Get Out Of Debt-How To Get Out Of Debt

Unsecured Debt

Unsecured debt most often presents itself in the form of credit cards, or other unsecured loans, such as payday loans. “Unsecured” means there’s no collateral to back up the loan or debt. Unsecured debt often has higher interest rates as a result.

Building credit: With credit cards, as a general rule, you should pay off your balance every month, which will avoid interest charges, which are often in the double-digits. Use your credit card only if you have the cash to pay it off, and then do so right away. (Check with your credit card company to make sure you can make several payments in one month.) Making payments by phone or internet make this easy. Avoid the urge to charge expensive luxury items if you don’t have enough to cover them: in case of an emergency, you’ll want your line of credit open for essentials like food, gas and utilities.

Secured Debt

Secured debt is debt with collateral to back it up. A mortgage, for example, is secured by the house itself. A car loan is secured by the car. If you default on your payments, your lender can repossess the house or the car and sell them to try to recoup some of their losses. Home foreclosures, however, are an expensive process for the bank, so try to work with them if you find yourself in trouble with your mortgage. Rent-A-Center business, in which you make payments on furniture or appliances, work in the same way, though they often have very high interest rates. Financing any item is also a version of secured debt. You can finance many expensive electronics, such as computers, through the manufacturer or licensed retailer; however, with some companies “financing” might just be a way to get you to apply for a credit card and charge your purchase. Always read all the terms and conditions and ask any questions you may have. It’s ok to ask what the interest rate is, or if you are applying for a loan or for credit. Secured debt often has fixed payments with interest built-in. For example, when buying a car, your lender will calculate you entire costs, which include the price of your car with the added features, tax, DMV charges, a finance charge and interest, and then divide it by the number of months you’d like to pay back the loan, which can range from 12 to 72 or more, arriving at your fixed payment. Most 15 and 30 year mortgages are fixed payments, unless you have an Adjustable Rate Mortgage (ARM), where your interest rate resets every few years. Check with your lender if you think you may have an ARM mortgage, and, if possible, refinance into a fixed rate mortgage. While an ARM might look attractive when interest rates are low, when they readjust you might find yourself needing to pay hundreds of dollars more every month, just for the interest on your mortgage. Keep in mind you will need some equity in your home in order to refinance. In other words, your house must be worth more than you owe.

Most secured debt will help you build credit, as long as your payments are reported to credit bureaus. However, make sure you always pay on time, and never take on more debt than you can handle. Student loans, though not necessarily “secured,” also fall into the category of installment loans, and can affect your credit. In addition, even bankruptcy can’t eliminate most student loan debt: it’s important not to default!

Just like in any circumstance, when it comes to debt and financed, honesty is the best policy. If you are having trouble paying your debt, talk to your creditors. With secured debt, it’s usually possible to refinance. With student loans, you can often get forbearance in times of economic hardship; while your interest may still accrue, you won’t have to make payments and won’t be penalized. You can also get a student loan deferred if you return to school, or enter the military, AmeriCorps, or the Peace Corps. Some credit cards also allow you to skip a payment in case of hardship or job loss, or will waive certain fees if you call and talk to them about your situation. Creditors are always willing to go over your options: they would often prefer to get most of, or some of the money owed them than have you end up in bankruptcy court and lose it all. Make sure you plan ahead and talk to them before you become completely overwhelmed by your bills. This will put you (and them) in a more flexible position and you are more likely to reach a fair compromise than if you put off talking to them due to embarrassment.

Paying Off Debt

If you feel burdened by debt, or are paying a lot in interest, you should make getting rid of it a priority. It is especially important to pay down existing debt before a major financial change, such as buying a house, sending a child to college (or going back yourself), or retiring.

If you aren’t already, get up-to-date on all of your payments. If you are behind, you may need to sell things (eBay, amazon, and craigslist are good places to sell used furniture, appliances, books, movies, toys, or music, in order to make some extra money), or get a part-time or one-time job. Otherwise, you risk extra fees for non-payment, going over your credit limit, or other hidden stipulations. Once you are up-to-date, make sure you make minimum payments every month on all of your debt. Make a budget, and put as much money as you can towards your smallest debt. Voila! In almost no time at all, you’ll have it paid off. Next, use the “snowball” method: take the money you were using to pay off the first debt, and add that, plus the monthly minimum payment towards your second debt. If you have four credit cards or lines of credit, for example, with a minimum payment of $50 each, you’re paying $200 in minimum payments. If you add $100 per month to one, you’ll be making payments of $150. Once that is paid off, move on to the next debt, add the $50 in that minimum payment, and put $200 per month towards that, while paying $50 per month on the other two. You’re still putting $300 per month towards debt. However, the more you pay, the less debt you have, and the faster you pay it off. In the end, you’ll be putting that entire $300 towards one credit card!

In some situations, you might need to look at outside help with paying off your debt. Not a problem. This is where debt consolidation agencies can help you. These businesses exist specifically to contact your creditors on your behalf and reduce your monthly payments. Sometimes they can reduce the amount you owe if you are very behind, but often they will work with the companies to reduce your interest rates, which helps you pay off debt faster, since you are not accruing higher and higher fees each month. In dire circumstances, the can also reduce your monthly payments. In that case, it will take you longer to pay off your debt, but your payments will become more manageable. Usually you will pay your debt consolidation company directly, and they will distribute money to your creditors, making it much easier on you. Here’s a link to help you get started if you feel professional debt management is right for you: http://www.christiandebtassist.com

You can also try to consolidate your own debt with a debt consolidation loan from one of these companies:

https://academycreditcenter.com

http://smartcreditapprovals.com

http://equityfirstcash.com

You might want to build up a small emergency fund before you get started on paying down debt. Having $1,000 in a separate savings account will help guard against emergencies. While it’s tempting to put that towards debt, a job loss or emergency home or car repair can send you back into debt if you don’t have a safety net. Again, sell things around the house, trim your budget, or get a part-time job in order to build your savings. Once your debt is paid off, you can build a larger emergency fund, comprising three to six months worth of expenses, to make sure you’ll never have to be a slave to credit card debt again.



