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Debt Consolidation Vs Debt Settlement Differences You Must Understand

Andrew — Wed, 19 Aug 2009 00:44:11 +0000

Debt consolidation and debt settlement adverts are all over the media lately. This is quite predictable when millions upon millions of Americans are behind in their payments and risking foreclosure on their mortgages besides being maxed out on their credit cards. Understanding what each debt management system will do for you and which is the right one for you is vital if you are in serious debt and are struggling to make payments.

Debt Consolidation.

You have no doubt seen many adverts promising to consolidate your debts into one large loan that will charge you a lower interest rate and cheaper monthly payments. These debt consolidation loans do exist and can work for you if you choose the right loan. Of course they can also be the biggest financial mistake you make.

Understanding how debt consolidation loans work is the key to making the right choice.
Debt consolidation generally works as a secondary or even a primary mortgage loan. A debt consolidation company will buy off your other debts and put them together into a mortgage-like loan. This makes your interest rate drop as the loan is secured by your home. The bad news is that the security for the loan is your home. If you don’t make payments your loan is at risk. However if your debts are on your credit cards or car loan and you do not make payments your debtors cannot force you to sell your home. However if your lender provides you with a debt consolidation secured by your home you could be forced to sell to pay the loan.
Another risk related to debt consolidation loans is that they can be expensive and incur in high setup fees which increase the principal on your debt and the interest you pay throughout the lifetime of the loan.

Debt Settlement.

Debt settlement works on a different premise. You settle directly with your lender and doesn’t involve a third party that buys your debt, reducing expenses significantly.
In order to settle your loan you must contact the debt settlement department of your bank and explain that although you would love to pay your loan you currently cannot afford to do so. They will ask for a load of information on your income and expenses and see what modifications they can make on your loan.

Modifications can include reducing the principal amount of your loan, increase the length of your loan and even reduce the interest rate.
The problem with debt settlement is that it destroys your credit rating as you are basically telling your lender you can’t pay your debts and that you need their help. That is not going to make you very popular with lenders.

A soft form of debt settlement is being encouraged by the government through the loan modification program. It is well worth contacting the H.U.D (Housing and Urban Development department) to see if you can qualify for mortgage aid.

Which is the right debt management for you? Doing your own research is the key to find out. Neither of these options are without its disadvantages which is why planning and research are vital.

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Loan Modifications Only Hope For American Dream

Andrew — Tue, 18 Aug 2009 02:45:19 +0000

The Mortgage crisis is hitting families hard all over the country with the devastating effects of a hurricane, destroying homes, affecting household economies and causing general havoc nationwide. As with all natural and human disasters everybody has a view of how to solve the situation. Some say the current crisis is nothing special, a normal depression after a market bubble where people got greedy and invested badly and that if the market is left to itself it will sort things out.
Others are of the opinion that the government must intervene with taxpayer’s money to bail out desperate homeowners and at the same time jump start the economy. Pretty much everyone disagrees on how the government should do this.

What many agree on is the seriousness of the situation. Recently President Obama said that “The American Dream is being tested by a home mortgage crisis that not only threatens the stability of our economy but also the stability of families and neighborhoods.”

One solution the government is investing strongly in is loan modifications. This program provides financial advice and aid to families struggling to pay their monthly mortgage payments. The plan is designed to reduce monthly payments and incentivize regular payments. To enroll in this mortgage plan homeowners must start with a three month trial. If during the three month trial all payments are made on time then they receive a cash bonus that is used to reduce the principal of the loan. After the trial period the government continues to pay an incentive to homeowners that are regular on their payments which can reduce their principal by $5,000 in three years.

This program is offered through Home Affordable Modification Program (HAMP) which is backed by $75 billion to be used to encourage and aid the loan modification program.

What are the results up-to-date?

