Debt has become a serious problem for many households. In recent years, people have had to rely more heavily on credit to make ends meet. Unfortunately, unless credit is repaid in full within a relatively short period of time, credit cards, loans and overdrafts can easily turn into a debt crisis. Fortunately, various solutions are available to those who are struggling to effectively manage their debts.

Debt Management Plan

The debt management plan ought to be the debtor`s first port of call when it becomes obvious that outstanding credit is no longer affordable. Generally speaking, the sooner a debtor realises there is a problem the sooner he can implement measures to control it – in this case, the first step towards solvency is discussing the situation with creditors.

Although some creditors are unwilling to accept anything less than the agreed repayments, others are more relaxed about providing solutions to debtors. Ensuring that creditors are aware of debt problems enables debtors to explore ways to minimise monthly repayments – enough, perhaps, to control the situation before it becomes a crisis.

Sometimes, more extreme measures have to be discussed with creditors. A debt management plan is an informal agreement between a debtor and his creditors to repay outstanding balances on credit accounts such as loans and credit cards within a fixed period of time or at an agreed weekly or monthly rate.

Strictly speaking, debt management plans are not legally binding, but the common law of England and Wales does make provisions and exceptions for those who rely, to their detriment, on promises made by creditors. Debt management plans are usually the preferred option for borrowers who can afford to repay outstanding debts at a lower premium, but it ought to be noted that creditors would almost certainly remove credit (e.g., terminating credit cards) as a result of entering into such an agreement. Defaults are also likely to appear on credit profiles.

Individual Voluntary Arrangement (IVA)

The IVA has made a name for itself over recent years, as many lenders have criticised its apparent bias towards debtors. Although the IVA does favour debtors to a certain extent, it is by no means a desirable solution unless circumstances are such that a debt problem is no longer manageable.

As a legally binding agreement, the IVA is somewhat different from the debt management plan. Essentially, the IVA works by ensuring that a debtor reaches an agreement with his lenders to repay a proportion of his debt within a fixed period of time. Assuming the debtor does not renege on the terms of the individual voluntary agreement, any outstanding unsecured debt will be expunged or written off after the agreed period of time (typically five years) elapses.

An IVA should only be considered if a debt problem is out of control. Remaining on a debtor`s credit profile for six years, an IVA reduces the amount of debt a person is required to repay but tends to limit an individual`s ability to secure credit in the future.

Bankruptcy

When a debt problem is truly unmanageable it may be necessary to consider bankruptcy. As with the IVA, bankruptcy leaves a long-lasting smirch on an individual`s credit profile, but it is sometimes the only option for low-income individuals whose debts are substantial and assets minimal. Bankruptcy means going to court and facing severe financial penalties for many years (e.g., a bankrupt may face problems opening a bank account and is not allowed to be a company director).

Finally, people who have endured debt problems in the past are likely to experience difficulties securing credit in the future. Rebuilding a credit profile takes time and patience. A useful starting point is applying for a Tesco credit card to prove to other lenders that debt problems are a thing of the past.

Personal loans serve many purposes, from financing a new car to consolidating existing debts. Two types of personal loan are offered to consumers: secured and unsecured. Although similar in many ways, secured and unsecured debts are notably different when it comes to enforcing terms should the borrower default on repayments.

Secured Loans

The secured loan is one that uses an asset of the borrower as security for the loan. In the vast majority of secured loan applications, the borrower will agree to offer his home as security; therefore, secured loans are only available to homeowners.

To secure a loan against a property is to attach a risk to it. A secured loan requires sufficient equity in a property – a figure that can be calculated by deducting the amount of an outstanding mortgage from the value of the property – because the lender requires assurance that the loan can be repaid. In finance, property ownership offers no greater assurance to lenders that a debt can be satisfied if the borrower defaults on repayments because the equity in the building can be used to clear the outstanding balance.

Obviously, this means that the borrower could lose his home if he happens to default on repayments. This fact may surprise those who think secured loans mean lower risk to the borrower; on the contrary, a secured loan provides security to the creditor, not the person whose home is on the line.

A secured loan is not necessarily the best option for all homeowners. In many cases, it is financially more prudent for borrowers to remortgage a property for a larger sum of money at a lower rate of interest than it is to obtain a secured loan. This is not to suggest, however, that secured loans are not viable for consumers; indeed, a secured loan is useful and sometimes the most cost-effective option if a person requires £25,000 or more over a relatively long period of time.

