Debt Consolidation Blog

Archive for February, 2010

Debt is common aspect that everyone might encounter during their lifetime. Many people are aware of the fact that being in debt can lead to many problems and safe to be debt free. But there are also occasion where incurring some amount of debt of debt is important to build up credit score and solve cash flow problems but one must remember that it will be safe if the debt is under your control not debt is controlling you.

In this scenario, many people are under certain myths about the debt they are holding.

First, many people think that they are not the only people in debt and find excuses saying that most of the people are in debt. It is something that can not be avoided for almost all people during their life. But the thing is that even most of the Americans are mounted with debt, many are able to manage their debt responsibly. The main problem with debt actually arises when there is not control or irresponsible borrowing. In order to become debt free at least by the time one retires, need to have controlled spending habits.

Second myth, all debt is bad. Many people commonly think that any kind of debt will hinder your lifestyle. But this is not necessarily true because there are some kind of debt such as mortgage, car loans etc are necessary. For example, mortgage loan is comparatively cheaper than taking a home on rent these days and it can be treated as an investment for future. At the same time overdrafts are also necessary to maintain in order to avoid missed payments over your debt and avoid penalty charges in case of default on monthly payments.

Third, many think that credit rating once damaged with debt defaults can not the recovered and will be for life. But this is not the case because those debt incidences will be for only 6 to 7 years and removed thereafter. Therefore one must remember that bad credit records will be on report for only a period of time and at the same time there are many ways through which you can rebuild your credit ratings and maintain credit report within very short span of time.

Fourth, people think that seeking debt control is costly. But this is not necessarily true; if your debt is going out of your control then it would be better for you pay some amount for debt seeking and get rid of the outstanding debt with ease. There are many reliable debt relief services that help you in getting out of debt and will not charge much amount for their service. Finding a reliable debt relief service is a key to this because there are many companies that promise which is unbelievable and ask for huge fee for doing so. This myth is perpetuated for this reason and makes you go deep into debt further. Hence beware of those companies that charge fee for minute things that they advice.

Articles on this site have been acquired from a variety of sources.  No content on this site should be considered financial or legal advice.

Millions of people across America are falling behind debt payments because of reduced income or increased cost of living and interest rates that are charged on the amount you owe to creditors. The amount you owe can be secured or unsecured. Whichever type is the debt, but when the debt is cancelled, the forgiven amount is taken into consideration for taxation by IRS.

The cancelled debt by your creditors is required to be reported to IRS, one which is greater than $600 on form 1099. With this the IRS will get notified that you have settled the debt with your creditor for less than what you actually owe to them. The IRS views this cancelled debt as a taxable income and wants you to pay taxes on that amount you benefited.

In case of unsecured debt, many people who are unable to make monthly payments after strong efforts tries to settle debt with creditors to let the debt stress go away from their life. But, unfortunately after settling another debt, the borrower faces with other type of debt that is tax as they require paying tax on the amount forgiven by the creditor.

The other case where the forgiven debt is taxed is during mortgage forgiveness. People who had lost their home due to foreclosure because of their inability to be current on the mortgage payments will be in deep grieve as they lost their home. In such case IRS comes up with taxable amount notice for any amount that your creditors forgive during the foreclosure.

If you lost home to foreclosure, then there are two possible consequences you must consider as per the IRS:

Taxable cancellation of debt income. In such case, IRS views the amount forgiven as an income to mortgage borrower. Therefore, charges with tax on the amount the debtor got benefited. If the loan is non-recourse then the debt cancelled will not be taxed.

A gain that debtor enjoyed during the foreclosure. This is because the foreclosure is viewed as a sale in terms of IRS and if the home seller reported gain at the disposition of the home. But if the home seller reported loss during the foreclosure he can not claim the loss in tax returns and are not deductible.

While the borrower gets relief from financial stress from the amount that the lender forgives, it often triggers tax liability by IRS as under the tax law, cancelled debt is considered as an income to debtor and that is included as a part of income while calculating the income of the debtor.

