Debt Consolidation and Management Guide

US President Barack Obama has proposed the most ’sweeping’ regulatory overhaul since the 1930s, vowing to stop future meltdowns in a financial system humbled by lax oversight, greed and huge debts.

The reforms, which must be approved by Congress, will inject the government deeper into financial markets and industries in a bid to tame the recklessness in which a mortgage meltdown tipped the world into deep economic crisis.

‘We did not choose how this crisis began. But we do have a choice in the legacy this crisis leaves behind,’ Obama said in remarks released by the White House ahead of his formal announcement of the reforms later on Wednesday.

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When facing serious debt problems, consumers are often advised to seek credit counseling immediately.  But did you know that turning to the wrong counselor for help can cause more trouble and frustration?  Why should you be cautious when choosing a credit counseling agency?

How Credit Counseling Works

First, let’s discuss how credit counseling works.  A credit counseling agency negotiates with creditors on behalf of the borrower.  A credit counseling agency can ask for a lower interest rate or adjustments in your fees to make repayment easier for you.  Most agencies have built partnerships with different lending companies so it’s easier for them to negotiate.  In exchange for their services, some agencies charge monthly fees for as low as $10 to as much as $100 or more.

In extreme debt cases, a counselor may advise debt consolidation or debt settlement as possible solutions.  Nevertheless, a reliable credit counselor should not focus solely on these two methods of debt reduction.  More importantly, a credit counseling agency should help a person address the root of the problem.  It should be able to teach about correct financial management strategies to help a client stay away from debt problems permanently. 

The Dark Side of Credit Counseling

Unfortunately, many consumers fall victims to credit counseling agencies that take advantage of their financial situation.  Some agencies actually charge expensive rates for their services.  Some of them may insist on debt consolidation loan as the best solution to the problem.  The unsuspecting client may agree to be part of a debt consolidation program, not realizing that it would bring more pain and trouble. What is the danger in signing up for a debt consolidation program?

Some consumers found themselves stuck in deeper debts after getting a debt consolidation loan.  The reason?  Their monthly interest rates unexpectedly increase right in the middle of their repayment.  Under a consolidation program, a credit counseling agency may also volunteer to submit your payments to your creditors.  However, instead of submitting your monthly payments, an agency can actually withhold your payments and not pay your creditors until the deadline.  Many fake credit counseling agencies also charge hidden fees that can only add up to your burden.

These agencies don’t really care about your debt problems.  They’re only after their own interests – and that is to make profits from your debts.  Many consumers were forced to drop out of a debt consolidation program because they’re not making any progress. After resorting to debt consolidation, they had to file for bankruptcy as a last resort for their problems.

Don’t let the same thing happen to you. Before signing up with any credit counseling agency, carefully examine its background and reputation.  Check from the Better Business Bureau if the agency has had complaints in the past.  Even so-called “non-profit debt counseling organizations” can be a fraud.  If you don’t take time to do your research, you can end up as a victim of these predators.  Therefore, do your homework and save yourself from the dark side of credit counseling.

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WASHINGTON, June 10 — JPMorgan, Goldman Sachs and eight other top US banks won clearance yesterday to repay US$68 billion (RM238 billion) in taxpayer money given to them during the credit crisis, a step that may help them escape government curbs on executive pay.

Many banks had chafed at restrictions on pay that accompanied the capital injections. The US Treasury Department’s announcement that some will be permitted to repay funds from the Troubled Asset Relief Programme, or TARP, begins to separate the stronger banks from weaker ones as the financial sector heals.

Treasury didn’t name the banks, but all quickly stepped forward to say they were cleared to return money the government had pumped into them to try to ensure the banking system was well capitalised

Stock prices gained initially after the Treasury announcement but later shed most of the gains on concern the money could be better used for lending to boost the economy rather than paying it back to Treasury.

"If they were more concerned about the public, they would keep the cash and start loaning out money," said Carl Birkelbach, chairman and chief executive of Birkelbach Investment Securities in Chicago.

Treasury Secretary Timothy Geithner told reporters the repayments were an encouraging sign of financial repair but said the United States and other key Group of Eight economies had to stay focused on instituting measures to boost recovery.

