Voices in Finance » Debt

Debt Settlement dos and don’ts – Make the entire process constructive

Mike — Tue, 01 Nov 2011 05:38:57 +0000

Soon after the Standard & Poor’s downgraded the top notch credit rating of the US and cut it by one notch (AA+), there have been grueling discussions about the impact of this harsh decision on the investor’s market. Though there were predictions of a rise in the interest rates on personal loans, there are still no signs of any drastic change in the rates. However, the debtors have already gone through a scary erosion of confidence and this has made them rush towards debt settlement firms as this is the only way in which they can repay their debts without even having to pay back the entire amount.

If this is such a famous option, then why do the financial experts advise against it? They say that debt settlement should always be avoided unless there is no other option but to file bankruptcy as this leaves a huge mark on your credit score and the taxes that you pay on the forgiven amount may offset any kind of savings that you may obtain through the debt settlement. A less drastic measure such as a debt management plan through a credit counseling agency can be a better option to resolve your debt dilemma but when you have no other option but to go for settling your debts, you must educate yourself on some dos and don’ts.

Don’t wait and be proactive: When your payments are behind by at least 6 months, your accounts tend to be charged off. Don’t wait until this moment comes. In real, a charged off account is the term that is used by a creditor when the chances of recuperating the money from the debtor is slim. If you want to contact your creditors and alter the repayment term, this is the time. Don’t delay as this may start hitting your credit score. As long as your debt account is not written off, you can certainly settle the debt and free yourself of the bondage of debt.
Don’t neglect the consequences: Any settlement for which the forgiven amount by the creditor is more than $600 becomes taxable. For instance, if a debtor was to settle a $10,000 for $6,000, the $4000 amount becomes subject to tax under the IRS. Apart from the tax consequences, this option also has a tough impact on your credit score and your future ability to borrow new lines of credit is also jeopardized.
Do prepare yourself to show the financial cards: Before your creditors agree to settle your debts, they will ask you for documentation of income, assets and all your existing debt accounts. The motive behind this is to ensure that the debtor is actually going to repay the debt after it is settled or he is just planning to save his bucks through the particular concession that is being done by the creditor.
Don’t make a promise that you can’t abide by: If your creditor is letting you pay back the amount over a stipulated period of time, make sure you set the payments at a level that can be managed effortlessly. Don’t set up an unrealistic plan. Not being able to make the payments even after the debts are settled will portray a bad reputation.

Your creditors are required by law to report your debt settlement payments to the credit bureaus and your task should be to cross-check whether or not the payments are accordingly reported to the credit rating agencies. Ensure that the debt collection agents stop contacting you once you’ve repaid your debts in full.

Author Bio: Jack is a financial writer and enjoys writing articles on the global financial situation, making money online, the stock market, debt consolidation, and mortgages along with other finance-related topics. He is also associated with some online financial communities like http://www.twitter.com/debtcc.

Tips To Prepare For Rising Interest Rates

Mike — Mon, 31 Oct 2011 06:52:24 +0000

The instability in world finances has a direct impact on everyone with debt, none more so than homeowners. Rising interest rates are unwelcome but are a fact of our financial lives, so it pays to be prepared. Most importantly, it’s vital that your know your financial limits – just being able to make your repayments now is going to turn into a nightmare if rates increase down the track, and the chances of defaulting on a loan then become much greater. It’s not just home loans than can be affected – taking into account all of your current and future finances, from cash loans to car loans, is something we should all look at to make sure we are ready.

Make extra repayments now

Reducing your debt while interest rates are lower is the best way to prepare for future interest rate rises. You can do this in two ways. Firstly, pay more than the minimum repayment on your loan, and do it regularly. This will provide you with surplus funds if rates rise and in the process will give you confidence to ride out the rates storm. Paying extra also reduces the life of your loan, which in the long run will save you thousands of dollars. Secondly, consider making a lump sum payment against your loan. If you are lucky enough to have some extra cash, use it to pay off some of your loan. It has the same benefits as paying more than the minimum amount each repayment cycle, but leaves you with the extra cash you would otherwise commit on a weekly, fortnightly or monthly basis.