As the American is facing hardship in meeting monthly commitments, many people are unable to pay out their tax on time. This is actually causing sleepless nights as going bankruptcy also will not manage to get rid of tax debt. This is the case especially when people do not realize that they have tax issues when their debt got cancelled and as a result the tax debt gets mounted leading to problems.

Articles on this site have been acquired from a variety of sources.  No content on this site should be considered financial or legal advice.

Undoubtedly, student loan debt is a perfect answer to any college education. But during the present economic slowdown, many out coming graduates from colleges are unable to find work. With no income after coming out of college resulting in more and more debt incurring and unable to make payments towards student loan debt.

Many graduates are therefore viewing bankruptcy as an option to get relief form student loan debt. Unfortunately, it could not happen because even bankruptcy will not discharge the student loan debt and don’t know any other approaches while dealing with financial problems.

As the students are getting into debt even before coming out graduate school and find a job, making it impossible to pay back what they owe especially when there is slowdown in economy. To help such people, government came up with new programs to help out coming graduate students.

Though it might not be possible to help each and every student in the country with grants for which huge number of people apply, many students are managing to get grants money from government to pay off these loans.

If you are the one who got huge debt in student loans and unable to weigh, federal government came up with two new programs that make it possible to forgive your debt by federal government. One thing to be noted is that as it is a federal government grants, then only federal government student loans are forgiven. Other student loans like private loans, military loans or any other type of student loan from other sources will not be considered under these programs.

The first student debt relief program that is eligible to get student loan forgiveness by fed is income based repayment plan. This program allows you to pay monthly payments at an affordable level based on your income and expenditure and forgives any debt and interest that will remain after 25 years. This program is totally depending on your income. If you are facing a hardship with low income or mo income then your monthly payments will go as low as $0 in case you are unemployed. It means your monthly payments are totally depended on you salary. In order to qualify for this program you need to owe more than what you earn in a year.  

The other program that federal government brought into action is public service loan forgiveness. Under this program, the federal government will forgive you student loan debt in exchange for services. For example, if you work in a government, non-profit or any other public service then you could have you student debt forgive only after 10 years of loan repayment under income based repayment program and those 120 months payments need not be in consecutive months.

These actions were taken by federal government in order to help economy to boost. These government programs to forgive student loan debt were in a right direction to help the needy people. If you are finding hardship to meet monthly student loan debt payments, then apply for the programs mentioned above will solve your hardship effectively.

Articles on this site have been acquired from a variety of sources.  No content on this site should be considered financial or legal advice.

Mortgage Prepayments
The Dollar Stretcher Blog
by Gary Foreman
I am trying to find the best way to really take advantage in reducing our mortgage to save on interest paid. We are in our home for 5 years with a 30 yr fixed @ 6.1% rate. Payment is $1500 mo. We are now sending in our regular payment weekly by dividing 1500 by 4. On top of that we are sending in $400 to $500 weekly to add to principal. We did not know if dividing th original payment by 4 if it would make a big diference since it is getting there early in weekly amounts. We would sure appreciate advice and help.
TR

Wow! TR is to be congratulated on her dedication to paying off the mortgage quickly. But, let’s see if all those extra payments are reducing the length of her mortgage.

Hopefully, TR has already taken the first step. That’s to make sure that her mortgage allows for prepayments without penalty. Most mortgages do allow it, but it’s good to be certain. If not, they’ll take all her payments and just apply them to the next regular due date. Effectively making all her early payments an interest free loan to her mortgage company!

Let’s talk about what TR is trying to do. By sending one quarter of her monthly payment in each week she could be reducing the amount of interest owed and that would mean that more of her payment goes to reducing principal.

Basically it’s a math problem. We’ll break it down into easy to understand pieces. Beginning with the interest rate.

Typically we talk about interest rates on an annual basis. In this case 6.1% per year. But in reality it’s a daily rate. In this case 6.1% divided by 365 days or 0.0167% or 0.000167 per day.

