Archive for January 31st, 2009
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:
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:
Meredith has been working in many facets of research, writing, editing and marketing for over 5 years. She obtained a B.A. in journalism and an M.A. in American history. Her current specialty is internet marketing and public relations, especially social media, and she is fascinated by the tools available to link people together online! A native of upstate New York, she now lives in sunny Southern California.
Francene Macmurray