Debt Consolidation Blog

Archive for May, 2011

If you are like most people, you have a casual idea of how much money you bring in every month versus how much you spend. The word “budget” is one of those things that you’d prefer to avoid, even though you know it’s kind of important to keep track of how much money you have to spend on necessities, plus the things you want. When it comes to buying a car, your attitude might be that you have your heart set on driving a certain make and model and, therefore, are willing to skimp over the specifics of how exactly you’re going to pay for it.

After all, you’ve been waiting a while to get this dream car and you saw one at the local dealership that is in the exact color you want. It also has that cool GPS system that you know will help you out when driving to out of town destinations. Even though you’ve got your hands full with other bills that keep a roof over your head, the electricity turned on, puts food on the table and streams entertainment into your home, you keep thinking that you can make some room in your personal finances for this particular car.

But can you?

The line between needs and wants often gets blurred when it comes to selecting the right car that fits your current situation. Hey, it would be nice if everyone could just traipse on down to the car dealership and pick out whatever car they wanted without worrying about having enough money to cover the monthly payments. Unfortunately, for most people, this isn’t realistic and there comes a time when you have to sit down and crunch the numbers on how big of a car loan debt you can afford to take on right now.

People tend to let their emotions get involved when selecting a nice car to drive. Going down to the dealership to look at cars can make you feel like a kid in a candy store. There are so many cool vehicles that call out to you – buy me. Yet, if you are being a smart consumer, you will have already taken a serious look at your current budget and figured out you can’t afford any car loan payment that’s over $295 per month. In other words, you can kiss that cool car with the built in GPS system goodbye.

Yes, it really sucks that you can’t afford to get your dream car right now, but this doesn’t mean you won’t be able to get it sometime in the future. The fact of the matter is, you’ve got to choose the car that fits best within your budget, meaning, you know that you’ll absolutely have that $295 each and every month to pay out on that car loan debt. On the other hand, if you ignore reality and pretend that you can pay $385 a month, even though it will cause you a lot of financial difficulties, this type of thinking is going to lead you towards possibly defaulting on your car loan, or struggle to pay other bills down the road.

Whenever you make large purchases, such as buying a car, always keep in the front of your mind how much this new payment is going to impact your monthly budget. Remember, circumstances can change, which could make it more difficult to make those payments. Also remember to include the cost of insurance, maintenance and gas in your calculations. Get the car that you know you can afford right now and you’ll stay in good financial shape.

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Sometimes when you are swamped with a mound of debt, it can feel like you’re underwater looking for a way to catch a breath. Money problems and huge personal debt is a major cause of mental stress that can lead to physical illness. Debt stress has also been known to break up more than a few relationships. If you are currently feeling the stresses and strains of having too many bills to pay, but not enough money during the month to pay them all, it’s time for you to take a serious look at debt consolidation.

Consolidating debts has quickly become the most popular way for people to dig their way out of a bad financial situation. When you’ve become overwhelmed by the amount of money owed, and creditors have begun breathing down your neck trying to get you to cough up dollars you simply don’t have, it’s time to take some drastic measures to fix things. When it comes to finding the right debt consolidation program for your individual situation, you need to do some careful research first to make sure you choose wisely.

Here are 5 ways to easily pay off large amounts of debt:

Mortgage Debt Loan

If you are a homeowner, one of the options you have at your disposal is to refinance your existing mortgage, or take out a second mortgage on your home. Your home is the largest financial asset you have and now is the time to put it to work in solving your debt problem. One of the main benefits of this type of loan is that you will be able to get a low interest rate, which saves you a whole bunch of money over other types of loans.

Your monthly cash flow will immediately improve and this is the money that you should use to make payments on any late or overdue bills. In fact, it’s a wise idea to use this money to expedite paying off a few of these debts, if at all possible. It’s often a lot easier to get a home loan for debt consolidation because your house is used as collateral.

A downside to this type of debt loan is that it puts your home on the line if you should ever default for any reason. You’ll need to be very disciplined in how you use this additional money, and be careful not to get yourself further into the debt hole.

Credit Counseling Service

If you feel you need the assistance of a supportive financial adviser, you can turn to a credit counseling service. Credit counseling services exist to help people, who are deep in debt, find solutions for paying creditors and managing their personal finances. A qualified credit counselor can point you in the right direction and explain how to use a debt consolidation program to your benefit. They have lots of resources and can also help you with planning a realistic monthly budget, while guiding you towards better spending habits.

