When Should Bankruptcy Be Considered As An Option

Posted on December 17, 2010 by admin | Permalink Comments Off

For those who are in debt, bankruptcy is often the last resort to get out of the bad financial situation. There are many alternatives, such as debt management and settlement, that a person should explore before making the choice to file for bankruptcy. Though bankruptcy can help solve a person’s financial problems, it can also have long-term effects.

Bankruptcy should only be considered when an individual has become insolvent and is not able to make debt payments. In many cases, this happens when a person becomes permanently disabled or is unemployed for a long period. Though it is relatively easy to do, filing for bankruptcy should be considered as the final solution after all other actions have failed because it is not the easy road one may expect.

During the bankruptcy filing process, individuals must reveal their entire financial history, which will be reviewed by a judge and is subject to objections by creditors. Some people have lost friends and business associates due to filing for bankruptcy. A person’s name and reputation can be tarnished, making it difficult for the individual to start over once he or she is debt-free. When they undertake the bankruptcy process, people should be prepared for their financial lives to be exposed.

Even those who are successful in their filings will experience long-term effects on their financial situation. These include immediately turning over credit cards that have balances and facing closure of other credit card accounts. After bankruptcy, individuals will find that it is nearly impossible to get a mortgage loan, lease or finance a car, or get any lines of credit. Those who do find a lender willing to extend a loan will find that the interest rate is exorbitant, making the loan less than attractive.

Though bankruptcy may be the solution to erasing some debts, it will not wipe out all of them. Debts like student loans and back taxes are not protected under bankruptcy. Therefore, individuals will still need to pay off these according to the existing terms. In addition, individuals may have to forfeit assets such as second residences and possibly even the automobile. Other items subject to surrender may include jewelry, recreational vehicles, and collectible items that hold monetary value.

Filing for bankruptcy is not free, as it involves attorney fees and court costs. This adds fuel to the fire for a person who is already in a bad financial situation. The negative repercussions extend long past the bankruptcy settlement date. Individuals can be subject to credit restrictions for up to ten years. During this time, they will need to maintain near-perfect credit while rebuilding their credit history.

There are positive aspects to filing for bankruptcy, including stoppage of debt collection efforts. Home foreclosure actions will cease and wages will not be subject to garnishments. The individual will have the opportunity to establish a new credit history and develop good spending habits. Implementation of positive financial changes over the long term will cause the situation to eventually become a distant memory.

Bankruptcy Advice

What To Do If You Cannot Meet Your Mortgage Payments

Posted on December 17, 2010 by admin | Permalink Comments Off

People everywhere are being faced with the frightening prospect of not being able to pay their monthly mortgage payments. They may have fallen into a difficult financial situation due to being laid off or a mortgage payer may have died. In some cases, the mortgage loan may have an adjustable interest rate and the homeowner may now be entering the period characterized by a higher rate. Whatever the case, there are things that people can do if they cannot make their mortgage payments.

If the individual has substantial equity in the home, refinancing is a good option. The term of the new mortgage can be longer, allowing the mortgage holder more time to pay off the remaining balance, which lowers the monthly payment. Now is a great time to refinance because interest rates are low, another factor that will lower the monthly payments. Homeowners should shop around to find the mortgage with the lowest interest rate and closing costs.

A home equity line of credit is another option for those who have equity in their homes. Once obtained, this credit line is there when the individual needs to tap into it for extra money to pay the mortgage. It is a way to buy time until the mortgage holder finds a more permanent solution. Individuals will need to repay both the mortgage and the home equity line of credit, so they should be careful not to overextend themselves financially.

People who know their negative financial situation is temporary may want to ask the mortgage lender for forbearance. This is a temporary reduction or suspension of mortgage payments designed to provide the homeowner with time to get the necessary money. Forbearance is often combined with either a repayment or reinstatement plan to pay off the money owed.