By: Meredith

About the Author:

Francene Macmurray

None of us are perfect when it comes down to bad habits, but some are worse than others; not understanding your debt or finances is one of them. Kicking these bad habits into touch means that you can look towards becoming debt free:

1: Too many credit cards – Did you know that there are more credit cards than people in the UK? According to APACs, at the end of 2007 there were 73m credit and charge cards compared with around 60 million people.

Having too many credit cards means that you have the potential to get into too much debt. Although introductory offers many tempt you in, it is important that you take control of your credit card debt. Start by paying off the highest APR cards means that you can look forward to becoming debt free in a much quicker time.

2: Spending more than you earn – Spending more than you earn by living beyond your means is a financial habit which you need to nip in the bud right now. This is the quickest way to get into debt, especially if you regularly have to relay on your credit card the week before pay day.

3: Missing credit card payments – Always make sure that you meet your credit card, store card or catalogue payments as they fall due. Missing these payments not only means that you will have to pay late fees but any missed payments will also show on your credit file, which could make it more difficult to get accepted for credit in the future.

4: Losing touch of your finances – Being unaware of how much cash you have in the bank to how much debt you have outstanding means that you have lost touch with your finances, which will make it harder to become debt free. Checking your credit report is a good way to see your own credit history.

5: Not seeking debt help when you need it – Sadly debt problems will not sort themselves out, and if you are missing credit card, store card or even mortgage payments then you need to seek help as soon as possible.

Debt Free may be able to offer you one of our debt solutions which could help you to control your debts by reducing the amount that you need to pay to your unsecured creditors. Getting help about your debts mean that, if you qualify, you could look forward to becoming debt free in 60 months with an IVA.



By: Debt Free

About the Author:

Evan Straight

It’s no secret that Americans are struggling financially. Massive layoffs, inflation, unaffordable healthcare, skyrocketing gas prices and hiked-up interest rates on credit card accounts are plunging millions of consumers to the brink of bankruptcy. However, many of the would-be bankrupt are turning to a less drastic solution to their debt problems: debt settlement.

A Super-Short History of Debt Settlement

Debt settlement is nothing new. It’s simply an agreement between two parties to settle a debt for less than the outstanding balance. Lenders have been doing this for hundreds of years, but the modern American banking industry started formalizing the practice after many of their customers starting falling behind in the late 1980s and early 1990s. These banks setup separate departments with specially-trained negotiators who contacted delinquent customers and offered them a lower pay-off amount to fully settle an overdue account.

Shortly afterward, entrepreneurs set up companies to help negotiate the best possible terms for financially distressed consumers trying to settle their debts. This marked the birth of the modern debt settlement industry. Thousands upon thousands of consumers flocked to debt settlement websites seeking more information and enrollment into a debt settlement program and debt settlement’s popularity as a bankruptcy alternative continues to grow.

There’s good reason for debt settlement’s popularity. For some, it can be the fastest and least expensive form of debt relief besides bankruptcy. According to most debt settlement company and information websites, a consumer may be able to settle all settlement-eligible debts for less than the full outstanding balance in less than three years.

Is Debt Settlement Right For You?

If you are struggling with your finances and looking down the cold barrel of bankruptcy, you should investigate debt settlement. However, debt settlement is not for everyone.  So, you should try to fully understand how it works as well as the benefits and drawbacks of this debt relief option before enrolling into a debt settlement program or attempting to negotiate your own settlements. Here are some questions to ask yourself to help you gain this understanding.

1. Can I repay my debts?

If you can repay all of your debts in full, then you should. Debt settlement is only meant for people who are financially unable to fully repay their debts but who might be able to repay debts if the outstanding balances are reduced.

2. Am I experiencing a financial difficulty?

Not wanting to repay your debts is not a good reason to enter into debt negotiations and creditors often take financial hardships into consideration during negotiations. These hardships can include unemployment, loss of income, unexpected medical bills, illness or death in the family and divorce.

3. What kind of debts do I need to settle?

Debt settlement only works for unsecured debt, such as credit card accounts, medical debts and maybe some department store cards and other personal debts. Lenders historically do not negotiate or settle secured debts, such as home loans, automobile loans, student loans and other loans secured with collateral.

4. Can I save up and set aside some money each month?

While unable to fully repay your debts, you should be financially able to at least pay back a portion of your debts if you can save up and set aside some money each month. This amount should be less than the minimum monthly payments required by your creditors (if you can comfortable pay your minimum monthly payments, then debt settlement may not be right for you). However, even saving up and consistently setting aside this smaller amount each month will add up to a sum that you may be able to offer as a compromised payoff to settle a debt. It may take months, but if you are consistent and patient the funds will build up.

5. Can you function with a budget?

Being able to save up and set aside funds to pay off settlements will require you to operate within a tight budget. If you are not financially disciplined, then you should start learning how to be. Pursuing debt settlement is an honorable way to resolve a tough financial situation, but it does require discipline — and this means budgeting.

6. How much do I care about credit?

The debt settlement process can be damaging to your credit. This is because the process results in missed payments and accounts often go into charge-off before being settled. If you prize your credit score more than being debt-free, then you should consider getting a second or third job so you can fully repay all your debts and skip the debt settlement option (assuming you can keep this up for several years until all your debts are paid). Otherwise, be aware that negative marks can remain on your credit report for up to seven years (except for bankruptcy, which can stay on your credit report for up to ten years). However, as the negative mark gets older, it has less impact on your credit score.

