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The Three Big Mistakes of Getting a Debt Reduction Loan (and How Not to Make These Mistakes)

November 4th, 2018 Comments off

If you’re in debt up to your eyeballs, you’re probably on the telemarketers’ list. They call, offering to give you a debt reduction loan. At first, this kind of loan sounds like a dream come true. After all, why wouldn’t you want to lump all your smaller debts into one easy-to-pay loan with a low interest rate?

Any wise man will tell you that you can’t get something for nothing. This is absolutely true when it comes to debt consolidation loans. Although they look good, these loans can be full of traps to snare the unsuspecting person, getting you in more trouble than you already were in. Here are the worst of the traps of getting a debt reduction loan:

Trap #1: You’re treating the symptom, not curing the problem.

The worst aspect of debt reduction loans is that they don’t fix the problems that caused you to be in debt. Instead, they treat the “symptom” of having debt. When you get one of these loans, you just end up with a large loan that you have to make payments on…but you will also acquire new debts when you eventually start to, once again, spend more money than you have.

Any statistician can tell you that the likelihood is high that someone who gets a consolidation loan will wind up with the same amount of debt, or more, in two years or less. And remember, they’re still making payments on their new debt consolidation loan.

Trap #2: Making your unsecured debts into secured debts.

If you have credit card debt, you should know that it is what is called “unsecured debt”. This means that the loan is not backed up by a tangible object, such as your home. Most consolidation loans are what is known as “secured debt”, or debt that is backed up by something valuable, most often the house that you live in.

The main problem with this is that when you can’t pay off your loan (and this is not uncommon), the creditor has the ability to foreclose on your home. On the original debt, the only thing the creditor could do was sue you in a court of law. They couldn’t take your home from you.

What you’ve done to yourself by taking out a secured loan (also known as a “home equity loan”) is to make your home vulnerable to foreclosure. Not too smart of you, was it?

Trap #3: Higher interest rates, not lower.

Even if you dodge the bullet of getting a secured loan by getting an unsecured loan, you’re still gonna get smacked with higher interest rates. This is because your inability to pay off your current debts makes you a credit risk, meaning that anyone who is willing to give you credit is going to charge you a higher interest rate to offset the additional risk.

They may change the loan in different ways, including a longer loan term, in order to offer you lower monthly payments than you’re making right now. However, this means that you will still pay more in the long run for your debts. As somebody who is already in debt, you probably can’t afford to do this.

So, how do you avoid these traps?

You can steer clear of all of these traps by deciding to manage your own debt. Unless you’re already filing bankruptcy, you still have the capability of getting out of debt without resorting to the help of some new lender or a so-called credit counselor. You’ll have to make some drastic changes to your lifestyle, but after you change your lifestyle, you’ll be well on your way to changing the behaviors that got you into debt in the first place.

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The Best Way To Consolidate Debt

October 3rd, 2017 Comments off

When people are looking for the best way to consolidate debt, there are several options their financial services professional can offer. However, there are only a few that make the most sense in terms of reducing interest costs and simultaneously improving cash flow, both of which are discussed here. Unfortunately, most borrowers cannot achieve both of these objectives and must therefore prioritize their financial objectives, even if it is not necessarily the best way to consolidate debt. We have discussed and will discuss these options elsewhere.

Arguably the best way to consolidate debt is to incorporate debt into your mortgage. This can mean using existing home equity to secure a Home Equity Line of Credit, refinancing your first mortgage, or even obtaining a second mortgage. The reason this is the best has to do with the fact that secured rates (rates given on loans that are secured by equity in real property) are much lower than unsecured rates. As such, you will quite likely pay much less interest on a year-over-year basis than you pay on your existing debts. We will review these options in greater detail:

1. Home Equity Line of Credit. Surely, using a Home Equity Line of Credit is not the best way to consolidate debt, but it ranks highly. The reason is that a HELOC offers great flexibility to borrowers since any unused or repaid credit can be accessed at a later date. More importantly, rates are usually extremely favorable since they are variable and often based on prime. This meets the lower-interest-cost requirement! Additionally, monthly payments to a HELOC are normally very low, some as low as “interest only.” However, the flip-side to an interest-only payment is that it does not improve your overall finances if that is all the borrower can afford to make. In order to improve net worth, that debt needs to be repaid.

2. Refinancing a First Mortgage. This is clearly the best way to consolidate debt in almost every situation. Although there can potentially be penalties and fees to break an existing mortgage term, borrowers should evaluate the savings over their existing debt situation and consider how much they will save over the life of the debt. This can be measured as simply as finding the difference between interest rates and can also be measured by reviewing the monthly cash flow savings. With First Mortgage rates quite low, especially now, borrowers will not only benefit from exceptionally low credit rates, but from a much lower, single monthly payment. As the best way to consolidate debt, the First Mortgage option does have a fairly large drawback; the consolidated debt erodes the equity previously available in the home.