When a lender allows an individual to pay off the money due in a lump payment by a certain date, this is called reinstatement. Mortgage holders often enter into this arrangement when they know they will be receiving a bonus at work or a tax refund that will cover the amount due. An important note is that reinstatement plans may carry late fees and other expenses. An alternative is a repayment plan, which provides the mortgage holder with a fixed time to repay the amount due. The past due amount is combined with the regular mortgage payment during this time.

Lenders can also modify the existing terms of the loan on a permanent basis. In addition, the Presidential administration within the U.S. created the Making Home Affordable Program to help people find ways to make their mortgage payments. Individuals interested in this program should contact their lender to get more details and determine if they qualify.
If making the mortgage payments has become increasingly difficult, mortgage holders should explore these options. They will help the homeowners remain in the residence, while making the mortgage payments more affordable. The last thing anyone wants to do during these tough times is lose the home, so mortgage holders should take steps to ensure that this does not happen.

Debt Advice, Mortgage Advice

What Is Debt Management

Posted on December 17, 2010 by admin | Permalink Comments Off

Debt management is a solution for people who are having difficulty making their debt payments. Debtors and creditors enter an agreement, which lowers the repayment for the debtor and helps to keep the individual out of bankruptcy, while enabling the creditor to recover more money than would be possible without the plan. Debt management plans are usually offered by private organizations and credit counseling agencies.

Using debt management, consumers can lower their monthly payments, reduce their interest rates, and waive late fees. The company offering the service negotiates with lenders or collection agencies to help individuals get lower interest rates on debts. They may also extend the terms of repayment, providing the individual with more time to pay off the balances without penalty. Such actions reduce the monthly payments, making it feasible for the individual to pay bills on time.

Unsecured debts such as credit card and medical bills are included in debt management plans. Some plans also include payday and student loans. All of the included debts are wrapped into one plan, resulting in the individual having just one monthly payment to make. For those who are unable to manage multiple bills each month, this added simplification is a welcome feature.

Anyone who has created a plan for repayment but has not been able to stick to it should explore debt management. Those who are slipping into a dire financial situation will find that this is a way for them to avoid filing for bankruptcy. Debt management allows these individuals to stop receiving collection calls, lower the interest rates and monthly payments on their debt, and pay just one monthly payment rather than multiple bills.

Individuals should research debt management companies because not all are equally reputable. Researching the company profile, checking its service history, and reading client testimonials are recommended. In the U.S., consumers can check with the Better Business Bureau to see if the company is a member or has had any consumer complaint filings. Selecting a reputable debt management company can mean the difference between saving money while paying off the debt and making the situation worse.

The debt management company evaluates the individual’s financial situation, including the total amount owed, minimum payments, and interest rates on the debt. This company then negotiates with lenders to lower the monthly payments and interest rates. A repayment plan is arranged with lenders for the individual to pay back outstanding balances. Consumers should only accept a negotiated plan if they feel they can afford it because an unaffordable plan will not improve the financial situation.

Anyone considering a debt management plan should get all details in writing from the debt management company. Monthly fees for use, duration of the program, and repayment terms should be clearly described. Once they have agreed to a plan, individuals will make a single monthly payment to the debt management company, who then distributes the money to the creditors as outlined in the plan. Making regular payments according to the plan terms enables individuals to become debt-free in several years.

Debt Management

What Is An IVA

Posted on December 17, 2010 by admin | Permalink Comments Off

An IVA, or individual voluntary arrangement, is a legal alternative that exists in the UK for individuals who wish to avoid bankruptcy. The IVA was established under the Insolvency Act 1986-Part VIII and is also governed by this legislation. Under an IVA, a formal proposal for repayment to unsecured creditors is presented to creditors by an insolvency practitioner.

Individuals who are struggling to repay their debts use the IVA to get creditors to accept a repayment plan that the debtor can afford. To quality for an IVA, the debt must exceed £15,000, debts must be payable to two or more creditors, and the debtor must be able to pay at least £180 monthly. In addition, the individual must show that the monthly living expenses plus debts exceed the monthly income.

