Posts Tagged ‘debt repayment’

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.

The Best Ways to Get Out of Debt

September 12th, 2017 Comments off

You might have heard that there are a million ways to make money. Likewise, there are probably just as many ways to get out of debt, but when it comes to achieving that goal honestly and effectively, your options are reduced. Here, we will explore three of the best ways to get out of debt without having to resort to debt avoidance techniques like bankruptcy or fraud (yikes). The first two will probably not come as much of a surprise, but the last one will certainly help expedite your efforts.

One of the most popular ways to get out of debt involves creating a budget and finding ways to reduce expenses. The money you save on expenses, whether $10 per week or $400 per month, can be used to pay down overall debt. When relying on this method, you often make sacrifices to your lifestyle. Instead of eating out twice per month, you eat out once. Instead of buying the expensive brands, you buy the cheaper. Still, this is definitely one of the five best ways to get out of debt.

When it comes to popular ways to get out of debt, looking at increasing income is definitely in the top three. This is because it is relatively easy to do in some cases. To earn more income, debtors can either take on a new job at a high rate of pay or they can get a second job. Ideally, the extra funds earned are paid toward debt. What makes this option a little more difficult, particularly at times like these, is that getting a new job offer could require updated skills or knowledge, and in some cases can mean extended travel. These expenses are often offset by the higher earnings.

Our third recommendation uses both of the previous strategies. In other words you would reduce expenses while simultaneously increasing income. For example, suppose you spend $500 every month on expenses. This would mean cutting back, say, 20% or $100 and spending only $400 instead. As well, assume you earn $2,500 every month after-tax. You would want to find additional work that would improve cash flow by, say 5% or $125. At the end of the year, the $100 in savings and $125 in extra income would result in additional debt payments of $2,700! It may not seem like a lot on its own or after every month, but after a full year, the repayment amount clearly adds up and has an accelerating impact on your total debt.

Hopefully, these three popular ways to get out of debt have given you some inspiration and insight into how easily you can work your way out of debt. Clearly, these are not top-secret tactics. In fact, they are easily executable and once you put such tactics into practice you may even uncover other ways to get out of debt. The point is that taking action should come first and if any of these three methods can help, then please go ahead and get started today.

To learn more
ways to get out of debt visit How To Repay, Chris Blanchet’s website where only original materials are published. Alternately, for an abundance of debt-related information, you may visit
Debt Consolidation where Chris is a regular contributor among a dozen or more other experts in the field.

Dealing With The Stress From Bankruptcy

October 2nd, 2016 Comments off

The emotional fallout after bankruptcy is something few people discuss. The process and overall experience of bankruptcy is stressful. This stress from bankruptcy can leave you feeling depressed, ashamed and the resulting strain to your personal, social and professional relationship can feel unbearable. Dealing with this stress is no simple task, no matter how bad your personal finances were in the first place.

However, bankruptcy can become inevitable if you are buried under tremendous debt. If it becomes seemingly impossible to repay loans and debt, there are several things you can do to avoid the ordeal. Even so, you should explore all your options including credit counseling and alternative repayment plans before taking the bankruptcy route. If you can’t find a way out and bankruptcy is inevitable, you must acknowledge the prospects and prepare yourself to face the stress that results from bankruptcy.

Since bankruptcy will not eliminate all debts, dealing with the fallout of bankruptcy often proves difficult and never-ending. Since bankruptcy gets recorded on your credit history for a period of up to ten years, it is not only nearly impossible to obtain credit, but potential employers are likely to conduct a background check before extending a job offer that can have a long-term, positive impact on your financial status. With a bankruptcy, securing that better job might become impossible.

If you are seeking quick and easy tips for managing stress that resulted from your bankruptcy, there are a few things you can do now to deal better. The first thing would be to acknowledge what you are experiencing. In come cases, you might even acknowledge that this stress could require medical assistance.

Next, you might want to share your financial situation with the people you are closest with, like family and your tightest friends. Since people rarely discuss their finances publicly, you may be surprised by the advice and emotional support these people can offer. At the very least, talking about your problem will help you cope. If you find your spouse and friends are unapproachable, you can look at seeing a counselor. The point is to talk about it as this is a proven technique for dealing with stress of all types.

You also need to put together a sound financial plan. After obtaining your bankruptcy discharge, be thankful for the fresh start you have been offered. And put together a plan that will allow you to absorb financial difficulties should they arise again in the future.

Now that the financial side has been dealt with, arrange the non-finance areas in your life so that you are better able to deal with the stress. That might mean eating healthy and leading an active lifestyle. Even reading motivational books and hanging around positive people can help.

Most often, filing for bankruptcy can be avoided. In only the rarest of cases are the circumstances completely outside of your control, but after the discharge has been granted, there is little point in debating such points. It is time to move forward and realize there is no point in blaming yourself any longer. Let go of the guilt and realize that without bill collectors calling at all hours, you can start preparing for a better financial life.

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Dealing With Debt

September 15th, 2016 Comments off

Many people face problems when it comes to debt and managing their personal finances. Not surprisingly, debt problems are one of the most stressful areas of one’s life and are often cited as the reason for relationship problems and debilitating stress. With this in mind, resolving your financial problems needs to be done effectively so that you not only improve your finances and avoid having to deal with debt collectors (or worse) but avoid larger problems like stress.

As an initial step, it is recommended that you calculate your total debt level by organizing your unpaid bills and arranging them from the smallest amount to the largest. Next, decide the amount that you are able to pay (extra, preferably) each month. The most essential thing is to balance your budget on a monthly basis. For a longer term plan, you can prioritize your debt based on interest rate, focusing first on the higher rate debt and graduating to lower-rate debt as the higher priority debt is paid out.

Debts that need to be paid immediately should always take priority. If they remain unpaid, the creditors have the ability to take severe action against you, which is something you do not want. Past due rent and mortgage payments are examples of ultra-high priority debts. If you are seriously past due and cannot repay any debt without risk, consider delaying payments until a full budget has been completed, which we discuss next.

With the high priority, immediate debt dealt with, the sense of urgency will dissipate. This means you can start dealing with debt with a greater focus to detail, particularly when it comes to refining your monthly budget. This often-boring process will not simply measure your monthly expenses, but it will allow you to see what is left at the end of each month, which you can dedicate to a more consistent debt repayment program. A huge advantage with a budget is that it highlights areas where you can make deeper cuts to your monthly expenses, allowing you save even more money.

In the event that you are seriously past due, you will want to connect with your creditors. Now that you have completed a full budget, you know better how much you can afford to repay each month. This will allow you have a meaningful negotiation with your creditors. Dealing with debt this way means revealing as much as possible to your creditors about your financial situation. If you are not comfortable discussing these details over the phone, you can write a letter.

Now that lenders are taking a bit of heat about responsible lending practices, nearly all of them offer third-party services to people who are having a tough time dealing with debt. These no-cost services will offer tips and knowledge about how to remedy your debt situation and regain control of your personal finances. If you are having problems surviving from month to month or if you are stressed to the max about whether you can overcome your debt, you should consider taking advantage of such programs.

Since everyone’s financial situation is so unique, providing generalized recommendations for dealing with debt and managing personal finances becomes ever more difficult. Still, the above provides basic suggestions. If you are looking to take your personal finances to the next level, consider sites like Help Fix My where you can work through your own, unique financial plan.

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