There are a lot of things you can do to reduce your debt. But what are the most important things you can do? If you could only focus your energy on three things, what three things should you focus on?
These are three actions you can take immediately that'll have a dramatic debt-slashing effect on your personal balance sheet.
==> Recruit the Support of Friends and Family
Trying to fight debt all on your own is incredibly difficult. It's especially difficult if you feel like it's something you need to hide.
Getting out of debt isn't a process that happens in weeks. It almost always takes months; often it takes years.
Maintaining the self-discipline and motivation to get you through all the hard times that are bound to come up is very hard all on your own.
But with the support of people who care about you, who can hold you to your word even when the times get tough, the process gets a lot easier.
==> Commit to Pay More Than the Minimum, Every Time
The amount of money credit card companies make off of you if you only pay the minimum amount is astounding.
Try it: plug in your minimum payment, your balance and your interest rate into an online calculator. You might be shocked at just how much more you'd end up paying.
If you want to get out of debt, it's crucial that you start paying more than the minimum amount, immediately.
That often means making sacrifices in other areas of your life. It might mean making coffee at home instead of going to Starbucks. It might mean biking to work rather than driving.
Every dollar saved is a dollar that can be used to pay off your debt.
==> Not Using Credit Cards - At All
Finally, get rid of your credit cards. Or at least lock them in a drawer and give the key to someone else. Don't actually close down your credit card accounts though, as having long-history credit card accounts with low balances is usually good for your credit score.
Trying to get your credit card balances down while you're still using credit cards is a logical fallacy. It just plain doesn't work.
Yet so many people try to do just that. They try to get out of debt, but they don't actually change their spending habits.
Using credit means you're essentially using money that you haven't made yet. If you step away from that mentality and instead only commit to using money that you've already made, that alone will set you on a path to financial freedom.
These are three action steps you can take to reducing your debt today. They're not easy to take, but if you have the willpower to follow through they'll make a big difference.
Wednesday, August 20, 2014
Wednesday, August 13, 2014
The True Cost of Credit Consulting and Is It Really Worth It?
What does credit consulting really cost?
Believe it or not, when you talk to a credit consulting agency, they often won't give you many of the most important numbers. They might phrase their charge as a monthly amount rather than an interest rate number, artificially lowering the perceived cost.
When considering a credit consulting agency, it's crucial to weigh the potential benefits against the potential costs.
==> A Quick Note on Credit "Consulting" versus "Debt Consolidation"
Debt consolidation is the act of consolidating all your debt into one place. Credit consulting is a wide range of services, one of which is debt consolidation.
Make no mistake, however; many credit consultants will ultimately try to push you towards debt consolidation. They'd much rather make thousands of dollars by consolidating your debt than charging you $50 an hour for consulting fees.
==> What's the Cost of Credit Consulting?
The first thing to consider is how much they can negotiate off of your total debt. Most credit consulting companies will take over the negotiation process with your creditors.
Let's say you owe $50,000. A debt consolidation company may be able to negotiate as much as 20% to 70% off of that amount. For example, they may get your creditors to agree to take only $25,000 and consider your case settled.
The remaining $25,000 is then paid to the debt consolidation company. However, they will often charge a premium on the amount they saved for you. Instead of paying your debt consolidation company just $25,000, they may ask for $35,000.
That's $10,000 in cost right off the bat. However, it's important to keep in mind that they saved you $25,000. In reality, the $10,000 cost is cheap when looked at in that light.
The cost of the negotiations, usually denominated as a percentage of the amount saved, is just one factor to look at.
Perhaps the most important cost to consider is the cost of carrying your debt, expressed as an annual percentage rate. Many debt consolidation companies will be very hesitant to give away this number, opting instead to disclose just the monthly payment.
In reality, most consolidation companies will charge somewhere between 14% and 19% - more than most credit cards.
This is on top of any additional monthly fee and upfront fees they may charge for their services.
==> Is It Worth the Cost?
The real question is whether or not they can save you money in negotiations and whether or not that will cover the cost of working with them in the long run.
Lenders will often be much more receptive to working with a debt consolidation company than with someone who owes them money. They understand that if you're working with a credit consultant, chances are they're not going to get their money if they don't negotiate.
There are many online calculators where you can plug in your monthly payment and your initial principal and figure out what your APR and total interest costs actually are.
Make sure you calculate the payment terms for any plan you're considering. Make sure that amount is less than how much money you're saving by having a credit consultant negotiate for you.
Believe it or not, when you talk to a credit consulting agency, they often won't give you many of the most important numbers. They might phrase their charge as a monthly amount rather than an interest rate number, artificially lowering the perceived cost.
When considering a credit consulting agency, it's crucial to weigh the potential benefits against the potential costs.
==> A Quick Note on Credit "Consulting" versus "Debt Consolidation"
Debt consolidation is the act of consolidating all your debt into one place. Credit consulting is a wide range of services, one of which is debt consolidation.
Make no mistake, however; many credit consultants will ultimately try to push you towards debt consolidation. They'd much rather make thousands of dollars by consolidating your debt than charging you $50 an hour for consulting fees.
==> What's the Cost of Credit Consulting?
The first thing to consider is how much they can negotiate off of your total debt. Most credit consulting companies will take over the negotiation process with your creditors.
Let's say you owe $50,000. A debt consolidation company may be able to negotiate as much as 20% to 70% off of that amount. For example, they may get your creditors to agree to take only $25,000 and consider your case settled.
