Business and Finance

Archive for December, 2007

Debt is a way of life for many Americans. We owe money on our homes, our cars, our possessions (from furniture to clothes), and our education. Many Americans are so mired in debt they aren’t even sure just how much they owe and to whom — even worse they sometimes don’t even remember just what caused their debt.

Some debt is good for you. For example, what you owe on your home can provide a nice way to balance out your income tax. A little debt is not a bad thing either as making regular payments to various creditors helps build your credit rating which makes it easier for you to obtain loans at good rates. However the truth is that most Americans have more than a little debt — and many owe far too much money and are already, or soon will be, in financial trouble as a result.

Finding yourself owing a lot of money is not the end of the road and you can stop your cycle of debt by taking four positive steps to break the cycle.

First, attack your high-cost debts. This likely includes credit cards where you may be paying high minimum payments and high interest rates. Pay off the balances on credit cards carrying the highest interest rates first. Continue making your minimum payments for lower-interest cards but concentrate on paying off the highest interest. When the high-cost cards are paid off then work to eliminate the balances on your other cards.

Second, reach out to your creditors. If you are going to be late or have difficulty paying your minimum payments then contact the credit card company. Even if you can make all your payments in a timely fashion there are two benefits you can reap from contacting the card issuer. First, you may be able to negotiate lower rates or more favorable terms. Second, they might be able to recommend alternatives that can minimize damage to your credit rating.

Third, consolidate your debts as much as possible. You can accomplish this a number of ways. One possibility is simply transferring balances from one credit card to another with a lower rate, but be aware of transfer fees before choosing this option. Another possibility, if you own your own home, is to take out a home-equity loan or line of credit which should have a lower interest rate than most credit cards can offer as well as offering tax deductions. Finally, you can also consider a secured loan offering the value in another form of property, your vehicle for example.

Fourth, don’t sacrifice your retirement savings. Obviously paying off your debt should be a high financial priority but cutting what you save for retirement to do so may not be the wisest course — especially if that becomes a long term habit or if you are losing out on your employer’s matching funds as a result. Perhaps you may be able to borrow against (or from) your retirement funds at a lower interest rate which will allow you to continue to save for retirement while also getting out from under your debt.

While owing money may well be the American way it can also be a tremendous burden to bear. You can shed the weight of your load or at least trim it down to a more manageable level by taking these four steps.

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Getting out of debt can be a long, drawn out process. If you spent years wrestling with financial problems, the solution will not come to you overnight. It can take months, even years to unravel debt difficulties but it can be done. You have some options to help you get started; let’s take a look at four of them:

Credit Counseling. Credit counseling companies are vying for your business. This can be a good option as you shop around to find the best plan out there, but bad as you learn that many companies will charge exorbitant fees or do work for you that you can do yourself. Some government agencies and nonprofit firms provide credit counseling too. For little or no money you may be able to find a professional who can help you navigate through your debt dilemma.

Debt Consolidation Loan. Replace your high interest credit cards with one, low interest rate credit card. You could also see if a lending institution will give you a debt consolidation loan. However, you may have to pay for an application fee, whereas with a credit card you would not.

Home Refinancing. Even with rising interest rates, refinancing your mortgage may make sense and allow for you to save hundreds of dollars per month on mortgage payments. With the monies saved with a new, lower mortgage payment you could use your savings to pay off your other debt.

Cash Out. Alternately to home refinancing, you may have enough equity in your home to cash out and pay off your debt. Importantly, although credit card debt is not tax deductible, a home equity loan is. Ultimately, you can reduce your debt as well as reduce your tax obligation by cashing out.

You have some viable solutions to help you reduce your debt. Learn all you can about each option and select the plan that is right for you.

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Debt consolidation has several advantages. For the most part, many consumers are unable to eliminate their debts. High finance charges and late fees keep many people in the hole. Fortunately, there is an easy solution to becoming debt free within a few years. Debt and bill consolidation services are intended to help consumers lower their debt. It is the best method to becoming debt free without obtaining a loan.

Advantages of Bill and Debt Consolidation Services

The major advantage of debt consolidation services is the ability to legally reduce and eliminate your debts within record time. Credit card payoff calculators are ideal for estimating approximate payoff dates. For example, applying $50/month to a $5,000 balance will take you approximately 19 years to payoff the credit card. Incurring additional chargers will extend the payoff time.

Debt and bill consolidation services can help you become debt free is less time. Services will help you manage your finances. Moreover, they will contact all your creditors and negotiate better rates. Additionally, if you have excessive late fees, debt and bill consolidation services attempt to get fees waived.

Once your finance fees are reduced, a large portion of your monthly payments will go toward reducing your debts. In some instances, the service can negotiate 0% interest rates for a specific period. Trying to negotiate a lower rate without the assistance of a debt and bill consolidation service is tricky.

How Do Debt and Bill Consolidation Services Work?

If using a debt consolidation service, future payments are submitted to the agency. In turn, the agency will make payments to creditors. While working with a consolidation service, your credit accounts are frozen. Therefore, you will be unable to incur additional chargers. You may cancel the service at anytime. At that point, credit accounts will be unfrozen.

Choosing the right debt and bill consolidation company requires research. You must qualify for a service. As you begin your search, compare and contrast various services. What is the minimum and maximum debt amount? Is there a monthly service fee? For the most part, qualifying is easy. Consolidations require no credit checks or collateral. Hence, there is a program suitable for everyone.

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1-Make List of Your Debts
First of all know how much deep you are in credit card debt. Many credit card holders are shocked when they know the total credit card debt to be paid. They unconsciously stay away from compiling this list. But you will have to know your total debts. List down lender name, date of debt, total amount to be paid and interest rate. Arrange list according to interest rate. Highest interest rate credit card debts should be shown first.

2-Pay Credit Card with Highest Interest Rate
Now start paying highest rate credit card first. Always pay more than minimum amount. If you are addicted to minimum payment traps then you will never be out of debt for whole of your life. Banks have arranged minimum debt trap in such way that a loan could take many years to be paid off if you are just paying in minimum amounts. Always pay more than minimum. These small extra payments will save you literally thousand dollars.

3-Start Frugal Living
For as long as you are in debt, start frugal living. Cut off your credit cards. Ask companies to not offer you more credit cards. Discard impulsive buying. Try to save every penny if possible. These few dollars added to minimum payment amounts will create a snow-ball effect towards your credit card debt payments.

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