Credit Card Debt Consolidation

Another popular method to consolidate debts is to have all of your credit card balances transferred onto one, low interest rate credit card. Many people, who have several credit cards to pay each month, are finding that this is an excellent way to manage their debt. Instead of keeping track of numerous credit card bills with various balances and payment due dates, you can focus on making just one payment each month. That would take a very big load off of your shoulders.

Normally, to qualify for a low interest consolidation card, you need to still have a decent credit record, so look into this option before things get too bad. Typical interest rates range from 0 – 5%, but make sure you read the fine print, because the rate could go up after several months.

Debt Consolidation Company

There are numerous debt consolidation companies that specialize in assisting people in managing their transition into a debt consolidation program. Instead of paying all of the creditors yourself, you would make a single payment to the debt consolidation company, who would then be responsible for distributing payments to each creditor.

Before any payments are made on your behalf, you would get together with the consolidation company and determine what type of payment arrangements are best for your situation. The company then presents an offer to your creditors and they must agree to these terms in order for it to be a done deal. Normally, the debt consolidation company negotiates a much lower payment than you can do on your own. These lower payments make your money stretch further, which allows you to pay more creditors.

Be sure to find a reputable company that is in good standing with the BBB and has good reviews from their clients. Take your time in choosing and always read the fine print before agreeing to a contract.

By understanding the differences between each type of debt consolidation program, you’ll be in a position to make a better choice about how you wish to consolidate debts.

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Too much credit card debt can be a hassle to pay down, especially in these tough economic times. Pay down your debt using these financial management tips.

Stop accumulating more debt.

The first step is to recognize that you do have a big problem and that it won’t go away if you keep using your credit cards to rack up more debt. It will take a lot of discipline to stop using plastic all the time but if you can do it, just this one step can really help you pay down your debt. So long as you continue paying more than the minimum amount and stop accumulating more debt then you are on the right track and eventually your balance will go down to zero.

Pay on time.

As much as possible, pay on or before the due date to avoid late fees. These fees can add up to a significant amount if you are regularly late on your payments. If the problem is the date itself, you can ask your credit card company to change the date to a more convenient one for you.  This can often help with cash flow and financial management problems.

Save up for big ticket items.

There are probably a lot of things you would like to buy but it’s not a good idea to use your credit card too much. Don’t buy big ticket items if you can’t really afford it. Start a savings fund for any big purchases you want to make and put money on it every month. That way you won’t have to go into debt to buy expensive items.

Get a better credit card.

Shop around and apply for a card with a lower interest rate if you think you can get one. Alternatively, if you want to stay with your current credit card company but want a lower interest rate then you can call your credit card company and ask for a lower rate. Lenders will often lower their rates for long time customers.

Consolidate your debts.

Debt consolidation can help you pay less in the long run by using your mortgage or a separate consolidation loan to pay off your high interest credit card debt. Consolidation loans have a lower interest rate so it may be a good choice for you. Talk to a debt consolidation expert to find out if you qualify for this type of loan.

Make additional payments.

If you do decide to consolidate, you will normally find that your monthly payments will be reduced. This means that you will have some extra funds you can use to pay down your debt as soon as possible.

Keep making payments and stop using your plastic.  It’s not as easy as it sounds but this is a solid and simple strategy that will allow you to pay down your debt and give you peace of mind about your personal finances.

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When consumers have problems with paying down debt, they turn to credit counseling and debt consolidation for help. One of the top reasons to consult a credit counseling agency is to get assistance with bringing down debt payments to a more manageable level. This is where the Debt Management Plan or DMP comes in.

When you go for credit counseling, a professional consumer credit counselor will examine your financial status and advise you on what steps you can take to manage your debt. You will be educated on how to budget and handle your money wisely. If needed, you will be offered a personalized Debt Management Plan.

How does a Debt Consolidation Plan work?

A DMP means that you will have just one monthly payment. This goes to the credit counseling organization. This money is then used to pay off all of your debts that fall under the DMP such as credit card debt, student loans, car loans, personal loans, medical bills, etc.

The purpose behind this is to bring down your monthly payments to a reasonable amount that you are able to pay. Creditors may agree to lower interest rates and/or waive late fees if you are on a DMP. However, you will probably be asked to refrain from acquiring more debt while you are still on the Debt Management Plan. You won’t be able to get any new loans until you have finished paying down your debt.

How can you tell if a DMP is right for you?

Each DMP is individually tailored according to a person’s needs so you will have to evaluate the pros and cons yourself. Consider the following factors:

Do you actually have the capacity to pay? If you are offered a DMP but the monthly amount is too much for you to handle then you may need to look into other options, maybe even bankruptcy.