7. Do I want to avoid bankruptcy?

Debt settlement is really about helping you repay your debts based on your limited financial ability and keeping you out of bankruptcy, assuming you want to avoid bankruptcy. This is important, because some people don’t mind the 10-year stain on their credit or the fact that they won’t be able to file Chapter 7 bankruptcy again for another eight years. Some people may not have a house they are trying desperately to save or don’t have to deal with the new provisions of the bankruptcy law that are designed to keep some people from filing bankruptcy. However, if the thought of filing bankruptcy doesn’t sit well with you and you are struggling to get by, then debt settlement might be just what you need.

8. Can I separate myself emotionally from my debts?

If you pursue debt settlement, your creditors are not going to be happy with you because they want you to pay all of your debt, plus interest, plus fees and plus whatever other finance charges they can dream up. You might end up getting calls from debt collectors and some debt collectors can be downright nasty. They often use guilt to get consumer to pay debts, even if that consumers doesn’t owe the debt or if the consumer doesn’t have the ability to pay. So, consumers pursuing debt settlement need to disassociate themselves emotionally from their debts, read up on the Fair Debt Collection Practices Act (FDCPA) and be vigilant about their goal to be debt-free.

9. Can I be patient?

We live in a culture of instant gratification. We expect our food to be prepared before we put the lids on our fountain drinks. Our mail has to absolutely be there overnight and we want our pizza in 30 minutes or less. Debt settlement doesn’t work this way. It will most likely take several months before you save up and set aside enough funds to start offering settlements to a creditor and it may take weeks or even months of negotiations before a creditor agrees.

If you pursue debt settlement, you have options. There are many debt settlement companies to choose from and even law firms that will negotiate your debt settlements for you. However, you should definitely investigate any company you consider, whether or not they are a professional service company or a law firm. These companies will charge you a fee for their services, so be sure to compare how they charge to make sure you are getting the best deal. Also check with the Better Business Bureau to see how each company handles complaints. You should also only deal with companies associated with industry organizations, such as The Association of Settlement Companies (TASC) and US Organizations for Bankruptcy Alternatives (USOBA).

Of course, you can always negotiate debt settlements on your own. All you need is the right information and there are kits you can purchase to guide you through the process. Just do a search for "diy debt settlement kit" or "do-it-yourself debt settlement kit" and you should find an affordable kit that will show you how to settle your own debts without spending hundreds or thousands of dollars in professional debt settlement service fees.

Ultimately, how you resolve your debt issues is up to you. If you are in debt up to your eyeballs and struggling to make ends meet, then you should do something. Debt doesn’t sit; it grows with interest and fees and every dollar you owe in interest is a dollar you don’t have to pay towards rent, mortgage, food, education or family vacations. For your own personal and financial wellbeing, there’s nothing like being debt-free.



By: John Janney

About the Author:

Dong Handwerk

In the UK, there are four main options for dealing with debt:

Debt consolidation – borrowing more money but reducing your monthly payment;

Debt management plan – reducing your monthly payments without borrowing more money;

Individual voluntary arrangement – a formal legal procedure which offers a write-off of debt after a prescribed period of time, generally, five years;

Bankruptcy – a formal legal procedure, which offers a write-off of debt after a prescribed time period of, generally, one year.

It is important to stress that there is no ‘right’ way to deal with a debt problem. Each option has its own set of advantages and disadvantages. And just as important, identifying the best option is as much to do with personal and family implications as with the financial issues.

Debt consolidation: How it works

Debt consolidation involves borrowing more money to repay your existing debts. The selling point is that the payments on the new loan will be less than you currently pay on your existing debts. This allows you to bring your income and expenditure back into balance, so solving your debt problem.

The problem with debt consolidation is that the reduction in monthly payments often comes at a heavy price.

Paying back your debt through a new loan over a longer period may sound good but take careful note of the figures. While the reduced monthly payment will help your budget, the calculation of how much you will have to pay back in total will be an unwelcome shock.

Also unwelcome if you are a homeowner may be the news that your consolidation loan is secured against your house – in effect, you are taking on a new mortgage (which is why these loans are often only advertised to homeowners). Fall behind on the consolidation loan payments and you risk losing your home.

Debt consolidation: things to be wary of

Watch out for debt consolidation companies who heavily sell additional insurances to accompany the loan. You may need protection against unemployment, sickness, or critical illness, but you will almost certainly get it cheaper if you buy it separately rather than bundled in.

If you fully understand the implications of what you are doing and are able to access new borrowing at a low rate of interest, debt consolidation can be an effective approach to a debt problem. But more often than not, it leads to worsening debt and sometimes even potential homelessness. If you are considering debt consolidation you must be aware of the downsides.

Debt consolidation is big business. And that means that some of the companies who offer loans are far more concerned with maximizing their profits than in ensuring that a consolidation loan is the right option for you. Watch out particularly for debt advice or debt management companies who suggest an additional loan without full consideration of other options.

A few years ago, debt consolidation loans were only available to those with flawless credit ratings. If you had current or previous arrears on your debt payments it was unlikely that you could access more borrowing. However, there is now a wide-range of companies that specialise in lending to borrowers who are ‘credit impaired’ or ‘sub-prime’.

Of course, these companies do not do this out of the goodness of their hearts. The number of borrowers with current or past payment problems means that there is a large market for this borrowing with interest rates that are higher (sometimes much higher) than you might expect.

Remember that high interest debt consolidation loans – which are secured on your property – are a win-win for the lender. If you repay, then they benefit from the higher interest charges; if you default, they can repossess your home and get their money back early.

Debt consolidation loans can be a good option if:

You have the self-control to see debt consolidation as a ‘once and for all’ solution.

You use the reduction in outgoings to bring your budget back under control, pay back any future credit card spending in full each month without fail, and start saving for future unexpected or irregular costs;

You are prepared to shop around to identify the best value debt consolidation loan;

Debt consolidation loans can be unhelpful if:

You use some, or all of the debt consolidation loan for reasons other than repaying debt. If you need to borrow £10,000 to repay debt, then don’t be tempted to borrow £12,000 to also pay for an impulse holiday;

You don’t shop around and end up paying a high rate of interest on the debt consolidation loan;

You don’t realize the implications of taking on a secured debt against your home.