By now there are 230,000 modifications that have already been started and the goal for November is to reach 270,000. It is interesting to note that in 2008 only 42% of the modifications by the largest servicers lowered homeowner’s monthly payments. However since March 4 with the help of the HAMP program all borrowers that receive a loan modification have seen their monthly payments reduced. This is a nice change, good news among the pages and pages of bad news that inundate our screens. However it is sometimes good to understand a situation well even thought it might be bad news in order to make the best of the bad situation.

Although Loan Modifications are being presented as the be all and end all of the current Mortgage crisis, the truth is that only a small percentage of homeowners in trouble actually qualify for a loan modification. According to the website LoanModExposed.com only 2 percent of homeowners qualify under current parameters.

It is therefore important to understand the qualifications and apply properly because a successful loan modification can reduce the principal balance (the amount you borrow and are paying interest on) reduce the interest rate and change the rate from variable to fixed and many other efficient modifications.

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Loan Modification Frustration Continues Banks Are Overwhelmed

Andrew — Mon, 10 Aug 2009 14:17:06 +0000

The story repeats itself across the nation. Desperate homeowners that need an urgent loan modification to save their home phone their loan providers with little or no result. One borrower in Dallas explains relates how he is on his second counselor and he hasn’t been able to talk to either of them.
A common theme among frustrated borrowers is that they cannot speak to a decision maker. The current financial crisis has thrown people used to being in control of their financial situation into situations they are not used to handle.

Whichever way you look at it and there are a few, loan modifications are moving slowly and there are not clear signs of things changing. Treasury Secretary Timothy Geithner and Shaun Donovan, secretary for Housing and Urban Development have already expressed their opinion that “much more progress is needed” in a letter to mortgage companies.

What makes things worse for loan providers like Bank of America and Wachovia that are doing poorly in their loan modification turnover is that the performance among banks is inconsistent with some banks showing much healthier figures. The government wants results and his paying a hefty fee to get them, from their perspective it does seem that banks are simply not pulling their weight.

The perspective of banks is of course completely different. They understand the financial pressures everybody is experiencing because most if not all of the large banks have required and accepted financial help from the government to boost their own coffers. However banks will explain that they are simply not geared or designed to be mass producers of loan modifications.

Historically banks have limited themselves to lending, collecting and processing mortgage payments now they are in the process of reinventing themselves as loan modifiers, sometimes rearranging their whole outfits to meet the increasing demand. As John Dalton, president of the Financial Services Roundtable’s Housing Policy Council says : “It’s a new ballgame”. The figures are quite scary, there are 3 million people at this moment who are 60 days past due on their loans. Banks are simply not designed to deal with this volume of delinquent debtors.

Although there is no arguing the inconsistency between banks performance it does not require heroic amounts of empathy to understand it is not going to be easy for businesses to rearrange the way they work and provide services.

Think of a lemonade stands that sells readymade lemonade and suddenly has to deal with hundreds of customers who simply want more sugar stirred into their “old” lemonades. You are going to have to hire lemonade sugar adders and stirrers while you are trying to continue your main line of business.

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Debt Relief DIY: 3 smart things you can do yourself

Andrew — Sat, 08 Aug 2009 14:29:19 +0000

Mortgage modification and debt relief services seem so complicated a subject that only experts should venture into them. After all, we are used to having complicated subjects controlled by experts and rightly so. If you need brain surgery you want a brain surgeon not a mirror and a drill. If you are on the death row you want the best kickass lawyer to defend you not a $100 suit and a prayer. You get my drift, it does seem reasonable to think that if you are in deep trouble with debt a debt relief company would be just what you need. They can talk tough with the “evil” banks and find all the loopholes there are to reduce your debt.

This does sound logical and it is true that good debt relief companies can simplify the operation and what is often more important get the information to the debtor who sometimes is not aware of his/her options.

Having said that debt relief is not brain surgery or a court of law, there are many things you can do for yourself instead of a debt relief company, sometimes much better.

