Debt Consolidation Blog

Debt consolidation is often the primary back up plan for someone that can no longer make payments to multiple creditors. Advertisements for debt consolidation companies often make this plan sound like a difficulty-free way to dissolve debt, as if with a magic wand. While debt consolidation can be beneficial, what the companies will not tell a debtor might hurt them. Realistically, the payments for the debt owed may look more manageable. However, the person consolidating their debt must look at the big picture. Debt consolidation is simply bringing in a third party to help centralize monthly payments. This does not necessarily reduce cost unless the interest rate the person is paying on all of the decentralized payments is greater than the one that the debt consolidation company charges. If the debtor is sending payments to multiple creditors but with a low interest rate, it may actually make things worse to consolidate.

Debt consolidation looks like a good idea at first and it does give a slight tax break to the borrower. However, this only lasts for a short time because of the high interest, which immediately negates any gain received from the consolidation. Debt consolidation may offer a slight advantage as far as short-term financial planning goes, but in the long run, it will most likely serve to take the borrower further into debt.

One of the main disadvantages of debt consolidation is that it uses an asset that the borrower possesses as a guarantee of repayment. Some of these debt consolidation plans take anywhere from 15 to 30 years to completely repay. During this time, the borrower’s home or other asset is put continually at risk. If the potential borrower just takes a minute to consider the repercussions of debt consolidation, they could realize that, if they were to lose the home or other important possession from inability to make payments, they would be in even worse shape than they were before. This process tends to turn into a horrible vicious cycle in which the borrower is continually making payments only to have those payments negated by the effect of repossession if they fail to continue regular payments.

One effective method that may be used instead of debt consolidation to put debt into a central place is through credit cards. This only works if all of the borrower’s debt is all credit card debt. But if it is, then one way to avoid using a debt consolidation company is to put all of that credit card debt on the card with the lowest interest rate.

In avoiding bringing in a third party debt consolidation company, the borrower also avoids the potential legal and financial hassle that could result from a smaller debt consolidation company going out of business. If this does happen, the borrower is at risk of having his or her case handed over to a less reputable company. Therefore, this mess just escalates as the borrower is sent from company to company.

In conclusion, debt consolidation may be beneficial in certain cases, but it can also be very risky. Anyone that is considering consolidating their payments should do careful research and fully understand the commitment they are making with borrowing from yet another lender.

With recent trends in the stock market and housing market, many have become curious exactly what goes on during a foreclosure. Unfortunately, foreclosures are not a pleasant experience for anyone involved in the process. For the borrower, the process can be very emotionally trying and carries a significant amount of stress with it. For the lender, it can be a very large hassle just to remove the former owner, repossess the home and put it back on the market. In a market such as our current one, it can be very difficult for the lender even to re-sell the home in question. Some lenders even will accept what they call a “short sale” to regain as much money as possible from the failed venture. However, short sales are not always accepted by a lender; therefore, foreclosure has become more and more common.

Exactly how a foreclosure proceeds depends on the amount of payments that the borrower has failed to submit. If the person in question is only one payment behind, he or she is most likely not at risk for foreclosure proceedings. However, that is at the discretion of the bank or company that lent the money for the purchase of the home.

Things do get more serious the longer the payments fail to be made, though. After a failure to make payments for 3 months, the proceedings can be handled by one of two ways. One of these is the “judicial sale” and the other is the “power of sale.”

The main difference between these two options is that in the judicial sale, the proceedings actually are done through a court of law. To take this route, the lender must file a suit with the court, then the court issues a 30 day notice during which the borrower has the chance to make up the payments to avoid foreclosure. If the borrower fails to make the required payments, the property is turned over to the local sheriff, who sets up an auction to sell the house. When the house is sold, the sheriff then serves a notice of eviction.

In a power of sale, all of the proceedings are handled by the mortgage company, itself. Instead of having the court of law issue the notice for payment, the company sends that notice out requesting the required payment. The company also draws up a temporary deed that is in the name of a trustee. If the payments are not made in the allotted time, the trustee then sets up an auction and sells the home. All of these proceedings are carried out under the supervision of the court to make sure that all of the actions of the company and its client are carried out in a legal manner.

In general, these are the two major types of proceedings that occur when a foreclosure becomes necessary. As discussed earlier, most companies do not particularly enjoy conducting foreclosure proceedings. Usually the lender has to take a loss when the house is re-sold. This factor often leads lenders to give a “grace period” to help the borrower make payments. However, when and if foreclosure becomes necessary, the lender is eventually forced to take this course of action.

Credit cards have been around for a good, long time. Their original use was more similar to a charge card than what it is today, but the way in which people use these plastic cards has also changed a great deal.

Our society also looks at credit cards with a different view than they did years ago. Back when credit cards were first put on the market for use, they were intended for emergencies only, and were to be paid off as quickly as possible. In addition, credit cards were not owned by companies independent of the companies that were accepting them as payment. For example, a certain local company would issue a card to a loyal customer and the customer could use the cared only at that local business. No other company in the area or especially one in a different locale would accept the card in exchange for merchandise or services.   They were not looked at as a way to live outside one’s means. Unfortunately, that view has changed dramatically in the past 50 years.