Usually, claims of secured creditors are not included in the agreement. After the debtor has paid for necessary living expenses and submitted what is due to priority creditors, the remainder of the money can be paid under the terms of the IVA. Once an individual has made the agreed upon payments under the IVA, the remaining debt included in this plan is written off, so the individual will not be held accountable for it.

Not everyone will find himself or herself in a financial situation that qualifies for an IVA. Debtors whose financial situation is less serious should consider a debt management plan. Those who feel they do qualify for an IVA will need to submit a proposal, which is subject to approval by the creditors. Independent agencies of insolvency practitioners help manage the IVA repayment plan by dealing directly with creditors. They collect the individual’s payments and distribute these to creditors per the written agreement.

As an alternative to bankruptcy, IVAs are attractive to people who have many assets they want to protect, such as expensive cars and high-equity properties. Under an IVA, these assets are not directly at risk as they could be in a bankruptcy situation. However, bankruptcy and the IVA are not mutually exclusive because an individual can submit an IVA proposal after filing for bankruptcy. In the case of an undischarged bankruptcy, the bankruptcy order can be annulled. In certain situations, an IVA may be approved after a bankruptcy order has been made.

Disadvantages of entering an IVA include the stigma attached to it. The information is listed on the Personal Insolvency Register in the UK and will remain on the individual’s credit file for six years. Income-based IVAs often lasts for up to five years, where bankruptcies are usually automatically discharged within one year. Payments are often much higher under income-based IVAs than bankruptcies.

One major positive aspect of an IVA is that it does not legally restrict the individual from obtaining credit. IVAs also do not prevent debtors from acting as company directors. Once an IVA proposal is approved, it applies to all unsecured creditors, even those who did not directly approve it . Debtors have more control over their homes under an IVA than a bankruptcy, making this a preferred alternative for many who find themselves in a bad financial situation.

Debt Advice, Debt Management

What Are The Consequences Of Going Bankrupt

Posted on December 17, 2010 by admin | Permalink Comments Off

Once an individual files for bankruptcy, not all is resolved, because there are many negative consequences. Though bankruptcy is a way for people to get themselves out of a hopeless financial situation, it will be a long time before they are truly back on track financially. Knowing the negative aspects of bankruptcy filing helps people determine whether the situation is the proper course of action.

Upon bankruptcy filing, the individual will be limited in terms of spending. This is because the credit cards containing outstanding balances must be forfeited. Lenders represented by the unaffected cards may feel it is too risky to continue extending credit and might close those accounts. Individuals will have a difficult time being approved for any credit cards for up to ten years after bankruptcy filing. Any approvals they do receive will likely have extremely high interest rates.

If the hope was to purchase a home or car, the individual needs to put those dreams on hold because it will be very difficult to get a mortgage or car loan. Not only will people need to give up those dreams, they may have to give up some assets, such as valuable jewelry, recreational vehicles and watercraft, and collections of items that have redeemable value. This can be devastating to someone who has had antique collections in the family for generations.

Creditors regard bankruptcy as the most negative thing on a credit report. It is considered far worse than having a low credit score. For up to ten years after filing for bankruptcy, the individual will be subject to credit restrictions. During this time, the person needs to rebuild the credit history from the ground up, maintaining a credit record that is near perfect.

It is not easy to repair credit after bankruptcy, especially because it cannot be done by properly managing credit cards. Individuals will not have access to most forms of credit for up to a decade, which is both a blessing and a curse. Sometimes, situations like this are just what a person needs to become more financially responsible. Individuals will not be able to rely on credit and must spend less than what they earn. The hope is that these habits will stay with them for a lifetime.

