Posts Tagged ‘Bankruptcy’
Debt Consolidation Loans: A Risky Strategy?
I saw a headline in the paper this morning as I was riding the train in to work. It said, “Battered Traders Tired of Hearing Recession Is Over”. And the meaning is clear: For weeks now the talk on the news has been of economists chiming in unison, “The recession is officially over” – but that hasn’t been felt by the average American.
Wall Street has gotten billions in taxpayer money to help prop itself up, but people on Main Street have hardly received a thing. Cash for clunkers? Big deal. People have been buying cars they couldn’t afford in the first place. It’s more of a cash for suckers type of program. Sorry to be so blunt. I call it like I see it.
The most that the average American has seen in the form of aid during the great recession has been the measly unemployment check that goes out to laid off workers. Let’s be perfectly honest here, if you were someone in a decent job or a very high-paid job and went from your previous salary to receiving barely over $200 a week – would you look at this as a bailout?
In any case, during these troubled times many are those who have sought to take advantage of those in need. Enter the (cough, shark) bankruptcy lawyer and debt consolidation people. They are experts in the field of honing in like vultures over the vulnerable.
The debt consolidation people are really something else. They would have people believe that there is some benefit to enrolling in a debt consolidation plan or worse – signing up for a debt consolidation home equity loan. But the facts speak for themselves.
Most people sign up for a debt consolidation loan when they are strapped with large amounts of credit card debt and are finding it hard to make ends meet. But consider this: when signing up for a debt consolidation home equity loan, the consumer is exchanging unsecured credit card debt for secured debt – debt that is secured with the consumer’s home. This is risky, risky, Risky.
If the consumer were to sign up for a debt consolidation home equity loan and then be unable to make their monthly payments at some time in the future – they could absolutely have their home seized. This is not the strategy for consumers in debt to go with.
Rather than debt consolidation and bankruptcy, consumers should consider bankruptcy alternatives such as debt settlement. Even consumer credit counseling can be effective for many. These provide a better measure of debt relief for those who are struggling in the great recession.
Debt Consolidation: Does It Work
There is no shortage these days of debt consolidation companies advertising their debt consolidation programs on TV commercials. The reasons are clear: credit card debt is definitely a big issue at the current time. Even thought financial experts seem nearly unanimous that the U.S. recession has “technically” ended, there are still an awful lot of people who are suffering financial hardships and who continue to struggle.
But is debt consolidation really the answer to credit card debt? Can it help consumers reduce their debt load and greatly improve their quality of life as the TV commercials tell us? Or is debt consolidation not all it’s cracked up to be? And if so, are there better programs and better solutions to the issue of credit card debt in America today?
In order for consumers to be able to make an informed decision, they need to have a good understanding as to what debt consolidation is, and how it works. Debt consolidation is the consolidating (combining) of multiple loan (credit card) payments into one payment. This new single payment is lower than the sum of the previous multiple loans. This is achieved through lower interest rates and better payment terms.
Debt consolidation may often involve a “debt consolidation loan”. This is almost always a home equity loan. But consumer beware: a home equity loan is a secured loan. If the consumer who takes out a home equity loan as part of a debt consolidation plan they risk losing their home if they are unable to make their payments at some time in the future.
What is a better form of debt relief? It is clear than when it comes to debt relief, the one program that achieves the greatest results in the least amount of time is Debt Settlement. This program works with a debt settlement company negotiating with the consumer’s creditors. The goal of these negotiations is to obtain a settlement agreement for a much lower amount than what was originally owed. Debt settlement can almost always achieve debt reductions in the amount of 50%, and very often – 75%.
It can truly be a debilitating and demoralizing thing. The good news is that there are indeed debt relief programs that help consumers reduce and eliminate credit card debt, and in fact – kiss it goodbye, once and for all.
What You Should Know On Consolidating Debt
Individual customers struggling to pay of high credit card, personal overdrafts and store cards choose to consolidate debt. Debt consolidation is nothing but the effort to pay off these numerous loans by availing of one single loan. Of course, it only works if one is able to take the loan at a considerable lower interest rate or a fix rate. It is obviously more advantageous if one has to service one loan instead of two or three loans.
Often, debt consolidation involves moving to a secured loan from several unsecured loans and keeping an asset, may be a house, as collateral. Against this house, serving as collateral, a mortgage is secured. One benefit of this kind of collateralization process is that it helps you to get a loan with a lower interest rate. This process, allows the owner, to force sale the asset, so as to pay back the loan. Since the risk here is reduced, so in the process, the rate of interest is also reduced.
One gets a bad credit rating for a single missed or late payment on a credit agreement. The credit reference agencies register an adverse credit which makes any kind of borrowing difficult leading to higher monthly repayments. In this situation only a few banks may be willing to lend. That is precisely the reason why consumers choose to consolidate the debt by mortgaging the house.
There are times when these debt consolidation companies look to discount the total amount of loan, more so when they find that the individual customer is almost bankrupt. In such times the debt consolidator buys off the loan at a discount. The customer who has done his homework well could actually go shopping to see which consolidator would give him the maximum saving. However, it is prudent to weigh the decision of consolidation, as the consumer’s ability to pay is seriously impaired in a bankruptcy situation.
When taking loans against an asset, say the house, one needs to be aware that the loans can be worsened in case of a shift in personal situation. One can choose at that time Payment Protection Insurance to ensure peace of mind. The flip side is, one needs to churn out more money monthly.
All those, who do not avail the PPI (Payment Protection Insurance), should know that their personal property may be lost or repossessed in a situation when personal circumstances change. In such a case, it is always advisable for the debtor to look for other debt consolidation solutions.
Debtors who do not opt for a PPI should be aware that their property is at a risk of getting reposed in a situation where the personal circumstances have changed. Possibly a debtor would be comfortable looking for other debt solution than mortgaging the house or property. More so, if the person has had a history of bad credit rating. Other debt solutions do not work, if an individual has already solicited a secured loan by mortgaging his house.
On paper, the advantage that a consumer gets from consolidating loans gets severely impacted when companies use this to charge a higher fee to refinance the loan. In some cases the fees are as high as the original mortgage fees. Certain dishonest companies wait for the consumer to get cornered so that the consumer agrees to pay this high refinance fees in order to save their property. This is called predator lending. However, there are only few companies who engage in predator lending.