Earlier this year US regulators put the 19 largest US banks through "stress tests" to determine how much capital they might need to withstand a worsening recession. Ten of those banks were told to raise more capital, and regulators waited for their plans to do so before approving any bailout repayments.

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Being stuck in huge debts can be frustrating and stressful and many people are left with only their jobs and homes to hold on to.  If you’re in a similar situation, don’t lose hope.  Instead, let this financial challenge put your money-management skills to the test.

Let Debt Consolidation Help You

In extreme cases, the best way to stop debts from further accumulating is to consolidate.  By acquiring a debt consolidation loan, one can pay off all his existing debts to his creditors and clear all his charges at once.  This prevents interest rates from adding up continuously and also eliminates late penalty charges.

Nevertheless, a debt consolidation loan isn’t 100% interest free.  The good thing about consolidation is that by combining all your debts into one account, multiple fees are eliminated and your interest rate is significantly lowered.  Furthermore, you’re instantly freed from the stress and hassle of dealing with multiple creditors and debt collectors.

If you have decided to seek consolidation, choose your lender with care.  Search for lending companies that offer debt consolidation services and learn as much as you can about it.  What are the rates and fees?  Does the company provide flexible or easy repayment terms?  Are the conditions fair and reasonable?  Is the lending company recognized by the government and other national debt organizations?  What do past and present clients have to say about it? 

How to Make Debt Consolidation Work for You

As we’ve said, setting yourself free from debts would put your money-management skills to the test.  After acquiring a loan consolidation, you’ll be confronted with a new obligation- to pay your debt consolidation company on time all throughout your loan’s term.  To do this, you’ll need to pay attention to your spending habits and lifestyle.

Have you already created a monthly budget plan?  A budget plan or repayment plan would help you distribute your income accordingly so as not to neglect or overlook your debt payments.  If your salary is not enough to cover for everything- utility bills, personal expenses, debts- you’ll need to make some adjustments without compromising your debt payments.  Remember, your priority at this time is to complete your consolidation loan payment as soon as you can.

In case of emergency and you think you won’t be able to pay on time, call your loan consolidation company right away and ask for an extension.  If you give them advance notice, lenders would gladly extend your due date without reporting as late payment. 

Unfortunately, some people who sought debt consolidation found themselves stuck in deeper debt trouble.  The reason?  They didn’t follow the budget plan they created and thus, were not able to submit their loan payments on time.   The result can be dreadful as most consolidation loans are secured with collateral.  To avoid this dilemma, be strict in following your repayment plan.  It isn’t so easy and needs a lot of determination and discipline.  Nevertheless, your sacrifices would be rewarded and debt consolidation would prove to be an effective solution for you.

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An offer by the Missouri Theatre Center for the Arts to settle outstanding debts from its $10 million restoration project for less than the amount owed has some contractors seeing red ink.

“I have to eat $6,000,” Brad Schmitz, owner of A to Z Theatrical, said this morning. Schmitz was offered $15,000 to settle an outstanding $21,000 bill.

“We very reluctantly agreed,” he said. “We felt they had us over a barrel.”

Schmitz said it was apparently necessary for Missouri Theatre Land Co. LLC, which has been sued by several contractors, to settle up to $1.6 million in debt by last Friday in order for contributors to the project to qualify for some $3 million in federal and state historic preservation tax credits.

“It was my understanding that is why it had to be done in such a hurry,” Schmitz said of a “take it or leave it” settlement offer he received via e-mail Wednesday from general contractor Huebert Builders Inc.

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Car loans, home loans and debt consolidation loans are examples of secured debts.  Secured debts are guaranteed by submitting the borrower’s home property or any form of valuable asset to his lender.  This gives the lender the confidence that in case the loan isn’t completely paid, there’ll be resources to tap in to pay for the loan.  In this article, let’s talk about how you can deal with debt problems particularly if your debt is secured with a property.

Car Loans.  Usually, lenders have the right to repossess your vehicle if you default on your loan.  You should be personally aware of your payment schedules since your lender isn’t required to give you notice before the actual repossession.  Yes, it is possible to recover the vehicle but to do this, you need to pay off the rest of your balances on your loan plus the towing and storage costs of your lender. 

