Are There Risks In Debt Consolidation ?

July 11, 2008

Debt consolidation seems as an easy solution to reduce a person’s debt burden, but it has its own advantages and disadvantages.

A substantial number of people nowadays get themselves into so much debt that they sometimes have to go further into debt in order to pay it. This fighting-fire-with-fire approach, if misunderstood or misused, can lead to further debt problems instead of helping to solve them.

What is Debt Consolidation?

In a nutshell, it involves taking out a single loan (secured or unsecured, depending on the package offered) to settle all his or her numerous other loans.

Instead of having to make multiple payments, you only have to manage a single payment. You do not have to run around each and every month stressing about paying your creditors on time. This will simplify your finances and your life and you will have more time to spend with family and friends

Advantages

Consolidating your debt offers several advantages. For one thing, it’s often easier to make a single payment than trying to remember what to pay off when—some people are just not that good at remembering and scheduling payments.

The convenience offered by such a loan can also offer peace of mind to a person. This will simplify your finances and your life for that matter.

 The debtor can also benefit by the advantages of paying off a lower interest rate presented by one single loan, instead of having to pay off the interest of many high interest loans.

Pitfalls

Naturally, when you consolidate your debt it has its own set of risks. One is that your credit rating initially takes a hit when you initially consolidate your debt—it is taking out another loan, after all, and essentially zeroing out any progress the person has made paying off the other debts.

Another is that consolidation loans might not offer interest rate advantages over individual loans, because people who have been paying off their loans for a long time can often renegotiate their terms with their creditor, and these might be lower than the interest rate offered by the company that’s going to consolidate your debt

Still another is that the debt refinancing plan can fail if the person doesn’t make some changes to curb his or her spending and save more money. Debt consolidation is a drastic step to take, a fact some people don’t seem to understand. Some see their credit card balance or their loan read “R0” and takes it as carte blanche to keep right on spending and spending.

In this situation, the new loan can act merely as a sticking-plaster on a serious wound—halting problems temporarily but doing nothing to remedy the underlying situation. If the person who took out the debt consolidation loan should then be unable to repay it—for example, they need the money due to a family emergency—they would find themselves in more trouble than they were at the start.

Zulika van Heerden provides valuable information on her site on how to live a debt free life. To read more tips and techniques like the ones in this article go to: http://www.globalproperty.co.za

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Before You Take Out a Loan for Debt Consolidation

July 1, 2008

What is a debt consolidation loan?  First, debt consolidation refers to consolidating or combining several loans into one big loan.  A debt consolidation loan therefore refers to any loan that will let you consolidate your multiple loans.  To elaborate, a debt consolidation loan is any loan that you can use to pay off your existing loans so you can combine such loans’ balances into one.

 

Secured and Unsecured Debt Consolidation Loan

 

There are two major types of debt consolidation loans:  secured and unsecured.  Secured debt consolidation loans refer to loans that require collateral or security before approval.  Unsecured debt consolidation loans, on the other hand, do not require such collateral.  Secured debt consolidation loans are much more difficult to get than unsecured loans, obviously because it has much more requirements.

 

However, secured debt consolidation loans also generally have better interest rates and repayment terms than unsecured debt consolidation loans.  Unsecured loans’ providers carry greater risk than providers of secured loans so they have to compensate by charging a higher rate of interest.  If you fail to pay your secured debt consolidation loan as per the terms of your loan agreement, the bank will simply take your collateral, auction it off and recoup their losses.  Under an unsecured loan agreement, however, the bank has no collateral to sell to compensate for any losses, should you not pay your loan in full.

 

Secured debt consolidation loans are of various specific types.  A second mortgage and a home  loan are examples of secured loans which you can use for debt consolidation.  With a home loan, the home itself becomes the collateral; in the case of a second mortgage, the equity you have built up in your home becomes the collateral.

 

Unsecured debt consolidation loans, on the other hand, include balance transfer loans from credit card companies.  Credit card companies usually offer balance transfer cards which you can use to consolidate all kinds of loans.

 

Fixed and Variable Percentage Rate (VPR)

 

Debt consolidation loans also vary by the type of VPR they have; some debt consolidation loans have fixed rates while some have variable rates.  Fixed-rate loans are those that are offered at a fixed rate of interest for the life of the balance barring default.  In other words, if your loan agreement says standard VPR is 15%, then you will enjoy that rate for the life of your loan unless you pay late, pay below the minimum or violate your loan agreement in any other way.