Loans health check

Interest rates don’t suddenly jump overnight – there are plenty of indicators which give us prior warning, and they shouldn’t be ignored. So if everything points to interest rate rises, and especially a prolonged period of increases, then a check of your loan situation is a good idea to make sure you are getting the best product for your needs. The use of a broker can be a big advantage in this situation as they can take into account your current loan and match it against what else is available. They can then make recommendations with an expert eye on the future. It may be that switching from a fixed to a variable rate is the best bet, or consolidating several loans into one. Just remember that the fees associated with moving from one loan to another can often nullify any future savings through lower rates. Have a look around the internet as well – just like getting car insurance quotes, it can be simple and secure to get some information and advice that can put you on the right track.

Stick to your budget

If you haven’t got a home budget then it is hard to keep a track of your finances and exactly where all the money is going. So it makes good sense to formulate a budget and stick to it. A good budget that has been well thought out will reveal any cash “leaks” and identify where you can cut back on spending and potentially put it into reducing debt or making extra loan repayments. It’s also important to save money as well and any surplus funds identified in your home budget can be put away for a rainy day. Rising interest rates can also be used in your favour – when they do go higher, consider putting that extra cash into a term deposit where you will earn extra interest as rates rise.

10 Ways to NOT Fall Victim to Debt Nightmares

Mike — Fri, 19 Aug 2011 12:17:36 +0000

More and more news stories these days feature individuals and families in the midst of debt nightmares. Unfortunately, thousands of Americans every day are experiencing serious financial problems because of debt. If you want to avoid these debt nightmares, here are ten things to think about:

1. Keep Your Health Insurance Whenever Possible

It’s not always possible to keep good health insurance, but when given the option for a lower-paying job with decent coverage and a higher-paying job without medical insurance, opt for the insurance every time. According to The American Journal of Medicine, medical bills cause over 60% of personal bankruptcies in America! With decent insurance, you can keep your medical bills from getting completely overwhelming.

2. Limit Your Credit Card Spending

This is kind of a no-brainer when it comes to keeping clear of your own personal debt nightmare. Credit cards can be good tools, but they can also be an easy way to continually live beyond your means. Limit your credit card accounts to one or two, and only use credit cards for specific purchases, preferably ones you can pay off by the end of every month. If you must use a credit card to finance a major purchase – like a new washer and dryer or furniture – be sure you can pay down the total in a reasonable amount of time.

3. Make More Than Minimum Payments

Another way to roll yourself right into a debt nightmare is to make only the minimum payments on your credit cards. If you charge $1,000 to a card with a decent 15% interest rate and pay the minimum of $22.50 per month, your original purchase will end up costing over $1,700 (almost double!), and it will take 106 months to pay off the debt. Put just $50 a month toward the debt, and you’ll only pay $1,160 total and will have the debt paid off in 24 months. Who can’t come up with an extra $28 a month for those kinds of savings?

4. Live on Cash When You Can

It’s not always practical to live completely on cash, but a cash budget has been proven to rein in spending for most consumers. Consider taking out cash for groceries, eating out, and fast food at the beginning of each month. When the cash runs out, you stop spending. See how much that helps you get your budget – and your debt! – under control.

5. Watch Your Vehicle Spending

If at all possible, you should never finance a car for more than two years, and the total of all your vehicle costs should be under 10% of your total gross income for the year. It can be tricky to keep costs this low, but buying used, getting a good deal on interest rates, and keeping your car well maintained can all help you keep this debt down.

6. Use The 36% Rule

Many mortgage companies use this rule to determine how much you can afford in monthly house payments. In general, it’s a good idea to keep your total monthly debt payments at or below about 36% of your income. If you rent a house, count your rent towards this, as well. Obviously, the more credit card debt you have, the less room you have for other expenses – like student loan payments and car payments!

7. Cut Back on Education Costs

According to FinAid.org, the average student loan debt among graduating seniors in 2007-2008 was about $23,000, which didn’t include private loans that many students end up taking out. Student loan debt seems like a good idea at the time because an education is so worthwhile, but if you can cut back on your debt, you should. Graduating and having a starting-wage job with high student loan payments is one way many young people end up rolling in credit card debt, since they have to use credit cards to keep up with their basic living expenses. Go to a cheaper school. Sit out a year and save up some money, or live at home instead of in campus dorms if possible.

