Debt Consolidation Loans – The Pros And Cons

Whether we like to admit it or not we have become a nation of debt junkies. A report issued earlier this year by the US government was that the average credit card debt per household in the United States is $15,607. US households also have an average of $32,656 in student loan debt and an average of $153,500 in mortgage debt. And as a whole we owed total of $11.63 trillion.

One simple solution – the debt consolidation loan?

If your debts have spun out of control and you’re looking for some relief, there is a simple solution. It’s a debt consolidation loan. This could be a personal loan or a secured loan. In either event, you would use the money to pay off all of your other debts. This would leave you with just one monthly payment to make each month, which should be much less than the sum of the payments you’re currently making.

How to know if consolidation loans make sense

debt consolidation loans the answer to your financial troublesBefore you rush off to your bank or credit union for a debt consolidation loan there are some things you need to know in order to understand whether it makes sense.

The first of these is that the interest rate on your debt consolidation loan should be lower than the rates of the debts you’re consolidating. If you have three credit cards with interest rates of 22%, 20% and 18% your average interest rate would be 20%. If you were to transfer the balances on those three cards to a new one with an interest rate of 15% or get a debt consolidation bank loan at 10% and use it to pay off your credit cards, you would definitely improve your situation.

A second factor is to make sure you would reduce the total amount of money you have to pay on your debt each month. A third factor is that you don’t trade fixed-rate debt for variable-rate debt. While a variable rate loan can look very enticing because of its low interest rate, there is a risk with this type of loan. The interest rate could start low but then increase over time so much to the point where you end up paying more on your debt each month than you did on the debts you consolidated.

Finally, you need to be in a position to pay off that new debt as quickly as possible and make sure you don’t take on any other additional debt until you pay off the debts you consolidated. One of the problems with debt consolidation loans is that too many people consolidate their debts then get deeply in debt all over again because they’re just poor money managers and have spending problems. For these kind of people, a debt consolidation loan can be a very dangerous, no-win proposition.

Options for debt consolidation

There are several ways to achieve debt relief in addition to debt consolidation loans. As mentioned before, you could transfer your high interest credit card debts to one with a lower interest rate or even better a 0% interest balance transfer card. Some of these cards offer 18 months interest free, which would give you a year and a half to pay off your balance before you were required to pay any interest at all.

Second, if you have a whole life insurance policy you could borrow from it. Failing that you could maybe borrow from your retirement account. If you have a 401(k) and borrow from it you will have to pay interest on the money but you will be paying interest to yourself. One note of caution about this – which is that if you don’t pay all the money back within six months, it will be treated as ordinary income and taxed accordingly.

The third option is to get a debt consolidation loan from your bank or credit union. There are two types of debt consolidation loans – secured and unsecured. An unsecured or personal loan doesn’t require that you pledge an asset to secure it. These loans are often called signature loans, as all you need to do is sign for it. In comparison, a secured loan is just that. You are required to put up an asset to secure it. Unless you own a large RV or boat free and clear or some other valuable asset, you would probably be required to pledge your house in order to get a home equity loan or homeowner’s equity line of credit (HELOC). Unsecured loans are better in that they don’t put any of your assets at risk but generally come with higher interest rates. Secured loans generally have lower interest rates but if you were to default your lender could literally repossess your house and leave you out on the street.

You can’t borrow your way out of debt

This is one of the sad facts of life. With debt consolidation loans all you’re really doing is moving your debts from one set of lenders to a new one. The new loan you will need could take as many as 10 years to repay and will cost more in interest than if you were to simply pay off your debts the conventional way. One way to do this that’s become extremely popular in the past five years is called debt settlement. This is where a company such as National Debt Relief negotiates with your lenders to get your debts reduced to a fraction of what you owe. Plus, this can be a form of debt consolidation as when you choose a company such as National Debt Relief to handle the negotiations you will have a payment program with just one payment to make a month for two to four years – depending on the amount of your debt.

Three Good Ways To Achieve Debt Relief

looking for debt relief programThere is a startling moment in many people’s lives when they suddenly realize that their debts have gotten totally out of control. It can feel as if all the air has been sucked out of your life and that you’ve been reduced to gasping for help. Fortunately there is help available. In fact there are three good ways to achieve debt relief.