 

Variable-rate loans, on the other hand, are offered at a rate of interest that varies with a certain index rate (say, prime rate); the interest rate is computed by adding a basic rate to the index rate.  Since the index rate changes regularly, then the interest rate of the loan also varies regularly.

 

For related articles go to www.globalproperty.co.za


What Can You Do When Debts Start Spiraling

June 26, 2008

Perhaps you have multiple debts with several financial institutions and are always on the rush to keep your debts up to date.  Maybe your interest rates have been raised due to a payment that was a day late.  It can also be that your monthly debt burden is currently too much for you and your salary to handle.  For any of these problems, there is one viable solution:  debt consolidation.

 

Debt consolidation or loan consolidation means combining multiple loans (say, a car loan, a student loan, a personal loan, a mortgage, a credit card balance) into one single loan.  The loan under which the various loans will be consolidated is the debt consolidation loan – so-called for obvious reasons.  A debt consolidation loan can be obtained as a viable solution to the following problems:

 

High Interest Rate

If one or more of your loans are currently at default rates, then getting a debt consolidation loan is one of the most effective ways of overcoming that.  A debt consolidation loan is an entirely new loan, distinct from your current and existing loans.  Therefore, it is possible to get a loan with a good Variable Percentage Rate (VPR) or, at the very least, with an interest rate that is lower than any of your current loans’ VPR.

 

Through debt consolidation, you can transfer balances from high-interest loans into your new loan with the lower interest rate.  By so doing, you will get a new start and will have to spend less money towards interest payments.

 

Burdensome Loan Repayment Terms

Debt consolidation is also a good solution to heavy or harsh loan repayment terms.  For instance, if your current loans are payable in the short-term (say, it has a repayment period of 5 years), then your monthly debt burden must be extremely heavy.  In this case, you’re probably on your wits’ end trying to find the money to pay your monthly bills.

 

Through a good debt consolidation loan, you will be able to pay off these burdensome loans and get better – certainly much more manageable – loan terms.  Your monthly minimum dues will go down and your monthly debt burden will become much lighter.  This means you’ll find keeping your account current easier – and thus find it easier to avoid defaulting on your obligations.

 

Confusing Accounts

Debt consolidation is also a great solution to financial management problems.  If you are paying late on your loans because you’re finding it hard to keep your financial records straight and finding it difficult to remember which loan is due when, then debt consolidation is for you.

 

Through debt consolidation, you will need to maintain and keep track of only one account and thus only one due date, one balance, and one interest rate.


Low Maintenance Debt Consolidation Loans.

June 23, 2008

Debt consolidation is the process of combining different loans (they may be of different types, with different balances, from different banks, with different terms, and with different Variable Percentage Rates or VPR) into a single loan.  This requires applying for a new loan, using the  funds obtained from that loan to pay off the existing loans and then maintaining (i.e. keeping payments current) on the new loan.

 

Some would say debt consolidation involves too much work.  It means tons of paperwork, negotiations, credit checks, and all other things that applying for a loan requires.  Debt consolidation, furthermore, requires paying debt consolidation service charges.  Are all the effort and the fees worth it?

 

Certainly; debt consolidation has many benefits.  The following are only a couple of the major ones:

 

Low Maintenance

Debt consolidation means you only have one instead of several loans.  This means easier maintenance of all your financial obligations.  Just think about it.  Which is easier:  rushing off to pay three or four separate loans monthly – all with their own due dates and minimum balance requirements – or paying only one loan each month?

 

Debt consolidation means you will no longer have any difficulty keeping track of your loan obligations.  You will no longer send a check mistakenly to Bank A when it was Bank B that needed urgent payment.  Through debt consolidation, you only need to wait for one bill and mark one due date on your calendar.

 

Better Budgeting and Planning

Isn’t it difficult to stick to your budget when bills are always due?  If you have several loans, you are probably dealing with multiple due dates.  Perhaps one loan is due in the first week, another in the next, yet another in the third week, and one more in the last week.  Meanwhile, your monthly salary only comes once or twice a month.