In some cases, bankruptcy can affect an individual’s career aspirations. Within the UK, individuals who have filed for bankruptcy may not act as a company director, chartered accountant, lawyer, or justice of the peace. They may also not become a member of parliament or the local authorities. Formation, promotion, or management of a limited company is also not permitted without prior court permission. Individuals are not permitted to engage in UK business trade under other names unless all people involved are informed of the bankruptcy.

Going bankrupt is not something that should be entered into voluntarily without a lot of thought. The negative consequences are many and they can last for ten years or even longer. People who are faced with debt should explore all other alternatives to improve their financial situation prior to pursuing bankruptcy.

Bankruptcy Advice

Transferring Credit Card Debt To Save Interest

Posted on December 17, 2010 by admin | Permalink Comments Off

One way to reduce debt is to transfer balances from high interest credit cards to those that feature low rates of interest. A March 2010 U.S. Federal Reserve consumer credit report indicated that the average interest rate on credit card debt was 14.31 percent. This makes the credit card one of the most expensive ways for people to borrow money. Transferring debt from high interest to low or no interest cards can help an individual become debt-free.

Some credit card companies offer special deals to new customers, including balance transfers with attractive interest rates. After the consumer is approved for the new credit card account, he or she can transfer the existing balances from other credit cards to this new account. The lower interest rate on the new account usually lasts for a specified time such as six months. This enables the debtor to be subject to a lower rate of interest while paying off the balance.

There is sometimes a fee for transferring credit card balances, so consumers should research whether the lower interest rate offered by the card more than offsets any balance transfer fees. Such fees are usually added to the balance, resulting in an increase in short term debt. If the fee is less than what will be saved in interest payments, the consumer should transfer the balance and begin paying off the debt.

Consumers should shop around to find the credit cards with the lowest transfer balance interest rates and most favorable account terms. Zero interest cards can be found but they may only be offered to those with the best credit scores. If the individual can do anything to improve the credit score within a short period, this is recommended. This will increase the chances the person will be approved for the zero interest credit card.

Once the new card is obtained, the account holder will need to complete some forms containing information regarding the existing lenders. These lenders will be contacted by the new credit card company and the balance transfer process will usually be completed within 30 days. Customers will receive a letter of notification when the transfer process is complete. This letter should be retained because it usually contains details regarding duration of the lower interest rate period.

If a person is unable to pay off the debt before the lower interest rate period has expired, he or she will then be faced with the higher rates of interest. There is no law against seeking another low or no interest card and transferring the remaining balance. The fact that many people do this, though, is what has led card companies to charge balance transfer fees.

People who are faced with credit card debt on accounts with high interest rates should consider transferring the balances to lower interest rate cards. Doing so will save these individuals money in interest payments. This money can instead be used to pay down the principal balance of the debt, enabling individuals to become debt-free sooner than they initially anticipated.

Credit Cards, Debt Advice, Debt Management

Negotiating With Creditors When You Cannot Repay Debt

Posted on December 17, 2010 by admin | Permalink Comments Off

Sometimes, the debt situation can get to a point where individuals cannot repay the balances. Rather than letting these sit, accumulating interest and possibly slipping into collection status, debtors should take action. They can negotiate with creditors in order to make the situation more manageable while avoiding any further negative consequences. Possible solutions include lowering or freezing interest rates, lowering monthly payments, or negotiating settlements.

From a financial perspective, times are difficult for many people and creditors realize this. Individuals may have unsecured debts such as credit cards, retail store charge cards, medical bills, personal loans, and student loans. They may also be faced with secured debts like auto loans and home mortgages. Though secured debts are generally not subject to negotiation, refinancing may help make repayment more feasible. Unsecured debts have the benefit of being subject to negotiations with creditors.

A consumer should review the outstanding balances on credit card and retail charge card accounts. With this information and a credit report in hand, the individual should begin contacting creditors to see what can be done. The conversation may include explaining what led to the current financial situation, such as injury, a layoff, or death in the family. Individuals should stress that their goal is to prevent, or clear, negative items on the credit report while repaying the debt.