This article will analyze three tips you can follow yourself with a brief comment on why it is a good idea.
1) Continue to make your minimum payments. This tip works great for credit card debt not so easy for mortgage payments. Nevertheless you should always do your utmost to keep minimum payments that show your creditor you have the desire to pay. This will avoid you becoming a delinquent debtor which will save your credit record from being reduced to zero. Bad debt relief companies will often ask you to change your address to that of their office and that they will deal with the payments. This more often than not means they will not pay the bills, letting them mount up as long as you are paying their outrageous fees. Bottom line, whether you are using a debt relief company or not you should keep up with payments.

2) Talk to your bank’s debt settlement department. This department deals with requests from debtors that cannot meet their payments. You should talk to them before you have become delinquent, i.e. behind in your payments. You must make it clear that you really want to pay the entire debt but cannot under your current financial situation. Banks don’t generally enjoy writing off debt that rightly belongs to them but if you set out your case clearly and honestly they might be willing to reduce your principal to make your monthly payments more affordable. You must always be completely honest with your bank. They know more about your finances than you do and will spot a lie. Work with them to find a solution.

3) Become a negotiator. Whether you are calling your bank to reduce your interest rate or their debt settlement department to reduce the debt be prepared to negotiate. Y ou must be patient and polite at all times. After all it was you that asked for the loan in the first place and agreed to their conditions. It might not be your fault that you are in the pickle you find yourself but it is even more likely it is not the bank’s fault. Something in your favor is that banks understand that many people have been hit by the financial crisis and can honestly not meet their current debt payments, heck most banks needed a bailout in order to survive. The keyword you need to remember is “negotiation”. Ask for a large settlement of your debt, when they decline with another offer reduce yours a little and continue working with them until you find a solution you can live with.

4) Don’t be unrealistically optimistic. Your credit record is going to be hit and hard. You will not be able to get competitive loans for a while and that is probably good as it will give you a chance to get on your feet before you can get into debt again. A good idea when everything else has been tried is debt consolidation. This means taking out a large loan to pay for all your outstanding debts. This loan is normally of a higher interest than a mortgage but lower, much lower than credit card rates.

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How To Avoid Bankruptcy With Smart Debt Management

Andrew — Fri, 31 Jul 2009 03:48:54 +0000

Bankruptcy, foreclosure, bad debt used to be all four letter words. Not any more, defaulting on loans, mortgages and promises is happening so often it has nearly become acceptable. Obviously there are situations where there is nothing we can do and bankruptcy and foreclosure are the only viable way. However in many if not most of the situations they don’t have to be the only way out. The issue is that many people choose to opt out just because their home is no longer the dream investment it once was. It is attitudes like that, that are behind the fragility of our credit system, a promise to pay is not always worth that much if it is no longer profitable.

It is not only the moral implications that make unnecessary foreclosures and bankruptcies wrong. Although they might often seem like the easy way out they are rarely the best way out. It is much better to use debt management to face mortgage and loan issues than just giving up at the first hiccup.

As mentioned above this comment is not meant for families and households that truly can’t pay their home mortgage or have fallen in a cycle of debt they cannot get out from.

So how can you avoid bankruptcy with debt management?

Debt management refers to the methods used to control, limit and reduce debt. This can be done in a variety of ways:
Debt reduction.
Talk to your bank and ask for a debt reduction. This is by no means a fail sure approach but banks will in some cases offer help and debt breaks to people who come out in the open and explain a bad financial situation before missing payments. The key is to talk sooner rather than later and to present your case in a way that shows that you really want to find a solution that will benefit both of you. This option will only be attractive to banks if their security on your loan is not high and they would lose more money if they simply foreclose your debt.
Loan Modification.
Loan modification or home mortgage refinancing can be a great way to reduce your monthly bills and even the overall cost of your mortgage. The key here is to make sure the cost of your refinancing is not higher than the savings or the benefits you receive from the loan modification. Understanding the real cost of your loan mod can be sometimes complicated so it pays to find good advice and information. This site has many articles on this issue.
The main loan modifications you can apply for are interest rate reduction and loan tenure increase.