3 Good Ways To Achieve Debt Relief

Which of these options would be best for you? Only you can determine this based on your financial situation, your lifestyle, how deeply you are in debt and the nature of your debts. But these considerations aside here are three good options for achieving debt relief.

Consumer credit counseling

One of the first choices for most folks is through credit counseling. This is where you find a reputable, nonprofit credit counseling agency that has certified and trained credit counselors and that charges either nothing or very little for its services. When you find such an agency, you will be assigned a counselor that will review your spending and suggest improvements or places where you could make cuts. He or she will evaluate the state of your finances to give you a realistic picture of where you stand now. Your counselor will help you develop a budget to generate more cash flow or the amount of money you would need to pay down your debts each month. Alternately, your counselor might suggest that you participate in a debt management plan (DMP).

How a DMP works

If your counselor can’t help you determine a way to pay down your unsecured debts he or she may recommend a debt management plan. This is where the counselor figures out exactly how much you can afford to pay your unsecured creditors each month in order to eliminate all of your debts over a three- to five-year period. Your counselor then contacts your creditors to see if they will agree to let you pay the amount you can afford. In some cases, your counselor may also ask your creditors for other considerations such as lowering your interest rates and waving or reducing any fees you owe. Most lenders will agree to the payments you need, especially if they believe that if they don’t, your only alternative is filing for bankruptcy in which case they’d get nothing.

A debt consolidation loan

A second way to achieve debt relief is via a debt consolidation loan. There are two types of these loans – secured and unsecured. If you have decent credit you might qualify for an unsecured loan, which is often called a signature loan because basically all you do is sign for it. This can be better than a secured loan but the caveat here is that you must have good credit to qualify. If not, you’ll have to settle for a secured loan, which is where you are required to pledge an asset to “secure” it. In most cases that asset will be your house and the loan will be either a home equity loan or a homeowner’s equity line of credit (HELOC). Both these types of loans are risky in that if you were to default, your lender could repossess your house and you could end up homeless. However, there are several advantages to a debt consolidation loan besides just debt relief. For one thing, you would consolidate all of your current payments into just one new one. In addition, that new payment should be much less than the sum of the payments you’re now making.

The major downside is that you can lose your home if you default on your debt consolidation loan so you don’t want to rush into this type of debt relief program.

Debt settlement

A third option for achieving debt relief is through debt settlement. There are two ways to do this. The first is where you contact your creditors and offer to settle your debts for less than you owe. While it’s virtually impossible to do this with secured debts such as an auto loan or mortgage, it is possible with unsecured debts like credit card debts and medical debts. The second alternative for debt settlement is to hire a company such as National Debt Relief to do the negotiations for you. Professional debt settlement companies are able to negotiate settlements on your behalf.

There is a 4th debt relief program – bankruptcy

The fourth way to achieve debt relief is by filing for bankruptcy. However, as many people have learned this can be a less than ideal option. A bankruptcy will stay in your credit file for either seven or 10 years depending on the credit-reporting bureau. It will also stay in your personal file for the rest of your life.

A bankruptcy will make it very difficult to get new credit for two to three years. And when you are able to get new credit it will have with very high interest rates. Finally, and maybe most importantly, there are a number of debts you cannot discharge in a chapter 7 bankruptcy. This includes your secured debts such as auto loans and mortgages and also alimony, child support, any debts you owe the government, spousal support and student loan debts.

Be sure to evaluate all of your debt relief options before you decide on which one is best for your unique situation. You can get free consultations to go over your finances and see which one makes the most sense for you.

The Facts About Bad Credit Personal Loans

bad credit personal loans are difficult to getIf you have bad credit this can have a very negative affect on your life. We’ve become a credit-centric society. If you want to buy an automobile, a house or even a dishwasher you need to either have “good” credit or be prepared to pay cash. Many landlords will check your credit score before renting to you, as will most automobile insurance companies before selling you a policy.

What is bad credit?

Bad credit personal loans are based solely on your credit score. It’s that little, three-digit number that prospective lenders use to determine whether or not to grant you credit and at what interest rate. Most lenders relay on what’s called your FICO score. The tend to view scores in ranges as follows:

  • Very good or excellent credit score – between 700 and 850
  • Good credit score – between 680 and 699
  • Average or OK score – between 620 and 679
  • Low credit score – between 580 and 619
  • Poor credit score – between 500 and 579
  • Bad credit score – between 300 and 499

How is your credit score computed?

