Is Debt consolidation the right solution for you?

Today’s post is a guest post by David Brown,  a financial writer with Oak view law group

Have you been hit by the money bug? Are you suffocating under the burden of multiple debts? Well, debt consolidation can be one of your options. However, you need to know certain things before you decide to consolidate your debt. Read on to know more:

How can debt consolidation help me?

• If you have a poor monthly income right now then debt consolidation provides you the option of making lower installments over a longer period of time. It might certainly suit your current financial condition

• If you have several loans right now then you might be facing a tough time calculating interest rates. With debt consolidation you take a single loan to pay off all your debts. So you can manage your finances in a more organized manner.

• You need not handle calls from the collection agency. The debt consolidation company does that for you.

What are the shortcomings of debt consolidation?

• In most cases debt consolidation loans are secured loans. This means that you have to pledge some asset (your car or your home) as collateral for the loan. So you risk losing your assets in case you fail to pay back the loan. You should be confident about health, job and other unpredictable issues which can cause financial trouble. To be eligible for unsecured consolidation loans you must have a pretty good credit rating. Even if you manage to get a unsecured consolidation loan with a poor rating, it will probably not be big enough to pay all your debts.

• Many people wrongly assume that all consolidation loans have low interest rates. However it’s a different story altogether. In most cases the payment is lower because of the extended term and not the interest rate. Secured consolidation loans sometimes have a low interest. But it can still cost you if you are taking a long term loan, say for 30 years. In such cases you have to pay interest for a long period of time and over the years the interest might grow even bigger than the original debt amount. Depending on your present debt, the interest rates for these consolidation loans can be more than those on the pre-existing debt. That is what makes debt consolidation a profitable business for your lenders.

(more…)

How to Save When You’re in Debt

This is a guest post from Fred from Credit Card Finder. Fred helps people to compare and choose the best credit card online.

If you’re in debt with credit cards, or personal loans and a mortgage you may be feeling a little nervous when you think about your lack of savings – but does it make sense to direct funds towards a savings account when the interest earned there will be overshadowed by the interest you are paying on your debt. There are ways to save when you are in debt, and there are financial products which can help specifically with this situation. So here are five years you can save, even if you have debt.

1 Consolidate credit cards to one balance transfer card

Try and avoid using equity or a line of credit on your home loan to pay off your credit card debt because you are in fact just stretching out your credit card debt for another 30 years, when you can target it now and get it out of the way for good. Instead, find a balance transfer card with a low interest rate which will allow you to transfer all of your credit cards to be charged one low rate. In this way you have your debt under control, you have a manageable monthly repayment and you have a payment plan which will help you get rid of your credit card debt.

2 In debt to 9%

Many financial planners and advisors will use the 9% rule – if you have debt which is charging you interest of more than 9%, you should direct as much of your income as you can towards paying down that debt. (more…)

The Joneses Are Your Enemy

Photo by: Chapek Sergey

Probably the most self-destructive thing that a person can do for their financial future is to pay undue attention to what those around them are doing.  Obviously this has limits, but using your friends, family or neighbors as benchmarks for “success” can manifest itself in many ways and almost all of them can sabotage your financial progress.  You should always remember that what a person presents as their situation can be very different from their true situation.  Let’s look at some ways the Joneses can sabotage you.

Status Symbols

Typically when talking about “keeping up with the Joneses” we’re referring to buying status symbols.  Maybe your neighbor bought a new BMW, and it sure looks nice.  Or maybe you’d like to host the football watching party sometime, but your TV just doesn’t match up to your friends’.  These types of situations can inspire us to make purchasing decisions that may provide a short-term high for a lot of pain.

Almost all status symbols are depreciating in nature.  Your car and that new TV are going to lose their value over time.  The more purchases like that you can avoid the better your financial future is going to be.  This isn’t really very tricky, and most of us are aware of this, even if we don’t always follow through.

Debt

(more…)

Should You Ever Leverage Yourself?

Photo by: fairlightworks

The typical American is leveraged.  They have borrowed money to buy things.  This is not necessarily bad in and of itself, but if you start to think of your household as a business, you may stop and question whether the leverage you’ve taken on makes sense.

What is Leverage?

Leverage is the use of debt to magnify the outcome of an investment.  Say, for example, you are a company, and you trade widgets.  On each shipment you can buy widgets in one location for $10 and sell them in another for $12.  If you only had $100, you could only do this in shipments of 10 widgets and make $20 per shipment.  However if you could go and borrow $10,000, you could buy shipments of 1000 widgets and make $2000 per shipment.  Even after you paid back the party that loaned you the money, along with any interest, you would have made considerably more money per shipment.

Appreciating Assets

One of the most compelling reasons for an individual to leverage themselves is to buy an appreciating asset.  An appreciating asset is one that gains value over time.  The most common form of this in recent history has been real estate.  Leverage, in the form of a mortgage, is very common for an individual buying a house. (more…)

Why You Spend More Than You Make (and What To Do About It)

Photo  by: CarbonNYC

Everyone knows what you need to do if you want to get out of debt and create a savings account; you have to make more money than you spend. So if we all know this, then why are so many of us still in debt? If you’re still spending more money than you’re earning then it’s probably because of one of the following reasons:

• You don’t know how much you spend. It is shocking how many people there are who don’t track their spending. If you don’t know what you spend, you can’t be sure you’re spending less than you’re earning. Tracking your spending is the best way to avoid this problem. In rare cases, people don’t even know what they earn; tracking your income is also necessary.
• You don’t budget. Some people know what they’re spending. They know it’s more than they can afford. But they don’t budget so they only see the problem after the fact. Create a budget that relies on spending less than you earn. Then learn how to stick to that budget.
• You justify “emergency” expenses. The problem is that there are “emergency” expenses every month. You justify over-spending because you “need” to take the cat to the vet, get your home cleaned since your parents are visiting, buy a birthday present for the party that your child was just invited to, etc. Stick to your budget unless there’s a true emergency.
• You expect instant gratification. You want what you want when you want it. You’re willing to spend money to get it. If you want more than your income allows for then you’re in trouble. Learning to delay gratification until you have the money in hand to pay for what you desire can go a long way towards getting you out of debt. It’s also a great sign of maturity!

(more…)