Are you getting better terms from your creditors? It might be a good fit for you if your creditors have agreed to certain concessions like lowering interest rates, waiving some fees, forgiving some part of the debt and other similar special consideration.

Will you be able to “re-age” your accounts? Re-aging simply means that your accounts will be put back on current status.

Are all of your debts included? If some debts are not included you will have to pay those separately so you need to factor that into your calculations of how much you can pay each month.

What other options do you have? Depending on your financial situation, there might be other options that are more appropriate for you. Ask about alternative choices before you sign up for a Debt Management Plan with a credit counseling organization.

Hopefully this article has helped you find out more about whether or not credit counseling or Debt Management Plans are right for you. Good luck and remember to do your research before you sign up for a plan.

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When choosing between a bank and a credit union account, there are important things to keep  in mind. Credit unions offer many benefits to their members and are primarily community based. It may be easier to join a credit union than you think. Credit unions usually request information on employment and residence before approving membership, however the process is very simple and the benefits are many.

Credit Unions have been around for many years however most people do not understand them and tend to opt for their local bank which usually has a large advertising budget for attracting customers. There are many differences between a bank and a credit union. The primary difference is that members of a credit union actually have a share in the ownership of the credit union itself while bank member do not. Because credit unions are member owned, they are generally more community based and tend to be involved in educating the community about finances and credit related subjects. Credit unions are non- for profit organizations while banks are essentially large profit driven corporations.

If you are concerned about the security of your funds within the credit union accounts, rest assured that they are just as protected as at a national chain bank. In 2009, the Economic Stabilization Act was passed which is similar to the FDIC. It insures all funds in credit union accounts up to the amount of 250,000. In addition, many credit unions provide private deposit insurance for their members. Your funds may also be insured by the National Credit Union Administration if your credit union is one of the 8,000 unions insured by this organization.

Another major benefit to utilizing the services of your local credit union is the amount of money you will save in fees.  Credit unions typically offer significantly lower fees than banks. This is because any profits made by the credit unions are returned to the members in the form of lower loan fees and bank fees. Contrarily banks pocket any profits and charge additional miscellaneous fees to increase their overall profits. When applying for a mortgage or car loan through your credit union, you will notice their interest rates are very low. In addition, the interest rates offered on your deposits tend to be much higher than at your traditional branch bank.

Credit Unions benefit the general public by keeping the market competitive. Without the existence of credit unions, banks would be able to charge low interest rate returns on deposits and high fees on loans and bank transactions. Credit unions ensure that banks prioritize the interests of their customers by offering competitive interest rates and offering customer benefits.

If there is a credit union in your neighborhood, you will benefit greatly from becoming a member there. Since these credit unions do not traditionally charge surcharge fees on ATMs you are free to use your bank card at any ATM nationwide. Credit unions are an essential asset to their community and joining one can help keep this incredible institution alive while also putting money back into your pockets.

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Debt trouble- Knowing when to seek help from a financial counselor can be a difficult step. Our culture is a spending focused one and it is often quite the norm for consumers to have multiple credit cards which each carry high balances. It may be easy to categorize your debt troubles as normal, however recognizing when you may need help and taking action in a timely manner can save you from serious financial difficulties in the long run.

One of the major warning signs of increasing debt difficulties is an increase in credit spending with a decrease in income. An over reliance on credit cards for daily spending needs and even bill paying can be reflective of serious financial distress. It may be necessary to make major changes that affect your lifestyle in an effort to offset your mounting debt. Scaling down to a new car is sometimes necessary if your financial situation is different than when you took out your car loan. Other changes may include moving in with a relative or friend until you are in a more stable financial situation. Although these changes result in a major upheaval in life as you know it, they are only temporary and will benefit you in the long run far more than increasing credit spending that you may not be able to repay.

Another sign of debt trouble involves lack of knowledge of your current account balances. It may be an overwhelming situation to find yourself owing more money than you can reasonably pay. Often denial sets in and we rarely want to come to terms with the full impact of our credit spending. However this refusal to look at reality is a dangerous sign that you may need to seek the help of a financial counselor or debt management agency. The first step you can take is to find out the exact balances on all the accounts that you owe. You will then want to come up with a game plan by finding out how much debt you may be able to consolidate and what you can afford to pay towards your balances each month.

Dipping into savings reserves and your employer sponsored 401K plan could have serious repercussions in the long run. Those plans are in place to facilitate an easier financial time later down the road. Often withdrawals from IRA funds come with high fees and penalties and usually require that you pay taxes on the amount that you are withdrawing.  Avoid withdrawals from these types of accounts at all costs. If you are in a financial bind, instead of credit card spending, consider taking out a loan from a whole life insurance policy which offers lower interest rates and more lax repayment terms.