Your FICO score is a mathematical representation of five components. They are your credit usage or how well you’ve handled credit, your credit utilization, credit history, the types of credit you’ve used and recent credit searches. Of these five, the two most important are your credit history and credit utilization as they make up approximately 65% of your credit score. If you have a score of 500 or lower you can just about bet it’s because you have mishandled your credit in the past and/or have just run up too much debt.

As you can see from the score ranges shown above if you have a credit score lower than 500, you would be considered as having bad credit and if you were to need a loan you would have to get one of those bad credit personal loans.

Where to go for a bad credit personal loan?

If you have a bad credit score and a bad credit history, it can be very difficult to get a loan because lenders will view you as a bad risk – that you might end up defaulting and leaving them in the lurch for whatever amount of money they loaned you. But before you go to a subprime lender, there are at least five options available for bad credit personal loans.

Try a credit union

If you’re not familiar with credit unions they are like banks except they are literally owned by their members who typically have something in common such as working for a large corporation or belonging to a union. They are nonprofits and are usually able to offer better interest rates and more services than the typical bank. Also, they tend to be more people oriented and might be willing to work with you even if you have poor or bad credit – if you were able to successfully convince them that you’ve turned things around and are better prepared to repay a loan.

If you own your home

If you own your home you might be able to get a home equity loan or a homeowner’s equity line of credit (HELOC). One of these loans could be easier to get because you would be lowering the lender’s risk by using your house as collateral. If you’re not familiar with these types of loans, they’re basically the same except with a HELOC you’re given a checkbook or debit card and can then use the money, as you need it. In comparison, you receive the proceeds from a home equity loan all at once.

Of course, these loans put the risk on you as if you were to default, the lender could foreclose on the house and leave you homeless.

Borrow from family members or friends

We understand that it would be no fun and a little embarrassing to go to a friend or family member and ask for a loan but it’s still a viable option. In the event you do this, make sure you treat it as a regular business transaction and that you document and legally record it. This document should include the interest rate you will pay on the loan, its terms, any collateral that you will put up for the loan and what will happen if you fail to repay it. The bottom line here is that a loan from a friend or family member must benefit everybody and should actually be a last resort. You don’t want to risk losing a close friend or alienating a family member over a misunderstanding about money or a bad debt.

Try for a co-signer

If you can’t find a friend or family member willing to loan you money, try for a co-signer. This should be someone with good credit that will co-sign a loan with you. Just keep in mind that if you don’t repay the debt, your cosigner will be on the hook for full payment. In addition, this will be recorded on both your credit reports, which would be devastating to your co-signer.

Check into peer-to-peer bad credit personal loans

This type of lending is where the funds come not from a bank or some other financial institution but from a person or group of people. The way it works is that you post the amount you need and why you want it. Peer-to-peer lenders such as The Lending Club will screen you and check your credit, which will become part of your loan listing. Your credit score will still be a factor but some individual investor might be more sympathetic to your situation than a traditional bank or credit union. Or he might be willing to gamble on you in return for an interest rate of 25%, 29% or even higher.

A final alternative is to forget about the bad credit personal loans and go instead to a debt settlement company such as National Debt Relief. Most of them are able to settle your debts for around $.50 on the dollar and then provide you with a two- to four-year repayment plan– depending on the size of your debt. This would definitely ding your credit score but not as seriously as a bankruptcy and would, in effect, give you a fresh start with no more bad debts.

How To Become A Money Management Pro

become a money management proDo have friends or colleagues at work who just seem to be amazing at money management? You know the ones we mean. They’re saving money religiously every month for retirement but still have enough money available to take nice vacations or send their kids to private schools.

Stop envying them

You don’t need to envy these people because you can become a money management pro yourself in just a few months. All it really takes is planning and some self-discipline and you could soon become the money manager that other people envy.

Where managing money all starts

The best place to start is to go off alone somewhere quiet, sit down and decide your most important goals. It could be a month-long vacation in Tahiti, a golden retirement or a second home. In fact, it doesn’t really matter what your goals are so long as you can list them. Next, calculate how much it would cost to achieve your goals and set some timelines for accomplishing them.

For those big goals like a great retirement or second home, you might want to create some smaller steps that would get you there. As an example of this, a first small step towards getting that second home would be to set up a savings account specifically for it, while a second step might be arranging to have money automatically transferred from your checking account to that account every month.