Unsecured Loans

An unsecured loan is simply a loan to which no equity is attached. Unsecured loans, therefore, are ideally suited to people who do not own property; however, there is nothing to stop a homeowner from acquiring an unsecured loan (in fact, this is often the better option than obtaining a secured loan).

Unfortunately, because unsecured loans tend to be more risky for lenders, they tend to be limited in terms of the amount that can be borrowed; furthermore, unsecured loans will almost certainly be subject to higher rates of interest than secured loans. It may be preferable in some cases to apply for an introductory 0 per cent balance transfer credit card instead of an unsecured loan if the main objective is to clear outstanding credit card debts or to make a one-off purchase.

Unsecured loans also require a relatively good credit rating of applicants, so levels of borrowing will be limited by an individual`s credit history. Applicants with excellent credit can often acquire unsecured loans up to around £25,000 at relatively good rates of interest (4-8 per cent APR).

It should be noted at this point that defaulting on an unsecured loan does not necessarily mean a homeowner would escape the consequence of losing his home. In some cases, a creditor can apply to the court for a charging order to be placed on a property, which ensures that the outstanding balance of the loan is paid before other funds are released. If the charging order is granted, the creditor can then apply to force the sale of the property.

In conclusion, a secured loan is sometimes more risky for the borrower than an unsecured loan, but the former often attracts lower interest rates and more flexible repayment options than the latter. People who have experienced debt problems in the past may wish to apply for a specialist loan for bad credit, which may be secured or unsecured.

Today many debt burdened people look out for financial help such as debt settlement, credit counselling, debt consolidation and debt relief programs.There are many a debt relief programs out in the market. But, you need toknow how to discover a proper and legitimate debt relief organization. It’sonly a trusted debt relief organization that can solve out your debt obligations. Follow the below mentioned instructions to know more about finding out a legitimate debt relief company.

Instructions

• The most accepted way to find out a legitimate debt relief program and a company is studying the website of Better Business Bureau(BBB). You can also call a representative of the BBB to know more about any certain debt relief company or program. Here you can have any information regarding the company’ reputation or the number ofcomplaints the consumers have made against the company.
• Next, find out whether the company is a member of the Trade Association of Settlement Companies (TASC). Go through the website of TASC and try to find out the name of your debt relief company there.Trade Association of Settlement Companies (TASC) is a reputed organization that sets standards for settlement companies.
• Compare more than one debt relief companies to have a clear idea about the prices and plans. Today many organizations offer free consultation. So, compare at least two and choose that one who makesyou the better offer.
• Ask your debt relief company to provide you with settlement and negotiation letters of their previous clients. This way you can get a clear idea about the company. A legitimate debt relief company always abide by the federal rules, updated clauses and industry terms.Remember, the honest companies are always straightforward and will always make you aware of the pros and cons of any debt relief program.

If you have at least $10,000 in unsecured debt you may certainly talk to a debtrelief company. Creditors of unsecured debts are always afraid of losing theirmoney. And as an intelligent consumer you must capitalize on it and removeyour debt.

photo credit: moreofavideoguy

By Jakob Jelling

There are many situations in life that will require you to take out loans. Finding the right money lenders will allow you to get the loans that are best suited to your particular need.

First place to turn to in an emergency is your own family. Maybe they can help you out in emergency cases.

Bank loans are a safe and secure way to borrow money. You can find banks that offer various types of loans such as auto loans, home loans and student loans.

Many people want to start their own small business but back away since they do not have the start-up capital. Business loans are useful in helping such people start their own business. When starting your business, you should have a business plan ready, and then you can go out searching for small business money lenders. You can go to commercial lenders, banks or venture capitalists, give them your best sales pitch of your business idea and convince them of your future success.

Cash advance money lenders can help you get money in emergency situations. If you have run out of money before the end of the month, and need some quick cash to make sure your electricity or heat is not turned off, cash advance money lenders can help. They often do not carry out background checks and so it doesn’t matter if you have bad credit. However these loans are meant to be only for the short term and if you do not pay them off on time, they can be very damaging.