Debt consolidation loans can be disastrous if:

You continue to accumulate debt after taking on the consolidation loan.

You cannot repay a secured debt consolidation loan and lose your home.

Advantages of debt consolidation:

You can reduce the total amount you pay each month on debt repayment.

Maintains your credit rating.

Disadvantages of debt consolidation:

Normally greatly increases how long it takes to repay your debts.

Often only advertised to homeowners.

Debt management plan

How it works

Any bank, finance company or credit card lender owed arrears by a consumer has the option to seek a judgment in the county court to reclaim their money. However, where you are not trying to avoid payment but are in genuine financial difficulty, the court is likely to order repayments based on your ability to pay.

The court accepts that you must first pay your ‘priority’ debts – these are debts where non payment would lead to the loss of your home (mortgage or rent payments); loss of an essential utility (gas, electricity, telephone, or water payments); loss of an essential item (cars or other hire purchase items); or could theoretically lead to imprisonment (magistrate court fines or council tax payments).

The court further accepts that you need to make other payments to maintain you and your family – so reasonable amounts for housekeeping, travel, clothing, and other similar items are taken into account.

What remains after this exercise is a guide to the amount of money left to repay your bank, credit card and other ‘non priority’ credit debts. The court will make a repayment order based on the figure but also take account of monies owed on other credit agreements. In addition, the court will freeze the interest charges so that the debt no longer increases.

The negotiation of reduced debt payments simulates the approach taken by the court. It involves producing a detailed income/expenditure schedule, showing how much ‘spare’ money is available after priority payments have been made and proposing a fair distribution of this money. At the same time, a request is also made for further interest charges to be frozen.

Arranging a debt management plan is something that you can do reasonably easily yourself, particularly if you use the self-help booklets available from National Debtline or your local Citizens Advice Bureau. However, it is also (unfortunately) true that the banks and card companies will sometimes respond more positively if a debt advice agency writes on your behalf.

Fee charging debt advice agenciesDebt advice agencies offer a similar debt advice service to the Citizens Advice Bureau but will also administer your reduced payments negotiated under a debt management plan. Your local CAB will often arrange for you to make reduced payments, but you will be responsible for making these payments.

The fee charging companies will also arrange that you pay your money over to them and they will pass it on. However, this additional facility comes at a price – the fee charging companies typically keep up to 15% of your regular payment as their fee and the whole of your first month’s payment may also be swallowed up in administration costs.

Of course, paying somebody else to administer your payments means it takes longer to repay your debts. There is therefore little point in paying for a debt management company unless you think their service is worth it.

Advantages of debt management plans

Allows you to bring income and expenditure back into line without taking on more borrowing;

You can follow this option by yourself or with the help of a no fee charging debt advice agency.

Disadvantages of debt management plans

There is no guarantee that your creditors will accept the reduced payments and/or freeze future interest payments;

The time taken to repay your debt will increase. The time will further increase if you pay your debts through a fee-charging debt management company;

Your credit reference file will show details of the Debt Management Plan. This will affect your ability to get credit in the future.

Debt management plans can be a good option if your financial problems are caused by a temporary reduction in income and the situation will improve in the near future.

Debt management plans can be unhelpful if:

Your ability to pay your debts will not improve within 12 months.

Debt management plans can be disastrous if:

The fees taken by commercial debt management companies and the refusal of banks and credit card companies to freeze interest means that your debt steadily increases.

Individual Voluntary Arrangements

At best, an IVA can be an excellent solution for somebody faced with an overwhelming debt problem. At worst it provides a moneymaking opportunity for the increasing number of companies that advertise IVAs. You must make sure that this is a suitable option for you and that the company operating the IVA fully understand and represent your financial situation.

How It Works

A specialist insolvency adviser, called an Insolvency Practitioner, draws up a proposal for you to repay a specified amount in full repayment of your debt. The payment can be made in a lump sum or over a period of time – often up to five years. The companies owed money agree to write off any debt still outstanding once you have made the agreed payment. The amount paid under the IVA is normally calculated with reference to the amount that would be collected if you were to be made bankrupt.

There is normally no up-front fee to pay in using an Insolvency Practitioner – the costs of the IVA are written into the arrangement. But you should be aware that the costs can be high (we are talking thousands of pounds for even a simple IVA). It is vital that you understand how the costs will affect how much you will pay and the proportion of your payments that will be paid to your Insolvency Practitioner rather than to repay your debt.

Advantages of IVAs:

Allow you to repay your debt at an affordable rate over a reduced period of time. Alternatively, the IVA may be proposed on the basis that your family or friends are prepared to help meet your debts;

Offers the advantages of bankruptcy but without some of the restrictions and disadvantages.

Disadvantages of IVAs:

The costs of setting up an IVA can be surprisingly (some would say outrageously) high;

You may have to pay an upfront fee;

Defaulting on the payment arrangement can lead to bankruptcy;

The regulation of Insolvency Practitioners is fragmented and many consumer groups report situations where Insolvency Practitioners seem more interested in the fees that they earn rather than the success of the IVA;

Your credit reference file will contain details of your payment default.

IVAs can be a good option if:

You face a large debt problem and a debt management plan will involve payments over a greatly extended period;

You are faced with bankruptcy but wish to avoid the associated restrictions and disadvantages;

You identify an Insolvency Practitioner who you can trust to propose a realistic, workable, and, if appropriate, sustainable arrangement which works to the benefit of both you and the companies to whom you owe money.

IVAs can be unhelpful if you don’t shop around to find an Insolvency Practitioner who understands your problems and who you feel you can trust.

IVAs can be disastrous if you agree to make regular payments that you know you won’t be able to sustain.