It is never an easy situation to end up owing more money than can be repaid. However if you are aware of the warning signs of increasing debt struggles and difficulties, you will be able to prevent the situation turning into a necessary bankruptcy filing. Seeking the appropriate debt assistance in a timely fashion will help you get back on track to sound money management and more secure footing.

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Setting up a life insurance policy to handle circumstances in the event of your death is one of the best investments you can make for your family. A life insurance policy offers significant financial security for a bereaved family. However there does come a time when you may need a personal loan to handle the day to day expenses of life such as a down payment on a house, a car or to assist in funding a child’s education. There are important details to note about the effects of borrowing from your life insurance policy before you make this choice. The more information you have before you withdraw funds from your policy, the better.

One of the benefits of a whole life insurance policy versus a term life insurance policy is the cash value it possesses. The cash value offered in a whole life insurance policy offers the option to borrow against it for any reason at all. In many cases taking out a loan can have a detrimental effect on your policy and there are some repercussions to be aware of.

One of the results of borrowing against a policy is that in the event of your death, if the loan was not repaid, the amount of the loan plus any applicable interest will be deducted from the policy. This can affect your family’s well being as the will not receive the full benefit of the policy that you intended for them. Another consideration is that if your policy lapses or you surrender the policy while the loan is still outstanding, the amount of the loan including interest will be considered as taxable income in the event that there is a gain in the policy.

 In most cases, there is no set repayment schedule to pay back the loan. However, it is important to at least pay on the interest of the loan. Unpaid interest on your loan will accrue and be added to the balance of your loan. As your loan balance increases, the interest also increases and this can cause the loan to become greater than the cash value in your policy resulting in a policy lapse. For this reason, it is vital to at least pay on the interest of your loan.

If you are wondering how much of a loan you can take out against your policy, in most instances you can borrow up to the full amount of the cash value accumulated in your policy. If you have a $200,000 policy with an accumulated cash value of $100,000 you can borrow as much as $100,000 from it. The process of taking out the loan is usually very simple. Just contact your insurance agent and let them know you are considering taking out a loan on your policy. The loan can take up to two weeks to be processed but in the case of an emergency, you may be able to receive your loan in as little as three days.

It is important to think carefully about your ability to repay your loan before taking one out against your policy. At the very least, make sure you are able to pay on the interest of your loan to avoid losing the entire cash value in your policy over time. In the end, a life insurance policy loan can be a convenient alternative to high interest rate personal loans and one that offers the convenience of very relaxed repayment options.

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Utilizing the services of a debt consolidation company can be an excellent aid in facilitating your journey back to financial health. Debt consolidation companies assist in setting up a realistic financial plan to eliminate overspending and to get payments back on track. In addition they work to assist in consolidating debt and offer financial counseling. Many debt consolidation companies make payments on your behalf to your lenders and take on a very involved role in re-establishing a good credit record for their clients. In choosing good debt consolidation companies there are a few key things to look for to ensure you are receiving the best service.

The first thing you will be looking for in a debt consolidation company is their accreditation status. A reputable company should be accredited by the American Association of Debt Management or the Association of Independent Consumer Counseling. They may also have accreditation from the National Foundation for Credit Counseling. In addition to accreditation, check to see if they are a profit driven company or whether they operate on a not-for profit basis. Although not a hard and fast rule, not – for-profits traditionally have the consumer’s best interest in mind more so than their counterparts.

The ideal debt consolidation company should be able to come up with a feasible long term plan that will allow you to pay off your debt in at least three years. Although the payment plans will be different for each individual and will vary based on certain circumstances such as debt to income ratio, it is nevertheless necessary for the management company to achieve a realistic timeline for paying off your debt. If the debt company you are interviewing is not able to offer you a specific time period within a maximum of three years to eradicate your debts, you may need to consider an alternative company.

When interviewing your potential debt management firm, you will want to ask detailed questions about their track record with previous clients. Find out their success rates in reestablishing good credit histories and ask if they have any customers you can contact personally for a recommendation. You will also want to make sure that they have a good history of negotiating with lenders. Ask for specific case studies where they have reduced their client’s debt significantly through their negotiation efforts. This is a major deciding factor and if they are not up to par, be sure to look elsewhere.

Another consideration when choosing a good debt consolidation company is their specific fee structure. Usually the fees are paid monthly in small increments and in most cases their fee is included in the payment you will be making to the credit that they pay on your behalf. Find out what pay schedule they will establish and what the penalties are for late and missed payments.

