Debt Consolidation or Financial Suicide?

Using home equity or retirement savings to pay off credit card debt is never a good idea. In fact, it is financial suicide. Unfortunately, more and more lenders are pushing people in that direction. If debt consolidation is such a great way to get out of debt, why are so many Americans still struggling just to make minimum payments? The real question is why are debt consolidation loans such a bad idea? They are a bad idea, because so many Americans are still in debt!

In recent years, many Americans have taken advantage of debt consolidation loans in an honest attempt to repay their credit card debts only to find that they are now deeper in debt and worse off then ever before. In fact, according to the Federal Reserve, by the end of 2004, Americans borrowed a total of nearly $830 billion dollars against the equity in their homes, but just 7 years earlier, Americans borrowed roughly $415 billion. That is a 50% increase in borrowing; not debt reduction, but loans that are pushing Americans further in debt. Debt consolidation loans to not address the real problem….spending. People need to be educated as to why they are getting into debt in the first place. In the long term, education is critical in correcting debt related problems.

Unfortunately, banks always advertise that using a home equity loan or line of credit is the fastest and most effective way of getting rid of high interest rate credit card debt, but nothing could be farther from the truth. Such programs rarely work for people who are suffering from debt. While some of the fundamental ideas behind a debt consolidation loan are sound, people can not borrow their way to financial freedom!

The concept is simple; a home equity or debt consolidation loan promises to provide a lower interest rate than the one currently being paid to creditors. Additionally, debt consolidation loans boast that that the interest you pay will most likely be considered tax deductible. Based on these concepts, debt consolidation would seem like a great idea. Remember the old adage of if it’s too good to be true, than it probably is?

Free Debt Consolidation

What is Debt Consolidation? Debt consolidation usually involves the mortgage of property. When you decide to mortgage your property, you also need to take into consideration factors such as the process of application, evaluation of the market price of the property to be mortgaged, the insurance cover, scrutiny of the credit records, the legal fees, the closing costs and so on. These costs are usually made upfront by the borrowers. There, are however, borrowers who may have been badly trapped in debts. Misfortunes involving huge debts can occur to anyone regardless of income, jobs, or any other factor. For example, there may be cases of unexpected expenses or health problems. Such borrowers may be low on finances, poor on credit records and may not even have property or assets to mortgage. They may not have the sufficient records or even proper documents to support their application for consolidation of debts. The borrowers may also be harassed by their lenders through their notifications, telephone, mails, verbal threats, and so on. The lenders, in such situations, find themselves in a complete mess.

How Does Debt Consolidation Work? In spite of all these adverse circumstances, the borrowers can seek help from certain organizations who offer free debt consolidation or what may also be known as low doc or no doc solutions. The borrowers do not have to mortgage their property, or make any upfront payments. This, however, does not mean that the borrowers do not need to show any records at all. They have to produce their current credit reports, the details of their lenders, the schedules of their payments including the defaults on the payments, their means of income, their monthly domestic expenses and so on. Based on these documents and records, the counselor at the lender’s office makes a comprehensive assessment of the financial condition of the applicant to arrive at a suitable debt consolidation plan.

Agencies and Organizations offering Debt Consolidation Services There are certain public service organizations such as Consumer Credit Counseling Service (CCCS), which help such borrowers at no profit no loss basis to avoid collections, judgments, and bankruptcy. In some cases, these organizations are funded by the lenders themselves who contribute to the amount so as enable the borrowers to return their loans. These organizations negotiate with the lenders to soften their demands and make them affordable for the borrowers. The government policies also enjoin upon the lenders to increase the minimum repayments to borrowers who have genuine financial difficulties and are sincere in their intentions to pay off their loans.

Debt Consolidation Loans

When an individual is facing high monthly payments due to substantial debt to a credit card company, it is always one’s goal to lower those monthly payments so that they become manageable in short and long term. Credit card companies charge ridiculous interest rates that you just don’t see anywhere else. These rates should be avoided and debt consolidation is one of the more effective ways to make sure, you are getting fair value for your money.

Lets say you have a debt of ₤20,000 and your credit card interest is 19% compounded daily. Note the compounded daily; this is a technique the credit cards use to maximize the amount of interest you pay. Your payments will be in excess of ₤4,183.80 yearly, which work out to be ₤348.65 per month alone in interest. As an example the same rate of 19% on ₤20,000 would work out to be ₤4,149 if compounded monthly. An effective way to reduce these payments through debt consolidation is using the equity in your home. How this works is say for example, you have a property that is worth ₤300,000 and you have an outstanding mortgage of ₤175,000. You can borrow the ₤20,000 for an amortization period of 20 years. Your monthly payments will come out to be ₤180.60 at an APR rate of 9.4%. Which includes not only the interest you are paying on the loan, but you would also be paying 83.33 each month towards your principal.