8. Stay On Time

Sierra Dawson from CreditDonkey says, “One of the best ways to turn minor debt into a nightmare is to get behind on your payments.” Credit card companies and other lenders will often slap you fees for being late, and those fees are then rolled into your monthly payments. The later you are, the harder it becomes to catch up on your payments! Keep a schedule of due dates so that you always pay bills on time, even if it means skipping a meal out with your friends that weekend!

9. Keep Your Credit Score High

One great way to get better deals on loans and to thus save money is to keep your credit score high. Do this by making payments on time, keeping your debt to credit ratio low – especially on revolving debt like credit cards – and only taking out new loans when you genuinely need to. A higher credit score makes it easier to get low-interest loans in the future, so you can save money down the road by being proactive about your score now.

10. Get Help Before You’re In A Debt Nightmare

Between 2 and 2.5 million Americans seek the help of a credit counselor each year because they’re on the verge of bankruptcy. Why wait that long, though? If you’re starting to struggle with your debt and aren’t sure where to turn, look into free local programs for credit counseling. Often, these counselors can help you take practical steps to get your spending and debt under control so you can regain some control over your life and your spending.

I Need Money for Debt Consolidation

J. Hamilton Fraser — Sun, 24 Jul 2011 10:22:13 +0000

People who have a lot of debts often end up with a lot of problems. Most of them do not realize that they do not have enough money to pay all of them. There may also be some circumstances which prevents them from paying their debt on time. People who are in a situation like this often end choosing debt consolidation. Are you one of the people who need money for debt consolidation?

Before we go any further, let us define debt consolidation first. Debt consolidation is the taking out a loan to pay all other debts. This will allow the borrower to consolidate the money he or she owes into one payment. So instead of paying several debts every month, the borrower only pays one and also has the chance to get a lower interest rate.

A debt consolidation loan is very helpful if you have a lot of high interest loans like car loans and many others. It allows you to roll the debt into just one payment which is more manageable. You will be able to avoid extra charges, tax fees and the result of getting a bad credit rating. It makes a lot of things easier.

However, for some people debt consolidation is nothing short of a nightmare. For starters, it can be quiet difficult to find reasonable interest rates. The rule of thumb is, if the rate of your debt consolidation is just the same or even higher than the rate of your old loans then there is no reason getting that debt consolidation loan. Opting for debt consolidation may also mean that you will end up paying your loans longer. When you consolidate your debt, you may still end up owing the same amount of money. The only difference is the length of the loan term.

So, is it relay necessary to consolidate your debt? The answer will differ from one person to another. It will really depend on the person’s current financial situation.

Choosing a Debt Reduction Program – Facts You Need to Know

J. Hamilton Fraser — Mon, 20 Jun 2011 21:39:07 +0000

Living a debt free life is indeed much better than living a life where you have to constantly worry about how and where to get money to pay off your long list of creditors. Debt isn’t necessarily a bad thing; in fact it can come very handy during those moments where you need cash for emergency or investment purposes. Debt only becomes a problem and a major stressor once you lose control over your finances and you are left scrambling to look for means to keep up with payments. For people who are having debt problems, it is very fortunate that there are now debt reduction programs that assist people in getting out of debt.

There are several debt reduction programs being offered in the market these days. When choosing which one to collaborate with, you need to exercise caution because ending up with the wrong program may just cause you to be in deeper debt trouble. Below are some basic facts about these programs that you need to keep in mind when choosing a debt reduction program.

There are programs that are illegal – In as much as there are a lot of programs that offer legitimate services, there are also programs that are just out there to scam you for your money. This is why you need to be extra careful when choosing a company or a program; always make sure that they are accredited or they have been able to serve and satisfy hundreds of their clients in the past.
Choose a program that provides you with the right information – There are those programs who may promise you that they will help you with your problems, no matter what type of debt you are faced with. This is something that you should be very careful about; debts vary in different aspects so no single program will be able to take care and resolve all types of debt. Asses the information, promises, or advices that they give and make sure that it suits your situation.
Choose a more experienced company – Experience and longevity of a company can say so much about a particular company. It is a good idea to prefer those companies who have been in the business for a long time. This is because it is highly likely that they have been through different types of debt which means that their pool of knowledge about debt is varied and they have already adjusted their system to cater different types of debt.
Choose a program that suits your debt problem – As mentioned above, there are various types of debt which is why one program may work wonders for one debt problem but may be a disaster for another type of debt problem. This is why it is very important that you understand your debt first and your finances before you go hunting for a debt reduction program or company.

