Archive for the ‘Finance’ Category
You never know when and who would need help from a credit card debt consolidation program. Sometimes unexpected circumstances can lead to financial difficulties which in turn would lead you to consider debt consolidation. Some of these circumstances are loss of job, loss in business, death of an earning member and so on. If you are finding it hard to pay off your credit card loans, then it is wise to consider debt consolidation. This is much better than bankruptcy. This article will help you with steps in finding the right credit card debt consolidation program, make you aware of the advantages and disadvantages of debt consolidation so you can decide whether credit card debt consolidation is the best option for you or not.
Basics of Debt Consolidation
Debt Consolidation is a big loan that will pay off your credit card loans. There are several ways these debt consolidation programs work. The most popular way is to take one lump sum amount of money from you (the borrower) and distribute it to your credit card companies (the lenders). All your loans will be consolidated into one payment usually withdrawn directly from your bank on a fixed date every month. These programs make the card holders life easier.
As a general rule, if you have many credit cards from different companies with high interest rates, then debt consolidation can help you manage your debt with only one bill and much lower APRs. These debt consolidation companies negotiate a lower interest rate for you and this can save a lot of money in the long run. This will work out in your favor if you have credit cards with APRs of around 30% because the debt consolidation programs can reduce these interest rates to between 12% – 18%. These programs require a monthly administration fees, which is usually around and this will come off your savings. Remember if the admin fee does not come off your savings, then it is not a good idea to sign up for a debt consolidation program.
So it looks like everything about the credit card debt consolidation is positive. Well, it is not always the case. There are a few advantages and also disadvantages of debt consolidation programs. You have to find a balance between them. The fact is that credit card debt consolidation companies do help you in paying off your debt. Here are some advantages and disadvantages of these programs.
Advantages
1. Decreased payment amounts: The monthly payments will be less than what you were paying before debt consolidation because you are paying off the loan over a longer duration.
2. Simpler to manage: After you signup in the debt consolidation program, you will have a relief from reading your credit card statements, deciding how much to pay for each credit card and then making the payments one by one. Usually, the company will withdraw the money directly from the bank and you will not have to be concerned about late payments.
3. Decreased interest rates: This is one of the major advantages for many credit card owners. Some of the debt consolidation companies bring down the interest rates much lower than the current ones. This can save lots of money for you.
4. Debt Management tips: Many of the good debt consolidation give lots of free tips on managing your debt. They draw out a plan on debt management. These tips are invaluable. They even mail out booklets on debt management.
Disadvantages
1. Lower FICO scores: Many experts debate that debt consolidation does not have any effect on credit (FICO) scores the fact is that debt consolidation has a negative effect on the credit scores. Enrolling into debt consolidation will always be reflected in your credit history. Most credit repair companies mention that it is difficult to increase your credit score if you are currently working with a debt consolidation program. Your credit scores can be raised after you have paid off the loans and are not currently in any debt consolidation program. Even if you can remove one credit card from the debt consolidation program that can help you increase your credit scores.
2. Higher Payment: Since your payments are made over a longer duration of time i.e. in more number of the years, then you will end up paying more in the long run. One way to prevent this is – if your financial situation has improved, then you can pay off larger sum of money. Most of times there will be no penalty for paying off the debt sooner than the agreed number of months. Before enrolling in a credit card debt consolidation program, you can confirm if there is a penalty or not for paying off the debt sooner than the agreed number of months.
3. Credit cards inactivation: If a credit card payment is enrolled in a debt consolidation program, then that particular card account will be inactivated. i.e., that credit card can no longer be used.
4. Negative Impact on Future Loans: Once you have enrolled in a credit card debt consolidation program, this will remain in your credit history. So, all future loan requests (new credit card applications, home loan, car (automobile) loans etc.) will involve references to your debt consolidation. i.e., the lender will have knowledge about your participation in debt consolidation program. Some people are very uncomfortable about this but it is up to you decide. Your credit history is a private record and will be provided by credit score companies only on a need-to-know basis. If you apply for home loan, then the chances of getting rejected is higher and if you get accepted, then mortgage broker will ask for explanation. Again all these conversations are kept confidential.
So, the question is – when should you consider a credit card debt consolidation? If you are paying high interest rates around 30% on a credit card, you have many credit cards, you are unable to make payments or your are barely able to make just the minimum monthly payments, you are finding it difficult to manage all the payments etc., you must consider signing up for a credit card debt consolidation program. After reading through the advantages and disadvantages mentioned earlier, make decision about signing up or not signing up for credit card debt consolidation program.
