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Debt Consolidation – Benefits and Pitfalls

Posted by | Posted in Debt Management | Posted on 19-03-2011

In recent years, the number of debtors has increased greatly. This may be attributed to a rise in the number of loan providing proving companies who are at their enticing best. This may also be due the indulging lifestyle of people who are more than ready to spend on luxury items. All the same, the system is cyclic. Markets are flooded with luxury items ranging from gadgets to stationery goods which are always tempting. Your buying power is increased by lending companies who offer you loans at attractive rates. Hence you spend more than what you earn and ultimately you fall into a debt.

If you look at the above system, the manufactures and the lenders are always at an advantage and it is you will end up a loser. No wonder, human nature is sometimes difficult to explain. Such a scenario also brings into picture the significance of debt consolidation. When a debtor falls into a debt trap and is in no position to pay back the loan, the only option for him is to consolidate his debt with usually a secured loan.

Debt consolidation with a secured loan is made possible, ironically by the same lending companies which have brought you to such a financial situation. Debt consolidation require you to transfers all your unsecured debts such as unsecured loans, credit card debts, and even cell phone bills into one account which will come into operation after you have you have purchased a secured loan. Since such types of loans are secured against your property, especially your house, they carry relatively lower interest rates. Hence by consolidating your debt, you will end up paying relatively lower interest rates. And since you are securing your loan against your property, lenders also feels secured.

Although debt consolidation benefits you to a great extent by giving a fresh lease of life, at least financially, you should be carefully in many ways before taking up such a consolidation. There have been many areas of concerns which have pop up in recent years.  First, by consolidating your debt, the total amount to be repaid rises significantly due to the long period of loan repayment. At first instance you may bypass such long term disadvantage for the short term benefit such as lower interest rates. Some have criticized debt consolidation as treating the symptom and not ailment.

Another area that you take care is not to fall into the trap of dubious lending companies. Such companies may wait till you have no choice but to consolidate. Taking advantage of your predicament, they may charge you higher consolidation fees. With no option left, you allowed yourself to be dictated rather than negotiate.

Online mode management program may help you to avoid such unwanted situations. It functions as a middle man between your creditors and you. Such program helps to consolidate your debt in a smooth, feasible way. So look out for such service providers on the Internet if you need consolidation at all.

Correcting Your Debt Problem

Posted by | Posted in Debt Management | Posted on 17-02-2011

Dealing with ones finances is never easy, especially when you have a debt problem.  A debt problem is created when you end up spending more money than you spend on a consistent basis.  It is certainly possible that one might be forced to operate on a negative cash flow for a short period of time, but if you are unable to turn it around by increasing your income andor cutting your expenses then having a debt problem is inevitable. Some simple steps can be followed that will help you get your finances back on track and out of the red.

1. Spend Less Than You Make

Financially savvy individuals do not spend everything they make.  At the top of their financial priorities is savings.  These people are wealthy for a reason.  They didn’t spend every last dime they made. Don’t overlook this principle.

2. Make a Budget

The first step to eliminating your debt problem involves creating a budget.  A budget is a lot like a diet – neither does you any good if they are not followed. When creating your budget you should map out your monthly cash flow.  The cash flows will include both your expected sources and uses of money, also known as your income and expenses.  If you do not have a good understanding of where your money is coming from and where it is going you will never be able get on top of your debt problem. Thus it is also important to implement a budget as a tracking mechanism.  You should record and track your expenses each month.

Towards the end of each month you should analyze your financial situation.  Did you spend more then you made?  Where were your biggest expenses?  Can these expenses be curbed?  As you are analyzing your budget, you have to look for the fat that can be cut away.  For instance, if you find you spent a lot of money eating out then you can easily curtail that habit and eat in more.  That will save you money and help your bottom line. Your budget should be repeatedly reviewed and fine tuned in this manner each month.  Slowly but surely you will notice your monthly expenses decreasing below your monthly income level, creating some extra income.

3. Form a Debt Repayment Schedule

e you have created extra income, you can begin to address your debt problem.  Typically you will want to apply your excess money to the highest cost debt first.  Say you have debt on 3 credit cards with rates of 20%, 18%, and 12%.  To begin with you will want to pay the minimum monthly amount on each card, and apply all the extra income you have each month to the highest rate card (20%).  Once you have paid this card off, you will then take the monthly minimum amount you were paying on the 20% interest rate credit card plus the monthly surplus of money and apply it to the next highest interest rate card (18%).  Continue on till this card is paid off, and then do the same with the last card.

Make Saving a Habit

When you have paid of your debt problem the next step is to begin saving your extra income.  At this point it would be wise to begin taking the amount of money you were applying to your credit card payment and put it into savings.  You can continue to live the lifestyle you have grown accustomed to as you create a nice little nest egg for yourself.  The key to saving your extra income is being disciplined, and making saving both a priority and a habit.

As you probably know financial stability is priceless.  If you want to avoid a debt problem then you must remain in control of your spending habits, ensure that you are saving money each month, and continue to work hard.  Overcoming a debt problem isn’t always easy, but it can be done with hard work and discipline.

Breaking down Debt Consolidation

Posted by | Posted in Debt Management | Posted on 02-02-2011


Debt Consolidation is a procedure that a number of different people follow nowadays and ultimately what it means is that the person that is swimming in debt that happens to be far above what they have the ability to pay back is going to be the person that goes through a procedure that combines all of those different loans into one source of debt and therefore allows themselves to pay back the consolidated debt in a much easier and less stressful manner. Now, this is perhaps a definition that you’ve been exposed to before and while it sounds good on the top, ultimately it needs to be explained so that more people understand exactly what it is that is being talked about. We will break down a typical debt consolidation case over the rest of this article.