The next step in becoming a money management pro

Now that you know your goals and how much money you will need to achieve them, you might want to spreadsheet everything. You could then sit down and update it every month and see the progress you’re making towards realizing your goals. This can be a powerful motivator to keep you on track.

Create a spending plan

The reason why most people do a poor job of managing their money is that they have no plan. It simply becomes that old cycle of money in/money out – until they reach the end of the month or run out of money. If you want to be a money management pro you need to track your spending for three or four weeks. The reason for this is that you can’t manage your money until you know where it’s going.

Once you have a detailed list of your spending, you should organize it into categories such as food, clothing, entertainment, dining out, insurance, debt payments and so forth. Then start looking for what are called “leaks” or those areas where you could reduce your spending. The best places to look for leaks are food, dining out, clothing and entertainment. However, depending on your lifestyle you may find other areas where you could cut costs without having to sacrifice much.

It’s a lot to easier to do this than you might imagine thanks to the apps and software available today. We especially like Mint.com and Manilla. Mint was the Mac app store Best of 2012 and for good reason. It’s a nice, simple app that that will track your spending and then show you how much you’re spending in each of your budget categories. It includes personalized budgeting tools that can help keep you on track. For that matter, if you overspend in any category, Mint will send you an alert via email. It will also alert you if it finds a financial product that’s better than one you’re currently using (think credit cards).

Manilla is another well-regarded financial organizer designed to help you manage everything from your credit cards to magazine subscriptions. Manila keeps all your information in one place and provides reminders of bill payments. It will even monitor your travel reward points. With Manilla, you always know exactly how much money you have and how much you owe. This can be a godsend in terms of planning for upcoming bills and other expenses – and without having to paw through stacks of paperwork.

Automate everything

Smart money managers don’t spend a lot of time writing checks to pay bills or making transfers between their various bank accounts. You should do what they’ve done which is automate everything by paying your bills electronically and by arranging automatic transfers from your checking account to your savings accounts and investment accounts. That way you would never have to write another check to pay for your utilities, cable bill, automobile insurance, etc., but you would also never miss a payment. That alone could take much of the hassle and stress out of your financial life.

Review your insurance policies at least annually

Last but certainly not least take some time at least once a year to review all of your insurance policies to make sure that you don’t end up experiencing a very unpleasant surprise. You’ll want to make sure your liability limits are high enough to protect you in the event of an automobile accident and that you have all the appropriate coverage. If your family situation has changed, you may want to update your life insurance. If you don’t have term life, you should get some. It’s a great price/value and would be a great way to protect your family in the event that something happens to you.

Follow these money management tips and you’ll be on your way to better finances, peace of mind and more money in the bank.

Follow This Plan To Get Out Of Debt

plan to get out of debtAre your creditors calling you because you’ve missed, well, a few payments? Are those unopened envelopes on your desk credit card statements? Have you actually lost track of how much you owe your various lenders? Do you really want to get out of debt and get those creditors off your back?

Believe it or not, there’s a simple answer.

Just get organized and pay them off.

Sound too easy?

It really can be easy. But it all starts with getting your debts organized and facing up to them so you can get out of debt and enjoy some happy endings

Here’s a proven plan to get out of debt

Make a spreadsheet of what you owe

The best and easiest way to get your debts organized is by using a spreadsheet. If you don’t own one like Microsoft Excel, you could use Google Docs or OpenOffice.org. Both of these programs are free and include spreadsheet programs.

We suggest you organize your spreadsheet into five columns. The far left-hand column should be the name of your creditor, followed by the amount you owe, the minimum payment required, the day of the month your payment is due and if appropriate, the number of months you are behind in your payments.

There, that wasn’t so hard was it?

Now, sort your spreadsheet by your balances or the amounts you owe on your debts with least to most. You should end up with a list of your debts organized from the one with the lowest balance down to the one with the highest.

Make a budget

Okay, you now have your debts organized. Your next step is to make a budget. To do this you will need to track your spending for at least several weeks. This is much easier than you might think because there are a number of free apps available that can make this a breeze. We like Mint and DollarBird though there are many others available that will do the job. One of the reasons why we like Mint is because it will automatically organize your spending into appropriate categories such as clothing, entertainment, dining out, food, utilities, debt payments and so forth. Once you have this information in hand you should be able to find areas where you can make cuts. The objective here is to reduce your spending by at least 20% so that you will have more money available to get out of debt.