How to find a good debt consolidation program / company?
Signing up with the right debt consolidation program is critical for saving money and successfully consolidating your debt. There are a good number of scams in the debt consolidation business so it is in your best interest to proceed cautiously to prevent being victim of a scam. Here are some very good sources of finding the right debt consolidation program.
1. References from friends and relatives: It is best to ask your trusted friends if they have any recommendations for reliable credit card debt consolidation program i.e., if they have enrolled in one of these or know of anyone who enrolled in one and is satisfied. As mentioned before, there are many scams and so with this option, you can feel safe. This should be your first option.
2. Television advertisements: Most of big and established companies run advertisements on TV. These are companies that have a lot of experience and have been successful with debt consolidation. But it is a wise thing to research the company. Look for their website and check for their standing in Better Business Bureau (BBB) and must have been in existence for a few years. Also, search http://ripoffreport.com website for this company – this website where victims of scams post their experiences.
3. Mails: When you are unable to payoff debt on time, you will receive mails from some companies that will offer help with debt consolidation. These companies have permission to access some of your basic information. The good thing here is that your fit their profile of enrollees and that is why you received a mail with their credit card debt consolidation services. As mentioned earlier, research these companies using the same methods described above.
4. Telemarketing phone calls: Typically, telemarketing phone calls that you get is because your debt situation is such that it fits the requirement of their enrollees. If you receive a phone call, remember to never enroll in the first phone call. Note down all the details of this company such as the websites, contact person and phone number to call. Research the company extensively as mentioned above.
5. Online Research: Research the internet for good credit card debt consolidation companies both non profit and profit companies. Once you create a list of possible companies, research the companies extensively. Talk to these companies until you are comfortable about enrolling with them.
For a few months or years, if you can handle the disadvantages of credit card debt consolidation programs, then enroll in a program. Debt consolidation can get you out of your current debt problems and save you a lot of money by lowering your interest rates but if you do not spend judiciously, then you will be back into the same debt problems and this cycle will never end. So the long term solution to debt problems is to change your spending habits and live slightly below your means. Remember you need to manage the money / debt and NOT let the money / debt manage you.
By: Lokesh Kumar
About the Author:
Basics of Debt Consolidation
Debt Consolidation is a big loan that will pay off your credit card loans. There are several ways these debt consolidation programs work. The most popular way is to take one lump sum amount of money from you (the borrower) and distribute it to your credit card companies (the lenders). All your loans will be consolidated into one payment usually withdrawn directly from your bank on a fixed date every month. These programs make the card holders life easier.
As a general rule, if you have many credit cards from different companies with high interest rates, then debt consolidation can help you manage your debt with only one bill and much lower APRs. These debt consolidation companies negotiate a lower interest rate for you and this can save a lot of money in the long run. This will work out in your favor if you have credit cards with APRs of around 30% because the debt consolidation programs can reduce these interest rates to between 12% – 18%. These programs require a monthly administration fees, which is usually around and this will come off your savings. Remember if the admin fee does not come off your savings, then it is not a good idea to sign up for a debt consolidation program.
So it looks like everything about the credit card debt consolidation is positive. Well, it is not always the case. There are a few advantages and also disadvantages of debt consolidation programs. You have to find a balance between them. The fact is that credit card debt consolidation companies do help you in paying off your debt. Here are some advantages and disadvantages of these programs.
Advantages
1. Decreased payment amounts: The monthly payments will be less than what you were paying before debt consolidation because you are paying off the loan over a longer duration.
2. Simpler to manage: After you signup in the debt consolidation program, you will have a relief from reading your credit card statements, deciding how much to pay for each credit card and then making the payments one by one. Usually, the company will withdraw the money directly from the bank and you will not have to be concerned about late payments.
3. Decreased interest rates: This is one of the major advantages for many credit card owners. Some of the debt consolidation companies bring down the interest rates much lower than the current ones. This can save lots of money for you.
4. Debt Management tips: Many of the good debt consolidation give lots of free tips on managing your debt. They draw out a plan on debt management. These tips are invaluable. They even mail out booklets on debt management.
