Personal Finance Resources
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Know Where You Stand
If you feel like you're drowning in debt one of the first things you need to do is find out exactly how much you owe and to whom. Make a list of all your credit cards, the balance, minimum monthly payment and interest rate. The next step is to develop a budget. And finally consider the different debt Management Solutions available to you.
Home Equity Loans
Home equity loans are granted on the credit worthiness of the home owner and the amount of equity in the property. Equity is the difference between the balance of the mortgage and the market value of the home. Home equity loan rates vary depending on whether it's a variable rate mortgage, interest only and how long the mortgage is for.
Home Equity loans are sometimes called a second mortgage. Traditionally mortgages were granted for 30 years but other time periods are available as well.
Mortgages and mortgage refinancing
Mortgage refinancing is an option for those who wish to take advantage of lower interest rates and reduce their payments or refinance at a higher level and use the cash for debt consolidation or other uses. Refinancing with bad credit or poor credit is possible if the value of the home has increased.
If you're looking to mortgage a commercial property, or building, you would need to seek a commercial mortgage. Commercial mortgages can also be used to purchase a business, if one of the assets of the business is land or buildings.
When choosing a credit card consider the membership fees, short term interest rate, whether the interest is permanent or only for a short time and then increases and what you'll be using the credit card for. Credit cards for bad credit scores do exist, but the interest and annuals fees are high.
Ways to Get Out of Debt
Bankruptcy is a legal method of debt relief. The debtor declares that he or she is incapable of paying their debts. Unsecured debts may be discharged completely. Secured debts, such as a car loan or mortgage can be brought current over the time period of the court order, usually 3 to 5 years. Bankruptcy can be complicated and is best handled by an attorney.
The creditors have no choice but to accept the fact the debtor is no longer legally obligated to pay the debt. Bankruptcy can have a disastrous effect on the credit rating of the debtor, and the ability to obtain a home mortgage, new debt or car loan. In addition many employers routinely procure a credit report on potential employees and take that report into consideration during the hiring decision.
Debt consolidation is one method consumers can use to help get themselves out of debt. It's simply taking all the unsecured debt and loan balances including credit cards, and replacing them with a new loan, usually at a lower interest rate and for a longer time period than the original loans.
The new loan can be obtained through a debt consolidation lender, a home equity loan, or refinancing your mortgage.
Besides debt consolidation loans, other methods include debt settlement, credit counseling programs and bankruptcy.
Debt settlement is negotiating with each creditor to pay off the loan balance at a much reduced level. Creditors realize that they may only receive 25% to 75% of the balance owed. However if the debtor defaults on the loan and declares bankruptcy the creditor would receive nothing. Creditors may not take the efforts of the debtor seriously enough to settle. Until the debt is settled by payment the creditor can proceed with legal action and with collection efforts.
There are consequences of debt settlement. The unpaid balance affects credit reports. The forgiven balance may be considered income and consequently taxes may have to be paid.
There are companies who provide debt settlement services on behalf of the debtors. These companies charge a fee, sometimes several thousand dollars.
A credit counseling program works with the debtor and negotiates with each creditor to reduce the balance, interest rate, and late fees. A new total monthly payment is established. The debtor pays the credit counseling service the new payment plus a fee for their services. The service subtracts their fee and the pays each creditor the agreed to amount.
Whether you choose debt consolidation, counseling, or settlement do so as soon as possible. The longer you wait the less options are available to you.
Loan foreclosure is a last resort for lenders. It requires a court procedure to notify the home owner that the lender is taking possession of the asset that the loan is secured with, in most cases that's the home.
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Dee Power & Brian E. Hill
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