BankruptcyBankruptcy is a formal legal process that draws a line under your debts. It involves the sale of any items of value that belong to you (but some items, such as your basic household goods will not be taken). It may also require that you make regular payments from your income if you can afford this after you have paid your essential domestic and work costs.

Bankruptcy is not an easy way out of paying your debts but it is an option to consider if you face overwhelming debt pressure and can see no possibility of being able to meet your liabilities. It is generally a more attractive option for those with few or no assets.

How bankruptcy works

Bankruptcy can be started by the person who owes money or by the firms who are waiting for missed payments. Banks and other finance companies will generally only make someone bankrupt if they think if it is financially worthwhile. However, this does not stop them threatening bankruptcy even where they know that they will not follow through. If you are being threatened with bankruptcy, you should get advice urgently (your local Citizens Advice Bureau or other free independent advice agency is a good starting point).

Once bankrupt, you are under the control of the bankruptcy trustee. They will arrange to sell items of value belonging to you (including your house if you are a homeowner and the sale value is more than your mortgage debt) and will want to discuss what regular payments you can make. The trustee has the power to examine the way you conducted your finances prior to bankruptcy, particularly if you gave away or sold assets. You are required to cooperate with the trustee.

A recent change in the law means that those experiencing bankruptcy for the first time can normally expect to be discharged after a maximum period of one year. You are then released from your debts (although you may be required to make regular payments for up to three years). You are expected to learn from your experience. People who go bankrupt again get a much tougher time.

Advantages of bankruptcy:

Limits the period over which you repay your debt;

Provides legal protection in respect of your debts;

Disadvantages of bankruptcy:

You are subject to the control of the court;

You face the loss of assets other than those necessary to satisfy your domestic needs, your tools of the trade, and vehicles you need in the course of your employment (which does not include travel to and from work);

Gas, electricity, and telephone contracts will need to be put in to the name of another adult who lives with you. If there is no other adult, you will have to change to a prepayment system or lose the service;

You cannot hold certain public offices while you have not been discharged from bankruptcy, nor can you continue as a director of a limited company;

Your access to credit will be severely restricted until you are discharged; thereafter you will pay higher rates of interest until you have re-established your credit rating;

Some debts will not be included within the bankruptcy. These include mortgage and other secured debts, magistrate court fines, debts payable after personal injury claims, and debts to the student loans company;

Any determination by the court that you have acted dishonestly or recklessly can lead to restrictions on your discharge from bankruptcy;

You will normally lose the use of your bank account and will be forced to open a ‘basic’ account with no overdraft and limited other facilities;

You should assume that your employer, friends, and neighbors will find out about your bankruptcy. Your bankruptcy will be publicized in the local Press and is available to anyone who wants to request information about you;

You will have to pay £475 to petition for bankruptcy.

Bankruptcy can be a good option if:

You face a substantial debt problem, few assets, and limited ability to pay your debts;

Bankruptcy can be unhelpful if:

You are attracted by the advantages without fully considering the downsides of the bankruptcy procedure and aftermath;

Bankruptcy can be disastrous if:

You have assets which will be seized by the bankruptcy trustee;

Your employment, business or personal relationships will be detrimentally affected.

Bill Bailey is a freelance financial journalist. More financial advice at http://www.schnafflehound.com/finance



By: Bill Bailey

About the Author:

Ryan

It is so easy to get into debt! Credit card companies supply the American consumer with countless offers of credit. We are offered 90 Days Same as Cash, an unattainable 0% interest and No Money Down. Paying with credit is easy, just swipe your card or wave your magic keychain. All of these are ploys make it easy for us to build up debt, usually with one major negative net effect: Interest!

As debt accumulates, the interest the American consumer is paying for that debt skyrockets. Bills can become so cumbersome that one becomes buried in their debt, searching for a solution. But what is the best debt reduction strategy for you? Should you seek professional counseling, or is bankruptcy the only option left.

There are several debt reduction strategies that you can consider when facing accumulating debt. First and foremost: Stop borrowing money! You will never dig your way out of debt by accumulating more debt. Once you change your debt grabbing habits, you can focus on one of these strategies to help you reduce or eliminate your debt.

Ask a friend or relative to help: For some people, they may have a generous friend or relative who can help them pay down the debt they have accumulated. However, this strategy can be dangerous to your relationship with that person. Borrowing money from someone you are close to can damage your relationship with that person. Many people have found that Thanksgiving Dinner just doesn’t taste the same if you owe a debt to the person sitting across the table from you. Be careful if choosing this option! A slightly better option (because it doesn’t violate the first rule about not borrowing more money) would be if someone was able to give you money to pay off your debt. Be wary, though, as this can still strain a relationship.

Debt Reduction Strategies

Credit Counseling: There are many credit counseling companies, including some not for profit companies. Credit counseling can be a very good strategy to attack your debt, but be careful when choosing a company. Ask questions, compare fees, find a company that can help you successfully reduce your debt.

Debt Snowball: Many Americans have used this option to get out of debt. It involves taking any available money you have and aggressively attacking your smallest debt until it is paid off. Next, you take the money you were paying towards your smallest debt, plus any additional money you can manage and attack your second smallest debt. Once it is paid off, you take all the money you were paying towards your smallest two debts, plus any additional money you can muster . . . I think you get the picture. This method does have its drawbacks, though. It requires that you first set aside some money for emergencies. It also requires some pretty strong commitment and sacrifice. However, it can be a very successful way to get out of debt.

Debt Settlement: Debt settlement is negotiating a lower payoff with the company you owe money to. If you have already missed numerous payments, a company may be willing to settle for less money than you owe them. There are companies that help you reach debt settlements, but you have to shop around before choosing a company. Some companies will counsel you to stop paying for an even longer time, to make the company you owe more willing to settle. This strategy can further damage your credit score. Some companies will also charge extremely high fees, so you may not end up saving money at all.