The remaining $25,000 is then paid to the debt consolidation company. However, they will often charge a premium on the amount they saved for you. Instead of paying your debt consolidation company just $25,000, they may ask for $35,000.
That's $10,000 in cost right off the bat. However, it's important to keep in mind that they saved you $25,000. In reality, the $10,000 cost is cheap when looked at in that light.
The cost of the negotiations, usually denominated as a percentage of the amount saved, is just one factor to look at.
Perhaps the most important cost to consider is the cost of carrying your debt, expressed as an annual percentage rate. Many debt consolidation companies will be very hesitant to give away this number, opting instead to disclose just the monthly payment.
In reality, most consolidation companies will charge somewhere between 14% and 19% - more than most credit cards.
This is on top of any additional monthly fee and upfront fees they may charge for their services.
==> Is It Worth the Cost?
The real question is whether or not they can save you money in negotiations and whether or not that will cover the cost of working with them in the long run.
Lenders will often be much more receptive to working with a debt consolidation company than with someone who owes them money. They understand that if you're working with a credit consultant, chances are they're not going to get their money if they don't negotiate.
There are many online calculators where you can plug in your monthly payment and your initial principal and figure out what your APR and total interest costs actually are.
Make sure you calculate the payment terms for any plan you're considering. Make sure that amount is less than how much money you're saving by having a credit consultant negotiate for you.
Monday, August 4, 2014
What The Hell Is Debt Consolidation??
If you're flooded in debt, one option that you may have heard about is debt consolidation. There are many pros and cons to using a debt consolidation program. Keep in mind that in order to qualify, you generally need at least $7,500 in unsecured debt.
Here's how debt consolidation works.
==> Debt Consolidation 101
The basis of debt consolidation works like this. Let's say you have four different debts, all of which total up to $1,100 a month in debt payments. You simply can't afford the payments anymore.
Instead of defaulting or going into bankruptcy, you go to a debt consolidation company.
The debt consolidation company will turn to your lenders and negotiate a deal to pay off all your loans for you. Usually they'll get a deal for between 25% to 75% off.
They'll pay off the loan, then you'll owe them money instead of your previous lenders.
Instead of having to make four payments, you only need to make one. Your monthly payment is usually significantly lower than your previous monthly loan payment amount.
==> Keep In Mind They Need to Make Money Too
Keep in mind that debt consolidation companies, even if they're a non-profit company, need to make money too.
Some companies will structure their program in such a way that you're actually paying more at the end of the day. For example, they can lower your $1,100 payment down to $700 a month while extending your loan terms by 24 months.
Your monthly payment may be less, but in terms of the total loan term you may end up paying a few thousand dollars more.
It's a trade-off: they need to make money; but if you can't afford the higher monthly payment, then a lower monthly payment with a higher overall payment might be the lesser of two evils.
==> How Does It Affect Your Credit?
Settling a debt is definitely not as good for your credit as paying it off in full. However, it's definitely better than not paying it off at all.
How it affects your credit depends in part on how delinquent you were before the consolidation. It also depends on whether or not the creditor charged off your debt to a collection agency.
If your debt has already been charged off, the charge-off will appear on your credit report even if the consolidation company reaches a settlement with the collection agency.
The act of working with a debt consolidation company does not lower your credit. However, settling for an amount lower than the total you owed, being delinquent on your debt and getting charged off can all add up to negatively affect your credit report.
Apart from the settlement however, these would negatively affect your credit whether or not you consolidate your debt.
These are some of the most essential facts about debt consolidation. It's not for everyone; but if you want to save yourself from bankruptcy it may be the only option.
Here's how debt consolidation works.
==> Debt Consolidation 101
The basis of debt consolidation works like this. Let's say you have four different debts, all of which total up to $1,100 a month in debt payments. You simply can't afford the payments anymore.
Instead of defaulting or going into bankruptcy, you go to a debt consolidation company.
The debt consolidation company will turn to your lenders and negotiate a deal to pay off all your loans for you. Usually they'll get a deal for between 25% to 75% off.
They'll pay off the loan, then you'll owe them money instead of your previous lenders.
Instead of having to make four payments, you only need to make one. Your monthly payment is usually significantly lower than your previous monthly loan payment amount.
==> Keep In Mind They Need to Make Money Too
Keep in mind that debt consolidation companies, even if they're a non-profit company, need to make money too.
Some companies will structure their program in such a way that you're actually paying more at the end of the day. For example, they can lower your $1,100 payment down to $700 a month while extending your loan terms by 24 months.
Your monthly payment may be less, but in terms of the total loan term you may end up paying a few thousand dollars more.
It's a trade-off: they need to make money; but if you can't afford the higher monthly payment, then a lower monthly payment with a higher overall payment might be the lesser of two evils.
==> How Does It Affect Your Credit?
Settling a debt is definitely not as good for your credit as paying it off in full. However, it's definitely better than not paying it off at all.
How it affects your credit depends in part on how delinquent you were before the consolidation. It also depends on whether or not the creditor charged off your debt to a collection agency.
If your debt has already been charged off, the charge-off will appear on your credit report even if the consolidation company reaches a settlement with the collection agency.
The act of working with a debt consolidation company does not lower your credit. However, settling for an amount lower than the total you owed, being delinquent on your debt and getting charged off can all add up to negatively affect your credit report.
Apart from the settlement however, these would negatively affect your credit whether or not you consolidate your debt.
These are some of the most essential facts about debt consolidation. It's not for everyone; but if you want to save yourself from bankruptcy it may be the only option.
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