3. Getting a Second Mortgage. With Second Mortgages, borrowers are likely to pay steeper rates than First Mortgages and Home Equity Lines of Credit. Despite this, Second Mortgages quite often come with preferred repayment terms, such as interest only. This means that the borrower can cut back on their monthly payment obligations rather substantially, even though they are not making much progress financially. With a Second Mortgage, borrowers are usually left with no other option; they cannot qualify for a HELOC or a refinance on their First Mortgage. Although interest savings are minimal and Second Mortgages are indeed the least favorable of the debt consolidation methods examined here, they do provide preferred rates and terms compared to unsecured options.

Borrowers who want to find the best way to consolidate debt are always wise to use the equity in their home as a way to secure financing. This tactic is optimal for two reasons. The first is that secured lending comes at a lower cost compared to unsecured lending, thereby saving the borrowers in terms of total cost of borrowing. The second is that payments are typically lower on secured credit because the amortizations can be stretched farther and the lower rates allow for lower payments, resulting in greater monthly cash flow. In the end, the borrower should always consider secured options as the best way to consolidate debt over the long haul given the pure financial benefits.

With over 10 years of mortgage-specific experience, Julie Hammond has been helping thousands of borrowers save money with their debt. She is regular contributor to the Nevada Mortgage website, which provides visitors with details specific to Nevada’s Mortgage industry. Please visit the site at Best Mortgage Nevada (dot) com.

Bankruptcy- The Right Solution In Credit Crisis

September 2nd, 2017 Comments off

In UK, declaring bankruptcy was considered to be something that was done by irresponsible people. It was like a stigma that one had to carry throughout their lives. However, in today’s world, with rising food and fuel costs and reduced buying power of the British Pound, at times bankruptcy may be the logical solution.

If it has been a perfect world, you could have opted for an Individual Voluntary Arrangement and pay off your dues in five years. However, we don’t live in a dreamworld and creditors will not let you stay at ease. They may accept monthly payments that may take years to pay and yet the loan may not be fully repaid. One way of working off debts is by declaring bankruptcy. Once bankruptcy is declared, the creditors cannot harass you. Alternatively, make you enter an agreement that will leave you stuck paying of loans forever.

A creditor whom you have to pay more than seven hundred and fifty pounds can or you yourself can charge for bankruptcy in a local court. There is a hundred and twenty pound court fee. Nevertheless, if you are depending upon an income support program, the court can remove the fee. You will have to give two hundred and fifty pounds to the court for looking into your bankruptcy. You will need your own legal advisor to present your case.

After the court proceedings, the court can issue a stay order. It means the court wants more time to look into the case. The court may call off the pleading because an administration order will be more apt. The court may name an insolvency practitioner. This can occur if your assets are more than two thousand pounds and unsecured debts less than twenty thousand pounds. The court can pass a bankruptcy order.

You are affirmed as bankrupt as soon as the court proclaims it. The court may also give away a certificate of administration incase your debts are less than twenty thousand pounds and you were previously not bankrupt or pleaded for individual voluntary arrangement in the last 5 years. This makes the administration of your bankruptcy lucid.

The official liquidator becomes your guardian, and you are laid-off from the bankruptcy post two years of the date of verdict. If a summary of administration is not made, the bankruptcy order will be dismissed post three years.

After bankruptcy, all your capitals are passed over to the legal guardian. You are not supposed to correspond with your bank or take any money without the information of your legal guardian. You are not supposed to make any direct payments to your creditors. You are not supposed to form, own or manage a company without the knowledge of the court. You are not supposed to hold certain public offices.

After you are discharged from your bankruptcy, you can resume your financial activities without informing the trustee. Your credit rating will be rebuilt after six years. You will go through this process after bankruptcy. However, it may be a more suitable option as you can start with a clean slate. The court can also discharge your bankruptcy after a year.
Are you searching for Debt Solutions plans? Contact us for bankruptcy information

The Bankruptcy Process – Debt Free In 12 Months

October 29th, 2016 Comments off

Opting for Bankruptcy is an important decision of your life as it can transform your life forever. It is a decision taken as a last resort to payoff such a debt that has become complex to reimburse through the process of installments. Before going bankrupt, you should know about assets both liquid and fixed lying with you, which can pay off your complete or may be most of the underlying debt.

