5 Ways to Get out of Debt: Which Method Is Right for You?

Getting out of debt can improve an individual’s quality of life and open new doors. There are many unexpected events that can negatively affect a person’s personal finances and cause serious financial stress. Debt management is possible, however, and is available in many different forms. Some of the most common methods to get out of debt include credit counseling, debt consolidation, cash-out refinance, debt settlement, and bankruptcy.


Credit Counseling

Credit counseling is one of the best ways to help a person better understand the depth of their financial situation, and the options they have to improve it. A professional counselor acts as a liaison between the individual and their creditors to try to negotiate lower interest rates. They can also create a plan for the individual to organize and better manage their debt related expenses. This debt management plan allows the individual to make lower payments though their counselor, who then pays the creditors.

While credit counselors can be very beneficial, they do not have the ability to directly reduce the amount of debt an individual owes. Lowering interest rates is of course helpful, but the principal amount cannot be negotiated or changed. Speaking with a credit counselor can also give you a negative reputation among lenders. They may see you as a credit risk if you are having a counselor negotiate your account details. Also, credit counselors are not free, so the individual should be careful to know how much they are paying their credit counselor to avoid accumulating even more debt from this expense. Monthly payment amounts are often increased in debt management plans, which could leave the individual right back where they started.

Debt Consolidation

Debt consolidation is a very popular method that combines all outstanding debt across multiple creditors into one, single debt amount. A person can apply for a personal or debt consolidation loan so that they are only making payments to one creditor instead of multiple, often at a lower interest rate. All monthly payments are combined into one monthly payment of a determined amount.

Something to consider when using debt consolidation is that loans can at times require collateral. Collateral secures the loan through an asset owned by the applicant, such as their car or house. If the individual fails to pay the loan, these assets could be repossessed by the lender. Those who do not have collateral could expect to see higher interest rates when applying for a personal loan. Also, being approved for a loan will not reduce the principal amount of debt owed.

Being approved for a personal or debt consolidation loan requires good credit, which can be difficult for those who are already under financial stress. Fortunately, taking out one of these loans does not impact the credit of the applicant unless they are unable to pay the loan back. Terms of the loan are often customized to a certain degree to help the individual choose the best plan for their situation.

Cash-Out Refinance

Cash-out refinance lets homeowners work with a mortgage lender to help pay off their debt. Those who own a home can refinance their mortgage, add up the amount of debt they owe, then apply that amount to their current mortgage balance. They can then take that excess amount out in cash and use it to pay off the creditors, thus only having to repay the remaining balance to their mortgage company. This lowers the interest rate and creates one payment that is made each month.

Cash-out refinancing is only appropriate for homeowners with good standing credit, a steady income, and equity in their home. This is crucial to consider because many will need to choose this option before their debt gets unmanageable and hurts their credit, decreasing the chances of being able to use a cash-out refinance in the future. There are also other costs to consider when refinancing a home, including closing costs and the impact of increased mortgage debt.

Debt Settlement

Debt settlement, also known as debt resolution, is when a company that offers debt settlement tries to convince creditors to allow the debtor to pay a lower total amount than what is owed. The individual would then pay the settlement company that lower amount. Much like a credit counselor negotiates to lower interest rates, debt settlement negotiates to reduce the principal amount owed. If done correctly, this can be extremely beneficial to the individual. They can save a significant amount of money if approved.

Debt settlement, unfortunately, can put a damper on a person’s credit. However, credit can be rebuilt by consistently paying the new smaller monthly payments. This may be a good option for those who have already become financially overwhelmed and are facing repercussions for not being able to make their current monthly payments.

Bankruptcy

Bankruptcy is typically seen as a last resort for those who are entirely unable to pay back their debt. This is a legal process that is often extremely damaging to an individual’s credit and financial status. There are two different kinds of bankruptcy: Chapter 7 and Chapter 13. Chapter 7 is the most commonly used method that removes all debt from the individual, allowing them to start over. This can have devastating affects on the person’s credit, and they may even lose assets to cover the debt owed. Chapter 13 does not always completely clear a person of debt, but can lower the principal amount, so the individual owes much less. The individual then owes payments to the court who passes the money to the creditors. This can also severely hurt a person’s credit.