Disadvantages
1. Lower FICO scores: Many experts debate that debt consolidation does not have any effect on credit (FICO) scores the fact is that debt consolidation has a negative effect on the credit scores. Enrolling into debt consolidation will always be reflected in your credit history. Most credit repair companies mention that it is difficult to increase your credit score if you are currently working with a debt consolidation program. Your credit scores can be raised after you have paid off the loans and are not currently in any debt consolidation program. Even if you can remove one credit card from the debt consolidation program that can help you increase your credit scores.
2. Higher Payment: Since your payments are made over a longer duration of time i.e. in more number of the years, then you will end up paying more in the long run. One way to prevent this is – if your financial situation has improved, then you can pay off larger sum of money. Most of times there will be no penalty for paying off the debt sooner than the agreed number of months. Before enrolling in a credit card debt consolidation program, you can confirm if there is a penalty or not for paying off the debt sooner than the agreed number of months.
3. Credit cards inactivation: If a credit card payment is enrolled in a debt consolidation program, then that particular card account will be inactivated. i.e., that credit card can no longer be used.
4. Negative Impact on Future Loans: Once you have enrolled in a credit card debt consolidation program, this will remain in your credit history. So, all future loan requests (new credit card applications, home loan, car (automobile) loans etc.) will involve references to your debt consolidation. i.e., the lender will have knowledge about your participation in debt consolidation program. Some people are very uncomfortable about this but it is up to you decide. Your credit history is a private record and will be provided by credit score companies only on a need-to-know basis. If you apply for home loan, then the chances of getting rejected is higher and if you get accepted, then mortgage broker will ask for explanation. Again all these conversations are kept confidential.
So, the question is – when should you consider a credit card debt consolidation? If you are paying high interest rates around 30% on a credit card, you have many credit cards, you are unable to make payments or your are barely able to make just the minimum monthly payments, you are finding it difficult to manage all the payments etc., you must consider signing up for a credit card debt consolidation program. After reading through the advantages and disadvantages mentioned earlier, make decision about signing up or not signing up for credit card debt consolidation program.
How to find a good debt consolidation program / company?
Signing up with the right debt consolidation program is critical for saving money and successfully consolidating your debt. There are a good number of scams in the debt consolidation business so it is in your best interest to proceed cautiously to prevent being victim of a scam. Here are some very good sources of finding the right debt consolidation program.
1. References from friends and relatives: It is best to ask your trusted friends if they have any recommendations for reliable credit card debt consolidation program i.e., if they have enrolled in one of these or know of anyone who enrolled in one and is satisfied. As mentioned before, there are many scams and so with this option, you can feel safe. This should be your first option.
2. Television advertisements: Most of big and established companies run advertisements on TV. These are companies that have a lot of experience and have been successful with debt consolidation. But it is a wise thing to research the company. Look for their website and check for their standing in Better Business Bureau (BBB) and must have been in existence for a few years. Also, search http://ripoffreport.com website for this company – this website where victims of scams post their experiences.
3. Mails: When you are unable to payoff debt on time, you will receive mails from some companies that will offer help with debt consolidation. These companies have permission to access some of your basic information. The good thing here is that your fit their profile of enrollees and that is why you received a mail with their credit card debt consolidation services. As mentioned earlier, research these companies using the same methods described above.
4. Telemarketing phone calls: Typically, telemarketing phone calls that you get is because your debt situation is such that it fits the requirement of their enrollees. If you receive a phone call, remember to never enroll in the first phone call. Note down all the details of this company such as the websites, contact person and phone number to call. Research the company extensively as mentioned above.
5. Online Research: Research the internet for good credit card debt consolidation companies both non profit and profit companies. Once you create a list of possible companies, research the companies extensively. Talk to these companies until you are comfortable about enrolling with them.
For a few months or years, if you can handle the disadvantages of credit card debt consolidation programs, then enroll in a program. Debt consolidation can get you out of your current debt problems and save you a lot of money by lowering your interest rates but if you do not spend judiciously, then you will be back into the same debt problems and this cycle will never end. So the long term solution to debt problems is to change your spending habits and live slightly below your means. Remember you need to manage the money / debt and NOT let the money / debt manage you.
By: Lokesh Kumar
About the Author:
The author Lokesh Kumar is a business owner, investor and has very good financial knowledge. Visit Best Credit Cards and Debt Consolidation website and blog for quality information about credit cards, debt consolidation, credit (FICO) scores and honest reviews of 500+ credit cards.