Finding Debt Relief Options

J. Hamilton Fraser — Fri, 10 Jun 2011 06:28:03 +0000

There are many tips available for those who are struggling to make monthly credit card payments or who have other debts that they feel are unmanageable. It is possible to gain control of credit card debt and other burdensome debt without seeking outside help like the help of a debt relief agency.

Ignoring one’s debt will not eliminate it, rather one should take aggressive steps toward finding permanent debt relief options. This must be done before the creditors begin litigation.

Those struggling financially typically end up with poor credit ratings which can prohibit them for qualifying for a second mortgage or even a loan based on collateral such as an automobile loan. It can also hamper one’s ability to get a job, as some employers refuse to hire those with bad credit, as they feel they may be more tempted to steal from the company.

In addition, credit card companies may sue the client who is in arrears in order to receive compensation for the unpaid debt. This can ruin a person’s chances of repairing his or her credit for many years.

To clear debt, one must first evaluate his or her income to debt ratio and see where corners can be cut. It is also imperative to spend money only on necessities or in the event of an emergency and not for non-essential reasons. Being frugal on a day to day basis is the best way to avoid financial catastrophe in the future.

It is also important to find ways to liquidate assets and subsequently use the money to pay off current bills. This may include selling jewelry, and liquidating insurance policies or annuities. If one’s credit is not too far gone, it may also be wise to consider a second mortgage as a way of consolidating.

When money has been gathered to begin paying off debt one should start by paying off the loans and credits cards with the highest interest rates, as this will do the most good.
It is also important to set a strict monthly budget and adhere to it religiously. Classes in debt management are also very beneficial and can help one design an ideal budget.

If the aforementioned debt relief options fail, one may wish to consider credit counseling; however, if this option is chosen, care must be taken to select a reputable agency.

The most important consideration with regard to debt management is creating a plan and following it under all circumstances.

Tips on Doing Credit Card Debt Negotiation on Your Own

J. Hamilton Fraser — Thu, 09 Jun 2011 17:26:04 +0000

There are several programs or methods that you can do in order to help reduce credit card debts. There are methods such as balance transfers, consolidation options, and debt negotiation. There are several companies that now offer their debt negotiation services to people who want to have their debts reduced. Although it can be of great help to have professionals negotiate on your behalf, there are certain debts that can be negotiated on your own. Another benefit of negotiating debts on your own is that you can save yourself from paying those fees that are being charged by debt negotiation companies.

Here are some tips that you can keep in mind when trying to negotiate debt on your own:

Always keep your communication lines open – If you are planning to have your debts negotiated, it is important that you keep your communication lines open with your creditors. It is important that you show them that you have no intentions of hiding from them, and your negotiation attempt is your way of prioritizing them even if you are already having your own financial problems. Keeping your communication lines open will also help to establish trust and will rapport with your creditors.
Come up with a goal – Before you even attempt to negotiate your debts, it is important that you come up with a goal of how much you actually want to have reduced. When negotiating , it is a good idea to set your goals up high because your creditors are likely to negotiate with you as well. Starting high will still help you reduce a significant amount of debt even if your creditors try to negotiate with you.
Negotiate for lower interest rates or better instalment terms – The first areas that you need to tackle when negotiating is the interest rate. This is because interest rates are the factors that can shoot up your credit card debts as you continue to delay payments or miss payments. Even a small percentage of reduction from your interest can already spell big savings for you. Also by negotiating for better instalments, you will be able to catch up with your monthly debt payments.
Always be aware of the consequences – Like in any other credit card debt relief programs, you should also be aware of the possible consequences that you may get with negotiating your debts. Debt negotiation may actually have a negative effect on your credit. So, if you are already suffering from bad credit you need to carefully assess whether it is still worth the risk.

Paying Off Credit Card Debt The Right Way

J. Hamilton Fraser — Fri, 18 Mar 2011 03:11:06 +0000

Paying Off Credit Card Debt

Credit card debt can be eliminated in several ways. You must first have a plan based on your current financial status. You can look into the various debt elimination programs out there that will create a plan based on your individual debts and responsibilities will make sure the payments and time-frame meet your specific needs.