If you think that you can’t keep up with your car loan, talk to your lender and request for modifications in your repayment term.  Otherwise, it’s best to sell the car and pay off the loan before your lender makes the move for repossession.

Home loans.  Typically, it takes three consecutive misses on your monthly payment before your lender sends a notice of foreclosure.  Thus, it is recommended to talk to your lender at once, if you think you’re not going to be able to submit your monthly payment on your due date.  If you know that it would be difficult for you to keep up with your monthly payments because of a financial crisis, explain your current situation to your lender and ask for a modification of your repayment terms. 

Perhaps you can ask for extension of your repayment period or you may ask that your monthly payment be reduced.  In most cases, home loan lenders are willing to extend a hand to their clients rather than proceed with foreclosure.  Nevertheless, once the foreclosure process is started, you may have a more difficult time negotiating with your lender.  You have greater chances of reaching an agreement with your lender if you take the appropriate action immediately.

Debt consolidation loans.  Some people take out a debt consolidation loan to solve their debt problems.  Although it is a viable option, it requires serious consideration.  A debt consolidation loan is used to pay off all your existing debts from different creditors.  In turn, your debts are combined into just one account under a single lender.  The advantage of a loan consolidation is that it automatically stops your debts from continuously accruing multiple interest rates.  With consolidation, you’ll only be subjected to a single and a lower interest rate. 

Nevertheless, it doesn’t exempt you from the obligation to submit monthly payments to your lender.  Since a debt consolidation loan is usually secured with collateral, failing to keep up with your repayment also puts you at risk of losing your home.  And since you’ve already taken a debt consolidation loan, it would be a lot more difficult on your part to get another loan to save your home.  Thus, before applying for a debt consolidation loan, make sure that you’ve set an effective repayment plan and that you’ll stick to it until your loan has been completely paid off.

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This year, the government is borrowing 50 cents of every dollar it spends. If that were just a blip caused by a historic financial crisis that necessitated a $787 billion fiscal stimulus and a $700 billion bank rescue in the space of about three months, there would be little cause for concern.

But it is not a blip. It is a relentless curve of red ink that will, within the decade, take U.S. debt levels to the record reached at the end of World War II, from 40 percent of the nation’s output now to 80 percent, and then rapidly thereafter into the realm of banana republics.

"We are accumulating a massive debt. We owe about half of that debt to foreigners, including the Chinese and others whose foreign policy is not always well aligned with ours," said Isabel Sawhill, a former Clinton administration budget official who now co-directs the Center on Children and Families at the Brookings Institution. "So we are really losing control of our economic destiny and possibly losing control of our foreign policy as well."

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When debt problems become out-of-control and too difficult to handle, seeking help from a credit counseling agency or debt negotiation service may be your best option.  If you’re having a hard time controlling your spending habits or managing your money, don’t be afraid to seek help. 

Some people may have doubts or negative thoughts about seeking debt relief because some agencies turn out to be false and deceptive.  But despite this reality, there are legitimate and reliable credit counseling or debt negotiation companies out there.  All you need to do is choose carefully to avoid getting mislead.  In this article, we’ll be discussing some tips on how you can find the best debt negotiation company to help you with your debt problems.

Research, research, research.  With careful research, it is possible to find a debt negotiation company that genuinely helps people to get out of debt.  Why can a debt negotiation company do for you?  Negotiating with creditors is often the best way to get a new repayment term, waive certain fees or to reduce the amount of your debts.  Debt negotiation companies deal with creditors all the time and they know how to get a good deal.  .  Of course, you can also choose to do talk to creditors on your own but if you’re not sure how to negotiate properly, a debt negotiation company can help you. 

Check the company’s credentials.  A debt negotiation company that is accredited by the government and national organizations is a better choice than company’s who have no reliable affiliations.  You can also check from the Better Business Bureau if the company has had complaints or issues in the past.

Carefully examine the company’s policy.  Different credit counseling and debt negotiation agencies impose varying policies and guidelines.  As a general rule, a debt negotiation agency or a credit counseling service should not charge unreasonable fees from their client.  More importantly, you should not be required to submit any upfront or initial payment unless the negotiation has already been done and the service or help you need has already been rendered.

