Using Your Home Equity to Consolidate Debt
Debt consolidation was designed to help individuals who are drowning in debt to regain control of their financial lives. Consolidating debt gives individuals the chance combine their various monthly payments into a single monthly payment that is usually lower than the sum of the individual monthly payments on the same debt. Payments on consolidated debt are also quite often at a lower interest rate than the rates offered by the individual lenders.
Warning Signs
If one or more of the following applies to you, debt consolidation may be in order:
* you pay for normal living expenses with credit;
* you transfer balances around from one credit card to another;
* you can only afford the minimum monthly payments on your credit cards, and no more;
* you have maxed out one or more credit cards;
* you find yourself spending more than half your income to pay your monthly credit card payments;
* you’re looking to open yet another line of credit in order to better manage your current debt, expenses, and lifestyle;
The following is a breakdown of some of the best and most common ways to consolidate debt:
Debt Consolidation Loans
The traditional way to consolidate debt is to take out a debt consolidation loan. This is a personal loan that is unsecured, and therefore considered riskier other types of loans. Lenders therefore will usually charge higher interest rates for these loans, the advantage to getting such a loan being the single (and hopefully smaller) monthly payment. People with lots of debt may find they have difficulty getting a lender to give them a debt consolidation loan, however, and may need to look further to find a viable debt consolidation solution.
Debt Settlement
Debt settlement agencies help you resolve debt by becoming the intermediary between you and your creditors, You stop paying your various creditors and instead make a single payment to the debt settlement agency. The agency then becomes the one your creditors contact rather than you. They negotiate new payment and settlement terms, typically for half (or less) of the total balance you owe. Your credit rating does not go unmarred with this solution, however you will be able to get out of debt in just a couple of years this way. You’ll just have a little difficulty in obtaining future credit for a while afterwards. But not nearly as much as if you had to declare bankruptcy.
Home Equity Loan or Line of Credit
By taking out a home equity loan or a home equity line of credit, you can borrow money against the value of your home (minus the amount of money you still owe on the home) to pay down other, higher interest debt, such as your credit cards.
Cash-Out Refinance
Another way to utilize the asset of your home to help you climb out of debt is to refinance your current mortgage and borrow more than the amount you currently owe on the home. This extra money will be delivered to you in the form of cash that you can then spend on whatever you want (hopefully, to pay down your other debt).
Key Points on Consolidating Debt
Whichever option you choose to consolidate debt, just be sure that the new debt is cheaper than your current debt. In other words, after fees and finance charges are taken into account, will you be paying less to borrow the same amount of money through debt consolidation than you currently do with your debt dispersed as it is.
Once you’ve gotten a handle on your debt, the next step to financial freedom (and to keep you from winding up in the same position again), take the money you’ve freed and start building up an emergency fund.
Somerset Mortgage Lenders has been in business since 1979. Whether you are looking to refinance your mortgage, consolidate your debt, improve your home, we can help. Call us toll-free at 1-800-675-9783 or visit us at http://www.somersetmortgagelenders.com/
Debt Consolidation Is a Way to Debt-Freedom
At times, debt does pile up to a very large extent. Some people who are improperly informed about their finances tend to spend more than their actual capacity. This can become a problem with credit cards; since they let you spend away up to your limit. It is not uncommon to meet people who treat their credit cards as sources of free money.
When the bills come, and the income just cannot keep up with the repayment dues and other obligations, the person has the choice of not paying the dues, consequently incurring penalties which may add up and leave him in deeper debt. However, he can seek to get out of this by going the debt consolidation way.
Debt consolidation is the method of taking on another loan to pay of other loans. In a way, you could say that this is taking a debt to pay off another. While this may sound absurd, it does make sense when you learn its mechanics. The transfer of the debt may be done from several unsecured loans into another unsecured loan, but most of the time it is done through a secured loan which is put up against assets which serves as collateral, usually a house.
People generally go in for debt consolidation for three main reasons. It could be to get a lower rate of interest or shift to a fixed rate or simply make it easier to pay off multiple loans.
Some people look at this as a last ditch effort to try and improve their credit scores to some extent. This could be the final attempt before filing for bankruptcy. Debt consolidation companies sometimes discount the amount of the loan, and then buy this loan at a marked down amount. In this regard the debtor may easily search for debt consolidators who may pass along some of the savings from the debt.
But if the debtor does become bankrupt, his right to discharge his debts will be severely affected.
This method of getting rid of debts has proved to be most useful in the case of credit card debts. Since credit cards can carry a significant amount in penalties, and a relatively larger interest rate then most unsecured debts, having several cards, each with its own set of terms for servicing, can become a complex matter altogether.
A debtor can avail of a cheaper loan option if he consolidates all his loans under a secured loan plan and uses his property as collateral. This results in a lower rate than the previous debts, and the total interest and cash flow paid to the consolidated debt is considerably lower. As a result, paying off the loan becomes a whole lot easier and faster.
Because of the advantages of debt consolidation as a means to get rid of high interest debt balances, companies take the opportunity to profit from providing consolidation services by charging high fees, most of the time maximizing regulated limits. The debtor must understand that debt consolidation is a casualty controlling maneuver.