After listening to the individual, creditors may offer to lower the interest rate or freeze the amount of interest for a certain time so no more will be charged. This will make it easier for debtors to pay down the principal balances on their debts. The best plan of attack is to pay off the accounts with the highest balances and highest interest rates first and then focus on the rest, in declining order.

Some creditors may extend the repayment period without penalties, which will lower the monthly payments the individual must make. However, people should not become unmotivated by this. Any extra money left over each month should be used to pay off outstanding balances. The quicker the debt is paid off the better, in any situation, because it means the person will realize financial freedom faster than expected.

A settlement is another option some creditors may offer and this involves paying off an agreed upon amount that is less than the current balance. In this situation, there may be negative repercussions on the credit report. The affect usually depends on the age of the account, with newer debts having a more positive outcome in terms of credit score. Individuals are more likely to settle older debts for less money because the creditors will just be glad to receive some payment, rather than none.

If an individual is unable to negotiate an acceptable arrangement with a creditor, he or she should ask to speak with a supervisor. Often, these more experienced staff members have the ability to present other options or terms. Negotiating with creditors is not difficult but it requires that an individual have all the necessary information and be diligent in pursuing the issue until an acceptable solution is reached.

Debt Advice, Debt Management

Managing Credit Card Debt

Posted on December 17, 2010 by admin | Permalink Comments Off

Credit card debt is a huge problem for many individuals and if it goes unmanaged, the situation only gets worse. In the U.S., the average household that has at least one credit card is facing credit card debt of close to $10,700 and interest rates in the mid to upper teens. Having some debt, such as a mortgage or student loan, makes sense but letting credit card debt get out of control does not.

Individuals should only apply for credit cards featuring the lowest interest rates. Those with rewards programs, such as cash back or points, are great because they offer a way for people to get something in exchange for their spending. Credit cards should never be used to pay for things that are quickly consumed if the balance cannot be paid off within a couple of months. This practice is one of the fastest ways that individuals fall into debt.

When an expensive item is on the wish list, people should save money for it over several months before they charge it. This way, the person will be able to make the payments when they are due and reduce interest charges. For the biggest ticket items, look for credit cards that offer no interest, and if possible, no payments, for a certain number of months and pay off the item within this period.

Often, people use their credit cards to buy things that are not necessary. Just because an item is on sale does not mean that it is needed. Take inventory of what is needed for the home and make sure that extra money is set aside for unexpected repairs or emergencies. Use the credit card only for necessary purposes and make every attempt to pay off the bill each month. If this is not possible, make at least the minimum payment and ensure that all payments are made on time.

If people do find themselves in credit card debt, they should first pay down the balances of the cards with the highest rates of interest. While doing so, at least the minimum payment should be made on all other cards. Whenever there is extra cash on hand, it should be applied toward credit card payments. This allows individuals to pay off outstanding balances faster, reducing interest payments, thus lowering the total amount paid.

Contacting the credit card company to request that the interest rate be lowered may also have a positive result. Individuals who have good credit scores and have always made payments on time may be able to get a lower interest rate. Transferring balances to cards with very low rates is another alternative as long as the transfer fees do not offset the difference in interest rates.

Often, paying off credit card debt is not something that can be done overnight. It usually takes months or years of diligently saving and making payments. However, if individuals approach the situation in the manner outlined above, they can save money, pay off the credit card balances much faster, and permanently improve their spending habits.

Credit Cards, Debt Advice

How To Reduce Your Debts

Posted on December 17, 2010 by admin | Permalink Comments Off

Getting oneself into debt can be quite easy but getting out of it is often rather difficult. Emergencies and daily needs sometimes end up costing us more than we can afford, requiring that we take out a loan or place charges on our credit cards. When those expenses add up, we are often faced with a significant amount of debt in various forms. Though it may seem overwhelming, there are things we can do to reduce this debt figure and get back on track.