Hard money lenders are a resource to turn to when you have bad or no credit and cannot find anyone to loan out money to you. They are private lenders who lend out money on homes and property, for private or business use, to finance the cost of buying or repairing the property. The advantage of hard money lenders is that they have little qualification requirements and will lend to you even if you have bad credit. Hard money lenders, however, often charge higher interest rates on their loans.

Any money lender you do business with, you should make sure is legitimate and can provide you with his credentials. Well known and reputed lenders are a safer bet.

If you get turned down by money lenders you can ask them why. Also you can acquire a copy of your credit report to see where you can make improvements. With a good credit score more money lenders will be willing to loan to you, and thus you will have more choices and offers available.

Jakob Jelling is the founder of http://www.cashbazar.com. Visit his website for the latest on personal finance, debt elimination, budgeting, credit cards and real estate.

photo credit: Diana Parkhouse

Shopping around for a home loan or mortgage will help you to get the best financing deal. A mortgage—whether it’s a home purchase, a refinancing, or a home equity loan—is a product, just like a car, so the price and terms may be negotiable. You’ll want to compare all the costs involved in obtaining a mortgage. Shopping, comparing, and negotiating may save you thousands of dollars.

Obtain Information from Several Lenders

Home loans are available from several types of lenders—thrift institutions, commercial banks, mortgage companies, and credit unions. Different lenders may quote you different prices, so you should contact several lenders to make sure you’re getting the best price. You can also get a home loan through a mortgage broker. Brokers arrange transactions rather than lending money directly; in other words, they find a lender for you. A broker’s access to several lenders can mean a wider selection of loan products and terms from which you can choose. Brokers will generally contact several lenders regarding your application, but they are not obligated to find the best deal for you unless they have contracted with you to act as your agent. Consequently, you should consider contacting more than one broker, just as you should with banks or thrift institutions.

Whether you are dealing with a lender or a broker may not always be clear. Some financial institutions operate as both lenders and brokers. And most brokers’ advertisements do not use the word “broker.” Therefore, be sure to ask whether a broker is involved. This information is important because brokers are usually paid a fee for their services that may be separate from and in addition to the lender’s origination or other fees. A broker’s compensation may be in the form of “points” paid at closing or as an add-on to your interest rate, or both. You should ask each broker you work with how he or she will be compensated so that you can compare the different fees. Be prepared to negotiate with the brokers as well as the lenders.

Obtain All Important Cost Information

Be sure to get information about mortgages from several lenders or brokers. Know how much of a down payment you can afford, and find out all the costs involved in the loan. Knowing just the amount of the monthly payment or the interest rate is not enough. Ask for information about the same loan amount, loan term, and type of loan so that you can compare the information. The following information is important to get from each lender and broker:

Rates

• Ask each lender and broker for a list of its current mortgage interest rates and whether the rates being quoted are the lowest for that day or week.
• Ask whether the rate is fixed or adjustable. Keep in mind that when interest rates for adjustable-rate loans go up, generally so does the monthly payment.
• If the rate quoted is for an adjustable-rate loan, ask how your rate and loan payment will vary, including whether your loan payment will be reduced when rates go down.
• Ask about the loan’s annual percentage rate (APR). The APR takes into account not only the interest rate but also points, broker fees, and certain other credit charges that you may be required to pay, expressed as a yearly rate.

Points

Points are fees paid to the lender or broker for the loan and are often linked to the interest rate; usually the more points you pay, the lower the rate.

• Check your local newspaper for information about rates and points currently being offered.
• Ask for points to be quoted to you as a dollar amount—rather than just as the number of points—so that you will actually know how much you will have to pay.

Fees

A home loan often involves many fees, such as loan origination or underwriting fees, broker fees, and transaction, settlement, and closing costs. Every lender or broker should be able to give you an estimate of its fees. Many of these fees are negotiable. Some fees are paid when you apply for a loan (such as application and appraisal fees), and others are paid at closing. In some cases, you can borrow the money needed to pay these fees, but doing so will increase your loan amount and total costs. “No cost” loans are sometimes available, but they usually involve higher rates.

• Ask what each fee includes. Several items may be lumped into one fee.
• Ask for an explanation of any fee you do not understand. Some common fees associated with a home loan closing are listed on the Mortgage Shopping Worksheet in this brochure.