Go back to your spreadsheet

Go back to your debt spreadsheet and start paying down the debt with the lowest balance using the money you’ve freed up by reducing your spending. Once you’ve paid off that debt, you will have even more money available to begin paying down the debt with the second lowest balance and so on. People that owe as much as $20,000 have been able to pay it all off in just 27 months using this method. The financial expert Dave Ramsey, which he calls the snowball method of paying off debt, created it.

Hit the phone and negotiate with your creditors

You may also want to negotiate with some of your lenders to get concessions. As an example of this, you could contact your credit card companies and ask for a reduction in your interest rates or monthly payments or to skip your payments for a few months. While this might surprise you, credit card companies are often willing to work with you, especially if you need to catch up on your payments. They may not be willing to give you all the concessions you request but they should be willing to do something to help you get out of debt.

If you’re really in over your head

If you owe $7500 or more on unsecured debts like credit card debts, medical debts or personal loans and are a few months behind in your payments, there is another solution to get out of debt. It’s called debt settlement or debt negotiation and it’s something you could do yourself – if you have good negotiating skills and the cash on hand to pay off your settlements.

Most people are not so fortunate and choose to contract with a professional debt settlement company such as National Debt Relief. There are several advantages to this. For one thing, the professional debt counselors at companies like National Debt Relief are very skilled and are usually able to negotiate much better settlements then you would be able to yourself. Second, once you contract with a debt settlement company it will contact all of your creditors and order them to stop calling or harassing you. The same is true if you are being harassed by a debt collection agency.

Another advantage of debt settlement is that it is a form of debt consolidation. This is because once the company settles your debts you will be presented with a payment plan. Assuming you approve the payment plan you would then have just one payment to make a month and anywhere from two to four years to complete it, after which you would get out of debt and enjoy some happy endings.

Is Do-It-Yourself Debt Settlement A Hit Or A Myth?

Did you wake up this morning thinking to yourself, “Oh my, what am I going to do about all those credit card debts?” Or maybe you didn’t even have to think about them because you’re constantly receiving calls from debt collectors about your past due bills. Many people have described being seriously in debt as like being on parole from prison. You may be free to walk around but there’s always that that little voice in your head reminding you that you’re not totally free.

Is debt settlement for real?

You’ve heard or seen advertisements for something called debt settlement, which is where you pay your lenders less than you owe and they agree to forgive the rest of your debt. That can sound like a very attractive option but could you settle those debts yourself or do you need to hire a debt settlement company?

Yes, you can settle your debts yourself

debt settlement means arguing with creditorsYes, it’s a fact that you can settle your debts yourself. Thousands of people have done this very successfully and saved millions of dollars in the process. But before you decide that debt settlement would be your salvation there are some important things to understand.

First, you’ll need to make a complete and detailed list of all of your debts so that you can decide which ones to negotiate first and what you want a request from each of your creditors. Your list should include the name of your creditor, the amount you were supposed to pay each month, the debt’s interest rate and its outstanding balance.

Next, you’ll need to decide which debts to focus on first. They will probably be your “fixed” debts such as your mortgage or past due rent, your automobile loan, your utility bills, any past-do federal taxes and your federal student loans.

NOTE: you cannot settle secured debts like mortgage or auto loans. The lender can simply repossess the asset if you default.

Determine your objective

Once you’ve decided which debts to focus on first, you need to decide what you want to ask from each of your lenders. For example, you could ask your mortgage company to lower the amount of your monthly payments on a temporary or permanent basis. Or you could ask for a reduction in your interest rate or that you be allowed to make interest-only payments for a while.

If your goal is debt settlement

In the case of non-secured debts your goal might be to settle them for much less than you owe. In this case you will have to stop making payments on the debts you want to settle for something close to six months. This is because very few lenders will be willing to negotiate until you are that far behind in your payments. Second, timing becomes crucial because after six months many lenders will sell off your debts to third parties such as collection agents. Once this happens, it becomes impossible to settle with your initial lender. Instead, you’ll have to try to settle with the collection agency.