Get Back on Track with Credit Card Debt Consolidation

If you are looking to take care of your credit card debt with one easy payment, credit card debt consolidation might be something to consider. What happens with this consolidation is that all of your credit card bills are combined to make on bill. This means that instead of three or four payments on three or four different bills each month, you will only have on payment per month. What is great about credit card debt consolidation is that usually the payments are less than the total combined and with interest rates that are lower than any single credit card.

Because credit cards are so easy to obtain and get with a simple click of a button, telephone call, or even through the postal mail, it is easy to see why so many people have trouble with credit card debt. This makes credit card debt consolidation a necessity for many people throughout the world. Another really bad thing about credit cards is the fact that if you allow yourself to carry a balance over each month, you get charged interest rates which could really begin to add up.

When credit card debt becomes out of control and on a wild path, it might be necessary to seek credit card debt consolidation. This might be the only way some people can get back on the right financial track and begin building their credit back up. With a lot of credit debt, you might find yourself unable to get other credit cards, loans, or even a good apartment to rent, thanks to credit checks by lenders.

There are many advantages to credit card debt consolidation, such as:

Lower Monthly Payments – Usually much lower than what you are currently payment separately.

Lower Interest Rates – Again, generally lower than what you are paying now.

Debt Consolidation Loan UK – Clear Debts For Starting Fresh

One out of four borrowers in the UK is under debts and is labeled bad credit. This clearly prompts for taking measures in order to get rid of debts as early as possible. And one effective remedy of the problem is debt consolidation loan UK, that gives an opportunity for starting fresh in life..

Residents of the UK can pay off all higher interest rate debts through taking debt consolidation loan of lower interest rate. The loan thus merges in itself all debts of the borrower and provides a fresh opportunity in making a new beginning. Secured debt consolidation loan is best options for the UK people if lower interest rate loan is prime concern. The loan is offered against the borrower’s property like home. Higher equity in property will help in approval of greater loan and in reduction of interest rate further. The loan can be repaid in 5 to 30 years which again is the best option if reducing the monthly outgo towards installments is the prime target of consolidating debts.

Unsecured debt consolidation for the UK people is usually opted for in case of smaller debts are to be paid off and if there is no property with the borrower. But the unsecured loan comes at higher interest rate and repayment duration also is shorter of few years. Compare different lenders in order to achieve a comparatively lower interest rate for clearing debts beneficially. Since you have bad credit, apply freely as the loan is especially meant for people like you. Repayment capacity, annual income and financial standing count a lot in availing the loan.

Credit Repair Tips

A list of ten credit repair tips follows. This is by no means a complete list, maybe just enough to get you started.

Credit Repair Tip #1 Look for free information before you buy anything. Did you know that the three major credit bureaus, Experian, Equifax and TransUnion, are required to provide consumers with one free copy of their credit report every year? If not, you are not alone. Companies which sell credit reports and other credit repair tips are betting that most people do not.

Credit Repair Tip #2 Visit www.annualcreditreport.com. At this site consumers can view and print the information accumulated by the credit report agencies or credit bureaus. There is no charge for these reports, but the credit bureaus are allowed to promote the products that they sell, such as credit repair tips, on this site. Credit Repair Tip #3 There may be a lot of information on your credit report or just a little, depending on the types of credit that you have and the length of time that you have been using credit. Print the reports out and begin the process of reviewing the information that the credit bureaus have been accumulating about you. Use a yellow highlighter to highlight information that you believe may be inaccurate, misleading or unverifiable. This is information that you will dispute.

Credit Repair Tip #4 One of the credit bureaus has an on-line dispute system, but it is not very user friendly. The window is tiny and in order to read a sentence, you have to scroll from left to right. The best way to notify the credit bureaus of your disputes is to send them a letter. Letter writing suggestions are included in many books with credit repair tips, but you can view a perfectly usable example of a dispute letter at the Federal Trade Commission's credit website.

Debt Consolidation Loan - Debt Settlement and Reduction

There is no doubt that millions of people in America are in debt over their heads. It's obvious that we should do not be charging things on our credit cards unless we can pay for them when the monthly bill comes in. Nevertheless, most of us charge things like groceries, gasoline and a multitude of other items because it's so convenient and inevitably, it keeps adding up. Unfortunately, when that monthly bill arrives, far too often we are unable to pay the full amount.

The sad fact is that when you have maxed out all your credit cards and can only pay the minimum amount each month, you are already in trouble. Things may get so bad that you will have to choose between buying food, gas, clothing for your kids and paying your electric bill. Once it gets to that point, you are in a serious financial crisis and must act immediately. But what choices do you have, short of filing for bankruptcy?

Regarding bankruptcy, with the new laws now in place, it is much more difficult to file than it was previously. Unless you can prove that you have a true financial hardship, you will not be able to file for bankruptcy. And even if you can, in most cases the debts that you owe to your creditors will have to be reconstructed - not eliminated. And be aware that if you have student loan debt, you can never get out of paying it off. It is something you will be stuck with for the rest of your life. If you are a homeowner and still have a mortgage, another option might be trying to get a second mortgage. The advantages of a second mortgage are that you can spread out your debt over a greater time span and lower your payments at the same time.