So the mortgage company multiplies the principal (i.e. the amount that TR still owes on the mortgage) by 0.000167 each day. That amount is added to the amount owed.

Suppose that TR’s mortgage is $100,000 (probably not a realistic number, but a nice round one to work with). For each day TR will owe an additional $16.71 in interest. So for a 30 day month she’d owe $501.37 in interest on the $100,000 mortgage amount.

If her payment were $1500 roughly one third would go to paying the interest owed ($501.37) and two thirds ($1500 – $501.37 = $998.63) would go to reducing the principal.

What happens when TR sends in one quarter of her payment 3 weeks early? The amount she’s sending in is $375 ($1500 / 4 = $375). The amount of interest to borrow $375 for 21 days is $1.32 ($375 * .000167 * 21 days = $1.32). That’s true no matter how big or small the mortgage principal is.

The second weekly payment would save $0.88 ($375 * .000167 * 14 days = $0.88). The third weekly payment would save $0.44 ($375 * .000167 * 7 days = $0.44).

What about the extra principal that TR is sending in weekly? Let’s say that she sends in $500 per week. That $500 is worth $0.58 per week.

So sending in all those weekly payments really isn’t saving TR much money. In fact, if she’s mailing them the cost of the envelope and postage is consuming much of the savings. That, and her time has some value, too.

Now some of you will have noticed that by paying weekly TR has added the equivalent of a full monthly payment each year. But she doesn’t need to make weekly payments to get that effect. All she has to do is to keep adding extra to each payment for principal reduction.

And, in that area TR does have the right idea. By adding $400 or $500 a week to reducing the principal, she’s making a major dent in the length of her mortgage.

Calculating the effects of additional principal prepayments is a little more difficult. The reason is that they reduce the amount of interest owed next month. So the amount of next month’s payment that goes to pay interest is reduced and the amount that goes to pay principal is increased. And, that effects the next month’s payment even more. And, that the month after, etc.

Suppose that TR combines her extra principal into one $2,000 payment per month. She’ll reduce the amount of interest owed by $10.16 ($2000 * .061 / 12 = $10.16). So her next monthly payment will in effect be prepaying an additional $10.16 of principal. And, that will make the payment after that even more effective. Just that one $2,000 prepayment would shorten the life of the mortgage by one and a half years.

Unless you’re a math fiend, it’s eaiser to use a prepayment calculator you find on the net. One that I like is found here
<http://www.decisionaide.com/mpcalculators/ExtraPaymentsCalculator/ExtraPayments1.asp>.

So what should TR do? Probably skip the weekly payments. They’re having a very minimal effect and increase the chances for a clerical foul-up at the mortgage company. But, TR should continue to make monthly principal prepayments. They’ll make a major difference in the legnth of her mortgage.
Keep on Stretchin’ those Dollars!
Gary

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Gary Foreman is the editor of The Dollar Stretcher.com website <www.TheDollarStretcher.com> and various enewsletters including Financial Independence <http://www.stretcher.com/subscribe/subscribeFI.cfm> Financial Independence is designed to walk step-by-step with you as you take control of your finances and achieve financial freedom! For more on mortgage prepayments read <a href=”http://www.stretcher.com/stories/03/03jun16e.cfm” target=”_blank”>How Mortgage Prepayments Work</a>.

Many people think about credit score when seriously drowning into debt and might be searching for something that could help you become debt free with out ruining credit. First you need to decide are you keen about building credit score or want to eliminate debt that is mounted because you can’t achieve both at a same time.

Before, taking a decision ask yourself whether you are going to take credit even after mounted with huge debt? If no, then why are you worried about credit at this moment? If you are still worried about not spoiling the credit score then you are obviously like someone who thinks about the garden, which get spoiled with the fireman’s boots when trying to save your home that is burning. If the house is saved, can’t you rebuild the garden again? It is true with credit score also.