 

How then will you be able to pay off those bills that come too early (before your salary arrives) and those bills that come too late (when all your salary has been used up)?  In this scenario, it will seem like you’re doing nothing but pay your bills; you will probably be even wary of using your money for other necessary expenses because you’re afraid you’ll run out of money by the time your next loan bills come.

 

If you consolidate your debts, you will only have one due date.  Every month, you know that you need to pay “this and that” amount by “this and that” date.  Since you need to make only one payment each month – and since you have a fair idea about how much the payment is going to be – it will be much easier to put aside a fixed amount of money for debt servicing and thus free the rest of your money for other necessary spending

 

 


Is A Cash Rebate Credit Card Right For You?

June 7, 2008

People often make decisions about which credit cards to carry based on the types of reward programs the are eligible for as cardholders.

Some credit card providers offer points toward merchandise or gift cards, airline miles, credit for fuel purchases, and other appealing bonus programs.

Cash rebate credit cards are the latest trend in consumer credit. Extra cash always comes in handy, and many consumers love the idea of earning cash back bonuses from their credit card charges.

While the idea of cash rebates is very appealing, it is important to be cautious any time you open a new credit card account.

Unfortunately, what seems to be a terrific bonus program can actually end up costing you money if you do not pay close attention to the fine print of the cardholder agreement. Before you sign up for the next cash rebate credit offer you come across, take the time to make sure you understand all the terms and conditions associated with the account.

Verify the Fine Print

Before you accept any credit card offer, make sure you understand all the fees associated with the account. Most credit card programs do not carry annual fees, but there are some that do. You definitely need to know about this before opening an account.

It is also important to verify the account grace period, interest rate, late fees, and charges for exceeding the credit limit. You should also find out how the card provider handles fraudulent charges, stolen credit cards, and cases of identity theft.

In addition to being sure that you know how much the credit card can potentially cost you, it is also important to find out exactly how cash back bonuses are calculated and paid out.

Some credit card providers automatically send your cash rebate when you earn a certain amount. Most companies, however, require you to request your bonus when you are ready for it. Points earned toward cash back bonuses typically expire if you do not redeem them within a certain window of opportunity.

How to Benefit From Cash Back Credit Cards

The best way to take advantage of a cash rebate credit card program is to use your credit card to pay for your everyday purchases, and then pay the bill in full at the end of every month.

This way, you enjoy the benefits of accumulating points toward cash rebates for your everyday purchases, but you are not purchasing things you do not need, or spending money on interest. If you have the self-discipline to use your cash back credit card in this manner, the rebate you receive really are a bonus.

What to Avoid With Cash Back Credit Cards

The worst way to use one of these cards is to spend money on unnecessary purchases, carrying balances from month to month because you do not have enough cash to pay your bill in full.

Many people rationalize such behavior, convincing themselves that their spending is justified because they are earning cash back on their purchases. However, the interest you will have to pay on your unpaid balance will greatly exceed any funds you receive in the form of a cash back rebate.

Responsibility is the Key

The key to benefiting from any type of credit card reward program is to make responsible use of the credit available to you.

Make sure you understand the terms, and be certain that the cash back program that seems to be so appealing is not going to end up costing you money in the long run. Credit card debt remains a sure way of ending up in the debt trap, if not controlled properly.

 

Zulika van Heerden provides valuable information on her site on how to live a debt free life.
To read more tips and techniques like the ones in this article go to: http://www.globalproperty.co.za


The Basics of Responsible Credit Card Use

June 4, 2008

Credit cards can be beneficial for individuals who understand and practice the basics of responsible use of credit. However, people who don’t use this kind credit wisely can find themselves deeply in debt very quickly. Everyone who uses credit needs to understand how to use it in an intelligent manner.

Do Not Accept Every Offer That You Get

If you have good credit, you probably receive a number of offers in the mail every week encouraging you to incur more debt. The fact that a lender is offering you an opportunity to get another credit card does not mean that you actually need one. If you have too many credit cards, you may find yourself running up balances on multiple cards, which can be very dangerous to your financial well being.

Most people should not have more than two credit cards. Many people get one card for day-to-day purchases, and have a second card that they use strictly for emergencies. Individuals who own companies or who make up-front payments for job-related travel sometimes need a third card so they can easily keep track of which purchases are business and which are personal.