You can find a home mortgage interest rate reduction by either approaching your current bank or finding a competing lender that is willing to reduce the interest rate. If you have found a better deal it is often a good idea to give your bank a chance to match or improve the offer. Banks are often willing to reduce their interest to keep good customers. As we have said before, please make sure you understand the full cost of a loan or mortgage modification before you go through with it. Clauses included in the original mortgage can make the loan modification uneconomic.

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Bad Credit, How To Break TheCycle Of Debt

Andrew — Sat, 25 Jul 2009 17:26:21 +0000

How can you get out of the cycle of debt and have a fresh start. Those looking for easy fix solutions will have to continue looking but those that are determined to work hard with their problem and are willing to make big changes in their lifestyle and habits can find a solution.
We must start by saying that some debt problems are too extreme to solve in any practical way and bankruptcy is the only real solution, but that is an extreme measure you should leave as the very last resort as it will destroy your credit rating and affect your ability to get a loan, a lease or even a job for years to come.

So what steps can you take to break the cycle of debt?
Maybe you started with some small time debts, maybe a small investment loan to start a business and it all went wrong, you then required another loan, or credit card to pay for your debts, or your monthly payments and now you can’t afford to pay the interest on your debt payments, throw in a car loan and a mortgage and you can quickly find yourself in a seemingly no way out situation.

The steps you must take are surprisingly simple, which makes some think they can’t possibly work, unfortunately they are also slow and require endurance and “stickability” to make them work.

Step 1.
Sit down and work out exactly how much you owe and the rate of interest you are paying on each loan.

Step 2.
Assess what your or your family’s income is and what you can afford to pay towards your loan payments. You should aim to pay as much as you can without completely strangling your family’s economy and leaving you with some breathing room if interest rates rise.

Step 3.
This is the hard step, to change your lifestyle and habits to reduce your expenses to a complete minimum. You are in serious debt, this is not a game, you are under moral and legal obligation to do everything you can to pay your debts and that means going without your precious luxuries and saving every buck you can. Where people often fail when trying to break the cycle of debt is by trying to reduce their debt without changing their lifestyle.

Often people in a cycle of debt are “addicted” to spending and living above their means, just like an alcoholic is addicted to the feeling alcohol provides, in both cases a complete lifestyle change is often required.

Step 3.

If you cannot find a way to pay for your current loan payments with your income you are going to have to find a way to reduce your payments or increase your income. Increasing your income in the short term is often difficult, although sometimes one of the spouses does not work and can start doing so to pay towards the loan.
Another solution is to consolidate your loan in a large debt consolidation loan that will allow you to reduce your monthly expenses. Although this can be a good solution beware of the high fees and interest rates that can make the loan uneconomical.

Bad credit, how to break the cycle of debt

We must start by saying that some debt problems are too extreme to solve in any practical way and bankruptcy is the only real solution, but that is an extreme measure you should leave as the very last resort as it will destroy your credit rating and affect your ability to get a loan, a lease or even a job for years to come.

So what steps can you take to break the cycle of debt?

Maybe you started with some small time debts, maybe a small investment loan to start a business and it all went wrong, you then required another loan, or credit card to pay for your debts, or your monthly payments and now you can’t afford to pay the interest on your debt payments, throw in a car loan and a mortgage and you can quickly find yourself in a seemingly no way out situation.

The steps you must take are surprisingly simple, which makes some think they can’t possibly work, unfortunately they are also slow and require endurance and “stickability” to make them work.

Step 1.

Sit down and work out exactly how much you owe and the rate of interest you are paying on each loan.

Step 2.

Assess what your or your family’s income is and what you can afford to pay towards your loan payments. You should aim to pay as much as you can without completely strangling your family’s economy and leaving you with some breathing room if interest rates rise.

Step 3.

