debt consolidation loans

How Debt Consolidation Takes Care Of Your Credit Score

April 17, 2013 by penn

Debt consolidation is one of the debt relief options that will not make your credit score suffer. In fact, as you continue to stick to the program, you will see that your score will continue to improve and reflect that you are now a more responsible credit holder.

Unlike the other debt relief options, you will still end up paying off the balance of your debt. Since there will be no reduction, your account will not be marked as “Settled” or worse, “Included in bankruptcy.”

Also, opting for debt settlement will require you to default on your payments. This is one way to really pull down your score. You need to allow it to happen so your creditors will be convinced that you have no money to pay your debts and the only solution, apart from bankruptcy, is to allow you to settle your debts. That means you will only pay off a portion of your balance and have the rest forgiven. Once completed, your score will be much lower than before and will be marked as “Settled” and not “Paid in full” – which is more preferable than the latter.

While debt settlement is effective when used under the right financial circumstances, it all depends on what you are willing to sacrifice. Bankruptcy is much worse because it gets your score even lower than settlement and that taint will stay on your record for the next 7-10 years.

Debt consolidation, at the very least, will indicate that you are current on your payments. If you apply the program at the right time, you may even avoid showing any late payments on your credit report. It will continue to reflect as “Current” which means you are still in debt but you are not missing out on payments.

Consolidating your debts allow you to make lower monthly payments to ensure that you can keep up with your contributions without putting too much restriction on your budget for basic necessities. In debt consolidation loans, you accomplish this by getting a loan with a lower interest than your current average. You then pay off the other debts, completing payments, without missing any due date. You will be left with this one bigger loan that you will pay off in the next 3 to 5 years. This could lower your score a little since your debt amount will increase. However, it will improve as you completely pay off your other debts and regularly pay back the loan.

In debt management, you will be assigned a credit counselor who will help create a debt management plan. The plan will show lower monthly contributions that are stretched over a longer payment term so you still end up paying for the whole balance of your debt. In most cases, this has hardly any effect on your score.

Some financial experts used to find credit score concern quite ridiculous. It is like taking care of your debt so that you are eligible to take in more loans. However, recent changes show that it has become a vital part in our society. There is more at stake when you do not take care of your credit history.

For instance, a good credit score will keep the interest rate on your mortgage loan low. In most cases, landlords also look at your credit history to see if you will be a responsible tenant. Even employers look at this figure to gauge how you will perform in the workplace.

What To Do With Your Maxed Out Cards

April 11, 2013 by penn

A maxed out credit card simply means that you have been making very bad spending choices. There are only a few options for you when you reach this point.

One of them is ignoring your cards. That is a flat out bad idea. This is the worst thing that you can do because not paying anything for a couple of months can increase your debt balance significantly.

The other option, and obviously the better one, is to pay off your credit card debt.

First things first, you need to stop using your cards. If you maxed it out, you will not be able to use it anyway. But in case you have other cards that are not yet maxed out, then you need to stop using them as well. It will help you solve your debt problems if you stop adding to it. That will allow you to expedite getting a debt free life.

It helps to actually remove the physical cards. Keep them in a place where it will be very difficult for you to access them. Some people refuse to close the account for credit score purposes. If this is what you want, then make sure you come up with a great place to hide it. You can keep only one card in case of emergencies but even that should not be kept at home. Do not bring it with you as you go out performing your errands to avoid using them unnecessarily.

Once you have your cards out of the way, you can start thinking about how you will pay off what you owe. There are debt relief options like debt consolidation that can do wonders for your credit card problems.

There are two ways for you to consolidate your debts. One of them is getting a loan that will help pay off your loan. This is called debt consolidation loans. If you had been taking care of your credit score, you can get a low interest rate. That will be a better alternative for the high interest on your maxed out cards. These loans are usually stretched over 3-5 years so your total card debt will be paid over that time. That can effectively make your monthly contributions smaller.

The other option is getting help through debt management. This involves going to a third party company for help. They will assign a credit counselor who will help you come up with a payment plan called the DMP or debt management plan. This plan will contain a new payment term that spreads out your debt over a longer period – much like in debt consolidation loans. The difference is it will be subject for your creditor’s approval. But once the credit card companies agree, you will send a single payment to your counselor who will distribute payments on your behalf.

Probably the best thing about debt management is learning how to make smarter financial choices. The best companies offering this service usually have financial education and training programs that will help their clients stay out of debt. Credit card debt is the easiest pitfall to get into so you need to learn the right habits that you will implement even after you have reached a debt free status in life.

Options To Pay Credit Card Debts With High Interest Rates

April 5, 2013 by penn

What makes credit card debt so difficult to get out of is the high interest that you have to pay off on top of the principal amount that you really owe. If this is what you are worried about, there is a way for you to eliminate or lower this rate so you can put more contributions into your debt amount.

The worst you can do with credit card debt is to stick to the minimum payments. It will take you ages to completely finish off your debts. What you need to do is to enrol in a debt relief program that will allow you to make bigger payments on your debt balance and at the same time, lower your interest rate.

Your best option to achieve the above mentioned goals is debt consolidation. The great thing about this solution is the fact that it will have the least effect on your credit score.

There is more than one way to eliminate the high interest on your credit card balance. Debt consolidation loans, specifically, have various options available. If you have a valuable asset like a home or something similar, you can put it up as collateral so you qualify for a secured loan. You will be given a low interest rate on your loan because of the low risk factor that your collateral can bring. In case you default on your payments, the lender can get it to substitute as payment for the debt. You can take the approved loan and use it to pay off your high interest debts. Of course, you are endangering your home in this scenario. But if you have a steady income and you are sure that you can meet payments, then go ahead with this option.