Down Payments and Private Mortgage Insurance

Some lenders require 20 percent of the home’s purchase price as a down payment. However, many lenders now offer loans that require less than 20 percent down—sometimes as little as 5 percent on conventional loans. If a 20 percent down payment is not made, lenders usually require the home buyer to purchase private mortgage insurance (PMI) to protect the lender in case the home buyer fails to pay. When government-assisted programs such as FHA (Federal Housing Administration), VA (Veterans Administration), or Rural Development Services are available, the down payment requirements may be substantially smaller.

• Ask about the lender’s requirements for a down payment, including what you need to do to verify that funds for your down payment are available.
• Ask your lender about special programs it may offer.

If PMI is required for your loan,

• Ask what the total cost of the insurance will be.
• Ask how much your monthly payment will be when including the PMI premium.
• Ask how long you will be required to carry PMI.

Obtain the Best Deal That You Can

Once you know what each lender has to offer, negotiate for the best deal that you can. On any given day, lenders and brokers may offer different prices for the same loan terms to different consumers, even if those consumers have the same loan qualifications. The most likely reason for this difference in price is that loan officers and brokers are often allowed to keep some or all of this difference as extra compensation. Generally, the difference between the lowest available price for a loan product and any higher price that the borrower agrees to pay is an overage. When overages occur, they are built into the prices quoted to consumers. They can occur in both fixed and variable-rate loans and can be in the form of points, fees, or the interest rate. Whether quoted to you by a loan officer or a broker, the price of any loan may contain overages.

Have the lender or broker write down all the costs associated with the loan. Then ask if the lender or broker will waive or reduce one or more of its fees or agree to a lower rate or fewer points. You’ll want to make sure that the lender or broker is not agreeing to lower one fee while raising another or to lower the rate while raising points. There’s no harm in asking lenders or brokers if they can give better terms than the original ones they quoted or than those you have found elsewhere.

Once you are satisfied with the terms you have negotiated, you may want to obtain a written lock-in from the lender or broker. The lock-in should include the rate that you have agreed upon, the period the lock-in lasts, and the number of points to be paid. A fee may be charged for locking in the loan rate. This fee may be refundable at closing. Lock-ins can protect you from rate increases while your loan is being processed; if rates fall, however, you could end up with a less favorable rate. Should that happen, try to negotiate a compromise with the lender or broker.

Remember: Shop, Compare, Negotiate

When buying a home, remember to shop around, to compare costs and terms, and to negotiate for the best deal. Your local newspaper and the Internet are good places to start shopping for a loan. You can usually find information both on interest rates and on points for several lenders. Since rates and points can change daily, you’ll want to check your newspaper often when shopping for a home loan. But the newspaper does not list the fees, so be sure to ask the lenders about them.

The Mortgage Shopping Worksheet that follows may also help you. Take it with you when you speak to each lender or broker and write down the information you obtain. Don’t be afraid to make lenders and brokers compete with each other for your business by letting them know that you are shopping for the best deal.

Fair Lending Is Required by Law

The Equal Credit Opportunity Act prohibits lenders from discriminating against credit applicants in any aspect of a credit transaction on the basis of race, color, religion, national origin, sex, marital status, age, whether all or part of the applicant’s income comes from a public assistance program, or whether the applicant has in good faith exercised a right under the Consumer Credit Protection Act.

The Fair Housing Act prohibits discrimination in residential real estate transactions on the basis of race, color, religion, sex, handicap, familial status, or national origin.

Under these laws, a consumer cannot be refused a loan based on these characteristics nor be charged more for a loan or offered less favorable terms based on such characteristics.

Credit Problems? Still Shop, Compare, and Negotiate

Don’t assume that minor credit problems or difficulties stemming from unique circumstances, such as illness or temporary loss of income, will limit your loan choices to only high-cost lenders.

If your credit report contains negative information that is accurate, but there are good reasons for trusting you to repay a loan, be sure to explain your situation to the lender or broker. If your credit problems cannot be explained, you will probably have to pay more than borrowers who have good credit histories. But don’t assume that the only way to get credit is to pay a high price. Ask how your past credit history affects the price of your loan and what you would need to do to get a better price. Take the time to shop around and negotiate the best deal that you can.