This is the hard step, to change your lifestyle and habits to reduce your expenses to a complete minimum. You are in serious debt, this is not a game, you are under moral and legal obligation to do everything you can to pay your debts and that means going without your precious luxuries and saving every buck you can. Where people often fail when trying to break the cycle of debt is by trying to reduce their debt without changing their lifestyle.

Step 3. If you cannot find a way to pay for your current loan payments with your income you are going to have to find a way to reduce your payments or increase your income. Increasing your income in the short term is often difficult, although sometimes one of the spouses does not work and can start doing so to pay towards the loan.

Another solution is to consolidate your loan in a large debt consolidation loan that will allow you to reduce your monthly expenses. Although this can be a good solution beware of the high fees and interest rates that can make the loan uneconomical.

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So What Is A Debt Consolidation And Is It A Good Idea For You?

Andrew — Sat, 25 Jul 2009 15:17:20 +0000

First of all we must start by saying the debt consolidation loans may not be a good idea for you. In fact many dubious loans are often “sold” as debt consolidation loans when they are just a bad loan you wouldn’t want to touch with a barge pole.
Debt consolidation loans are loans that are purchased to pay off loans. This is especially attractive for people who have a number of loans with different companies. For example a good candidate for a debt consolidation loan might have a few thousand dollars in credit cards, a car loan and a mortgage to pay. The credit card loans probably are set at a 16% interest rate, while the car loan will probably be a little lower at around 10%, with the mortgage at even less probably around 7% depending when the person got the mortgage and how good the deal was. Unless this person has an incredible wage he is probably in a bit of trouble as his monthly credit card debts, car loan and mortgage are eating up most of his income. A debt consolidation loan will pay for all his debts and allow his monthly payments and his interest rate to drop.

How do they work?

Debt consolidation loans often work by extending the length of the loan. If you owe a total of $90,000 to 3 different lenders it will pay all of them with a large loan and charge you the total as a single mortgage-like loan. When you are paying for credit cards the time you have to pay back differs from credit card to credit card, you might have to pay a minimum, or you might be suffering from the high interest rate that seems to be increasing your debt faster than you can pay it. Your car loan will be set at another rate of payment, as will your mortgage. Paying for various loans at the same time can make it impossible for a household to meet this payments, however if these loans are combined into one large loan, the payments can be reduced and made affordable for the borrower.
What is good about debt consolidation loans?
Debt consolidation loans can allow a household to take control of their monthly expenses and get to the end of the month without having to get further into debt. For some people it is the only real option besides either losing their home, their car or even declaring bankruptcty.

What are the cons of debt consolidation loans?
They can be expensive. Debt consolidation loan providers are not often charitable organizations if you get my drift. They are there for the profit and know that people will be willing to pay a lot of money to bring down their monthly payments to an affordable level. Debt consolidation loan lenders will often charge large fees for their services and provide sub premium (higher than normal) interest rates. By extending the loan borrowers will often automatically pay more interest because the tenure of the loan is longer even if the interest rates are lower.

They can cause you to lose your home. Debt consolidation loans are often designed to be linked to your home as security. If your loans were made up of credit card and car loans you might have been struggling to pay them but your house was never at risk. Credit card handlers cannot force you to sell your house to pay them. However if you get a debt consolidation loan with your home as a security and you cannot make the payments you could lose your home.

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Common pitfalls of debt consolidation you must avoid.

Andrew — Fri, 24 Jul 2009 05:09:33 +0000

Common pitfalls of debt consolidation you must avoid.

Getting into debt is not something we like to make a habit of. We are therefore not always prepared to deal with serious debt and more importantly how to get out it. Unfortunately there are many companies that make a business out of taking advantage of people in debt. There is nothing wrong about making a profit out of loans, nearly all of us have needed a loan at some time, however there are loans and loans, there is debt consolidation and there are downright mistakes out there you must avoid.