Another consideration is if you are able to successfully negotiate a settlement you will need to have the cash on hand to pay for it as in most cases this is what the lender demand. There are instances where you might be able to negotiate a payment plan. But one of the biggest bargaining chips in debt settlement is if you can offer to pay off the settlement immediately either by wire transfer or cashier’s check.

Why would a lender ever agree to this?

While you might think that it wouldn’t be in a lender’s best interest to settle with you it can be. There’s the old saying that half a loaf is better than none and this is why a lender would settle with you – that if they refuse to settle you might declare bankruptcy and they’d get nothing.

The third most important thing you need to consider in debt settlement is your negotiating skills. Do you see yourself as a good negotiator? This definitely takes certain skills and not everyone possesses them.

What if you don’t want to negotiate with your creditors?

You’ll remember that earlier in this article we posed the question, ” do you need to hire a debt settlement company?” For some people hiring a BBB accredited company like National Debt Relief to settle their debts for them would be a better option. For one thing, when you hire a debt settlement company you don’t have to be prepared to pay off your settlements immediately.

Instead, you would send funds to the settlement company, which if it were an ethical one, would deposit it in a trust account that you control. When the company successfully negotiates a settlement, you then release the funds necessary to pay for it.

A professional debt settlement company has counselors that are skilled and experienced negotiators. The odds are that one of them would be able to negotiate a better settlement then you could yourself.

Debt consolidation

Most people are unable to deposit enough money to their trust accounts to pay for all their settlements. If this turns out to be true for you a professional debt settlement company will offer you a payment plan that would allow you to completely pay off your remaining debt in two to four years – depending on the original size of your debt. This would in effect consolidate your debts in that you would have only one payment to remember and make a month instead of the multiple ones you may have been making in the past.

Debt Reduction May Be Easier Then You Think

Have you ever dreamed about being out of debt? It would be a really good feeling, wouldn’t it? Just imagine waking up in the morning knowing that no creditor will be dunning you for payment, that you can use your credit cards without worrying about how you will make your payments or being afraid that you will run out of money before you run out of month.

If you have a lot of debt, say, $20,000 or more it’s unlikely that you will be able to pay it all off very quickly. However, you could use debt reduction to at least whittle down your debt to the point where you will no longer be afraid to answer the telephone.

Credit card debt reduction takes dedication

woman looking for debt reductionIf you’re really serious about debt reduction you need to be prepared to do some hard work and be dedicated to the task. And be aware that there are no quick fixes despite the ads you might see on television or the Internet.

You need to really want it

How badly do you want to get out of debt? If you’re seriously committed to the idea of debt reduction, you should be willing to get a second job and work a few 80-hour weeks. Yes, that’s a lot of work. However, keep in mind that you got yourself into your fix. You need to take responsibility for this and do the hard work that’s necessary for debt reduction.

Assess your debts

The first, important step in debt reduction is to evaluate your debts. To do this you will need to get your free credit report from one of the three biggest credit bureaus (Experian, Equifax and TransUnion) or on the website Annual Credit Report. Then sit down and go over it carefully. This will show you exactly where you stand. While you’re doing this, be sure to also write down a list of all of your debts, their balances, interest rates and monthly minimum payments. Watch for danger signs such as missed payments, debts that have gone to collection and defaults. These are what damage your credit score the most and if you find any of these, you will need to get to work and try to fix them. Also, look for any errors in your report that could be damaging your credit score. If you find one, write a letter to the appropriate credit bureau disputing it.

The snowball method

The financial expert Dave Ramsey developed what he calls the snowball method for debt reduction. Here’s how it works. You now have a list of all of your debts. The next step is to organize it so that the debt with the smallest balance is at the top and the one with the largest balance is at the bottom. You then focus your attention on doing everything you can to pay off the debt with the smallest balance. This is where it would really help if you were to take on a second job. While that job may not pay much more than $10 an hour, this could mean nearly $600 a month after taxes that you could use to pay off that first debt. If that debt were for $1200, you’d have it paid off in just two months. If the minimum payment on that debt had been $30 a month, you would now have $630 a month available to start paying off the debt with the second lowest balance and so on. We’ve seen people that owed $20,000 and were able to pay it off in just 27 months using this method.