Whether you have credit problems or not, it’s a good idea to review your credit report for accuracy and completeness before you apply for a loan. To order a copy of your credit report, contact:

Equifax: (800) 685-1111
TransUnion: (800) 916-8800
Experian: (888) EXPERIAN (397-3742)

photo credit: Rhys Alton

Something to consider in mortgage lending is the process. The process by which a mortgage is secured by a borrower is called origination. This involves the submission of an application and documentation related to the customer’s financial history. This information is then reviewed by an underwriter.

Sometimes, a third party is involved, such as a mortgage broker. This entity takes the borrower’s information and reviews a number of lenders, selecting the ones that will best meet the needs of the customer.

If the underwriter is not satisfied with what the borrower provides, additional documentation and conditions may be imposed, called stipulations. The meeting of such conditions can be a daunting experience for the consumer, but it is crucial for the lending institution to ensure the information being submitted is accurate and meets specific guidelines. This is done to give the lender a reasonable guarantee that the borrower can and will repay the loan. If a third party is involved in the loan, it will help the borrower to clear such conditions.

Documents typically required for underwriter review:

• credit report
• 1003 — Uniform Residential Loan Application
• 1004 — Uniform Residential Appraisal Report
• 1005 — Verification Of Employment (VOE)
• 1006 — Verification Of Deposit (VOD)
• 1007 — Single Family Comparable Rent Schedule
• 1008 — Transmittal Summary
• Copy of deed of current home
• federal income tax records for last two years
• Verification Of Mortgage (VOM) or Verification Of Payment (VOP)
• Borrower’s Authorization
• Purchase Sales Agreement
• 1084A and 1084B (Self-Employed Income Analysis) and 1088 (Comparative Income Analysis) — used if borrower is self-employed

photo credit: EliseMeder

What would you do if a friend or relative asked you to cosign a loan? Before you answer, make sure you understand what cosigning involves. Under federal law, creditors are required to give you a notice that explains your obligations. The cosigner’s notice states:

You are being asked to guarantee this debt.

Think carefully before you do. If the borrower does not pay the debt, you will have to. Be sure you can afford to pay if you have to, and that you want to accept this responsibility.

You may have to pay up to the full amount of the debt if the borrower does not pay.

You may also have to pay late fees or collection costs, which increase this amount.

The creditor can collect this debt from you without first trying to collect from the borrower.

• The creditor can use the same collection methods against you that can be used against the borrower, such as suing you, garnishing your wages, etc. If this debt is ever in default, that fact may become a part of your credit record.
• Depending on your state, this may not apply. If state law forbids a creditor from collecting from a cosigner without first trying to collect from the primary debtor, this sentence may be crossed out or omitted altogether.

Cosigners Often Pay

Studies of certain types of lenders show that for cosigned loans that go into default, as many as three out of four cosigners are asked to repay the loan. When you’re asked to cosign, you’re being asked to take a risk that a professional lender won’t take. If the borrower met the criteria, the lender wouldn’t require a cosigner.

In most states, if you cosign and your friend or relative misses a payment, the lender can immediately collect from you without first pursuing the borrower. In addition, the amount you owe may be increased — by late charges or by attorneys’ fees — if the lender decides to sue to collect. If the lender wins the case, your wages and property may be taken.

If You Do Cosign

Despite the risks, there may be times when you want to cosign. Your child may need a first loan, or a close friend may need help. Before you cosign, consider this information:

Be sure you can afford to pay the loan.

If you’re asked to pay and can’t, you could be sued or your credit rating could be damaged. Even if you’re not asked to repay the debt, your liability for the loan may keep you from getting other credit because creditors will consider the cosigned loan as one of your obligations.

Before you pledge property to secure the loan, such as your car or furniture, make sure you understand the consequences.

If the borrower defaults, you could lose these items. Ask the lender to calculate the amount of money you might owe. The lender isn’t required to do this, but may if asked. You also may be able to negotiate the specific terms of your obligation. For example, you may want to limit your liability to the principal on the loan, and not include late charges, court costs, or attorneys’ fees. In this case, ask the lender to include a statement in the contract similar to: “The cosigner will be responsible only for the principal balance on this loan at the time of default.”

Ask the lender to agree, in writing, to notify you if the borrower misses a payment.

That will give you time to deal with the problem or make back payments without having to repay the entire amount immediately.

