Debt Consolidation Blog

Many people are feeling the crunch from the lowered value of their homes. If you used your home equity to pay off debt or to borrow for other things, you may be looking for a way out. If your house is worth less than what you owe on it, it is easy to get discourages–especially if you lose your job.

Some people have in the back of their minds they idea that they can always go bankrupt. It isn’t as easy as it use to be. The laws have changed to make it significantly more difficult to go bankrupt, so while it might be an option if you are disabled or have some other extremely catastrophic circumstance, it is no longer an easy way out. Your best option is to do everything possible to avoid bankruptcy and pay back your debt.

It might mean working two or three jobs. It might mean skipping out on a lot of things you enjoy for awhile, but the sooner you start trying to get out of debt the sooner you’ll start seeing progress. The longer you wait the more difficult it will be.

Credit card rates in the US can be very high. I’ve seen interest rates as high as 38% before and I’m not sure that is the upper limit. What is funny is that most states have usury laws that make it illegal to loan money at more than a certain rate. Many times these rates are low–10% to 15%. However the way the laws are written these rates don’t apply to banks or credit cards.

It seems kind of pointless to make a law and then exempt the very people who are likely to fall under it.

While US credit card rates are high, other countries have even worse rates. I know of someone in central America who has a rate of 43%! I think there are other people with rates even higher than that.

If you use a credit card make sure you know your terms and be very careful not to carry a balance or get into a place where you can’t pay off everything each month.

Credit cards are a very bad way to consolidate debt unless you know you can pay them off once the rate goes up.

The WSJ had an interesting article that talked about a scam people were using to keep a house when they couldn’t make payments on their current home. Lets say Nancy lives in a neighborhood where she paid $400,000 for a house. The value of her house has dropped to about $200,000. Her adjustable rate mortgage is about to jump up a notch and she will no longer be able to afford the payments. Nancy still has a job, but she can’t afford to pay an extra $1000 per month (or more) after the rates go up.

Many other homes in Nancy’s neighborhood are going up for sale as well. Some of the homes are even identical to hers and are going for half of what she owes.

Before her credit is ruined, Nancy goes out and buys another house–maybe even one just like the one she owns. Then she simply stops making payments on the first house. Eventually the bank forecloses on the first home and Nancy keeps the second house down the street.

This is what people are trying to do. Right now there are some people getting away with it, but it looks like it will normally be considered fraud. It is too early to tell exactly what the courts will decide, but people in serious trouble will take drastic measures–sometimes without regard for the consequences.