Can I Pay My Debt Myself?

There are ways a person can take control of their personal finances on their own. By organizing finances and using free tools online, those who are struggling to manage their debt can create a plan to help get back on track.

source: usa.inquirer.net

5 Ways Poor Credit Can Cost You

Your credit is one of the most important aspects of your finances. Your credit situation can mean savings — or costs. In fact, poor credit can cost you significantly. And the costs aren’t always in terms of money. While the most obvious costs of poor credit are financial, you also have to watch out for some of the other costs of bad credit.

Here are 5 ways that poor credit can cost you, financially and in other ways:

1. Pay More In Interest

Anytime you borrow money, you are required to pay interest. When someone lends you money, the goal is to earn, and that means that they charge you an interest rate. However, the interest you are charged is usually based on your credit rating.

Poor credit means that you present a bigger risk of not repaying the loan. The lender could lose some of the money it has put up. In order to mitigate some of that risk, you are charged a higher interest rate if you have poor credit. On a short-term loan of two or three years, the extra you pay might amount to a few hundred dollars. For long-term loans, though, like home loans, you could pay tens of thousands of dollars extra because of your poor credit.

2. Higher Insurance Premiums

In some cases, you might pay higher insurance premiums because of your low credit. Some studies link poor credit to other risky behaviors, such as car accidents. Your low credit could, in some instances, result in a higher insurance premium. This means that you could very well pay an extra $20 to $75 each month because of your poor credit. Over time, that can add up to quite a lot.

3. Inability to Access Some Products and Services

Your poor credit might actually cost you in terms of opportunities to get products and services. If your credit is poor enough, you might not qualify for a cell phone service. You might want a specific credit card to help you get back on track or ease your cash flow, but you might not qualify because of your poor credit.

In some cases, a bank will check your credit before allowing you to open an account. If you have poor credit, you might be denied a checking account or a savings account. You might have to use costlier services, such as check-cashing services, or prepaid debit cards. These can lead to fees that can cost you more than $100 a year. Over time, that adds up and your poor credit can mean that you are stuck in a financial services rut that is hard to get out of.

4. You Might Not Get Certain Jobs

Your credit history might be used as part of a background check for certain jobs. If you are applying for a job that involves access to sensitive information, or requires financial knowledge, your bad credit can be a hindrance. An employer might worry that you can be bribed to share sensitive information or participate in corporate sabotage. In some cases, there might be a concern about embezzlement. In any case, your financial situation could raise red flags with some employers and cost you a higher-paying job or a promotion.

While employers aren’t supposed to check your credit score, the story that your report tells might be enough to cost you a good job. This can be frustrating, especially if you are otherwise qualified.

5. Your Relationships Can Suffer

 More on Bad Credit

• What Your Credit Score Says About You
• Build Your Credit Score Faster
• Relationships: Is Bad Credit a Deal Breaker for You?

In many cases, the things that come with poor credit — or that cause poor credit — add stress to your life. When you have a lot of debt and poor credit, and when you are worried about your financial situation and all the extra costs you are paying, it’s hard to maintain healthy relationships. Your stress and anxiety can make you irritable, and you might be reluctant to share the full extent of the situation with a significant other.

In these cases, relationships suffer. Whether you yell at your kids more, or keep secrets from your spouse, it’s not healthy for your relationship. Your mental and emotional health can also deteriorate as a result of the stress related to poor credit. If you aren’t careful, you could end up with costs that are even greater than the financial.

source: financialhighway.com

Handling Debt When You’re Out Of Work

Nothing is more stressful than losing your job and watching the bills pile up. It isn’t long before your bank account balance plummets, the collection companies start to call, and you feel like you’re drowning in debt.

Don’t panic. You can keep your head above water and your bank accounts out of the negative. Here’s how.











1. Make job-hunting your full-time job.

reduce-debtGenerating an income is your number one priority and the best solution for your financial woes. It may be difficult to find a job in your area of expertise, and it may be even harder to replace a sizeable income in this economy, but that does not mean you can simply wave a white flag and surrender.