Debt consolidation is not going to cure his chronic overspending. As soon as the debtor starts spending like crazy once again, the benefits accrued by debt consolidation will be wiped away in a jiffy.
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Consumers ‘Denying Responsibility For Debt’
As many as three-quarters of consumers feel that they are not responsible for their level of debt, new figures suggest.
Research published today by personal finance commentator Callcredit has indicated that almost 75 per cent of consumers blame others for their over-indebtedness. The firm has stated that, with recent Bank of England figures revealing a rise in the level of consumer debt by 1.35 billion pounds in only the last month, increasing numbers may be losing control of their borrowing. A refusal to acknowledge their culpability suggests a further worrying trend, with those denying their debt perhaps less likely to seek out help such as debt consolidation loans.
The figures varied across different regions of the UK, with the most pragmatic being those north of the border – only 62 per cent of consumers in Scotland felt that they were not responsible for their level of debt. By comparison, 72 per cent of borrowers in the south-east feel that the blame for their borrowing lies elsewhere. Owen Roberts, head of Callcredit Consumer, comments: “It is important to remember that responsible lending goes hand in hand with responsible borrowing. Consumers need to look closely at their own borrowing habits and take control of their finances. Instead of worrying about who is to blame, as individuals we need take responsibility for our own financial wellbeing. My advice to people who feel that they are struggling with repayment commitments is to assess their debts by checking their credit report – they should then contact their lenders to discuss a suitable repayment plan.”
The credit reference agency has three major items of advice that it recommends to those who may be struggling to service their borrowing. Firstly, it states that taking control of a financial situation relies on gaining a clear idea of the monetary position – for instance by getting a copy of the consumer’s credit report. This facilitates a better understanding of how much is owed and current creditworthiness. Consumers are also recommended to seek out advice, such as through the Consumer Credit Counselling Service, which can provide valuable assistance in mapping out a plan for future budgeting and repayments – such as combining current borrowing into debt consolidation loans. Furthermore, the firm recommends drawing up a budget and sticking to it before looking to take on further credit, to avoid increasing current borrowing.
Earlier this year, the ifs School of Finance established that as many as 80 per cent of the UK population regularly overspend, stretching those budgets which are already under strain from rising inflation and the increased cost of living. The school established that five per cent have considered taking out an individual voluntary arrangement or declaring bankruptcy, while almost one in ten (nine per cent) have taken out a credit card in order to pay off another credit card, rather than considering the benefits of cheap loans.
While consumers in Scotland may be more honest about responsibility for their debt problem, they may be equally at risk of finding themselves in financial difficulty. Recent comment from Citizens Advice indicated a rapid increase in the number of people seeking help in managing their finances in the country.
Tom Dawson writes for Essentially Home Loans. Our visitors can apply for secured home loans online, for whatever reason with whatever credit history. Visit us today for the best rate loans available. http://www.essentiallyhomeloans.co.uk
Can Bankruptcy Clean Out Personal Accounts
Filing for bankruptcy takes a huge chunk out of your credit report, your pride, and your future abilities to get credit. It is bad enough that you are going to have it on your credit report for several years afterward, and you do not want it to affect anything else to make your financial situation even worse. So what happens to your savings and checking accounts when you file for bankruptcy?
When you file for bankruptcy, it is because you owe money to your creditors, obviously. So if your creditors know that you have money in your checking or savings accounts, they will usually freeze those accounts and seize them so that they can get all the money they can out of you before you put them out by going bankrupt. The way they see it, if you have any money stuffed away at all, it is theirs to take because you owe it to them.
Because this is, in a cold and heartless way, generally true, they have the right to freeze your account. Some creditors will not do so, but most will try by all means to get whatever money they can out of you so that the amount that they are having to just let slide is as small as possible. They basically have to get permission from the courts to do so, but many frozen accounts are a result of desperate creditors out to milk desperate debtors for all they’re worth.
To freeze a bank account means simply that you no longer have access to your account. If your checking account or savings account is frozen, that means that you no longer have the ability to withdraw from that account. It basically ceases to be accessible, except if you want to make a deposit.
Credit card companies, banks, and credit unions alike can freeze your bank accounts. When you file for bankruptcy, the credit card companies that you may owe money to will have long since denied you access to your credit account, therefore giving you no ability to buy on credit. Similarly, banks and credit unions cease to give you any kind of services once you have filed for bankruptcy, and they almost always remove your
membership from their particular credit union or bank, refusing to do any more business with you.
Why? Well, because you took out bankruptcy, you are more likely to do it again, and of course they don’t want to be giving you a loan in the future if it is uncertain that you will pay it back in full. Also, because you filed for bankruptcy and cost them money that you could not pay, that alone would be motivation enough to stop doing business with you.
Bankruptcy is rough in itself. Sadly, it can affect your bank accounts too. If you want to do something about this, contact the lawyer who issued the freezing of your account, and see if you cannot work something out with him and the creditor you owe the money to.
Court helps people to learn about how to apply for credit cards online. You can read more of his work by visiting: http://whalehookloans.com.