Johnson Vafiadis
In making any purchase, you want that the item purchased must have a long term utility. However, while selecting the debt management technique a shift in the approach is quite noticeable. We find that short term debt management techniques like debt consolidation loans are much greater in use. Nevertheless, this is not double standard on the part of people. The choice is mostly influenced by the immediate pressure of debts.
Debt settlement techniques, which have a longer standing effect, are the rule of the day. People know them by the name of debt management in the UK. Debt management aims to strike at the roots of debt, instead of simply countering the after effects of debts. When debts are not allowed to increase, the use of debt consolidation loans and other short-term debt management techniques become redundant.
Why is debt management preferred to have a longer effect? The realisation is the result of people accepting that debt consolidation loans can give succour for only a time being, but not for ever. Even when borrowers are able to pay all the debts at a particular point of time, is there a guarantee that debts will not arise again? What shall one do at that time? Taking a new debt consolidation will not be a viable solution. The loan providers will be the first to deny loans to borrowers who have grown a habit of borrowing. And what about your home against which the loan is taken? Will it have sufficient equity left to be used for any other purposes? No! These are the reasons that have pushed borrowers towards seeking long term debt management.
Certain borrowers are perplexed at the inclusion of debt consolidation loans in debt management, when the debt management agencies themselves say that debt consolidation loans are of not much good. To this the debt management agencies reply in the following manner; “We do not recommend the total ban on the use of debt consolidation loans. What we recommend is a ban on the misuse of debt consolidation loans.â€
Debt consolidation loans are rampantly used in the UK. It is because of the ease with which people are able to draw debt consolidation loans that people have started spending rashly; thus being further weighed down by debts.
Debt management agencies have come down on this habit of the people of the UK. Since debt consolidation loans abet people in taking more debts, debt management agencies also criticise debt consolidation loans.
Debt management makes a planned use of debt consolidation loans. Compare the situation with an ailment that a person is facing. Debt consolidation loans will be like a surgery to be performed. However, doctors will first try to cure the ailment through oral medication. The oral medication is to be given through debt counselling. Only when oral medication is not able to cure the ailment, doctors will suggest surgery, i.e. debt consolidation loans.
Debt counselling is referred to the advice to borrowers about the manner in which they can cure a debt problem. The advice is not general in nature. Debt counsellor, who is an expert, will sit with the debtor during a few sessions to discuss the details of the debt problem. When debt problem is at its preliminary stage, it will require efforts from the borrowers own side. Debt counsellor offers certain suggestions through which borrowers can bring upon a marked change in their finances. Debt management agencies have given a new look to certain age old principles of coping with debts. It is these principles that are made use of to inculcate debt sense in borrowers.
It is during these sessions that the debt counsellor will access the use of debt consolidation loans. The factors that will be considered while making the decision are as follows:
• What is the amount of debts that the debtor owes to one or different creditors?• Does the borrower have sufficient available income to repay debts on his own without using debt consolidation loans?• The nature of the debts- whether debts are accruing higher interest rate, and if they have already reached their repayment date.
The various tips that you learned during the debt management process must not be forgotten during repayment of debt consolidation loans. While debts owed to creditors have been settled, you continue to owe to the loan provider. Never must the borrower relax until the final instalment of debt consolidation has been made.
By: Ann Gibson
About the Author:
Debt settlement techniques, which have a longer standing effect, are the rule of the day. People know them by the name of debt management in the UK. Debt management aims to strike at the roots of debt, instead of simply countering the after effects of debts. When debts are not allowed to increase, the use of debt consolidation loans and other short-term debt management techniques become redundant.
Why is debt management preferred to have a longer effect? The realisation is the result of people accepting that debt consolidation loans can give succour for only a time being, but not for ever. Even when borrowers are able to pay all the debts at a particular point of time, is there a guarantee that debts will not arise again? What shall one do at that time? Taking a new debt consolidation will not be a viable solution. The loan providers will be the first to deny loans to borrowers who have grown a habit of borrowing. And what about your home against which the loan is taken? Will it have sufficient equity left to be used for any other purposes? No! These are the reasons that have pushed borrowers towards seeking long term debt management.
Certain borrowers are perplexed at the inclusion of debt consolidation loans in debt management, when the debt management agencies themselves say that debt consolidation loans are of not much good. To this the debt management agencies reply in the following manner; “We do not recommend the total ban on the use of debt consolidation loans. What we recommend is a ban on the misuse of debt consolidation loans.â€
Debt consolidation loans are rampantly used in the UK. It is because of the ease with which people are able to draw debt consolidation loans that people have started spending rashly; thus being further weighed down by debts.