There are many options available if you want to get out of debt fast such as debt consolidation, debt settlement and credit counselling. Each of the methods mentioned above can be used to get out of debt but they have their pros and cons.

Debt settlement works by entering into an agreement between creditor and debtor to settle the debt to the amount that is lower to what you actually owe. In this process, the debtor stops paying to creditor for 3 to 6 months. With this defaults, the creditors will report to credit rating agencies as a result the credit score get dropped.

Debt consolidation, in this process you make a single payment to debt consolidation companies which in turn will be distributed to your creditors after taking their fee. You creditors will report to credit rating agencies the act of using a third party, debt consolidation firm that will have negative affect on your credit report.

If this is the case with any debt relief options, how will one manage to keep their credit score intact and become debt free? In order to have a good credit score you need to make payments on time, make more than minimum payments, cut back on your spending, avoid using credit cards further and increase your income.

After knowing what can negatively impact your credit score, use budgeting techniques to get out of debt without ruining your credit score. First step to pay off the debt is to formulate a budget for all your expenses and see for areas that you can save to pay off the debt.

See if you can speak to your lenders to convince them for lowering interest rate on debt. This can be possible if you were to pay bills on time for more than a year.

If you can earn some extra income. you can speed up the debt repayment process. This might be possible by working part time or using your skills online that help you get some extra amount.

This are the ways how you can repay the debt over a time without ruining credit score.

Can debt consolidation help? Many often say that get out of debt in days – is it really possible? No, I say nothing is possible overnight since there is no magical approach to get out of debt. there are many option like debt settlement, debt consolidation, credit counselling, debt negotiation etc all this are good at their part but can they give you permanent solution to your debt problem. Are you sure that these techniques will help you further to stay away from debt? The only way to stay away from debt is to change your life style or spending attitude.

Spending money on unnecessary things with the amount you borrow from someone else makes you pay huge amount upon which you carry. If you are already in debt then debt consolidation, debt negotiation and debt settlement are the ways to get out of debt.

Debt consolidation is a process of combining all your debt into one loan. This is helpful because many people will have incurred number of debt in their daily life, of which each carrying different rate of interest and people don’t even track which debt carrying how much interest rate. One can eliminate most debt by paying high interest rate. For this reason getting all debt under one umbrella, will help you track your debt very easily and at the same time the debt stop multiplying much faster pace. As the interest rate on debt consolidation loan obtained is lower than the credit cards, one which debts use to be previously, the debt incurred is much lower.

The reason to avail debt consolidation loan is to pay off the credit cards that carry incredibly high interest rate. To stop incurring debt further, they need to pay off first. The other reason for credit card debt mounting is many people pay only minimum payments every month as credit cards unlike other debts do not insist you to pay exact amount every month. With this, many people pay only minimum amount to show they are current on the payments. But fail to forget, paying more than minimum can only help you in getting out of debt.

Taking debt consolidation loan does not mean you paid off the debt, but it is only an initiative from your side to get out of debt. In order to get out and stay away from debt the first thing is to control your expenses. Expenses are those where you spend money over a month. For example, utility expenses, clothing expenses, food expenses, gasoline expenses and general expenses. Only thing you can do in an effort to control expenses is by tracking where all your money is going every month. By tracking you come to know your spending habits.

One thing that comes to mind for many people when we speak about budget is sacrifice. It is very hard to do it and many people hate this word. By the word sacrifice I mean you need to compromise with the way you lead life. For example, cut your digital TV expenses or eat daily at home etc. But, think which is hard for you sacrifice or debt collection calls from lenders? In reality this can save you dollars that will help you get out and at the same time stay away from debt.

Many people were dragged into credit card debt because many American are not prepared from the ups and downs in the economy. According to employee benefit research institute, one third of Americans have less than $10,000 in savings including retirement plans and other investments except home. At the same time the median debt of average American holding around $7,000 in credit card debt. With this reason, American are dragged into credit card debt very easily with threat of losing job, pay cut in the present economy than in the past.