    Take what you can get. Desperate times call for desperate measures. Stop holding out for that management position or dream career. A job flipping burgers, cleaning floors, or raking lawns is better than no job at all. And the money will keep the electricity on and the repo man at bay.

    Go part time. A part-time job is also better than no job. Many people juggle two or more part-time jobs to meet their financial obligations.

    Looking for work is a full-time job. Until you are working a full-time job, you do not have “spare” time. You need to keep handing out resumes, applying to job sites, and combing job boards until you are back on your feet again.

2. Examine your debts

Which debts are a priority? If you have any “secured” debt, meaning that the creditor has the right to repossess an asset for non-payment, you will want to keep those up-to-date. The last thing you need is to have your home go into foreclosure or your car repossessed.

You will also need to ensure that the things you need to survive such as electricity, heat, and food are covered.

Also, consider paying off the items with high interest rates like credit cards. These outstanding balances can turn into massive debts if left unpaid.

3. Contact your creditors

Contact your creditors before your accounts slip into arrears. You may be able to negotiate lower payments, lower interest rates, or deferred payments–any of which will help you stay current on your financial obligations and prevent further stress. If you wait until you have become delinquent, they may be less receptive to your request for help.

4. Apply for Unemployment Benefits

Contact your unemployment office the minute you find yourself out of work. The sooner you get your paper work completed and the wheels in motion, the sooner you will receive your benefits. These funds will definitely help keep food on the table while you conduct your job search.

5. Tighten your belts.

Begin by separating your necessities from the expenses that you can survive without. For instance, you need heat, but you don’t need satellite TV.
Next, devise a budge based on these necessities and stick to it. Eliminate extra expenses until you are back on your feet again and, then, introduce them gradually. You may find that you don’t need some of them after all.
And don’t put extras on credit cards. A mounting credit card debt can be disastrous–growing rapidly due to high interest rates. Snipping your credit cards in half would be the best move.
Unemployment is stressful. Unemployment coupled with debt can feel like an insurmountable burden. So don’t let your debt drag you down to the depths of despair. By sticking to a plan, being proactive, and never losing hope, you can return to financial viability–and restore your satellite TV.

Read more at http://financialhighway.com/handling-debt-youre-work/#tXAYaguMR1VlRDjJ.99

Begin by separating your necessities from the expenses that you can survive without. For instance, you need heat, but you don’t need satellite TV.
Next, devise a budge based on these necessities and stick to it. Eliminate extra expenses until you are back on your feet again and, then, introduce them gradually. You may find that you don’t need some of them after all.
And don’t put extras on credit cards. A mounting credit card debt can be disastrous–growing rapidly due to high interest rates. Snipping your credit cards in half would be the best move.
Unemployment is stressful. Unemployment coupled with debt can feel like an insurmountable burden. So don’t let your debt drag you down to the depths of despair. By sticking to a plan, being proactive, and never losing hope, you can return to financial viability–and restore your satellite TV.

Read more at http://financialhighway.com/handling-debt-youre-work/#tXAYaguMR1VlRDjJ.99

Begin by separating your necessities from the expenses that you can survive without. For instance, you need heat, but you don’t need satellite TV.

Next, devise a budget based on these necessities and stick to it. Eliminate extra expenses until you are back on your feet again and, then, introduce them gradually. You may find that you don’t need some of them after all.

And don’t put extras on credit cards. A mounting credit card debt can be disastrous–growing rapidly due to high interest rates. Snipping your credit cards in half would be the best move.

Unemployment is stressful. Unemployment coupled with debt can feel like an insurmountable burden. So don’t let your debt drag you down to the depths of despair. By sticking to a plan, being proactive, and never losing hope, you can return to financial viability–and restore your satellite TV.

source:  financialhighway.com

The Emotional Effects of Debt and How to Deal

Debt can send out finances into a downward spiral fast. But besides being detrimental to our finances, there is also a strong emotional aspect to debt.

Denial

Often with overwhelming debt, people choose not to even deal with it. They let bills pile up and may not even realize how much they owe and try to ignore it. But denial is only going to make things worse with late and delinquent payments resulting in bad credit reports, higher interest rates, and late fees which lead to even more debt.


