debt consolidation loan

Facts and Truth about Credit Counseling

November 21, 2013 by penn

Have been worried about your debt? You are unable to pay off your liabilities and nightmares haunt you. We would like to tell you that no matter how badly you are covered up in debt, there remains hope. You always have options to deal with your crises. Now the question is which option to select. We will advise you make the right choice that suits best in your situation.

Following are the most common solutions people go for:

Credit counseling
Chapter 7 bankruptcy
Debt consolidation loans

We shall focus on credit counseling today. Before you sign up for it, you should be aware of the following facts.

Introduction to Credit Counseling?

A credit counseling agency helps you to develop a plan. This is specifically known as a DMP or debt management plan.

Credit counseling agencies are non-profit agencies but be aware that it not necessary that they don’t charge you any fee. Their services may not be free always.

They help you develop a fair plan and they try to help you out by talking to your lenders to reduce the interest rates. They try to convince and negotiate better terms with your creditors. If you properly go according to the DMP, it’s quite possible that you recover from your debt crises in around five years.

Truth about Credit Counseling: Poor Success Rate

Sad news for people considering credit counseling: these debt management plans have a success rate of only 20% to 26%. This means only one out of five people actually complete their debt management plan.

Another noticeable thing is that mostly the people who have a reasonable amount of disposable income left at the end of each month are successful in getting out of debt through a DMP. This information is provided by the National Foundation for Credit Counseling themselves. A reason to this has been that the people started believing they can complete the plan themselves instead of continuing with a counseling agency.

Reasons for Poor Success Rate

There is no single and fixed reason why people generally fail to complete their debt management plans. The truth about credit counseling is that lenders offer only a limited amount of concessions during negotiations to the customers who go for credit counseling.

In easier words you can say that when people sign up for a debt management plan through credit counseling, they see that it cannot lower the debts to a significant amount, they are most likely to leave the 3 to 5 year plan.

What Does Credit Counseling Actually Offers You?

Such a lower success rate implies that credit counseling is useful for only few customers. This is because it all depends on the creditors. The debtor cannot call the shots. It’s the creditor who decides what concessions to offer. It is very rare that lenders will reduce your principle amount. We can categorize the offers by DMP into three parts:

The counseling agencies are able to “re-age” their accounts
They are able to lower the interest rates
Late fee penalties can be eliminated or at least reduced.

Successful DMP Requires Discipline

A significant truth about credit counseling is that it requires the customer to have a fair amount of discipline. People get eager for results and they normally quit the program when there is no instant outcome.

A debt management plan wants you to quit using credit cards or take more debt until they complete their plan that is normally five years. Some people just don’t have discipline to handle such a program. They start taking more debt and can no longer make payment to their counseling agency and as a result they quit the program. This is a hard truth about credit counseling!

Other Options You Can Consider

Other options, as we mentioned earlier, are debt consolidation loans and chapter 7 bankruptcies. Both of them have better rates of completion especially the secured debt consolidation loans. The reason behind this is that these loans are secured by a valuable asset such as a house, property or a car.

Chapter 7 bankruptcy is also successful because there is no other alternative. Through bankruptcy, you can clear all your debts and keep safe your most essential assets.

The ugly truth about credit counseling makes you notice that debt settlement is a better alternative because it actually gets your debts reduced and people want results. Additionally, debt settlement consolidates your debts and it makes it easy for you to handle a single payment instead of multiple payments. Normally it take up to 2 to 3 years to clear your debts depending on the amount of debt. Learning about the truth of credit counseling, you must see why this is so.

Make your choice keeping in mind all factors so that you are able to manage your debt.

Consolidate Debt Rather Than Paying Only The Minimum

June 3, 2013 by penn

Minimum payments are practically the biggest trick that credit card companies have come up with. They make you think that you are cruising just fine with your credit card debt by just sticking to this amount. That is a big fat lie. While you may be saving yourself from late penalty fees, you are not making any significant progress in your debt. Chances are, you are setting yourself up to pay your credit card debts for the rest of your life. Your creditor prefers this scenario because the longer it takes you to pay off your balance, the more interest you will give them. That means more profits for the company.