Debt Consolidation Loan: Homeowners can consider a debt consolidation loan. You can borrow against the equity you have in your house to pay off your other debts. There are some things to consider carefully when thinking of going down this road. First of all, if you cannot make the payments on this loan, you could lose your house. Second, a debt consolidation loan takes multiple loans and combines them into one loan at one interest rate. Be careful not to include any low interest loans you already have in your debt consolidation. It would not be useful to take a loan you have at 2% and combine it into a loan at 4%.

Bankruptcy: Just the thought of Bankruptcy will send a chill up ones spine. Usually reserved as the final alternative, bankruptcy involves having debts written off because you are unable to pay them. In October 2005, new laws went into effect that made it more difficult to file for bankruptcy. It is important that you find quality counsel, such as a bankruptcy attorney, before taking this path.

Getting out of debt is much harder than getting into debt. Which of these debt reduction strategies will work for you? Before you choose any one option, ask questions, lots of questions. Be sure you understand the process you are committing to, as well as what fees you will be responsible for. Don’t sign anything until you fully understand it and make sure you get everything in writing! If you are not careful in choosing a company to work with, you can end up in a worse situation than the one you are in now. On the flip side, however, committing to one of these debt reduction strategies, choosing a quality company or good friends to help you and having the fortitude to follow through with your decision can relieve you of a huge stress on your wallet, and your life.



By: Phil Rogers

About the Author:

Alonzo Nieminen

As credit card balances continue to accumulate for a majority of Americans even as the national economic future appears ever more dire, increasing numbers of borrowers are taking their financial obligations by the horns and investigating the debt management solutions that would allow them to lower their interest rates and eventually eliminate all of their consumer debt. The process is surprisingly simple and allows borrowers to better their credit ratings and FICO scores – which are largely calculated, you should understand, from logarithms that compare the utilization ratio of credit capacity to money actually owed – while reducing the amount of money they spend on interest payments. The benefits of this should be obvious to every consumer: greater availability of funds as well as a healthier financial outlook should true emergencies pop up in years to come. Most borrowers will find one of the debt management companies, particularly the new debt settlement approach, of great assistance when attempting to correct past mistakes, but there is nevertheless much that ordinary citizens can do on their own before even looking into one of the specialty debt relief businesses. For many Americans, they have not really looked at their collected bills since debt became a problem, and the first thing to do when initiating debt management should be a close examination of each one of their debt burdens and regular monthly obligations.

After all of your bills are laid out in front of you, what comes next in most debt management solutions is to examine the obligations one by one. Once your various burdens have been recorded on an accountant’s ledger with different pages for secured debts (mortgages, auto loans, etc), unsecured debts (credit cards and department score charge account, generally) and the various utilities and insurance payment and other bills you must pay each month to keep your household running smoothly. At this point, you can decide upon the most important bills and rank them in order of priority. For families with relatively high levels of income and low monthly minimum debt payments, for example, there should be no problem when attempting to satisfy each monthly payment, even organizing some sort of automatic deduction from your bank account to make sure each payment arrives on time and there’s no problems with postal delays, while still putting money aside for emergencies and attempting to pay extra on those loans that have the worst interest rates. We do understand, however, that not all households endeavoring to resolve their debt management issues have such luxuries. No matter what your situation, home mortgage loans should be the first bills to be paid. Your residence will likely be your most treasured investment as well as a necessary fact of life. You shan’t dare risk foreclosure.

Afterwards, you should also make sure that car loans are paid on time as well as any insurance that could potentially be cancelled upon defaulted obligations. Only after those are paid, should you worry about the credit card bills, and, if you genuinely have not the capacity to get through every minimum in full, at least work on tackling those with the highest penalties for missed payments. Utilities, however counter intuitive this may sound, should probably wait for a bit when times are tight. They are the least likely to include penalty fees for missed payments and almost never report lapsed borrowers to the credit rating bureaus unless the accounts have already gone to collection. Furthermore, they often have payment plans available subsidized by the local government that could result in a month’s stay of responsibilities or, at worst, truly negligible monthly burdens. The same could be said for doctor’s bills or those burdens resulting from medical emergencies. Loans provided by hospitals often have no interest at all (and, in any event, they would rarely break five percent) and lender representatives will take pains to work with the borrowers to make sure they will not suffer undue hardships from repayment. Even when the debts are mentioned to the credit agencies, they do not overly affect the FICO scores and are treated far more advantageously by any debt specialist analyzing your credit history. There’s a degree of embarrassment whenever the head of household cannot pay every bill, but, for debt management to have any real success, you must have a realistic appraisal of what you can and cannot do on any given month.

That said, you also have to keep in mind the most important of all obligations: those responsibilities handed down by the government or the courts. When assigning priorities to your budgetary concerns, you will have to pay special attention to anything that is judicially or governmentally mandated, from alimony payments to tax liens to reparations from criminal proceedings, before figuring out debt management strategies, and, in the event such judgments or fees are handed down while in the process of debt management, you will have to change your budget accordingly. For that matter, when traditional debt management priorities dovetail as when the courts demand action for some discharged unsecured financial burden (an odd occurrence but not unheard of), then that debt must be repaid as quickly as possible almost to the exclusion of your other debts so as not to worsen your credit much less face garnished earning or bank account seizure (or, though this is truly unlikely, possible imprisonment). In these sorts of circumstances, successful debt management prioritization must take a different tactic than what we ordinarily suggest – attacking those debts featuring the highest interest rates or greatest fees – in order to protect your household against the long arm of the law.