How to deal: Instead of hiding from it, deal with it head on. As difficult as it may be, the sooner you face the debt, the sooner you’ll be able to take steps to get rid of it. Write down every bill you have and the interest rate to make a plan on how you will start working towards getting out of debt. Call your debtors to see what type of payment plan you can work out with them.


Stress

Watching bills pile up and getting calls from people you owe can easily lead to stresss. Wondering how you’ll get out of debt and not seeing a clear solution is a stressful situation as well. Often people in debt will stress about mistakes in the past and stress about what the future brings instead of concentrating on what they can be doing this moment.

How to deal: The first step is to start working towards getting out of debt. Make a plan to cut spending to put more money towards debt and to make extra income. Having a plan will reduce the stress. Try the National Foundation for Credit Counseling’s budget calculator to create a plan that’s best for you.  Also, don’t let the debt consume you. Take time for free or cheap stress reducing activities like exercising, getting together with family and friends and reading and writing.

Embarrassed

 

It’s not a surprise if you’re embarrassed by the debt you have. You may feel ashamed and regretful of the mistakes you might have had or feel that you are alone with having debt. Unfortunately, having debt is common. According to Creditcards.com, the average American household has $15,950 of credit card debt.
How to deal: Understand that you are not alone in dealing with debt. Everyone makes mistakes or has events happen outside of their control that may lead to debt. Instead of being embarrassed, be proud that you are doing everything you can to get out of the debt.

Anger

 

Sometimes it’s easy to be angry at and blame a spouse or family member for digging you into debt. You may be angry that your spouse lost a job or took a pay cut and as a result, caused you to accrue debt. It’s estimated that one of the main reasons why couples fight or get divorced is because of arguing about money.
How to deal: With patience and communication, this is a time you can pull together with your spouse instead of breaking apart. It’s okay to calmly talk about your anger and disappointments together, but do so in a way that is productive instead of hurtful. Work together to come up with a plan for how you will rectify the debt.



Fear


It’s scary to not know how you will get out of overwhelming debt. You might also fear creditors calling or losing your home or car. When you’re trying to figure out your next step, it’s scary if you’re not sure what to do.

How to deal: Visit the U.S. governments website on dealing with debt to ease your fears and learn what to do. Once you’ve accepted any mistakes and start making steps towards getting out of debt, you’ll be able to lose some of  these fears. Don’t fear the people you owe, instead talk with them about your options for repayment.

Keep in mind that getting out of debt will take plenty of patience, planning, communication amongst both family members and people you owe, and a lot of hard work.

source: financialhighway.com

Options For Your Debt

Do you still stop by the pizza place for your lunch?  Do you still fill up on drive-through coffee every morning to fuel your commute in to work?  Do you still pick up a burger and fries on your way home?

If you have the money to outsource your meals, your snacks and your coffee, then you are probably using it to your best enjoyment. But if your debt is mounting, eating out and even eating take-out is not a very wise move.

And if you start having to scrounge for change to pay for that iced cappuccino, that is a clear sign that you really are down to your last dollar…  and that alone tells us that you could use some help better balancing your budget and managing your debt load.

Ironically, those coffees, snacks and meals you grab during the day are not just luxuries that need to be avoided because of debt; those luxuries are probably part of the reason you are in over your head. Sure, one take-out coffee is not enough to put anybody in debt. But a daily ritual adds up over a few years.

According to Consolidated Credit Counseling, people should not be ashamed to seek help when they need it.  We seek the help of doctors when we are sick. We seek the help of plumbers and electricians when our houses are in need of repair. We should be just as ready to seek the help when our finances are in trouble.

And options do exist:

• Bankruptcy
• Credit counselling
• Debt settlement 

Bankruptcy

Bankruptcy is the most severe option, and the one you might be stuck with if you really went to far and cannot climb back. But it is also the most disruptive. When you declare bankruptcy you really have to start all over again, and it can be long while before you bounce back.

Not surprisingly then, most people do everything they can to avoid bankruptcy. That is why credit counselling and debt settlement companies exist.

Credit Counselling 

Credit counselling is not the same thing as debt settlement. The idea of credit counselling is to find the best path for you to manage your finances and pay off all your debts properly, then budget to keep yourself out of debt in the future. The goal is to avoid bankruptcy, and also to keep your good financial name intact.