Perhaps the most important advice is to stop spending money on things for which we cannot afford to pay. Every additional item that we charge on a credit card or take out a loan to pay for increases the amount of debt. Remove the credit cards from the wallet and place them in a drawer for dire emergency use. Pay for things only with cash or a debit card connected to the bank account.

Get an idea of how bad the situation is by reviewing each credit card and loan statement. Find the ones that have the highest interest rates and begin paying them off first, submitting at least the minimum payment each month. If there is extra cash on hand at the end of the month, use it to make extra payments on high interest loans and credit card balances. Focus on paying off the debts with the highest rates first, then move on to the others.

Contact lenders to see if they will reduce the interest rates on credit card balances. Making these calls is easy and can save thousands of dollars, while enabling the person to pay off the debt faster. There is no guarantee that a lender will agree to lower the interest rate but it does not hurt to ask. Contact each lender and see if there is anything that they can do to help.

High-interest balances on credit cards can also be transferred to new cards. Often, a credit card company will offer no interest on transferred balances for a limited period. This could save the person substantial money in interest payments. Before applying for these credit cards, individuals should read the fine print and be aware of all relevant terms.

If all of these things have been done and situation still looks bad, bringing in some additional income may be the only answer. People in debt can look for part-time jobs outside of their regular work hours. Working in a restaurant or at a retail store during the holidays are two possibilities. Look through the classified ads and inquire with local businesses regarding their need for part time help.

Reducing debt is not difficult if the individual approaches the situation in the proper way. The keys are to stop charging on the credit cards, begin paying off high interest loans and card balances, and exploring ways to lower the interest rates. In addition, the individual can take on a second job to earn extra money to pay off the debt.

Debt Advice

Debt Reduction Tips

Posted on December 17, 2010 by admin | Permalink Comments Off

Debt has become such a socially acceptable issue that many of us often do not realize how bad our own financial situation has become. Though it is more difficult to get a loan or credit card during this economic downturn, it is still possible. Thus, people are still managing to get themselves into debt. If you find yourself in this situation, here are some things you can do to dig your way out of the debt hole.

Staying motivated is key when reducing one’s debt, so keep a running tally of the debt and watch the number decrease. Rewarding oneself is also important, so set a goal for savings after the debt is paid off and think about what to buy with the money. Many people are surprised to see how much money they have remaining on a monthly basis after they have paid off their debts. Save this money but do not be afraid to reward yourself.

Focus on the debts with the highest balances and interest rates and pay those off first. Work down the list, paying off each debt in turn and feeling an increasing sense of relief when looking at those zero dollar balances. The psychological aspect of paying off debts is a motivator to continue the process. Being debt-free allows an individual to sleep at night knowing that unexpected expenses will not wipe out the bank account.

Look around for ways to make some quick cash, such as selling unneeded items online or at yard sales. Pick up a part-time job at night waiting tables or working at a store. Look for ways to make passive income such as setting up a Web site and enrolling in a product or service affiliate referral program. Even during this economy, there is money to be made so look for ways to do it and use the extra cash to pay off debts.

People who find themselves using their credit cards too frequently for purchases should freeze them. Put them in a bag and hide them in the drawer or cancel all but one of them that can be used for emergencies. For some, removing the card removes the temptation to use it. That way, the only purchases that will be made will be in cash and the individual will stop the debt from increasing.

Set reminders on the calendar or phone to pay bills prior to their due date. One late fee may not seem like a lot but where there is one, there are more and these can add up to a substantial amount of money. Paying on time eliminates these fees, allowing the money to be applied toward the principal payments.

Taking ownership of the debt situation, understanding that it has become a problem, and dealing with it are the keys to improving it. Develop a plan for debt repayment and stick to it so the debt can be paid off within the timeframe set as a goal. Once a debt-free situation is realized, stick to a budget to ensure that the bad spending habits do not recur.

Debt Advice