the ability to borrow against your existing investments which is not allowed in IRA accounts. While you might be able to find an individual willing to loan you money by putting your IRA up as a pledge, this type of arrangement would technically void your IRA account. Which means taxes and a 10% penalty would be due immediately.

With regards to the 60 day loan by borrowing money from your IRA, the IRS is starting to be very careful about enforcing the 60 day rule. In the past they would often let things slide if someone established the IRA on day 61. That doesn’t seem to be the case anymore. The IRS realizes that people are closing and opening IRA accounts in order to get around the no borrowing rule. They haven’t closed the loophole. You can still borrow from your IRA for 60 days. But they are being much more careful to make sure everyone follows the rules.

The IRS still seems to give some leeway if the purpose of the IRA transfer was not to create a 60 day loan. But they are starting to look more closely at the reason behind the transaction before allowing any type of grace.

Roth IRAs allow you to take advantage of the fact that taxes were much likely be higher in the future. Particularly for someone early in their career, their significant advantage in not having to pay taxes on any increase from the investment. The increase on your initial investment could be many times greater than the initial investment itself. A Roth IRA protects all the money you may earn in the future from taxes but requires that taxes be paid on the initial amount up front.

Traditional IRAs work in the opposite manner. When you put $1000 into a traditional IRA your salary for the year is reduced by $1000 for tax purposes. This saves you money on taxes today. However when you eventually take money out of the IRA you must pay taxes on the initial amount as well as any increase.

Traditional IRAs can be very useful for people who are at the peak of their earning potential and plan to make significantly less money during retirement. Since money put into a regular IRA will reduce taxable income. It can move money from a high tax rate to one that is significantly lower in the future.

Another advantage of a traditional IRA is that it saves tax money now. Roth IRAs rely on the government to keep its word regarding future taxation. All Roth IRAs will probably function as expected in the future, the government has changed his mind before so this does carry a certain amount of risk.

Margin was created to allow you to invest more money into stocks. But it is possible to cash the money out and use it for other things. It is a somewhat risky strategy. Your brokerage may “call your margin” and asked that the money be repaid. If you are unable to pay they may sell your stocks in order to recover their loan.

Obviously if your stocks retain their value the brokerage is unlikely to call their loan. But if the value of your stocks significantly declines, the brokerage is more likely to demand payment. If the market is declining they want to get their money back before you have nothing of value to repay them with.

Still borrowing on margin is a strategy to consider — particularly if you need a short-term loan and are certain you can arrange other financing in the very near future. For example, borrowing a margin may allow you to take advantage of a profitable business opportunity on a very short timeframe. Borrowing on margin doesn’t typically require the extensive credit checks and paperwork of other types of financing. And since it is backed by stocks they can be quickly liquidated it generally carries a low interest rate.

Let’s say you own $100,000 on your house. If your house is worth $150,000, you could reasonably expect to get a loan for $120,000 to pay off the $100,000 mortgage. This would leave you with $20,000 in cash. Assuming your mortgage rate is 5% or 6%, $20,000 to pay off credit card debt at 29% might be a very wise financial move.

However, if you have substantial credit card debt you may have a difficult time qualifying for refinancing the first place. Still, it might not be a bad avenue to explore given the potential gains.

Mortgage insurance

When looking at a refinance you must consider mortgage insurance or PMI. mortgage insurance is an additional fee you pay on top of your mortgage payment that allows the bank to buy insurance in case you default. Mortgage insurance is usually only required when the bank feels a default would leave them in a poor financial situation with regards to the value of your house. So if the amount you owe on your house is close to its value, the bank will require mortgage insurance. That way if you stop paying and destroyed the house when they evict you, they are protected from a loss due to a lower selling price.

Normally mortgage insurance is required when you have less than 20% equity in your home. This means if you buy a home for $100,000, borrowing any more than $80,000 will result in a need to pay mortgage insurance.

The mortgage insurance requirement may negate any benefit of consolidating high interest debt into your mortgage.

Refinance process

The refinance process is very similar to the process of getting a mortgage in the first place. It requires an appraisal, a credit check and approval by underwriting. Since the recent financial debacle there are a host of new rules related to refinancing. In general they are designed to prevent people from borrowing more against the house than it is actually worth.

For example, you must own your house for at least six months before doing a refinance that involves taking cash out or valuing your house at a price higher than the original appraisal or the price you paid (whichever is lower). If you paid cash for your house, the waiting period is 12 months.

Another recent change is the need for multiple appraisals. If the appraisal for refinance shows that the value of the house has increased more than 10% of the original price, a secondary appraisal is usually required. This is done to lower the bank’s risk that an individual appraisal might come in higher than the actual value of the house.