Do Not Purchase Things You Cannot Afford

If you are spending more money than you earn each month with the help of your credit cards, you are on your way to financial problems. It is okay to use credit for convenience, but you need to be certain that you can pay your balance in full each month, or within a reasonable period of time. If you are buying luxury items that you cannot pay off within a few months, you are not using your credit wisely.

Always pay more than the minimum payment on your credit accounts. If not, you will find that the quickly accruing interest on revolving credit accounts adds up very quickly, often putting you in serious financial jeopardy. Individuals who pay only the minimum payment each month quickly finds themselves much further in debt than they expected.

Be Diligent In Checking Your Credit Report

Part of being a responsible credit card user is checking your credit report at least once each year. There is, unfortunately, a very real risk of identity theft. If someone is using your identity to open credit accounts, you will find out when you look at your credit report. Many times people discover that incorrect information on their credit reports is pulling down their credit scores. Such problems can be appealed and corrected when you become aware of them.

Another reason that checking your credit report frequently is so important is that you are able to see how your current debt and payment habits are impacting your credit history. This can be a real eye-opener regarding the importance of paying all bills in a timely manner.

Recognize The Need For Help

Another aspect of responsibility is the maturity to recognize when help is needed. If your spending is out of control, ignoring the problem will not make it go away. Seek assistance from a trustworthy credit counsellor who can help you come up with workable solutions to your credit problems. If you are having credit troubles, the sooner you seek help, the faster you can be on the road to rebuilding your credit.

Zulika van Heerden provides valuable information on her site on how to live a debt free life. To read more tips and techniques like the ones in this article go to: http://www.globalproperty.co.za


Bad Credit Cards For Better Consolidation

May 29, 2008

Unsecured methods of debt consolidation are among some of the most available debt consolidation options out there because they do not require you to secure the debt against anything.This is in contrast to secured loans such as mortgages which require you to put something up as collateral or security.  However, unsecured loans have a major qualification in the form of a good credit rating.

 

 

 

You got to have a healthy credit score before you can even consider getting a credit card with a decent interest rate. If your credit score is bad enough that you cannot get a good credit card anymore, there is a fix available for your situation. The solution comes, as ironic as it might sound, as a bad credit card.

 

 

 

Why Bad Credit Cards?

 

 

 

Now, do not take the term the wrong way. Bad credit cards are not bad per se or detrimental to your credit score. In fact, they could be just the opposite when used correctly. Bad credit cards are just called that way because they are specifically targeted for people who have bad credit histories or a bad credit rating. As you might expect, they do not require much besides an application form.

 

 

 

You can easily acquire a bad credit card and many banks and financial institutions offer them. The only drawback with bad credit cards is that they have a higher APR than the usual credit cards. That means you will have to make prompt and regular payments for your credit cards. But besides saving yourself from the interest, there is another important reason for you to make prompt payments, as you will see later on in this article.

 

 

 

Being Bad to Be Good

 

 

 

Because they have few requirements, bad credit cards are the easiest (and perhaps the only) available option for you. And getting one could hold the key to a better credit score.

 

 

 

Get yourself a bad credit card and then do some light spending on it. Pay a couple of utility bills, buy yourself an inexpensive outfit, just do anything to use up a little of the credit extended to you. Then when the bills come, pay them as quickly as possible; don not let the deadline dawn without your having paid your dues. Repeat this process every month. What this does is it establishes you as a debtor who pays promptly. Your credit card company will notice the pattern and, pretty soon, so will other creditors.

 

 

 

By using up just a little of your credit line, you make sure that the costs are still easily payable at the end of every month and that you do not get hurt by the higher-than-average APR. Using this technique would not improve your credit score overnight, that is for sure. You would not get any noticeable effects for about six months and it could take about a year for the paying pattern to nurse your credit rating back to health.

 

 

 

If your loan- or debt-related needs are not immediate or very urgent, taking this course of action is well worth the effort for its benefits on your credit score. That same credit score will be key in getting better terms on your next credit card or, indeed, just about any other method of debt consolidation available.

 

 

 

Zulika van Heerden provides valuable information on her site on how to live a debt free life.
To read more tips and techniques like the ones in this article go to: http://www.globalproperty.co.za