Debt management agencies have come down on this habit of the people of the UK. Since debt consolidation loans abet people in taking more debts, debt management agencies also criticise debt consolidation loans.
Debt management makes a planned use of debt consolidation loans. Compare the situation with an ailment that a person is facing. Debt consolidation loans will be like a surgery to be performed. However, doctors will first try to cure the ailment through oral medication. The oral medication is to be given through debt counselling. Only when oral medication is not able to cure the ailment, doctors will suggest surgery, i.e. debt consolidation loans.
Debt counselling is referred to the advice to borrowers about the manner in which they can cure a debt problem. The advice is not general in nature. Debt counsellor, who is an expert, will sit with the debtor during a few sessions to discuss the details of the debt problem. When debt problem is at its preliminary stage, it will require efforts from the borrowers own side. Debt counsellor offers certain suggestions through which borrowers can bring upon a marked change in their finances. Debt management agencies have given a new look to certain age old principles of coping with debts. It is these principles that are made use of to inculcate debt sense in borrowers.
It is during these sessions that the debt counsellor will access the use of debt consolidation loans. The factors that will be considered while making the decision are as follows:
• What is the amount of debts that the debtor owes to one or different creditors?• Does the borrower have sufficient available income to repay debts on his own without using debt consolidation loans?• The nature of the debts- whether debts are accruing higher interest rate, and if they have already reached their repayment date.
The various tips that you learned during the debt management process must not be forgotten during repayment of debt consolidation loans. While debts owed to creditors have been settled, you continue to owe to the loan provider. Never must the borrower relax until the final instalment of debt consolidation has been made.
By: Ann Gibson
About the Author:
Loan borrowing is like once in a life time decision and much is at stake. It is indeed not a good thing that many people are misguided into taking loans that are not appropriate to their financial situation. This leads to many allied misgivings. As a financial consultant the only driving force of Ann Gibson is to provide proper knowledge. Because knowledge in respect to loan borrowing is power and exudes financial benefits.He works for uk debt consolidation site uk debt consolidations.To find a uk debt consolidation loan,debt management that best suits your need please visit http://www.ukdebtconsolidations.co.uk
Troy
Most people facing growing debt and limited resources have probably looked around for financial solutions and heard a little bit about debt consolidation. Debt consolidation is a great financial option to overcome overwhelming debt, but it is not right for everyone. But before you can figure out if it is right for you, you have to realize that some of what you may have thought about debt consolidation … is wrong.
Of all the financial plans available for people dealing with overwhelming debt, debt consolidation is probably the most valuable and the least understood. In fact, you may already believe some of these common myths about debt consolidation. Find out the truth!
Myth #1 Debt consolidation is the same or similar to debt management, debt settlement, and bankruptcy.
Truth Debt consolidation is nothing like those other programs. In truth, it is not so much a “program” (you can even do it on your own, if you know enough) but more of a strategic approach.
In debt consolidation, you lump all of your debts together and repackage them. Debt settlement and debt management typically involve dealing with a company or counselor and the object is to reduce the amount you owe. Bankruptcy is a legal proceeding that involves a date with a judge.
Myth #2 Debt consolidation reduces your debt.
Truth No, it doesn’t. If you owe a total of $80,000 on several credit cards and loans and you consolidate that debt, you still owe $80,000.
Debt consolidation does not re-negotiate, settle, write off, or reduce any of your debt. What possible advantage is re-organizing your debt like that?
If you have a lot of loans at high interest rates, repackaging those higher-interest debts into one larger loan at a lower rate reduces your interest and the amount you have to pay. This means you can either pay less a month or (even better) pay the same amount but get the debt paid off sooner.
Myth #3 Debt consolidation will hurt my credit score.
Truth Done properly, debt consolidation will not impact your credit score or credit report negatively. In fact, debt consolidation may even improve your credit score! That’s because you’ll be paying off a bunch of smaller loans and any time a loan is paid in full, that helps your credit score.
Myth #4 Debt consolidation requires getting help from an outside agency or a lawyer.
Truth While there are companies that specialize in debt consolidation programs, you do not have to use them to consolidate your debt.
Of course, if you want to consolidate your debt on your own, you have to know a bit about how to do it and what the options are. But it can definitely be a do-it-yourself project for people good with money (or who are willing to learn enough to get good with money).