Find a company that teaches money-management.  Aside from negotiation on your behalf, a genuine debt relief service should teach correct money-management, planning and budgeting.  Paying off your debts is just a step in resolving your debt problems.  Addressing the root of the problem and avoiding new debts is the real and lasting solution to the problem.

Consolidate your debts the right way.  Sometimes, debt consolidation may be recommended where the borrower would submit his payments to the debt consolidation company, who will in turn distribute his payments to his lenders.  This may be necessary when dealing with multiple creditors.  Your debt consolidation company may pay off all your high-interest debts first to stop your debts from accumulating.  If this is the case, you’ll want to make sure that your payments would be submitted to your creditors on time. 

Make sure that your debt consolidation company clearly presents the debt consolidation plan to be executed right from the beginning.  Get in touch with your creditors to make sure that your payments are being rendered as expected.  As a reminder, take note that debt consolidation should not be the only thing suggested by a credit counseling agency.  Instead, you should be encouraged to work on a budget, pay your creditors on time, and handle your money with discipline and control.

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Lewis Group Ltd., a South African furniture and electrical-goods retailer, posted an 18 percent drop in second-half profit as more customers defaulted on payments and the company increased provisions for bad debts.

Net income fell to 293.7 million rand ($33.8 million) in the six months through March 31 from 357.1 million rand a year earlier, according to calculations based on full-year figures released today by the Cape Town-based company. Sales increased 5.3 percent to 2 billion rand in the six-month period.

South Africa’s central bank raised its benchmark interest rate six times in the year through June 2008, pushing consumer debt levels to a record. While the Reserve Bank has started cutting interest rates, unemployment is increasing as the economy contracts, undermining consumer spending.

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Are you stuck in bad debt and is eager for a solution?  Being in debt doesn’t need to be a helpless situation.  Let’s take a look at some of the best ways you can consider to be set free from debt.

1.  Pay more than your credit card’s minimum due.  Some credit cards offer as low as 2% of minimum due.  However, if you only pay 2% of your outstanding balance each month, it will take you a longer time to get off from debts.  Prolonging your credit card balances means paying more from your interest rate charges.  Furthermore, it puts a greater risk of exceeding your credit limit and accumulating debts.

To manage credit card debt more effectively, it’s best to pay off your balances in full each month.  If it’s not possible, pay off as much as you can so you can to complete your payments at the quickest possible time.  Paying off more than your credit card’s minimum due could mean giving up some of your luxuries or personal expenses.  Still, making your credit card debts your priority is definitely worth it.

2. Pay off high-rate credit cards first.  If you own multiple credit cards with existing balances on each, try to pay off your highest rate card first and work your way down.  Or you can also consolidate your debts by applying for a 0% APR balance transfer card.  BY transferring over your balances, you can save a great deal from not paying off the additional interest.

3. Consider borrowing from family or friends.  Borrowing money from family or friends could mean borrowing with no interest.  If you have past due bills, you may consider borrowing your payment so you can avoid the interest rates and late penalty charges.  Remember, if a family member or friend is willing to lend you money, it is best to put everything into writing to protect your relationship

4.  Negotiate with your creditors.  If you’re really having difficulty in keeping up with your monthly payments, negotiating with your creditors is worth the try.  Meet with your creditor and explain your current financial situation.  You need to be honest and let your creditor know the circumstances why you’ve been late with your payments.  Request for modification of your repayment terms so that paying off your debts will not be a burden. 

Although, not all creditors may agree with your request, there are creditors who are willing to extend consideration especially if you show them your sincerity and willingness to stay true to your payment responsibilities.  In fact, most creditors would prefer a modification or new repayment terms if there is a possibility that the borrower may resort to bankruptcy to solve his debt problems.

5.  Create a repayment plan.  Regardless of the solution you decide to take on, the only way you can make it work is to pay your creditors.  Therefore, a repayment plan is really a must.  You need to budget your monthly income in order to keep up with your debts.  Yes, there is not a quick or instant solution to debt problems.  Nevertheless, you can take positive steps to keep your situation from worsening.  Remember, with self-discipline and motivation, getting out of debt is not impossible

Read More  Getting Out of Debt in More Ways than One

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