The Credit Card Act of 2009 actually mandated card companies to inform consumers about the repercussions of sticking to minimum payments. If you look at the statement on your credit card bill, you will notice that there is a box containing relevant information about your minimum payment. The text box includes figures that indicate how long it will take you to finish paying off what you owe and the amount you will waste on interest if you stick to your minimum. Most consumers find this useful and have in fact, taken it upon themselves to pay more than that amount every month.

But here’s the problem, what if your budget can only afford to pay the minimum? How can you solve this dilemma?

This is where debt consolidation comes in to help. This type of debt solution provides consumers with a structured payment system that allows them to make lower monthly contributions towards their debts. You may be wondering how that is different from minimum payments.

When you opt for debt management, which is one program of consolidating debt, you will hire a counselor who will aid in creating a debt management plan. This low payment plan stretches your balance over a long term. This is presented to your creditors and once they give their blessing, you can make payments based on this plan through the counselor. Your account will be frozen – meaning you will not be allowed to use it until you have finished or decided to quit the program prematurely. But until then, your minimum payments will not have the same effect as long as you stay under the debt management program.

If you opt for debt consolidation loan, you will apply for a loan amount that can pay off the other debts that you have. This will eliminate your credit card debt altogether and just shift all of what you owe into the new loan. So no minimum payments here either. Unless of course you decide to re-use your card again – which is highly discouraged.

Of course, you always have the option to earn more money so you can pay more than the minimum. The thing is, you don’t really have to put in a lot of additional into it. Even an extra hundred dollars will make the difference. So think about it by consulting your finances. You will always go back to your budget and your payment capabilities to see how much you can really afford to pay towards your debts. You have a lot of options before you – just make sure that you will never include sticking to minimum payments as one of them. That really never works out for anyone.

Is It Better To Consolidate Or Settle Your Debts?

May 31, 2013 by penn

Are you torn between consolidating and settling your debts? Both of them can effectively get yourself out of debt but you have to realize that one of them suits you best. The key to maximize the benefit of the two is to choose the right one.

But how do you make the right choice? What are the factors that will tell you which is better than the other? The answer is simple: you need to know the process of both and what they can provide you in terms of a debt solution.

Debt consolidation loan involve applying for a loan that will allow you to pay off the other debts that you have. The key is to get a low interest loan that will lower your monthly payment. Because of this lower payment, you are able to bring more breathing space for your budget. That will allow you to have more funds on entertainment activities or to boost your savings.

Debt settlement, on the other hand, involves negotiating with your creditors. You will haggle with the creditor so they will allow you to pay only a portion of what you owe and have the rest forgiven. This debt reduction will get you out of debt in 2-4 years, which is faster than debt consolidation loan that can take up to 5 years to complete.

Now that you know what is involved, how will you know which is better? It helps to begin by looking at the type of debt that you owe and your ability to pay them off.

For instance, if you have a steady job and you only have a small deficit on your debt payments, you should be fine with debt consolidation loan. But if you have no income or if it is too small to meet all your requirements, then you may want to opt to settle your debts instead. While debt consolidation will lower your monthly payments it will keep you in debt for a longer time. Not only that, you could end up paying more in terms of the interest amount.

Another consideration is when your credit score is not in its best condition and you do not have a collateral to guarantee a low interest rate. If so, you have to skip debt consolidation loan and go for debt settlement. But if you have a high score and you want to keep it that way, go for the former. Settling your debts will involve defaulting on your payments and that can ruin your score.

If you also have mostly secured loans, you cannot use debt settlement to solve them. It can only work on credit card debt, personal loans, medical bills and other unsecured loan types. Debt consolidation loan on the other hand, can help with almost any type of debt. It can even help with student loans but you only get a few options as to where you can get financial assistance.

These are the facts that you have to consider when you are choosing between the two. Analyze your financial predicament carefully to know which option best suits your needs.

What To Do After The Approval Of Your Loan For Debt Consolidation?

May 24, 2013 by penn

There are many pitfalls in debt consolidation loan. This article is not meant to bash this debt solution. In fact, we’re here to help you make sure that you avoid all those pitfalls. If you got yourself in debt, that means you are not in the best position to manage a huge amount of money.