What makes things harder is that what is a mistake for one person is the ideal solution for others. That is why your first step in taking control of your debt is to understand your situation, then you can adapt debt consolidation to your personal circumstances. To illustrate this point think about two different people in debt. One has a student loan and is struggling to make the monthly payments, another has maxed credit cards, a car loan and a mortgage. For customer A a debt consolidation loan would probably be a bad idea, he is probably not going to get a better interest rate than that of his student loan, while for customer B a good debt consolidating loan might be just the answer to lower his monthly payments and interest rate.

So what are the main pitfalls of debt management?

Paying off credit card debt and then continue to pile up debt on it.
This is a common problem with people who fall in cycle of debt. It is generally due to bad spending habits and can be solved with some basic but vital counseling. The best advice is to never borrow for things you can save for unless it is a necessity. This can seem an extreme and even old fashioned attitude towards debt but it can often be the only long term solution for people trapped in cycle of debt.

Paying off credit cards with other credit cards.
Granted sometimes a new credit card company might offer a good deal that may make it worthwhile to transfer your credit card debt, however making a habit out of it is going at the very least screw with your credit rating and at the worst push you into further debt.

Getting the wrong debt consolidation loan.
Debt consolidation loans can be a great way of lowering interest rates and making debts manageable or can be the worst financial mistake you ever made. Many are tempted to borrow even more when they get into a debt consolidation loan increasing the problem instead of consolidating it. Also, many of these loans are linked to your home mortgage and have high interest rates. If you use a debt consolidation loan to pay off your credit card and car loan debts and it is linked to your home or mortgage you could lose your home, something that would not happen with credit cards.

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Relief at the end of the tunnel of debt.

Andrew — Fri, 24 Jul 2009 01:55:01 +0000

Relief at the end of the tunnel of debt.

Those of us that have been or are in serious debt understand how horrible it is, the terrible feeling of being trapped by debt with no relief in sight. Debt leads to bad credit which leads to bad loans which further immerse you in debt.

It is like a dark tunnel that slowly chokes you, what is especially sad is that only too often we ourselves are doing the choking.

In fact allow me to illustrate what debt is like with the killing technique of a boa constrictor. This snake is amazing it can kill anything up to the size of an antelope (or a man) and swallow it whole. Many believe that boas kill their prey by crushing them to death with their powerful muscles. That is untrue, as strong as boas are they cannot crush the ribcage of a large animal. What they do is constrict the ribcage from expanding. They wait for the prey to breath out, lowering the ribcage and then tighten their grip again. This causes the victim to in a way kill itself by breathing out and out, leaving less and less room for the ribcage to rise, eventually dying of lack of oxygen.
Often, with debt something similar occurs, we dig our own grave and jump straight into it. How does this happen? Debt is such a depressing and “choking” situation to be in that we often get into a panic trying to find a way out. We struggle to pay our rent, our mortgage, insurance, failing to pay any of these important bills can lead us to being homeless, lose our home or get in even more debt due to medical bills. On top of this people who are in debt often got there because of an out of control spending habit that doesn’t fix itself just because they are in debt, it continues, causing the person to carry on spending and getting further into debt.

I remember a workmate who was in serious debt, with a wife and a newly born baby, they had lost their home and were living with their parents. Well, he was depressed about his situation but would still use his credit card to buy computer games and on other hobbies. I have nothing against spending money on your hobbies but you might want to start trying to get to the end of the month with food in your fridge before buying the last sequel of worldcraft.
So how can you find relief from the dark tunnel of debt?

Here at Blownmortgage.com we have decided to dedicate a whole section with various blogs to debt relief, we hope it is helpful. This blog will set the tone with a broad overview of some of the steps that can help you stop digging a hole for yourself and start climbing out of it.

1.)   Take control of your spending
2.)   Prepare a budget where you spend less than you make, or as close as possible, and stick to it.
3.)   Look for ways to “improve” your situation by smart debt management.
4.)   Break the debt cycle

The following articles will elaborate on this rough sketch and hopefully create some light at the end of your personal debt tunnel.

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