Before contacting a credit counselling service, be forewarned – you will have to step outside of your comfort zone. Way outside your comfort zone. You will have to follow a very strict and frugal budget.
In order to come up with the cash to pay down the debt, you will likely have to cut spending deeply. It is by overspending that you most likely got into this mess in the first place. That is your comfort zone and that is what needs to be overturned.

Debt Settlement

Debt settlement companies offer a different service. They offer a bit of a shortcut by getting some of your debts paid off at a lower rate. This can be very tempting, and sometimes even necessary. But it comes with a price. They don’t help you solve the problem that got you into the mess. They don’t help you fix your budgeting.

It is fair to note that debt settlement works with only some debts, and some might still come back to haunt you.

And both credit counselling  and debt settlement companies do charge a fee; even not-for-profit services cost something.

It stands to reason, if you are considering either credit counselling or debt settlement, that you are determined to avoid bankruptcy. If you are determined enough, you can cut your spending and fix your problems. If you are not determined enough, the comfort zone will win. In many ways, this is like dieting, but for your personal finances.

So back to those pizza slices and take-out coffees and drive-through French fries. They are not helping you balance your budget. They are not helping you avert bankruptcy. And in many cases, they are not helping your diet (but that really is another story altogether).

source: financialhighway.com

5 Tips to Help Rebuild Credit Score

If you have ended up with bad credit score in the past few years then you are not alone. It can feel like a helpless situation but with time and a little effort you can reverse the situation and the best time to start is right now. Rebuilding your credit score won’t happen over night, it is a long process and requires patience and discipline. If you are looking to rebuild credit score these five simple ways on how to improve your credit score can help you stay on track.

1: Streamline Your Debts

If you have bad credit and are struggling to stay on top of things it can be easy for a bad situation to get worse. For example, if you have multiple credit cards and loan repayments each month it is easy to forget one and receive another dent in your credit rating, making it harder to rebuild credit score. Think about consolidating your credit cards and personal loans to reduce the number of repayments due each month and to reduce the interest rate. Set up an automatic payment to cover at least the minimum repayments each month to avoid damaging your credit score further and then make extra repayments from every pay check. If you do consolidate your debts then make sure you cancel any cards you consolidated rather than using them to extend your debt.

2: Create a Budget

Chances are you got into this situation by spending beyond your means. If you are spending more than you are bringing in then things will get worse and rebuilding credit will be impossible. Start by noting down your household income from wages as well as other sources such as share dividends or government benefits. Then think through all your outgoings such as rent or mortgage, utilities, cable, cell phone, groceries, automobile costs, travel, entertainment, clothes and so on. It can be hard to know exactly where you spend all your money when looking back at bank statements, especially if you spend a lot with cash. Try creating a spending diary for a couple of weeks or use a spending tracker app on your phone such as Toshl to get an understanding of where your money is going.

3: Change Your Habits

Now you know what you are spending money on, it is time to make some changes. You need to review your budget and find things you can cut out and reduce. For example, perhaps you can use free online services such as Hulu for on demand TV and cancel your cable subscription. Shop around for better deals on things you need to keep such as cell phone plans, car and home insurance, utilities as so on. Try looking for discount coupons for products you would use or switching to cheaper brands. If entertainment is an area you are spending up on then look for cheaper ways to do things such as eating in more, enjoying the great outdoors and so on.

One habit you will have to change is racking up debt. Take your credit cards out of your wallet and try shifting most of your spending to a debit card linked to your everyday bank account. This will force you to live within your means and avoid clocking up more credit.

4: Clean up Your Credit File

You’re now getting things in order and avoiding the risk of your credit getting worse. The next step to rebuild credit is to clean up your credit file. Request a copy of your credit file and look for any errors such as default or late payment notes which are not correct or unauthorized credit file enquiries. You may be able to request for mistakes to be removed which can speed up the path to financial recovery.