Debt consolidation loan is all about getting a huge fund to help you pay off what you owe. The idea is to combine your debts by paying off the others with this one loan. That will leave you with only one debt to deal with.

One of the temptations that you will encounter in this debt relief program is when you get that loan approval. Since it is a big amount some people are tempted to use it on something else – at least a part of it. This is not right. So to help you override this feeling, here are the things that you must do once you get the approval on your loan.

Before you can even think about the temptation of using the loan to buy something expensive, go to your bank and pay off the debts that you intended to close. Whether they are credit card companies or lenders, you should settle what you owe immediately.

But after that, there are a couple of things that you have to do.

First of all, keep your credit cards. This is one of the temptations that you have to avoid. Once you have paid off your cards, they will all have zero balances. You want to keep yourself from spending through these cards and thus increase your debt.

Next is to arrange a payment plan. This should have been done before you applied for the loan. However, there is no harm if you haven’t. But you have to do it now. Start with your budget plan. Indicate your income and expenses. When you are plotting your expenses, identify the wants and the needs. You need to rank your priority expenses to ensure that you are putting money into your priority list. Make sure this single debt payment is included in your budget so you will never forget to pay it. Put up reminders that will ensure this payment will always be met.

Lastly, you may want to build up your reserve fund. Growing your savings is a very important part of staying out of debt. Sometimes, people do all the right decisions when emergency strikes, they are simply not prepared for it. Any immediate and sudden expense will have to be borrowed if you do not have the savings to finances it.

Increasing your income maybe a good idea to help make this possible. If you have just enough for your expenses and your debt payment, then you need to do something to increase your income. The option of cutting back on expenses is there but that is only limited. Increasing your earning may be more appropriate to quickly grow your savings.

Follow these steps and you are sure to make debt consolidation loan a success in your financial life.

Debt Relief Options That Lower Your Monthly Debt Payments

May 18, 2013 by penn

Debt becomes hard to get out of because it restricts your monetary resources significantly. So if you want to survive your debts, you may want to find a way to lower your monthly contributions. That way you have more money to spend on other things in your life.

But how can you do this? Surely your creditors will not allow you to dictate how much you will send towards your debts without imposing some sort of penalty. The good news is, you have debt relief options that will make this possible and minimize or eliminate the penalty charges associated with it. All types of program will allow this to happen but you need to consider what you have to sacrifice for it.

Debt consolidation is probably the best debt relief option that will allow you to lower your monthly payments without ruining your credit score. There are three different ways to accomplish this.

First of all, you have debt management. This type of consolidation involves a debt counselor. They will help you come up with a debt management plan that basically stretches your payment over a more extended term. This is what makes your lower monthly contribution possible. They will show this plan to the creditor and if they approve, you can send a single payment to the counselor and they will be in charge of distributing it to the rest of your debt accounts. They will also negotiate for a lower interest rate which will lower your monthly payment even more.

The second option is debt consolidation loans. In this method, there is no professional involved but the same consolidation and longer payment term takes effect. Unlike the previous, a low interest rate is easier to guarantee. What you will do is apply for a loan that is enough to pay off your debts – at least the accounts that can be paid in advance. Some type of debts will penalize prepayment transactions. The key is to make sure your loan has a low interest – which can be done if you have a high credit score or a collateral. Loan payment terms are usually 3-5 years long and that can help lower your monthly payments too.

Another option is balance transfer. This means getting a new card that has a zero interest promo. The consumer will transfer the amount so that the high interest balance will be transferred to one that will not impose interest – at least during the promo period. This usually lasts from 6 months to a year. That means any payment that you will make during this time will only go to the principal debt.

There is also the option to get out of debt using debt settlement and bankruptcy. Both can also allow you to make lower monthly payments. Debt settlement actually aims for an overall debt reduction. The idea is to negotiate with the creditor so you are allowed to pay only a percentage of your debt and have the rest of it forgiven. Bankruptcy involves a court system that will decide if your debts should be discharged or not. If your financial conditions are qualified, you could end up not paying anything towards your creditors. Of course, that comes with a price and it is your credit score. If you don’t mind lowering your credit score, then these two could be an option for you.