Make sure you get copies of all important papers.

Papers such as the loan contract, the Truth-in-Lending Disclosure Statement, and warranties — if you’re cosigning for a purchase. You may need these documents if there’s a dispute between the borrower and the seller. The lender is not required to give you these papers; you may have to get copies from the borrower.

photo credit: Roberto Verzo

by Richard Keir

Shopping around for medical insurance can be a confusing business. You need to keep your wits about you and keep track of the benefits and costs of each policy and each type of policy. Too often we tend to look at the price first and the rest of the policy becomes a blur of fine print. And we’re off to check the next policy.

Slow down. There some important things you should do before you start chasing around to get a policy. Doing these few things will make the whole process simpler and clearer – and you’re much more likely to make a good decision.

You need to carefully consider your situation. Think about these questions and note your answers:

What’s the general state of your health?

How old are you?

Do you have any serious medical problems currently or in your medical history?

Do you have any history of recurring or on-going medical needs?

Do you use tobacco? How much?

Do you drink? How much?

Are you over- or under-weight for your height, body-type and age?

Is your job hazardous?

Do you participate in any activities or sports that could affect your health?

Now this may be unpleasant but if there’s any chance an insurance company could discover a history of drug or alcohol abuse or sexual behavior that might put you in a high risk group, you may want to be direct and upfront about it – especially if it’s in the past. Having a claim denied later because you had failed to disclose medical information to the insurance company would be far more upsetting – and very expensive. The same goes for any significant medical condition. Insurance companies are in it to make a profit – at least most of them are. Paying large claims isn’t their favorite activity, so they often do investigate.

If you’re seeking a family policy you’ll need to make the same analysis for everyone and consider carefully what kind of coverage you want.

Do you need dental, orthodontic, pregnancy, mental health, and/or drug coverage? Do you need long-term care coverage, either inpatient or in a nursing facility? Assisted living coverage? What about traveler’s or international coverage?

If there’s a possibility that you may require – or want – in-home care as opposed to a residential nursing or assisted living facility, be sure that coverage is included and be sure you understand exactly what you can expect to receive.

Think about deductibles and what you could afford pay to reduce your insurance costs. But be very careful here, because medical expenses tend to pile up quickly and reach nearly insane levels for complex treatments or inpatient stays. Many drugs in common use are ridiculously over-priced and depending on the specifics of your insurance you may not be able to use the least expensive sources.

If you will end up with multiple sources of coverage, be clear about how they fit together and what the rules are about overlapping or combined benefits.

Once you are clear on your current situation, your (and other family member’s) medical history, and your projected needs, you can begin looking in a organized way with a better sense of where you’re going and what will actually meet your needs. This may seem like a tedious process, but it will serve you well in finding appropriate and affordable health insurance and making sure your health care needs can be met by the medical insurance you choose.

Take some time to work through these questions. Write down your answers. Make a chart with your desired coverages and any special conditions the policy must meet. As you look at health insurance policies, note the rules, exclusions, information about pre-existing conditions, any limitations, the dollar amounts covered and especially any deductibles.

Don’t try to do too much at once. If you hurry, it’ll become confusing and tiring. You may hate it (I know I do), but you really do need to read all that fine print and understand it. That’s not a task to rush through. You might as well face up to it, because it’s a lot better to do it BEFORE you need medical services than after you get a bill for the uncovered portion that sends you into shock.

So is it an impossible job to find health insurance that works for you? Not at all. There’s a world of resources on the internet to help you find the policy you need. Just be sure to do your homework first.

photo credit: Memory_Freak

Debt consolidation entails taking out one loan to pay off many others. This is often done to secure a lower interest rate, secure a fixed interest rate or for the convenience of servicing only one loan.

Debt consolidation can simply be from a number of unsecured loans into another unsecured loan, but more often it involves a secured loan against an asset that serves as collateral, which is most commonly a house. In this case a mortgage is secured against the house. The collateralization of the loan allows a lower interest rate than without it, because by collateralizing, the asset owner agrees to allow the forced sale (foreclosure) of the asset in order to pay back the loan. The risk to the lender is reduced so the interest rate offered is lower.