You should, however, understand the distinction between governmental action and the (generally vague and often out and out misleading) threats offered from credit collection agencies. If you have had problems with consumer debt from any amount of time, you are probably all too familiar with the antagonizing spiel that bill collectors will seemingly call every hour to unfurl and all of their varied warnings should payments be delayed even one more day. Borrowers should remember that these collection agencies can say virtually anything that they want, with actual truth rarely a consideration, and they will use every rhetorical gambit in the book to ensure the coffers are filled. No matter what, do not let bill collector scare tactics change your debt management priorities or budgeting strategies. Your more important bills (and, if needs be said, the essential household expenses) must be looked after before worrying about collection agency rants. Don’t let your family go hungry just to avoid another guilt ridden phone call. For that matter, if you are working with a debt management company, you shouldn’t have to listen to them at all. The next time they call or send a threatening note, just give the address of the debt settlement or Consumer Credit Counseling company you have employed, and, by law, they will no longer be able to contact you in any way.

You should also look at more than just interest rates when figuring out which credit card bills to go after first. Most competent debt management authorities would urge you to consider just how much each account will cost in accordance with the varying small fees that credit card companies like to charge. These monthly (or, more commonly) annual administrative fees are absolutely without point or reason beyond profitably defrauding the consumer, and any card that forces borrowers to submit to such charges should be done away with as quickly as makes sense within the constraints of a well thought out debt management procedure. At the same point, when speaking of the various unneeded fees that unsecured credit accounts – or even secured loans; many sub prime mortgage companies also attempt this chicanery – try to hide within the fine print of loan documents, you must also make sure to find out whether or not there is a penalty for early pay-offs. These so-called pre payment penalties are intended only to make the borrower pay out all the interest they can through the course of the loan, and they are one of the reasons that, whenever signing your name to a new credit account, each line should be dissected by someone with professional experience in parsing the sometimes intentionally complicated verbiage that lenders utilize to mask their true intentions. Nevertheless, if you already have agreed to the loan and can’t get out of the pre payment penalty, then with the help of a debt management specialist (or, perhaps, you may try this yourself while using a financial calculator) figure out whether or not eating the initial fees for fully satisfying the loan would be worth an end to the compound interest you would suffer through paying each month for the entirety of the term.

Of course, even once you’ve decided upon a specific technique of debt management, do not consider anything set in stone. You should assume – actually, to be more precise, you should expect – your priorities to change through the long, long process that debt relief entails. Whenever your earnings (especially, during this time of national economic uncertainty and rising unemployment) change or your household circumstances (if a child goes to college, for example, or a family member undergoes hospitalization or some other medical emergency) is significantly altered during the course of debt management, you must be sure to also alter your household’s annual budget to accompany the other changes and make the new funds available as needs must. Obviously, in the same way, if household expenses have actually been reduced (by, say, a child graduating from college) or your career advances and your income improves and additional money is made available for debt management, you should use those funds to pay down the worst of your credit card accounts. Even if you and your family essentially stay in the same basic budgetary situation for the remainder of the management procedure, which seems a virtual impossibility these days with such a dynamic economy and ever evolving American lives, you have to keep a close look on the debts themselves. Many of the secured and unsecured debts have written into the terms of their loans an eventual changeover to adjustable rates that, as you might imagine, only ever adjust upwards. The low fixed rates that, just two or three years ago when calculating your initial debt management budget, you thought you could essentially ignore by shrugging away monthly minimal payments until the real problem debts were taken care of, might suddenly triple in the span of only a few weeks. Even when speaking about the most seemingly solid and stable credit accounts, maintain total vigilance with the debt management program to ensure that your priorities remain accurate.

There are a number of these niggling little debt management solutions that may not occur to the average borrower already sufficiently troubled by increasing debt loads and household deprivations. This is one of the reasons that it is important to do all of the research that you can about debt management both online and by taking advantage of the resources and literature that the government or associated non profit groups shall mail out to interested borrowers as well as speaking with debt management professionals. To take just one other example, whenever that you are constructing your budget and calculating the priority with which to assign each credit card account, there’s more to look at than you may initially think. As you probably assume, most borrowers begin debt management by tackling first the worst interest rates so as to avoid the escalating debts from compound interest accumulation. What may be less known for the general public, many debt authorities instead suggest paying off the loan with the smallest overall balance. This may sound strange, since the smallest debts (in almost every case) generally accrue the least interest regardless of their interest rate, but there’s an incalculable jump to consumer motivation once even a credit account totaling a few hundred dollars has been done away with. Among the causes of borrower debt overload has to be the sense that such financial burdens, once they attain a certain towering status, could never be eliminated through traditional means – this is why so many consumers just stick their head in the sand or recklessly continue borrowing with less and less care to the actual terms of their loans – and the mental inspiration that ensues from eliminating even one bill time and again creates a rippling effect throughout the borrower’s entire household. Mindset and (even, if it is somewhat delusional in the early goings) positive belief in the powers of the household to eliminate debts through proper management could not be more beneficial as the process goes along.

While your authors do appreciate the motivational importance of paying down the smaller bills to prove to the borrowers that debt management can be a reality for their family – and, obviously, we also approve of and would even encourage borrowers to consider starting off with the worst interest rates to prevent more debt from accruing – there are several other, less noticeable aspects that must be thoroughly understood before making any final decisions as to debt management. To take just one example, when you are looking at the different interest rates, there’s a phrase that debt professionals use called ‘effective interest rate’ that aims to calculate the potential tax deductions available for each debt. While this generally only applies to home mortgage loans (not always, whatever the loan officer may say, second mortgages or equity loans; make sure such claims are checked out by tax professionals) or such obvious deductions as medical bills or student loans, there are some cases in which even credit card bills may have unforeseen positive side effects. For instance, those borrowers who are self employed, if they have financed any part of that career through their credit card accounts, may be pleasantly surprised to find that these supposed burdens could actually end up saving them money in the end. Even small, somewhat whimsical home businesses that make barely any money could be used as losses for the larger household income and, through so doing, the associated debts paid every month for that small business could also end up saving the borrower’s tax debts at the end of the year. At the same time, the point of debt management should be to eliminate all of these debts regardless of the tax benefits, but it may make sense to discuss your finances with an experienced accountant (as well as your debt management counselor, there’s rather complicated mathematics to be done to see what that ‘effective interest rate’ will be even after establishing potential income tax breaks) before deciding upon a course of action.