These considerations will assist you in selecting the company that can serve you best. Dealing with debt is overwhelming in and of itself, it is essential to have a company that can help you in navigating a path back to sound and stable financial health.

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If you have been involved in a law suit or may need to file one for any reason at all, you may be wondering about a structured settlement and how it woks. A structured settlement is essentially a structured payment system whereby the claimant receives regularly scheduled payments as opposed to one lump sum of money.

One of the benefits of a structured settlement versus a lump sum payout is the guarantee of funds lasting over a lifetime for the plaintiff. Studies have shown that lump sum payouts are typically exhausted after just a five year time period leaving the claimant with no future funds to support themselves. In cases of personal injury and disability, this can be detrimental to the life style of the individual. Structured settlements offer guaranteed funds and income stability as well as being an excellent investment vehicle.

A structured settlement can also be viewed as an investment vehicle as the payments receive several different tax benefits. They are sometimes referred to as structured settlement annuities. Claimants opting for a structured settlement receive their installments free of any income taxation whatsoever. In the event that the plaintiff passes away prior to receiving the full amount of their settlement, any remaining funds would be added to the estate of their beneficiaries. In this circumstance, the settlement funds would be subject to estate or inheritance taxes.

When structuring your settlement there are many different options available to you. You can choose to set these payments up to accrue interest over time so as to increase the overall value of your funds while they are being paid out to you. One of the payout options you can set up for you funds include a ‘life annuity’ option. With a life annuity you can receive the sum of money paid out steadily for the duration of your lifetime on a weekly, bi-weekly, monthly or even yearly basis. Another payment option is called the deferred lump sum option in which the payments can be made at pre-determined time periods for specific purposes such as health benefits, education costs and retirement planning.

A joint and survivor annuity will allow you to receive payments for yourself as well as a surviving beneficiary. This is set up as two separate annuities under one account. The survivor will continue to receive the payments at a percentage of the original benefit. Another structured payment option is a period certain annuity payout where the claimant would receive the payouts for a specific period of time.

It is important to consult with your lawyer about which payout option is best suited for your specific needs. When considering whether to place your funds in a higher yield investment account, it is important to keep in mind that any other investment account other than a structured settlement annuity will be subject to income tax penalties upon withdrawal. In general, it will be more beneficial to keep your funds in the annuity plan of your choice instead of attempting to diversify them and possibly lose revenue due to tax infringements. 

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President Obama recently signed into effect a new law aimed at protecting consumers from unreasonable credit card company practices. This law is called the CARD act of 2009 and  it has had a large impact on the credit card industry and subsequently on the consumers themselves. Although the new credit card reform carries many benefits, it also brings with it high initial fees as the credit card companies strive to make up their profits through practices not sanctioned by the act. It is important to find out the details of the new reform act and how they may affect you.

The major changes that affect cardholders include more time to make payments on account balances as well as the requirement of card companies to provide advanced notices about changes in their terms. Under the act, cardholders have the right to opt out of these terms if they prove unfavorable. In addition, credit card users will avoid the detrimental double interest rate charge with the elimination of retroactive interest rate increases on existing card balances.

Other changes brought about by the law include limited interest rate hikes. Under the new law, credit card companies cannot randomly raise the interest rate on a card at any time but instead must adhere to specific guidelines. The interest rate can now only be raised when a promotional offer ends, if the card holder makes a late payment or in the case of a variable APR card. This is a major benefit to consumers as they will have the opportunity to opt out if the new interest rates are not favorable to them. Credit card companies must provide a minimum of at least 45 days advance notice of any proposed changes in interest rates.

Previously credit card companies were allowed to raise your rates and fees even if you made steady payments to them but were late to other creditors such as utility bills. This practice was called ‘universal default.’ Many people were outraged to learn that information about their payment history with other companies could affect their credit card interest rates and the practiced seemed predatory and unfair. The new credit card act has put an end to this practice however they can reinstitute it for future credit card balances as long as they provide at least 45 days notice.

A great benefit to the CARD act of 2009 is that young adults under the age of 21 are protected from receiving unsolicited credit card offers. In addition, card companies must keep a distance of at least 1000 feet from all college campuses. Young adults are allowed to open credit card accounts if they have an adult co-signer or can prove substantial income to make the requisite credit card payments. This is a great help in ending predatory lending as the majority of young adults do not have the necessary finance savvy to make good credit card decisions.

These essential changes are extremely beneficial to the majority of cardholders across the U.S. The only drawback to the new sanctions are the increase in initial fees that card companies are using to offset their other losses. These fees and stipulations can make credit cards unaffordable for low income households. In the long run, the benefits far outweigh the negatives associated with the new reform.

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