Negotiate with your creditors

While you’re working on paying off that first debt you should also be contacting your lenders to see if you could negotiate better terms. For example, you might be able to get the interest rate on your debts reduced or even your payments lowered. It’s possible that you could even be allowed to skip payments for a few months although this is not recommended as it just postpones the inevitable. Believe it or not, debts that have gone to collection or charged-off can be the easiest ones to negotiate. After all, the lender has already sort of given up on them and should be more willing to grant some concessions in return for a payment.

Move some of your debts if you have great to excellent credit

If you have a substantial amount of high-interest credit card debts, think about moving them to a credit card with a lower interest rate. Even better, you might be able to move all those credit card debts to a 0% interest balance transfer card. There are cards available that offer 18 months interest free. This would give you a year and a half to reduce your balance before you would be required to pay any interest at all. This form of debt reduction could actually lead to debt elimination – if you were to pay off your balance before the end of that 18-month introductory period.

Follow through on your debt reduction plan

The most important thing you can do in debt reduction is to follow through or as they used to say, keep on keeping on. If you use the snowball strategy for debt reduction, you should be able to go to your spreadsheet at the end of every month and see some real progress. This alone should keep you motivated so that you will stay on your plan and eventually get debt reduction turned into zero credit card debt.

A Close Look At Unsecured Personal Loans

Almost all of us are required to borrow money at some time in our lives – unless you are a member of that 1%. We borrow money to buy our homes and our automobiles. Sometimes we need to borrow money to pay our taxes or for college. When this time comes, we usually need to choose between unsecured personal loans and secured loans.

The main difference for unsecured personal loans

couple applying for unsecured personal loansIf you’re not familiar with secured and unsecured personal loans the major difference is that to get a secured loan you need to put up an asset as collateral. That asset could be a boat, a second home, an RV or your house. The important thing is that the loan is secured against the collateral in the event you were to default. In this case, your lender will sell the asset. If this doesn’t generate enough money to pay off the debt, your creditor could then obtain what’s called a deficiency judgment against you for the remaining amount.

An unsecured debt is the opposite of this in that it’s not connected to a specific asset. If you were to default on an unsecured loan, the borrower could only come after you and not any of your assets. As a general rule, secured loans have lower interest rates than unsecured loans because the lender is not taking as much of a risk. However, there are other factors that lenders take into consideration when setting an interest rate that generally include your credit history, the expected returns and your ability to repay.

The pros and cons of unsecured personal loans

The biggest pro of unsecured personal loans is what you’ve already read that you aren’t required to put up any asset to secure it. These loans are often called signature loans because all that’s required is for you to sign for it. This means that if you were to default on the loan you would not be at risk of losing an important asset such as your house.

In addition, unsecured personal loans generally have a simpler application process. Whether or not you get the loan is based mostly on your credit history and credit score. Plus, of course, you must have a steady and dependable source of income.

As you have read, the biggest con of unsecured personal loans is that lenders generally charge a couple of additional percentage points so that your interest rate would be higher. A second downside of unsecured personal loans is that you may not be able to get as much money as with a secured loan. The issue here again is one of risk. Lenders are professionals at assessing risk and an unsecured personal loan represents the biggest possible risk since there is no property securing it.

Unsecured personal loans generally have shorter terms than secured ones. Most lenders don’t offer unsecured personal loans with terms of more than four years as opposed to the 10 or 15 years you would get with a secured loan. This is due to the fact that there is usually less money involved in an unsecured loan. The logic here is that because the loan is for less money, there is no reason to spread it over a longer period of time

When another financial problem crops up

Finally, a problem with unsecured personal loans is what happens if you get one because you’re in trouble financially. If another financial problem then crops up when you’re in the middle of paying off that first loan, you could find yourself in even more trouble. And as a very wise man once said, you can’t borrow your way out of debt.

The most common types of secured personal loans

There are two common types of secured personal loans. They are a home equity loan and a homeowner’s equity line of credit, which is commonly called a HELOC. There are major differences between the two. One is that with a home equity loan you get the total loan amount all at once. With a HELOC, you’re given a checkbook or debit card and can then draw on the funds as needed. A second difference is that with a home equity loan you have a fixed payment at a fixed interest rate. But with a HELOC, the interest is variable and can and will go up and down monthly. Also, with a HELOC you will have a minimum monthly payment but can pay any amount each month so long as it is more than the required minimum. At the end of the HELOC, which is generally seven or 10 years, there is usually a balloon payment where you would be required to pay the full amount of your principle. Alternately, you could be required to pay based on a loan amortization schedule.