Debt consolidation is also not necessarily visible to outsiders. Your bank, the credit bureau, and other parties may not even be aware that you have consolidated debt.
Myth #5 Debt consolidation is something for financial losers and lightweights, not for people who know how to manage money.
Truth This is the most far-out myth about debt consolidation. Debt consolidation is a principle that is used in business and by the super-wealthy all of the time. It is a way of organizing and structuring your debts in a way that is most advantageous to you.
Myth #6 Debt consolidation is just robbing Peter to pay Paul; you’re just getting more debt!
Truth Debt consolidation is indeed a way for you to pay off one debt by getting another debt. But not all debts are equal.
As an example, let’s say that you owe $10,000 and the loan is set up so that you have to pay 22% interest. For example, let’s suppose that I go to my credit union and work out a deal to borrow $10,000 at 12% interest. While both debts are still in the amount of $10,000, the debt at 12% interest is a better deal for me. I won’t have to pay as much per month or, if I make the biggest payments I can, I can pay it off sooner.
Myth #7 Debt consolidation requires you to be a homeowner.
Truth There is a grain of truth to this, in that owning a home definitely offers an advantage to anyone who wants to consolidate debt. (It doesn’t matter if your home is paid for or not, but you do need some home equity.) However, you can consolidate debt without owning a home, too.
Myth #8 Debt consolidation will make it harder for me to get future loans.
Truth In most cases, it is unlikely that anyone but a forensic accountant could figure out that you consolidated your debt (unless you go through a debt consolidation companythat might leave a paper trail).
If you borrow money in one loan and then take out another, more advantageous loan to pay off the first one, you’re more likely to leave a paper trail of somebody who pays off debt responsibly. It is more likely to make you a desirable creditor.
Myth #9 People who consolidate debt just wind up digging themselves in deeper in debt!
Truth It is absolutely possible to consolidate your debt and then keep spending and get yourself in a big mess. That’s why you need good information and a plan to pay off your existing debt, manage your finances now, and start planning for your financial future.
There is no reason that debt consolidation cannot work to get you out of debt for good, but you have to have a plan.
Myth #10 Debt consolidation will allow me to write off some of my debts and it will stop bill collectors from calling.
Truth Let’s take these one at a time.
Unlike bankruptcy, debt consolidation will not allow you to write off any of your debtnot a penny of it. Whatever you owed as a debt before debt consolidation is the amount you’ll owe after debt consolidation.
The advantage is just that you structure it in a more favorable loan. You do not get existing debts cancelled or decreased! Now it’s true you can work that out in other debt management solutions (debt settlement lets you reduce debt, bankruptcy will let you write some debt off) but they come at a very high price. Both of these approaches will have a negative impact on your credit score, will make it hard for you to get future loans, and stay on your record for quite a while. Bankruptcy, in particular, is an extreme solution that involves an actual court proceeding and a judge who has the authority to make certain decisions about your financial situation (including forcing you to sell some items to pay off debts).
Debt consolidation can only stop bill collectors indirectly. Here’s how: let’s say you have six debts and you’re getting calls all of the time. If you consolidate your six debts into one large debt consolidation loan at more favorable terms, you’ll pay off all of those debts. Bye-bye, bill collectors!
However, if you don’t pay off your new debt consolidaiton loan on time, the bill collectors will start calling again.
By: Jo Ann LeQuang
About the Author:
Of all the financial plans available for people dealing with overwhelming debt, debt consolidation is probably the most valuable and the least understood. In fact, you may already believe some of these common myths about debt consolidation. Find out the truth!
Myth #1 Debt consolidation is the same or similar to debt management, debt settlement, and bankruptcy.
Truth Debt consolidation is nothing like those other programs. In truth, it is not so much a “program” (you can even do it on your own, if you know enough) but more of a strategic approach.
In debt consolidation, you lump all of your debts together and repackage them. Debt settlement and debt management typically involve dealing with a company or counselor and the object is to reduce the amount you owe. Bankruptcy is a legal proceeding that involves a date with a judge.
Myth #2 Debt consolidation reduces your debt.
Truth No, it doesn’t. If you owe a total of $80,000 on several credit cards and loans and you consolidate that debt, you still owe $80,000.
Debt consolidation does not re-negotiate, settle, write off, or reduce any of your debt. What possible advantage is re-organizing your debt like that?
