Cure or Continued Credit Problems?

Interest rates haven’t been this low for decades, tempting some consumers to take on additional debt to ease existing credit woes. The goal is to consolidate various higher-interest balances into one, easier-to-handle and less-costly package.

But be careful of what looks to be a quick fix.

“You’re getting symptomatic relief, not a credit cure,” says Chris Viale, general manager of Cambridge Credit Corp., a nonprofit credit counseling agency based in Agawam, Mass.

This fighting-fire-with-fire approach can take several forms. There are debt-consolidation loans, balance transfers to a zero-percent credit card and home equity loans or lines of credit.

But, says Viale, 70 percent of Americans who take out a home equity loan or other type of loan to pay off credit cards end up with the same (if not higher) debt load within two years.

Viale’s statistics underscore a major problem with debt consolidation: It feeds upon the tendencies that got you in trouble in the first place. By taking on yet another creditor, you’re adding the proverbial fuel to the fire. In this case, it’s your money that’s burning.

Plus, if you’ve taken on so much debt that you’re looking for more as a solution, chances are you won’t qualify for the very low interest rates you see advertised. Those generally go to people with stellar credit ratings.

However, if you’re at the end of your credit rope or swear that this time you’ll be more disciplined, debt consolidation may be something to consider despite its risks. Here are some popular forms of debt consolidation, how they work and a look at their pros and cons.

Home equity loan or line of credit

Home equity lines or loans often are touted as a quick and easy way to get out of debt. By leveraging your residence’s value, the pitch goes, you can get money to pay off other bills and a tax break, too.

But borrowing against your house can backfire. The biggest risk: You could lose your home if you default on the loan.

“Some hardship occurs and now they have double the debt and if it’s secured by their home, they could lose it,” says Diane Giarratano, director of education at Garden State Consumer Credit Counseling in Freehold, N.J.

And while equity loan interest generally is tax deductible, it could be limited in some situations. Even when it does provide a tax break, Cambridge’s Viale says “that doesn’t mean it makes fiscal sense.”

Giarratano agrees. “Banks will tell you how much you can borrow,” she says. “That doesn’t mean you should borrow the total amount, but that’s what people do.”

Still, a home equity line of credit or loan to pay off creditors can work for some debt-burdened homeowners. Just be sure to do your homework to guarantee that the home equity dollars and cents make sense. This Bankrate calculator can help your determine whether borrowing against your home’s equity is a wise move.

Zero-percent credit card

What about people who don’t own a house? In these cases, many turn to zero-percent credit cards to reduce debt. Again, prudence and discipline are required.

Companies offer these rates as teasers — enticements for you to switch credit card vendors. Much of the time, card companies target consumers with better credit, so that may leave someone struggling with debt without this option.

Even if you do qualify for a zero-percent or similar single-digit rate, it won’t last forever. Make sure you know when it will end and what the rate is expected to jump to when it does.

The low rate also lasts only if you pay on time. One late payment and the credit card company will jack up the rate. Also look for hidden fees and charges that can increase the actual cost of credit….. read more »

12 Tips to Get out of Credit Card Debt

Everybody with a credit card knows it’s smart to pay what you owe at the end of every month – right? According to CardWeb.com, an international credit card tracker, credit card debt is approximately $9000 per household for those carrying at least one credit card. Internet shopping increases the temptation to overspend, since cash or checks are rarely an option if you’re online to shop.

Holiday spending is a notoreous time when consumers rack up their credit card bills. According the Cardweb.com, Americans racked up just over $115 billion in retail spending on their credit and debit cards during the 2003 holiday shopping season and that doesn’t include store credit cards. Spending on cards is up about 7% from last year, twice the expected growth rate.

This becomes the equivalent of around $1400 per family, which seems like a modest amount to pay off in a couple of months. “But we all know that’s not how the real world works,” said Don Hofreiter, a sales executive with a Glendale, Calif., corporation. “Not only do people carry balances from month to month, but they continue to charge on the same card to compound their compounding interest problems.”

Escaping the Debt Set isn’t easy, but it’s the best path toward saving and investing for the future. Besides, zero balances eliminate the stress of debt.

Salary.com researched some of the top sources on personal finance (listed below). These 12 ways to get out of credit card debt are a compilation of what the experts recommend.

1. Stop running up balances
If you carry a balance from month to month, stop using credit cards entirely.
If you don’t have the discipline for it, put the cards into storage or cut them up.

2. Find your best offer
Comb the fine print on all your card contracts to make sure you owe the most money on the card with the lowest interest rate. If not, investigate the costs of transferring balances.

Alternatively, hold on to every solicitation you receive (1 billion are sent out each year). Look for the best introductory rates, perhaps six months at 5.9 percent or lower, and consider transferring all your balances to the new card….. read more »

5 Debt Consolidation Loan Tips

If you struggle to pay multiple credit card bills each month along with your student loan, your car loan and your mortgage, wrapping all those bills into one monthly payment may seem like a dream come true. But before you apply for a debt consolidation loan, you need to take steps to ensure that your financial plan doesn’t backfire.

Debt consolidation tips

1) Debt consolidation loan vs. home equity loan

If you own a home, you may be considering a home equity loan instead of a debt consolidation loan. While a home equity loan may offer you tax benefits since you can deduct your interest payments and will typically have a lower interest rate than debt consolidation loans, you are putting your home at risk if you are unable to make the payments. Make sure you have at least 20 percent or more in home equity before you tap into it to pay off your bills.

2) Compare interest rates

While debt consolidation loans usually have a lower interest rate than a credit card, the rate could be higher than your car loan or student loan interest rates. Be careful that the interest rate you’re quoted extends for the entire loan period also….. read more »

Credit Card Debt and Debt Consolidation Loans

One of the best solutions for credit card debt is debt consolidation – specifically the one that involves loans. However, it is important for you to possess the right requirements for you to maximize the benefits of this debt solution.