If you cannot qualify for either

If you’re in really serious financial shape you may find that you can’t qualify for a either secured or unsecured personal loan. In this case, your best option might be what’s called debt settlement or debt negotiation. This is where a company like National Debt Relief negotiates with your creditors to get your debts reduced to a fraction of what you owe. In fact, if you owe more than $10,000 and are four months or more behind in your payments then letting National Debt Relief or some other trustworthy debt settlement company settle your debts could be your best option by far.

8 Things You Need To Know About Credit Counseling

Are you’re feeling overwhelmed by your debts and have no idea as to how you could take control of your finances? We know this can be a terrible feeling. You may have tried without success to create a budget to cut back on your spending so that you would have more money available to pay down your debts. You may have asked friends and family members for advice – but nothing has worked. You still feel stuck in a pit of debt. Well, take heart. There is help available in the form of credit counseling.

1. Make sure you find a reputable one

credit-counselingThere’s probably a credit-counseling agency not far from where you live. There are also numerous ones available on the Internet. You need to make sure you choose one that’s reputable and ethical and that has certified and trained credit counselors. The best are usually non-profit agencies that charge either nothing or very little for their services. Be sure to stay away from those that have big, impressive websites and charge an arm and a leg for their services but don’t do much in return. If you work with one of these outfits, you could end up in worse financial shape and not better.

2. Understand what the credit counseling agency can do for you

A reputable credit counseling agency won’t charge you anything until it has evaluated your finances and created a plan that would help you get out of debt and avoid more problems in the future. If you have a budget your counselor will review it to make sure it’s realistic. She or he may also suggest other ways that you could cut your costs. In the event you don’t have a budget, the agency’s counselor will help you develop one.

3. You will need to provide it with a lot of information

The first time you meet with your credit counselor you need to provide information such as your household budget if you have one, a list of your debts, the amount of money due on each debt every month, the interest rate on each debt and which debts you are behind on. You should also have a list of your assets and their approximate market values and copies of your most recent tax returns and pay stubs. Your counselor will use this information to help you create a get-out-of-debt plan. This will be a sort of road map for getting out of debt and should also help you achieve your financial goals such as saving for retirement or buying a home.

4. It will help you develop a get-out-of debt plan

The second thing a reputable credit-counseling agency will do is figure out how you could keep up with your debts. For example, it might help you revise your budget to generate more cash flow – or the amount of money you have available each month to pay off your debts faster. Alternately, it might recommend that you get into a debt management plan.

5. What is a debt management plan?

If your counselor can’t find a way for you to pay down your debts by reducing your expenses or by earning more money, he or she may recommend that you participate in a debt management plan. If you agree to this, your counselor will figure out just how much you could pay your creditors where you have unsecured debts every month to get your debts eliminated in 3 to 5 years. Once your counselor has determined this, she or he will contact your creditors to see if they would be willing to allow you pay those amounts. In addition, your counselor might also ask for other favors such as eliminating any fees you’ve been charged or reducing your interest rates.

6. Understand that debt management plans have a downside

When your credit counselor finishes preparing your debt management plan, be sure to get a copy. Also, don’t sign your contract until you read and understand it, as it could include some important restrictions. As an example of this, you may be prohibited from running up new debts with your creditors or trying to get new credit until you complete your debt management plan. You probably will be required to give up all of your credit cards. Also, if you fail to make your payments or don’t adhere to your plan, it could be canceled and you might end up in worse shape than before.

7. Your credit score could be damaged

While credit counseling should not have a negative effect on your credit score, some creditors might report to the credit bureaus that you are on a debt management plan or are slow paying. Either of these could hurt your credit score a bit. However, there are statistics showing that if you complete your plan successfully this will actually help your FICO score.

8. What happens next?

When you have signed off on your debt management plan you will then pay the credit-counseling agency every month whatever you have agreed to pay, as well as any monthly fee you agreed to. Your counseling agency will then distribute the money to your creditors. Your credit counselor should send you regular updates on the status of your plan, including confirmation that each of your creditors was paid according to its terms.

Credit counseling is one debt relief program to look at, debt negotiation, debt consolidation loans and bankruptcy are others. Make sure you do your due diligence on all your available choices before you decide which option is best for your situation.