If you have a lot of loans at high interest rates, repackaging those higher-interest debts into one larger loan at a lower rate reduces your interest and the amount you have to pay. This means you can either pay less a month or (even better) pay the same amount but get the debt paid off sooner.
Myth #3 Debt consolidation will hurt my credit score.
Truth Done properly, debt consolidation will not impact your credit score or credit report negatively. In fact, debt consolidation may even improve your credit score! That’s because you’ll be paying off a bunch of smaller loans and any time a loan is paid in full, that helps your credit score.
Myth #4 Debt consolidation requires getting help from an outside agency or a lawyer.
Truth While there are companies that specialize in debt consolidation programs, you do not have to use them to consolidate your debt.
Of course, if you want to consolidate your debt on your own, you have to know a bit about how to do it and what the options are. But it can definitely be a do-it-yourself project for people good with money (or who are willing to learn enough to get good with money).
Debt consolidation is also not necessarily visible to outsiders. Your bank, the credit bureau, and other parties may not even be aware that you have consolidated debt.
Myth #5 Debt consolidation is something for financial losers and lightweights, not for people who know how to manage money.
Truth This is the most far-out myth about debt consolidation. Debt consolidation is a principle that is used in business and by the super-wealthy all of the time. It is a way of organizing and structuring your debts in a way that is most advantageous to you.
Myth #6 Debt consolidation is just robbing Peter to pay Paul; you’re just getting more debt!
Truth Debt consolidation is indeed a way for you to pay off one debt by getting another debt. But not all debts are equal.
As an example, let’s say that you owe $10,000 and the loan is set up so that you have to pay 22% interest. For example, let’s suppose that I go to my credit union and work out a deal to borrow $10,000 at 12% interest. While both debts are still in the amount of $10,000, the debt at 12% interest is a better deal for me. I won’t have to pay as much per month or, if I make the biggest payments I can, I can pay it off sooner.
Myth #7 Debt consolidation requires you to be a homeowner.
Truth There is a grain of truth to this, in that owning a home definitely offers an advantage to anyone who wants to consolidate debt. (It doesn’t matter if your home is paid for or not, but you do need some home equity.) However, you can consolidate debt without owning a home, too.
Myth #8 Debt consolidation will make it harder for me to get future loans.
Truth In most cases, it is unlikely that anyone but a forensic accountant could figure out that you consolidated your debt (unless you go through a debt consolidation companythat might leave a paper trail).
If you borrow money in one loan and then take out another, more advantageous loan to pay off the first one, you’re more likely to leave a paper trail of somebody who pays off debt responsibly. It is more likely to make you a desirable creditor.
Myth #9 People who consolidate debt just wind up digging themselves in deeper in debt!
Truth It is absolutely possible to consolidate your debt and then keep spending and get yourself in a big mess. That’s why you need good information and a plan to pay off your existing debt, manage your finances now, and start planning for your financial future.
There is no reason that debt consolidation cannot work to get you out of debt for good, but you have to have a plan.
Myth #10 Debt consolidation will allow me to write off some of my debts and it will stop bill collectors from calling.
Truth Let’s take these one at a time.
Unlike bankruptcy, debt consolidation will not allow you to write off any of your debtnot a penny of it. Whatever you owed as a debt before debt consolidation is the amount you’ll owe after debt consolidation.
The advantage is just that you structure it in a more favorable loan. You do not get existing debts cancelled or decreased! Now it’s true you can work that out in other debt management solutions (debt settlement lets you reduce debt, bankruptcy will let you write some debt off) but they come at a very high price. Both of these approaches will have a negative impact on your credit score, will make it hard for you to get future loans, and stay on your record for quite a while. Bankruptcy, in particular, is an extreme solution that involves an actual court proceeding and a judge who has the authority to make certain decisions about your financial situation (including forcing you to sell some items to pay off debts).
Debt consolidation can only stop bill collectors indirectly. Here’s how: let’s say you have six debts and you’re getting calls all of the time. If you consolidate your six debts into one large debt consolidation loan at more favorable terms, you’ll pay off all of those debts. Bye-bye, bill collectors!
However, if you don’t pay off your new debt consolidaiton loan on time, the bill collectors will start calling again.
By: Jo Ann LeQuang
About the Author:
For thorough and objective information about debt consolidation options, click on http://www.MyDebtConsolidationAnswers.com .
Donn Polhill
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