In order to avoid such situation, one must get prepared to stay out of debt irrespective of the economic cycles. If you are one prepared to out swim the economic crisis with out incurring debt then here are the steps that one must follow with their finance.

The latest economic data shows that consumer outstanding debt rose by 10 percent as the consumer spending continue to grow and personal savings rate dropped to new low. Zero savings or low savings implies that consumers are financing their spending habits through borrowing like loans, credit card debt, selling investments etc. as long as consumers continue to spend beyond their earning, the debt continue to mount that is the main reason behind the economic turmoil.

In order to overcome this situation, one must take control of their spending habits. Thinking what can people do to stop spending? It’s very simple – budgeting. They need to sit and figure out a budget plan about the amount they need for each week to meet only their necessities and stick to it. In order to figure out a budget plan that helps you to save few dollars is to know where all your money is going.

Start tracking all you expenditure, the areas where you spend and think whether it is necessary for you to lead a peaceful life not luxurious life. If you think particular expense for you then include it list for budgeting. Repeat this for all expenses and make of list of necessities. The main resource for tracking all your expenses is credit card statements and bank statement as they give all information about where did you spent.

Having assets does not mean you have enough sources to pay for your expenses or meet your living. Presently people require cash to pay for things. It means having cash in hand to meet particular thing is more important than having assets because it not always possible to liquidate assets and turn them into cash especially in emergency. Therefore having cash in hand to meet emergency is always a good idea because at that time particularly person is dragged into debt.

Hence, always make sure that you have some cash in your savings account to meet emergency needs and put rest of your net worth towards building assets. At the same time it is important to keep an eye on the spending habits and not let them go out of your control in order to spend according to budget.

Articles on this site have been acquired from a variety of sources.  No content on this site should be considered financial or legal advice.

Can debt settlement and debt negotiation help lower credit card debt payments? Tired of trying to get out of credit card debt? Losing more and more money on interest rates, late payment fees and annual fees that add up to the debt? This type of things will make you feel like you are being dragged into debt further irrespective how hard you try to get out of credit card debt. Don’t worry this is the speciality of credit card debt. You can only get into it and have to struggle a lot to get out of it.

Debt settlement is a solution in such cases. It is an option that many credit card debtors are choosing to get out of debt. Debt settlement firms work with debtors negotiating with their creditors to help them achieve reducing the debt burden. In this process debt settlement consult all the creditors with whom the borrower is holding an account with outstanding balance.

In this process the debt settlement firm representative will consult creditors in an effort to reduce the overall debt and help you create a debt management plan according to your financial situation. Although this type of action will hurt your credit ratings, it is much batter option than declaring bankruptcy which affects your credit score very badly.

Many think is it really possible to settle debt with credit card companies? Yes, it is possible. In fact credit card companies are out there in market to make money not to lose money and they won’t make anything if you default on payments. For this reason, credit card companies come forward to settle debt with you.

If you want best results out of debt negotiation, then one must follow these tips which can help you negotiate your outstanding amount successfully.

One can manage to settle debt with creditors when he is successful in taking his hardship to the creditors. This can be done by preparing monthly budget that outlines your financial situation to creditors. With this your creditors estimate your affordability to pay debt every month.

To successfully negotiate, you must have information about your financial affordability before you start contacting your lenders and make an offer. Never ask lenders about how much they are willing to settle the debt, instead you make an offer to the creditor about the amount you can afford to pay in order to mark the credit status as “paid in full”. Never agree for electronic payments from you checking account directly or through post dated checks.

You must show off to your creditors that you are determined to pay off the outstanding balance but unable to meet the payments and tell him that you can afford to pay the debt to figure you offered earlier.

Speak politely with creditors and start negotiating with low balance accounts first. After paying off the settled amount then go for next highest amount and thereafter next highest one and so on.

Make sure to know your rights as a consumer when you are dealing with creditors or collection agencies. By knowing your rights you can protect yourself against the collection harassments and procedures followed by the collection agencies.