Debt management can also be an option but the lowering of the interest rate is not always guaranteed. But you can still try to talk to a debt counselor to know your chances to get approval for your request.

Another way to pay credit card debts with very high interest is through balance transfer. For a certain fee, you can transfer the balance of your other cards into a low or zero interest card. The low interest is usually just applicable for a certain period so you need to know the schedule so you can take advantage of it. Make sure you are able to pay off a significant percentage of your debt during this promotional period.

Of course, you can also lower the interest rate of your debt by simply asking for it. They usually have a program in place for people who are financially hard up but would still like to pay off what they owe. If you can prove that you are in a financial crisis, they may agree to lower your interest as long as you keep up with the payment term that you have agreed to follow.

The thing about these methods is they will get you out of debt but staying out of it is an entirely different matter. You need to practice the right financial management skills, smart spending habits and save up for a reserve fund. This is the only way you can eliminate the need to get yourself in debt. If something happens that leads to your income falling short of your expenses, you have the funds to support the deficit.

Remember that if you find yourself buried in high interest credit card debt, there is a problem with the way you manage your finances. Address that concern so that you do not only get out of debt, you will learn how to stay out of it.

Questions To Ask Before Getting A Debt Consolidation Loan

March 28, 2013 by penn

A debt consolidation loan is often times frowned upon by financial experts. However, you need to realize that even if it does not make sense to use a loan to pay off your other debts, it is still, theoretically, an effective way to get out of debt. There are people who have gotten out of their credit problems because they knew how to use this debt relief option properly.

There are two key factors to make this debt solution work for you. One is to change your attitude and stay committed to the program. Regardless of the program that you will choose, whether it is debt management or debt settlement, this is an important part of your debt relief efforts. You need to identify why you got yourself into so much debt and try to change the habits that led you there. It can be your impulsive buying habits or maybe because you do not have a sufficient emergency fund. Either way, correct the root cause so that this will be the last time that you are burdened with a huge credit obligation.

The other key factor in the success of a debt consolidation loan is how you choose the loan that you will use to pay off your other debts. There are questions that will have to be asked. Here is the list and the respective answers that you should get.

Are you qualified to get a debt consolidation loan? There are certain qualifications to get a loan and this applies to this debt relief option. For instance, you need to have a steady job that can accommodate the payments on the loan you are getting. Ideally, you should also have a good credit score or a collateral to get a low interest rate on the loan. It will help you achieve the goal of paying a lower monthly amount.

What will be the new payment term? As mentioned, the goal of debt consolidation loan is a lower monthly payment compared to your current. If you cannot achieve this, then opt for another debt relief program. If the loan that you will get offers a low interest rate during the first few months, make sure you take advantage of it and you incorporate it in your payment plan. Target a huge decrease in your balance during those months. This way, the balance that will be given a high interest after the intro period is over will not be too much.

Can you afford the new payment term? Even if the monthly payments are lower, check if your budget can afford it. Sometimes, even a lower monthly due is not enough to fit your limited resources. If this is the case, then you need a debt solution that will provide you with a reduction on your current balance.

Have you checked the alternatives? After analyzing your financial capabilities, you need to check if there are alternatives that will give you a better payment option. Debt management may be an option that you can consider. Or if you want debt reduction, debt settlement is a viable option for this.

When Is It A Bad Idea To Choose Debt Consolidation Loans

March 18, 2013 by penn

Choosing a debt relief program requires you to see if you pass all the qualifications first. This is true even for debt consolidation loans. Even if there is no professional third party company involved to assist you in your debt relief efforts, you need to make sure that it is the right solution for your credit problems. It will assure you that you have all the financial requirements that will make this program the ideal answer to your financial troubles.

Debt consolidation loans is an effective way to get out of your debt problems – especially for credit card debt. But before you can decide if it is a good or bad idea to opt for it, let us discuss how it can help you.

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The whole idea of this debt relief plan is to get a loan that is big enough to cover your other debts. You are doing this to achieve 3 things. One is to lower your monthly payments. The second is to lower your interest rate. The third is to combine your credit obligations to allow you to make a more manageable single payment every month. If your financial situation will not reach all of these goals, then you may have to rethink using debt consolidation loans as your debt relief choice.

First of all, if you do not have a stable job that provides a steady income, this could be a bad idea for you. No lender will approve your loan if you do not have this. Not only that, this type of debt relief program will require you to pay off your dues completely. Even if the monthly payments are smaller than before, that does not mean your debts are reduced. You will still pay for the total amount that you owe.

Another scenario that will make debt consolidation loans a bad idea is when you are continually acquiring debts. If you want it to be effective, you have to stop using your cards or incurring more debts. If your debts are growing because of a medical condition, then you have no choice in the matter. You may have to see if you can afford to pay a minimal amount on your debt but usually, debt settlement may be the better option here.

Having a bad credit score or no collateral to secure the loan could also make this solution less ideal. Remember that one of your goals in debt consolidation loans is a lower interest rate. If you cannot achieve this, you should opt for a different program. Debt management may be the better option in this scenario. It provides you all the listed goals without the credit score and collateral requirement for a lower interest rate.

Of course, all of these will be helped by having a budget and spending plan that will assist you in staying true to your payments. It will help keep your attitude and concentration focused in getting out of debt. Debt consolidation loans does not automatically provide you with a debt professional who will make sure that you are keeping up with your payments. So if you know that you cannot handle your payments on your own, debt management is the best debt relief option that could work for you.