A myth about bankruptcy is that it will reprimand you by seizing the whole thing you own ranging from clothes to belongings, which is however so not the case. Under the bankruptcy law, you are protected against your creditors and it offers you one more possibility to go for a pristine new start in life. As per Insolvency Act Section 283 (2), the debtors are allowed to keep their belongings such as clothes, household goods, fittings, and have conveyance (the vehicle should not be too expensive otherwise you will have to yield that as well). In case the car is taken, an added car is provided of less worth performing the same job. In case of pensioners, you will be entitling for your pensions despite going bankrupt.

This Bankruptcy Law was changed in 2004 in which the necessary period looked-for to dole out under the law was partial to one year, which was in the past three years. Another affirmative thing under this law is that it gives likelihood to the bankrupts to adjust their lives. As the impoverishment process has been made so lucid moreover silky, the bankrupts can be free from the bankruptcy charge even in three months if the creditors have no objection on that.

The diminution of bankruptcy method from three years to 12 months has brought a sigh of relief to the debtors opting for bankruptcy or planning to go for it as they feel it is a less throbbing time than it was formerly. Given that the time the liquidation law has facilitated the release time to 12 months, most of the bankruptcy cases in UK are settled within 7 months on an average basis. All through the process of bankruptcy, if someone is found guilty of cheating or frivolity of any kind, the economic failure officer has the right to tax the bankruptcy restrictions for an episode of 2 years to 15 years under the Bankruptcy Restriction Order.

Prior to the new law, creditors had the authority to wait for as many years as they want before asking for the equity to be released from a property. However, this has been limited to a period of three years. So the axe is likely to fall on you quite sooner.

The trustee can enquire the debtors to offer a little part of their earnings to the creditors. It depends upon how much a defaulter can afford in this regard. This process is identified as an Income Payments Order (IPO), and it remains successful for three years while the bankruptcy date. It means that even if the debtor is unconstrained from the bankruptcy in 12 months time, he/she still has to disburse the IPO for another 2 years.

Being bankrupt is a very painful time in a person’s life. It is a last resort to any debt reimbursement method, which usually results in stigma, probable job loss, and embarrassment in front of family, neighbors, and friends as everything is investigated and you have to visit court for legal proceedings as well. Furthermore, everything is also exposed in the newspaper under the law. Going to court for the legal proceedings have a long term effect on a person’s credibility and psychology. In order to face the complex procedure of bankruptcy, you should elect a qualified and experienced bankruptcy team to facilitate the whole process in an efficient manner without any hassle.

Despite all the mental and psychological stress a person faces during the bankruptcy process, at least there is a feeling of relief, though it is achieved with the passage of time.

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Will Debt Management Firms Face FSA Rule in the Next 12 Months?

October 19th, 2016 Comments off

Finance Services Authority of the UK is responsible for regulating the financial service sector. FSA was set up by the government of UK and the government is responsible for the overall scope of the FSA’s regulatory authorities and its powers. FSA helps retail financial service consumers to get a fair deal.

Arrears management concerns have sprung up like hot cakes given that the economic crunch hit the world markets. The mainly effected have been the remunerated persons who have lost their work and the self employed whose trades have gone bankrupt. There are decent arrears management concerns who have been in the industry for helping out industries and individuals who are caught in arrears.

Money debt management firms work out a solution between the creditors and the payee. They usually charge the customer for providing this service. Initially, they obtain details of all the money debt that are owed, and then obtain the creditors to decrease the sums owing to them. Secondly, they work out a refund agenda.

The customer makes an affordable monthly compensation to the concern and they in turn pay off the creditors. This may all sound very good as the entity is not harassed by the creditors and has to make just a lone monthly compensation. In some cases arrears management concerns assemble a loan for the customer to pay off the creditors and then reimburse the finance in installments.

The catch in all these arrangements is that the consumer may not be conscious of the sum he is paying to the creditors and the sum that is being kept by the money debt management firm. Consumers have had pay off sums that have far gone beyond their real sum of money debt, when they have employed the services of money debt management firms.

After consumers complaints started pouring in, FSA started investigating the matter. They have regulated the mortgage lending companies and are also monitoring the financial services companies. Debt management companies may get regulated by FSA. They will have to disclose the exact terms that they have reached with ‘clients’ creditors. This disclosure of information is something that a number of debt management companies would not want. As they don’t want the clients to know the deals that they have struck, on their behalf.

There are also many unregulated money debt management firms that are not registered. They would require to be registered with the FSA so that their activities can be monitored. Money debt management services are just one of the monetary service divisions and it will be harder for the FSA to monitor all of them. Nevertheless, FSA has regulated the mortgage division and there may be legislations for money debt management firms.

If debt management service companies are required to be registered with the FSA, a lot of them will close down. But this will be good for the consumers as they will be protected by the authority. Consumers are hoping that debt management service companies come under FSA regulations. This will also help in cleaning out the market from frauds.

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