Credit cards are still good for emergency situations, just as they were half a century ago. However, people use these cards for far more than just emergencies today. Credit cards are viewed as a way to put off payment for debts. But as with all kinds of procrastination, the problem doesn’t go away; it actually grows.

One of the traps that credit card companies most often don’t inform customers about is the fluctuating interest rate of many cards. That 0.0% interest rate may look really nice for now, but what the company won’t tell a potential borrower is that that interest rate will most certainly undergo a dramatic change in the next few months. The 0.0% interest rate only lasts for a very short time and then becomes very, very high. The company may give the borrower some type of notice buried in fine print, but if that person fails to patiently wade through all of the tiny characters, he or she might be in for trouble with making payments.

Another trap that credit card holders often fall into is impulse buying. For many people, paying with a piece of plastic doesn’t seem to equate with the same amount paid in cash. It seems to that person as though he or she is not spending as much as they really are. This problem is easily solved, however. All the person needs to do is pay for everything in cash. This makes the connection in the person’s brain that their bank account balance is decreasing when they pay for things, therefore helping them limit spending on anything that is not a necessity.

A third pitfall of credit cards occurs when the borrower fails to pay off the complete balance each month. The credit card company may then charge a fee on the balance that most likely will have a terribly high interest rate. After the borrower pays for the yearly membership fee, interest on the remaining balance and any late fees, he or she could be paying even more than the monthly payment in just fees!

One enticement that credit card companies offer to prospective borrowers is the “fixed interest rate.” In reality, this supposedly constant rate fluctuate with as little as 15 days of notice to the card holder. If that particular card holder has a balance that he or she carries over from month to month, this could have disastrous effects on the person’s finances.

Another potential hazard for credit card holders is that going over the limit with that card could cause a charge of up to $35 to the client in question. Even if the card holder overspends by as little as one dollar, the company still charges that same flat rate of 20-35 dollars.

A sixth hazard that credit card applicants should avoid is ignoring the important features of the agreement such as the allotted time for payments to be sent in. In years past, most if not all credit card companies gave the user a month long “leniency” or “grace” period to make a payment on the balance put on the card. However, now there are no major companies that offer that long of a period of time. Now the average has shortened to 23 days. This is an important thing to note if the borrower is payed monthly, because he or she may not get the funds in time to make a payment on the balance.

One trap that is particularly sneaky is the one directed at a section of the nation’s most vulnerable people: college students. We have all heard about college experiences in which the student is desperate for money after paying the high tuition and fee costs that most universities charge. At this point, to the student, the credit card sounds like a dream come true, only to find out it will become a nightmare of financial ruin.

Something that most credit card applicants also often miss is the exhorbitant charges on cash advances. Some think that cash advances are the same as any other charge put on a credit card account. Unfortunately, this is not so. Fees for cash advances often carry a terrible interest charge along with them.

A ninth trap that credit card applicants can be lured into is the applicant may not always get the card, and thus the lower APR, that they were counting on. When a company reviews an application, they reserve the right to issue a lesser card in place of the card applied for if the applicant does not meet the lenders “approval.” These lesser cards often carry with them much higher interest rates than the card that was originally applied for.

Lastly, credit card companies often do not tell the customer that, if they make a late payment on another card, even if it is issued by a completely different company, that late payment will make interest rise on all of the cards. This has a domino effect on all of the customer’s dealings with creditors in the future. A bad credit report could lose the borrower a job, prevent him or her from getting a loan, etc. Credit cards do have their uses, but one must take a careful look at the fine print before applying for the card.

• Definition: Debt Consolidation-by Savvy Sugar
  Debt consolidation may seem like the easy way out of a financial fiasco, but, in reality, it can make a financial burden even greater than before. Debt consolidation certainly does have its advantages if the correct measures are taken to curb spending. However, the principle behind any plan to rid a person of debt is that of self-control. Without this necessary element, debt will only continue to accumulate, despite much planning and manipulation. This article points out some of the pro’s and cons of debt consolidation.
• Not All Debt Consolidation Programs Can Rescue Your Financial Situation-Debbie Dragon
  Because of how debt consolidation programs are often portrayed, it is very easy for consumers to become confused about the necessary effort that must be put into that program to eventually eliminate debt. Another aspect that many people may not be aware of, is that there is a certain amount   that a person must owe in order to qualify for debt consolidation. This article gives some useful information on these and other often overlooked aspects of debt consolidation.
• Debt Consolidation Loans: Manage Your Multiple Debts-Article Alley
  Occasionally, things in life get so out of hand that it seems that it would be nearly impossible to prevail. However, for those that are simply overwhelmed with managing multiple payments for different debts, debt consolidation could be a viable option.
• Clean Up Your Act to Avoid Debt Consolidation-Greg Mischio
  Some people would consider debt consolidation to be a last-ditch effort to stay away from bankruptcy.Because loans with higher interest rates often cause a person to lose more money than is practical after all is said and done, any means that a person can employ to pay off existing debts without debt consolidation is recommended. As with any debt-eliminating plan, self-control is the essential factor to becoming debt-free.
• Understanding Your Debt Consolidation Options-Debtopedia.com
  Because debt consolidation is supposed to be a process that simplifies payments for debts owed, sometimes a misconception arises as to how the process of debt consolidation works and also the different types of debt consolidation that exist. In this particular article, the author explains some of the common misconceptions behind debt consolidation.