The Problem

The financial situation for the hypothetical person here has become very bleak. They have £10,000 left on their car loan, their mortgage still has a balance of £80,000 and when you toss in all of their other credit card debt, you get to the point where they are in debt up to £100,000 all things said and done. Now, £100,000 is a lot of money and in the case of a typical family it might even be more than three years worth of their wages, so ultimately when you take a look at the £100,000 of debt, you would want some plan that would allow you to deal with it.

The Solution

When you look at all of the different solutions, the first thing that you need to do in all of them is get your bearings. While the car loan and mortgage only represent two different sources of debt, the remaining £10,000 might come from as many as five or six other sources and that can make it very difficult to keep track of. So what you want to do is consolidate those debt sources into one debt source and the way to do that is to take out a home equity loan of £20,000 to pay off everything else and combine that £20,000 with the £80,000 mortgage that you already might have.

The Benefits

Aside from the convenience factor of only having one source of debt instead of several as was discussed above, there is also the interest rate factor. While the average mortgage will have an interest rate between 5% and 7% and most car loans will as well, credit card debt is usually going to be two to three times that amount and likely four or five times that amount if the debt is because of cash advances. So the interest rates would get lowered whenever you take a look at it that way.

Now, credit card minimum monthly repayment amounts are such that you are going to usually be paying at least 5% of your balance each month; in other words, credit card companies expect that any balance you happen to generate on your credit card can be cleared up in less than two years. Mortgages, as many people are aware, have 20 to 25 year terms and therefore the monthly repayment amount of consolidated debt will also be lower and therefore easier to manage.

Debt Management Plans A Way To Survive The Debt And Come On Top

Posted by | Posted in Debt Management Plans | Posted on 29-06-2009

Debt Management Plans

Debt Management Plans (DMP) is placed one step beyond credit counseling and a stone’s throw short of bankruptcy. If you are too deep into debt and unable to pay them, a credit counseling agency may recommend Debt Management Plans. This is a serious step that should be considered carefully along with better money management skills and budgeting disciplines.

Similar to prescription medication that you would only take after consulting a licensed physician, Debt Management Plans should start only after you have talked it over with a certified credit counselor. Your certified credit counselor spends the time to review your financial situation, consider alternatives, and help you learn to handle money better. You want to stay out of debt after you get out of it.

What is Debt Management Plans?

In simple terms, your credit counseling organization begins to manage your debts on your behalf through direct interaction with your creditors. They come between you and most of your unsecured creditors, negotiate lower interest rates, eliminate certain fees, arrange payment amounts and prioritize which creditors gets paid first. In short, almost everything that could be done to get you out of debt fast. These plans cover most unsecured debts, like credit card bills, student loans, and medical bills. But secured debts such as real estate loans fall outside of these plans.

Before signing up with a credit counseling organization for a DMP, verify any concessions your particular creditors offer to that organization. All these concessions from your creditors amount to one thing: Lower your monthly payment and still get out of debt faster. In some cases, you will be able to pay you debts, years earlier. Ask your credit counselor how much earlier you will get out of debt if you stayed on course.

When DMP starts, you agree to send one monthly payment to the credit counseling organization and they in turn make all the payments to your creditors for you. In the meantime, you may have to agree not to use or apply for credit while you are participating in the plan.

Is a Debt Management Plan Right For You?

Cover the following with your credit counselor before you decide to participate in a Debt Management Plan.

Find out if there are other options besides the DMP available to you. Is your DMP handled by the same organization that also provides you assistance with money and budget management during and after DMP? If a Debt Management Plan is handled by one organization and another handles your ongoing credit counseling, how will you coordinate the two? Remember you want to stay out debt later.

Find out how enrolling in a Debt Management Plan impacts your credit and your credit score. Negative and accurate information on your credit record is not easy to remove despite any promises made.

Confirm what your monthly payment amount is and if you can afford it. Do not commit to something you cannot follow through.

Credit counseling organization promises concessions they can get from your creditors, such as lowering or eliminating interest charges and late fees. Confirm these with your creditors and see if there is a waiting period before these concessions kick in or do they start as soon as you enroll in a DMP.

Verify that your creditors are paid within the correct billing cycles and before their required payment due date.

Clarify the steps involved in getting status reports on your account from your credit counseling organization. How often? How detailed? Is it accessible by phone? Any hesitancy on behalf of the credit counseling organization to let you verify your account status is a big red flag that means you need to find another organization to help you.

Find out if your creditors are willing to reset the clock on your past-due accounts, wiping out the record of missed and late payments if you sign up with a Debt Management Plan. This process is called re-aging your account. How many payments should you make before your creditors are willing to do this?

What to do after Debt Management Plan starts?

Once you sign up with a Debt Management Plan continue to be active with the process, even though emotionally, you may want to wash your hands away and stay away. DMP does not relieve you of your responsibilities; it only helps you manage it better.

Keep in touch with your creditors and pay your bills until the DMP goes into effect. If you haven’t had any negative entries in your credit report by now, any late payments, late and penalties can still be entered into your credit report.

Contact your creditors and confirm that they have accepted the proposed Debt Management Plan before you send any payments to the credit counseling organization for your DMP.

Call each of your creditors on the first of every month to make sure the agency has paid them on time and verify this by checking your monthly statements. Your monthly statement should also reflect any changes in your interest rates, waiving of the late fees and any other concessions you were expecting.

May you be granted freedom from debts both physical and Spiritually.