First, you will need to prioritize your debts. Making a list of your debts starting with the most important will give you a good overall view of who you owe, and how much you owe. Collect your current statements including the total balance, interest rate and minimum monthly payment. Prioritizing debts in this manner will help give you a better picture of where you stand, and help you to devise a strategy for paying debts off.

From this list you can easily see which debts have the highest interests, service charges, and annual fees. Accounts for which you are billed additional costs are time-sensitive. The longer you owe a balance, the more you will have to pay. So, it’s best to try to rid your budget of those bills where there are extra fees that increase what you actually owe.

The most common way to reduce debts is to pay more than the minimum amount due each month. This credit card debt elimination plan does not work for most people simply because it suggests that there is no problem with paying the bill in the first place. Because we know interest and other surcharges may be applied, we always strive to pay the bills on time or earlier. It is when we are unable to make those higher payments the debt becomes a problem.

Banks and other lending institutions offer consolidation loans. This plan combines your credit card debts into one loan that can be repaid at a lower interest rate. This decreases the monthly payments, and limits the added charges incurred to once per month. For people who have no additional funds to add to monthly payments, this may be the best option.

Escaping Debt Forever with Freedom Debt Management

J. Hamilton Fraser — Tue, 01 Mar 2011 03:14:04 +0000

It is common for people nowadays to be struggling financially. We are all looking for a way to get rid of debt and get on with our life. Freedom Debt Management is a wonderful way to help people escape the horrible bonds of debt.

When you go to their website, www.freedomdm.org, you will find that you can get help that is absolutely free. This is a wonderful advantage to people who are struggling with trying to pay their bills. If you were to go to a debt consolidation loan office, they would charge you for their services. This would be defeating the purpose.

There are several different services that you can take advantage of at Freedom Debt Management Inc. You will be able to put yourself on a budget and discover different tips about how to stick with it. You will be able to use a calculator on the Internet that will help you discover how much debt you are and teach you exactly what you need to know in order to get away from it.

There is so much information available on this website. It is a great place for people to be able to go to learn more about how to escape their creditors. It is common for people to receive harassing phone calls from either their credit card company or other people that they owe money to. There are ways to stop the harassment. This website is going to teach you exactly what you need to do.

This company with a good debt management consultant is one that will teach people how to eliminate debt from their life forever and also show them what they can do so that it never happens again. We all know how to put together a basic budget. However, there are other things that most of us are not aware of that will help us to get back on track.

When you choose to use Freedom Debt Management you will be able to quickly get out of debt while fixing your credit score. There is nothing new about the services that are offered here. However, the fact that they are free to the public is definitely something of interest.

Dealing with the Money Problem of Debt

J. Hamilton Fraser — Thu, 24 Feb 2011 13:38:07 +0000

Debt is a huge money problem that is very common. So many people have quickly racked up debt on credit cards and through loans and struggle to pay it back. Dealing with debt can cause problems in other parts of your life as well such as stress and problems with relationships. If you want to deal with your debt without filing bankruptcy, follow these steps to get it done as fast as possible so you can move on with your life.

The very first and most important thing you can do is stop using your credit cards and accumulating more debt. You can’t help the interest at this point, but you can stop charging. In order to minimize your interest, you may be able to find a good consolidation loan that helps you consolidate all your loans and credit cards into one loan with a lower rate. Another idea is to transfer your credit card balances to a new card with 0% balance transfers for the first 6 months or another time frame. If you can’ manage this, you can go several months without paying interest.

Next, set up a budget. A budget is what is keeping you from managing your payments and what got you in this mess in the first place. You should be spending less than you earn and putting that money toward your debt payments. The faster you want to cut out your debt, or the more severe your situations is, the more spending you will need to cut out. Cut out any spending you don’t need, such as cable or eating out, and learn how to conserve gas, food, energy, etc. Use your budget to place limits on your spending to maximize your savings.

Pay the minimum payment on your loans and cards every month to maintain good credit. After that, put all the extra money you save each month toward the loan or card with the highest interest rate. Once that loan is paid off, put all the extra money toward the next highest interest rate. This will maximize your interest savings. If you’ve gotten a consolidation loan, put it all toward that loan. Keep working hard and soon all your debt will disappear.