Also, for borrowers with the income to realistically consider such an idea, there may be some purpose to investigating whether your earnings should be put toward a plan of investment rather than earmarking all additional funds toward the elimination of debts. Considering the current state of affairs on Wall Street, we strenuously suggest each borrower think long and hard about even the most seemingly can’t miss investment. Unless you are absolutely assured at getting a rate of return that would be double the interest lost on the worst of your credit card accounts (the obligations that will not be repaid during your attempt at leveraging the debts), it’s probably better to avoid attempts at making money through speculative ventures until you have successfully finished the process of debt management to its conclusion and eliminated all of at least your high interest unsecured debts. Investment should be a respected part of every household’s financial portfolio, but, first and foremost, you have to make sure that you do not continue racking up compound interest. Even the most theoretically stable investment will contain hidden dangers, and you may even be better off cashing in those current deals to better finance full debt relief.

These debt scenarios change so greatly through from consumer to consumer, that it is difficult for your authors to do much more than outlines the broader techniques of debt management successfully utilized by many borrowers we have talked with. For most debtors, they would be well served by taking advantage of a free consultation with one of the debt management companies in their area or available on line. Debt settlement firms, in particular, have demonstrated enormous worth through their practice of negotiating down the actual funds owed from representatives of the lenders in exchange for a promise of repayment that traditionally does not last longer than five years. Once again, the correct debt management solution changes along with the individual’s problems and the day to day requirements of their household, but a quick talk with one of the debt settlement companies seems at least worth the hour or so such a discussion would take. As we have mentioned, there are an endless number of small details that ordinary consumers less experienced in financial minutiae may miss when constructing their own plan of attack for debt management, and, though your debt relief approach and household budget may have to be regularly altered, it is so important when beginning debt management to have your first plan be a productive one.



By: John Chase

About the Author:

Lula Billiot

You’re sitting there one day, off from work due to the stress of your unsecured debts weighing heavily upon your shoulders. Suddenly, in the background noise from the TV you hear a fantastic deal – consolidate your existing debts into ‘one easy affordable loan’. You think wow, just what I need to get my debts under control and you get the sales blurb.

Sounds great doesn’t it?

Debt consolidation in the UK is not a new phenomena these days. It’s been around a while. Lots of people have taken out debt busting consolidation loans. So why is the amount of debt in the UK still rising so fast? And why are bankruptcies, IVA’s and debt counselling services stretched to their limits and running at all time high figures right now? Well people get sold on the advantages but I’d recommend thinking about the disadvantages too!

Advantages of debt consolidation UK

Well the interest rate normally comes down on the unsecured debt amount borrowed making the monthly payments easier to afford.

Your debts come under control quickly so the annoying telephone calls and letters from irate creditors stops.

Disadvantages of debt consolidation UK (this is the bit they don’t want you to think too hard about)

To get a debt consolidation loan usually requires some form of property. By consolidating the unsecured debts to your home some of the equity has now been lost. So what was once an unsecured debt now forms part of a charge over your property. Every legal advert in the UK selling this type of service will point out in the small print that your home is at risk if you fail to keep up payments on (this now larger) secured loan. So you’ve put more risk onto your property. I regularly meet people who have bought their house maybe 20 years ago for figures like £80,000 on a house worth £110,000 to find that a decade on they have a house worth (say) £180,000 with a new debt consolidated mortgage of £150,000. So they still only have a similar amount of equity in the property but also have a mortgage now nearly double in size!

Another disadvantage is that the term of the borrowing is usually increased. Well sometimes the debt consolidation companies in the UK will sell that as a benefit with a line like ‘you can take longer to pay your debt and allow yourself time to get on top of your borrowing over the coming years’. I find that an odd statement. You have doubled your mortgage in a decade and you have found yourself in debt but suddenly your spending habits will change and you’ll be debt free at some point in the future. What are your thoughts as you read that? Another interesting point arises here. Because the term is often longer, you will possibly end up paying much more of your hard earned money for that unsecured borrowing by the time you pay off your new secured lending.

Did the debt consolidation company ask what your lifetime ambitions are? You see, you may have got out of the immediate debt issues but you may just also have signed away the possibility of that early retirement / new car / that holiday to see your family down under too. You see, if the amount you are paying back is higher than you had budgeted for then you may need to work longer to achieve your dreams. Was this discussed with you?

Did you consider at least 6 solutions for getting our of debt trouble before you decided on your debt consolidation loan? Can the company you speak to even name 6 solutions for getting out of debt trouble? If not then you have ignored several other options that may have been more suitable for the financial position you found yourself in. It’s rare indeed to find loan and mortgage brokers that are fully trained in solutions to tackle insolvency and debt issues. They have their offering and will talk about the monthly repayment figures to demonstrate how you could be better off, but is it the best way forward? Well naturally, that depends on your situation.

A final word on debt consolidation in the UK

Now, I do believe that debt consolidation has its place but I also think that there could be more done to understand that there are other options for getting out of debt. Getting the right debt help and advice is essential. Look at the advantages and the disadvantages for each solution you consider for debt resolution and then make a more informed decision.

There are more options for getting out of debt trouble then most people realise, that includes debt consolidation but is not limited to just that course of action.

If you would like to know what the 6 solutions to debt in the UK are then you can get debt help and advice from Ed Pearson at Debt Dr.

This article does not constitute regulated advice. Please remember that any action regarding financial advice should always be taken only after considering the specifics of your own situation.

To find out more about Ed try, http://www.advice4debt.co.uk/debtquiz.htm

Ed Pearson is a Debt Dr offering debt help and advice to individuals and small businesses across the UK.

Whilst you may love the stuff he writes, you should only ever take action once you have considered your own set of financial circumstances with a professional. This article does not constitute financial advice.



By: Ed Pearson, Debt Dr

About the Author:

Taylor Pernod