5: Rebuild Credit

The steps taken so far should be putting you in a good position to rebuild credit. Set up automatic payments for all your bills and loan repayments to ensure they always get paid on time. Creating a good repayment record will result in your credit score going up over time. While it may seem tempting to avoid all forms of credit this may not be the best option to restore your credit as the banks want to see repayment history. Safe options to help rebuild credit are secured credit cards or certain prepaid credit cards that rebuild credit. Secured credit cards work by securing the debt against money you deposit with the card issuer. You make repayments each month and the card issuer reports these on time payments on your credit report causing your score to rise over time.

Start your recovery

Getting into debt resulting in bad credit can be very stressful but it’s not a problem that will go away by ignoring it. Grab the issue by the horns and take control of it today. You should control your finances and not the other way around.

Article by Richard from credit card comparison website Secured Credit Cards 4U which compares credit cards to rebuild credit including secured credit cards and prepaid cards from leading US issuers.

source: financialhighway.com

An overview of bankruptcy law

Put in simple words, bankruptcy law is what allows you, as a creditor to be able to solve your financial problems. It creates a forum where you can develop a repayment plan and stick to it. In some cases your assets will need to be divided and given to creditors. This is often done under a court-appointed trustee who will oversee the entire process. There are several categories under which you can file for bankruptcy. Some of them allow you to continue in your line of work to generate the funds to repay your debts.

Bankruptcy laws also provide for the ability to get discharges where are creditor can free himself of accumulated debt. Once provided by the court a creditor will not be required to pay all of his debts in full.

Bankruptcy law comes under the purview of Federal Law and comes under Title 11 of the United States Code. While the overall law has to be adhered to, each state can be laws that further guide the creditor-debtor in the process of claims. All proceedings in relation to bankruptcy claims are dealt with in the United States Bankruptcy Courts. Bankruptcy proceedings are of two kinds. The most commonly opted for is under Chapter 7 which calls for liquidation. A trustee is appointed to supervise the division of assets to creditors. Bankruptcy can also be filed for under Chapters 11, 12, and 13. These proceedings can be voluntary or can be initiated by the creditors. What these Chapters provide for is a means to allow the debtor to work off his debt.

Once bankruptcy is filed for, creditors will have to wait to claim their dues within the boundaries of the ongoing proceedings. The debtor cannot move any asset that is a part of the proceeding. Any such transfers that had been initiated before the proceedings will be cancelled or invalidated. The Bankruptcy code has several provisions that allow creditors to build priorities. Recent rulings however have held that Individual Retirement accounts cannot be used for withdrawal in bankruptcy cases. This gives some measure of protection to debtors who are already in serious financial trouble.

There have been several revisions of guidelines with regards to dismissals and conversions in relation to proceedings in each of the chapters. The role of the trustees too has been expanded to include more supervisory responsibilities.

Brian Joneta also writes about Bankruptcy and Credit issues including Declaring Personal Bankruptcy and Cost of Declaring Bankruptcy

Article Source:
http://www.articlebiz.com/article/626273-1-an-overview-of-bankruptcy-law/

Choosing the Best Debt Relief Programs

Debt may be acquired in different ways to spend only by neglect and poor financial planning, but there are many options available to help you with debts.  Debt relief  Program will surely get you out of debt quickly and affordably.

Due to the debt relief program, a lot of people are able to recover from financial lifestyle difficulties and breathe more easily and it's important to get the US economy back because it helps everyone involved financially.


Debt settlement, also known as debt negotiation is a relatively new form dealing with your debt problems and it saves you more money but has a negative impact on your credit rating. This is an adjustment by which a portion of your debt is waived off by negotiating with your lenders so that you'll be able to afford and pay. It is a good choice for someone who already has bad credit or cannot qualify for a less aggressive program.
Debt Consolidation, consult a debt consolidation company and explain to them that you are in need of their assistance. Once you have met with them and they have set up a plan, you need to stick with the payment arrangements, they will negotiate with the credit card companies to lower you interest rate and waive over the limit fees.
Credit card debt is one of the most common bills that require consolidation. The interest rates and fees on any outstanding balance can quickly accumulate.

Make sure if the representative of the company is honest with you and that the company you go with has been in business for many years and registered with the Better Business Bureau. Avoid companies that send emails and saying that they can solve your financial problems.

To enjoy the benefits of debt consolidation to manage your credit card debts and other debts, you must follow the right steps.