The idea is to get a loan that is big enough to cover your other debts. Once you have the amount, you can pay off your credit card debt and keep the cards so you are not tempted to use them again. Then, you will concentrate on paying off this one loan that you got.

What makes debt consolidation loans beneficial involve two factors: the single payment scheme and lower monthly contributions. Credit card debt is notorious for the high interest rate and finance charges that can grow your balance into a big amount. If you have barely enough to stick to your minimum payments, it will take you a very long time to finish paying off what you owe. Debt consolidation loans can help fix that – but only if you qualify for it.

Like any other loan, this debt solution will require you to possess a steady income. You need to show proof that you can afford to pay off the loan that you are applying for. Without it, you will not be granted the financial assistance that you need to go through this debt relief program.

The low monthly contribution that this debt relief allows to happen is due to the structured payment term and the low interest rate. For the latter to happen, you need a good credit score. This will signify that you are a low risk borrower and thus the need to protect the loan through a high interest loan is no longer necessary. If you do not have this, another way to enjoy the low interest is through a collateral. You will put on the line a valuable personal asset that the lender can take in case you default on your payments. That is their guarantee that they will get a form of payment from you….. read more »

12 Most Effective Tips to Get Out of Debt

Many people tell us that they would love to pay down their debt or get rid of it altogether, but they aren’t quite sure of the best way to do it or where to start. There really isn’t any one “best way” that works perfectly for everyone. So here are a dozen suggestions to get you started. The more of these that you can apply, the faster you will get out of debt.

1) Pay More Than the Minimum

Make sure that you always pay more than your minimum payments. If you only make your minimum credit card payments each month, it can take forever to pay off your balance. If you want to pay off your balance quickly, pay as much extra as you can afford. Even an extra $50 each month will help. Try using a financial calculator to see how much you can save like this!

2) Spend Less Than You Plan to Spend

Most of us have wishes and wants that are bigger than our pay cheques. You might have heard the great saying that, “You can have almost anything you want; you just can’t afford everything you want.” Many people get into debt and stay in debt because they tend to buy what they want, when they want. Not even millionaires can afford to buy everything they want. If you want something, don’t buy it unless you have the money. If you can be satisfied with less than you would ideally want, even temporarily, you can use the money you save to pay down your debt. By the time your debt is paid off, you’ll probably have adjusted to your new priorities, and you can use the money that you are saving to put towards other financial priorities….. read more »

How to Get Out of Debt

Getting out of debt and staying out of debt is not easy. Chances are, you’re reading this article because you’ve already amassed a fair amount of debt and are thinking it will be impossible to ever get out from under it all. Learn how to stop incurring new debt and change your life forever.

1) Stop increasing your debt

If you have any credit cards that are maxed out, cut them in half. If you have more than one remaining credit card, cut them up. When you finish, you should have no more than one credit card. Also cut up any “convenience” cards, such as gas cards, department store cards, etc. You will use your one credit card only to buy “emergency things”, and things that you know you will be able to pay off in a short amount of time until you can get your spending fully under control.

2) Record your spending

The idea of writing down what you spend is a concept most people find annoying at best and useless at worst. However, this is actually your key to getting out of debt. You’re in debt because you spent money you didn’t have. If you’re like many people, your debt didn’t come from one single huge purchase; it was trickles of spending amassed over time. Avoiding more debt starts with knowing what you are spending your money on. Each day for one month (at least), write down every penny you spend, no matter how small.

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Consolidate Your Credit Card Debt

If you didn’t already know it, we now live in a consumer society driven by easy short-term unsecured debt. Most of this is denoted in the form of credit card debt, with nearly all of us having to-hand more than one credit card on which to call when the kids want those new sports shoes.

The fact is though, credit card debt is expensive to fund – interest rates are high, and there is nearly always some form of credit-usage fee in our account statement. To counter this, below we look at 5 reasons why you might want to exercise the option to consolidate your credit card debt:

1) Because interest rates are high

The principal reason why most people consider switching credit cards and consolidating all of their outstanding credit card debt into one card is because the interest rates on their existing credit card are just too high.

Here, as you may be aware (from all the advertising that is thrown at us), not all credit card issuers offer the same interest rate (although they are closely related in a broad spectrum). Moreover, in this highly competitive market, some credit card issuers now offer significantly lower rates of interest than some of the other more “traditional” credit card issuers.

So, if you think that it is going to be financially beneficial to you to consolidate all of your existing outstanding credit card debt into one credit card debt that is offering a lower interest rate, which will equate in significant savings, this may well be a very sensible option to take….. read more »

15 Tips For Consolidating Credit Card Debt

If you’re getting behind on your credit card bills, it’s time you take steps to manage your debt and avoid high balances and interest charges which can limit your financial options. Given below are 15 tips which can help you pay off credit card bills without leading you to debt problems. Check out the following sections to know about the debt consolidation benefits in detail and find out how the community helps you:

1) List your debts

Prepare a list of your credit card accounts along with the account number, interest rate, outstanding balance, payment due date, credit limit and the minimum payment. This will give you a clear idea about how much you owe on your accounts and help you manage your bills responsibly.

2) Pay more than the minimum

Try paying more than the minimum payment each month. The minimum payment includes mostly the interest on your account. So, if you pay only the minimum amount, the credit card company makes more interest while you lose the cash in your pocket. Moreover, it’ll take you longer to get out of debt. But paying more than the minimum reduces your balance and helps you pay off credit cards fast.

3) Negotiate a low interest rate

If you’re in financial problems or your bills are getting out of control, call the credit card company and tell them about your situation. If required, negotiate a low interest rate at which you’ll find it easier to make your credit card payments.

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