Qualifying for refinance

As mentioned before, if you have substantial credit card debt you may find it difficult to qualify for refinancing the first place. Banks will look at the amount of your monthly payment on your credit card and subtract that from the amount that they say you could afford to pay on your mortgage. Your credit report will also be impacted by the ratio of credit card debt to possible credit card debt. For example, if your credit card has a $10,000 limit and you owed $9500 this would probably hurt your credit rating. If you had a $100,000 limit, it is likely to make very little impact.

Final thoughts on refinance consolidation

Debt consolidation through refinancing your mortgage can be very useful strategy to lower the amount of money you pay in interest on credit card and other expensive debt. It may not work for everyone, but is worth checking into particularly because interest rates are so low on mortgages right now.

A word of caution. All mortgages are not equal. Some require significant expense in the form of closing fees. Make sure you understand the entire cost of a mortgage before attempting a refinance.

Given the number of homes on the market–particularly the number under foreclosure–this can be a great time to get a very good deal. Lenders are much more careful, so if you buy a house that requires some fix up, you won’t be able to take cash out at closing as you could before. Still if you have some cash on hand, buying at house that needs some tender loving care can be a great deal because many potential buyers can’t buy it and have enough money left over to do necessary repairs.

Combining this with the $8,000 stimulus credit that runs through November 2009, this can give you $18,000 to work with. The downside is that your IRA is probably worth less now than it was when you put the money in, so you may have to take a loss to take the money out.

Still if you find the right house, it could be a useful means of getting some extra cash together.

However the US government does offer a program to consolidate student loans. Student loans are generally considered safe because an educated person has more earning power than an uneducated person. At least that is the theory and that is why the government will offer you very good rates to consolidate your student debt into a single loan. It doesn’t hurt that many of the student loans are made by or backed by the government anyway so they don’t really have anything to lose.

If you want to find out more about consolidating student loans, checkout Direct Consolidation. It is a .gov site designed to give you the information you need to make a decision. Many of the forms and publications you can request from the government regarding this topic are available from their site as PDFs and web pages so it can save you a lot of time in doing research.

What gets people into trouble is when they use that consolidation as a way to increase their spending. Your goal should be to lower the amount you are spending focusing more of that money on the principle and less on the interest. If you take payments that totaled $1000 per month, and replace them with a single loan that costs $500 per month it puts you in a better financial situation. However if you use that extra $500 per month to increase your standard of living or spend money on items that may have maintenance costs, you can work yourself into a worse situation than what you started with.

The wise thing to do with the extra $500 per month is to put some into an emergency savings account and the rest toward paying off your debt. The emergency savings account will help keep you from needing to go into debt again for unexpected expenses. The extra money being paid toward the principal of your loan we’ll help you get out of debt more quickly.

Debt consolidation loans are great for people who are willing to change their behaviors that lead to the data in the first place. Debt consolidation loans are very dangerous when they allow people to continue a pattern of behavior that needs to be changed.

In the US it is easy not to take that seriously. Bankruptcy gives people an easy way out if they are unable to pay their bills. For all their problems debtors prisons did one thing right. They made people take their debt obligations seriously. I’m not against bankruptcy laws. But I am against people doing things without considering the consequences.

Obviously this wasn’t very effective if you were so far in debt to the bank will loan you money in the first place. But during the housing boom house prices were expected to continue going up. Many banks assume that they could always sell the property for at least what they have loan.. That assumption turned out to be false as many banks are finding out.

Banks are now being more careful and there are many new rules they must follow. for instance if the selling price is lower than the appraised value they must use the selling price as the value of the house for determining the loan. This means that they normally can’t loan new extra money based on equity in order to fix up the house or take out cash. Conventional mortgages will generally only loan you 80% of the lower of the selling price or appraised value.

These new rules go a long ways toward protecting the bank. If you need to cash out equity on your house this can still be done but you must wait six months after you purchase the property area once the six-month period has gone by you can refinance using the appraised value of the house instead of the selling price.

This can be a very easy way to roll high interest credit card debt into a low interest mortgage. Obviously you need to be careful not to over extend yourself. But with credit card interest rates going up in mortgage rates at the lowest point in years there may be some opportunities to switch to lower interest levels.

The IRS is very specific that you can’t use an IRA as collateral for a loan or borrow money from it.   But they do allow you to roll the money over into another account once each year.   When you do a roll over, you have 60 days from the time you take it out of one account until you put it into the next.

So basically, you can borrow money from your IRA, but only for 60 days once each year.

Just because you can, doesn’t mean it is necessarily a good idea.   Most IRAs are invested in the stock market.   If the market is down and you pull your money out, you stand a good chance of missing out on the gain as it goes back up.   Trying to time this is nearly impossible.

For most people there are many other better options that borrowing from their IRA, but you can take a 60 day loan by using the rollover option.