Sometimes, debt consolidation companies can discount the amount of the loan. When the debtor is in danger of bankruptcy, the debt consolidator will buy the loan at a discount. A prudent debtor can shop around for consolidators who will pass along some of the savings. Consolidation can affect the ability of the debtor to discharge debts in bankruptcy, so the decision to consolidate must be weighed carefully.

Debt consolidation is often advisable in theory when someone is paying credit card debt. Credit cards can carry a much larger interest rate than even an unsecured loan from a bank. Debtors with property such as a home or car may get a lower rate through a secured loan using their property as collateral. Then the total interest and the total cash flow paid towards the debt is lower allowing the debt to be paid off sooner, incurring less interest. In practice, many people are in credit card debt because they spend more than their income. If that habit continues, the consolidation will not benefit them much because they will simply increase their credit card balances again.

Because of the theoretical advantage that debt consolidation offers a consumer that has high interest debt balances, companies can take advantage of that benefit of refinancing to charge very high fees in the debt consolidation loan. Sometimes these fees are near the state maximum for mortgage fees. In addition, some unscrupulous companies will knowingly wait until a client has backed themselves into a corner and must refinance in order to consolidate and pay off bills that they are behind on the payments. If the client does not refinance they may lose their house, so they are willing to pay any allowable fee to complete the debt consolidation. In some cases the situation is that the client does not have enough time to shop for another lender with lower fees and may not even be fully aware of them. This practice is known as predatory lending. Certainly many, if not most, debt consolidation transactions do not involve predatory lending.

photo credit: JavierPsilocybin

by Jonathan Cheong

Avoiding complications in credit repair is almost important as getting out of debt. When we have bills that were neglected simply because we didn’t have the money to pay the bills, or else we purchased items instead of paying the bills, we are in debt.

If you are considering a Home Equity Loan to get out of your current mortgage…DON”T. Why? Simply because most Home Equity Loans get you deeper in debt and once you are obligated you will find the problem is more complicated than we you applied for the loan.

Lenders often target home owners with financial difficulties offering them high interest rates and making them believe it is a solution for debt relief. In most cases, this is where foreclosures come in, or selling homes come into place. The solution is only an option to get you in debt deeper. One solution then is for homeowners to consider the Reverse Mortgage Loans.

This type of loan is often as equity against your home, belongings, and so on. The loan offers a ‘cash advance’ solution and requires that the owner does not pay on the mortgage until the end of the mortgage term or when the home is sold. Most lenders provide a lump sum advance, a line of credit, or else a monthly installment to the home owners.

Some lenders even offer a combination to the homeowners. This is certainly a good solution for repairing your credit, and building your credit to a new future. The downside is that Reverse Home Mortgage Loans often are more suitable for the older generation of people that have built equity over the years in their homes.

Another disadvantage is that almost all home loans require upfront payments, such as title, insurance, application fees, origination fees, interest and so on. Therefore, it pays to ask questions and shop around before taking out another loan to repair or build your credit. Fannie Mae Home Keeper Mortgage Programs are one of the many that offer a Reverse Home Mortgage Loan.

Another option for paying off your debts and repairing your credit is to borrow the money from family members or friends. If you have someone that trusts you enough to loan you the money to get out of debt, it is often better than getting a loan.

There are several options or questions you must consider before asking family members or friends to loan you the money to build or repair your credit. One of those questions should be the obvious. Can these people afford to lend me the money to get out of debt? Are these people kind enough to loan you money without putting high demands on you.

Of course there may be interest involved, but remember they are loaning you money they could be spending on their own bills. Is it possible that you can repay the loan without complicating your situation further? Can I repay these people that loan me the money to free myself of one debt? How long do I have to repay the loan? Make sure there are no extra complications before asking friends or family for money to help get you out of debt. One of the best solutions for finding a way to repair your credit is searching the options to make the money yourself. If you have a mortgage payment and struggling each month to make ends meet, you might want to sell your home.

Many homeowners go for this option simply because they make more money in the long run. Once they sell their home they are often able to repay their mortgage loan and then take out a loan for another mortgage more affordable.

If you decide to sell your home to repair your credit and get out of debt, be sure that you look around for the best possible solutions in order to prevent further complications. Make sure you know how much is owed on your home before you set a price for resell.

If there are any repairs that are minor or major, try to repair them first before selling. If you can’t afford to repair the home, try to do minimal repair so that you can up the price of the home you are selling.