Debt Consolidation Blog

Archive for January, 2012

2 Reasons Interest Rates Will Rise & 2 Ways to Avoid Higher Rates
The Dollar Stretcher
by Gary Foreman
gary @stretcher.com

Forecasting the future is always hard. Companies pay big bucks to economists in an effort to get an edge on what might happen in the financial markets. Sometimes they’re right. And, sometimes they’re wrong.

But sometimes a review of relevant facts can shed light on what the future may bring. Or at least make it easier to predict a direction. Given the current situation it would appear that forecasting the future for interest rates would be such a case.

For instance, experts expect the cost of borrowing to increase nearly 40% for the G7 governments. They’ll be borrowing over $8 trillion in the next year.

Now that’s not to say that everyone’s costs to borrow will increase by 40%. Part of that rise is due to the fact that some governments have a lower credit rating than they did a year ago.

Central banks and the Federal Reserve Board are trying to combat the problem by keeping interest rates artificially low to make borrowing affordable for the governments. But that’s not easy. Lower rates means that fewer buyers are interested. Rates have to be high enough to attract enough buyers.

Bottom line is that governments will be borrowing a lot of money in 2012. Competing with you and I for loans. The way they compete is to offer a higher interest rate on the money they borrow.

Another aspect of demand comes from you and I. Will we be borrowing more than we did in 2011? There’s some evidence that we will. Economic forecasts for the next year are all over the lot. But the average runs about 2 to 3% growth for the US economy in 2012. Any growth in the US economy is likely to be accompanied by increased consumer spending. Spending that will probably be paid for by increase borrowing on credit cards.

Again, more competition for loan dollars. Paid for with higher interest rates.

Ok, so let’s agree that higher rates are a distinct possibility. So what can you do to protect yourself?

The first answer is to take a look at your debts. How much do you owe on all your outstanding loans? Make a list. On that list include the current interest rate and whether than rate can be changed by the lender without your permission.

You want to concentrate on the loans where the interest rate can be increased, often called variable rate loans. If you’re unsure whether a loan is fixed or variable contact the lender.

Pay off as much of the variable rate loans as possible as soon as possible. Use any sources of extra money you can find. Cut expenses and/or look for additional sources of income that can be applied to your loan. Pay only the minimums on fixed loans and use an extra on your variable loans.

Then look for opportunities to shift debt from variable to fixed rates. If you have equity in your home now is a good time to consider refinancing. Use the proceeds to pay off your existing mortgage and credit card debts.

Another possibility for shifting from variable to fixed loans would be to borrow from your 401k to repay variables like credit cards.

A caution to those who struggle with debts. Reducing your credit card balances does not give you permission to charge them up again. You need to commit to keeping the balances down.

Naturally, there’s no guarantee that interest rates will rise. Those things are never certain. But, even if you take action and rates don’t go up you’ll be in a better position. You’ll have fewer debts and be paying a low interest rate on them. And, if rates should increase, you’ll be glad that you took action now.

Keep on Stretching those Dollars!
Gary

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Gary Foreman is a former purchasing manager who currently edits The
Dollar Stretcher website . You can follow Gary on Twitter . For more on ways to reduce financial stress.

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

Many people considering bankruptcy opt to use a Chapter 7 bankruptcy filing to help them erase the pressures of mounting debt. However Chapter 7 bankruptcy remains on a credit report for up to a decade and it can be extremely difficult to obtain new credit while a bankruptcy is reflecting on your credit report. There is another option available for individuals and that is Chapter 11 bankruptcy filing. This particular bankruptcy allows you more flexibility to restructure your debts and is easier to work with than a more severe Chapter 7 filing.

In a Chapter 7 bankruptcy, your assets are seized and sold to recover the debts owed to your creditors. This type of bankruptcy is very severe in that it remains on your credit for ten years and your possessions may be taken to make up for the debts you owe. Instead of filing a traditional Chapter 7, you may want to consider debt restructuring under a Chapter 11 bankruptcy filing.

A Chapter 11 bankruptcy can be used for individual debt reorganization. These types of bankruptcies were formally reserved for large corporations who wanted to remain intact while still repaying their creditors with a managed payment plan. However with recent changes to the bankruptcy code, a Chapter 11 bankruptcy can now be modified and applied to individuals seeking debt relief. Chapter 11 bankruptcy can be an excellent alternative to Chapter 7 or 13. It is an appropriate choice for consumers who have too much debt for Chapter 13 but who wish to avoid the severity of a Chapter 7 bankruptcy.

Another option for bankruptcy filing used by individuals is the Chapter 13 filing. This option is similar to Chapter 11 in that it is a reorganization plan that helps the debtor establish a payment plan without having their personal assets seized. At the end of the payment plan period, certain debts are completely discharged and the debtor’s credit record is cleared of these debts permanently.

Chapter 11 is also used in place of Chapter 7 or 13 when the debtor wishes to use a repayment plan and have their debt discharged without the need of a financial management course. A financial management course is a requisite in a traditional Chapter 13 reorganization plans. However all bankruptcies mandate credit counseling before any debts can be discharged. The amendments to Chapter 11 include the new sections which are sections 1115, 1123(a)(8) and 1129(a. These new sections state that a Chapter 11 debtor must commit to turning over a part of future wages to their creditors and all payment plans must be completed before a discharge can be carried out. This plan works well for consumers with an exorbitant amount of debt that needs to be restructured.

Understanding the basics of a Chapter 11 bankruptcy can help you determine whether this option is the best bankruptcy option for you. Chapter 11 filings are best suited for consumers with too much debt to file a Chapter 13 but who do not wish to choose a Chapter 7 due to its sever terms. Although the decision to file bankruptcy is never an easy one, availing yourself of options is the best way to make accurate choices that will lead to an improved financial condition.

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