Articles on this site have been acquired from a variety of sources.  No content on this site should be considered financial or legal advice.

Debt incurred on credit cards is one that hinders your finance health because they carry high interest rates over your debt. High interest rate carrying means that your debt will multiply at faster rate. If you are unable to make monthly payments and keep minimum payments that is huge disaster to your finance well being. Therefore if you want to stop debt multiply at much faster pace and keep all your debt under control, then balance transfer for credit card debt consolidation is best option.

Credit card balance transfer is an effective approach if you want to eliminate high interest debt. In these efforts, many credit card companies are offering zero percent balance transfers as an introductory offers to attract consumers to their firms. But, one must remember that zero percent interest rate does not last for ever as it is limited to defined period which is usually for six months to one year.

On the other hand, zero percent balance transfers only one that applies to balance transferred from other credit cards. In case of any new purchase, the usual interest rates are applied. This is great for one who is purchasing for a short period of time. Along with such benefits it also has some limitations, hence before applying for zero percent balance transfer credit cards, know various advantageous and disadvantageous.

If you are looking to become debt free, then zero percent balance transfer card will help you in that matter. During the zero interest period offered by the card issuers, all the interest paid towards the debt will go towards decreasing the debt with no deductions towards debt transfer. With usual credit cards, much of the amount you pay monthly go towards interest thereby leaving the principle intact. Thus it becomes difficult to become debt free. Even thought you are unable to pay off the debt with in the specified zero percent interest period, you must be able to reduce the debt to a significant level, which saves you a lot of money in the end.

In case you are not financially disciplined, then there are chances of you incurring more debt. for example, if you have transferred all your debt to zero percent credit card, then your old credit card is paid off in full and has zero balance which will tempt you use the card for future purchase that result in debt further. Any undisciplined guy can’t avoid such situation because closing the account to avoid such situation will affect your credit score that makes the card holder to maintain the account. But, on the other hand it might tempt you to use. To overcome this limitation, you must cut your credit card into four pieces and through it into dustbin thereby you will not close the card account at the same time you will not use it further.

If you were not able to pay off the entire debt within zero interest period then there are chances that the interest rate will bounce back to high interest rate than you were usually paying to previous card issuer.

Articles on this site have been acquired from a variety of sources.  No content on this site should be considered financial or legal advice.

Biggest hurdle that every American is facing in today’s economy is how to manage debt.  It is a growing problem of the Nation. People can incur debt in many forms like credit cards, car loans, mortgage, personal loans and medical bills. Credit card debt is one bad debt that will affect your life in many ways and brings stress.

Do all you can to not accumulate more debt by downsizing your spending habits, creating budget and implementing, and avoiding late fees.  Any individual can analyze their financial position and create a budget to maintain financial discipline. In order to do this effectively, one may need to have financial knowledge and experience.

For this reason, a professional advice of a Credit Counsellor  may help you to get back into good financial shape. A credit counsellor is expert in the field of finance.  We are amateurs who lack finance knowledge and experience in dealing with creditors and budgeting.

Debt consolidation may be one solution to your debt problems. These services could help you as the financial advisor will analyze all your financial information regarding all unsecured debts and negotiate with lenders to help you reduce monthly payments with the goal of clearing the debt in the end.

In this process, proper and professional management of credit cards is required.  As a result, it may become necessary for debtors to seek guidance of professional in an effort to eradicate credit card debt. Getting professional help is always recommended because it reduces the stress and will help manage finances in a better way.

Although you would expect to see some reductions in payments, a process of debt consolidation will have many other benefits that can derive from professional debt consolidation service. Here are some of those benefits:

By hiring a debt consolidation professional, you can make use of his knowledge and techniques that can be very helpful in clearing debt.

By practicing healthier financial management methods, you can learn helpful tips and tricks that can benefit you long term in staying away from debt

Articles on this site have been acquired from a variety of sources.  No content on this site should be considered financial or legal advice.